Cleaning Out The Financial Closet

The threads are surfacing more frequently now, reflecting the cracks in our financial foundation.  High profile New York figures like Bernard Madoff show us a great example of what is yet to come:  at least $50B in losses with his ponzi scheme.  France banks are exposed to at least $400M, Sweden $300M, Spain $3.1B, HSBC in Geneva at least $4.22B, hedge funds yet to be identified, and the beat goes on.  Contraction exposed this fraudulent setup.  And what blows my mind is that Madoff is a former chairman of the NASDAQ stock exchange.  A second example is Marc S. Dreier to the tune of hundreds of millions.  The ripple effect over the next few weeks, as the system continues to contract, will determine the extent of the tsunami.

Watch the dollar. As it goes down U.S. Treasuries become less appealing to foreign investors, and it leads to more inflation.  Bernanke is looking at reducing the discount rate again, to possibly zero.  This will affect the dollar in a huge way.  Again, what is the point of diminishing returns when the creditors say 'enough is enough' and no longer buy our bonds and treasuries?  I think it is closer than the horizon.  The best step each of us can take is keep paying down the personal debt.  That step gives us more freedom when the biggest tsunami we have ever experienced touches our shore.  I am not being pessimistic.  I think what is happening is for the highest good, especially now that the worms are coming out of the woodwork who used the expanded liquidity over the last decade or two to hide behind.  It does show a giant hole in the regulations are implemented.