Chuck Spinney: The Mark to Market Fantasy Fraud

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Chuck Spinney

My friend Andrew Cockburn is on a roll.  One week after his brilliant article on IEDs in Harpers, he has produced another hard-hitting tubesteak, this time in Counterpunch.  Andrew’s targets are the Banksters, whose looting continues to push the middle class into poverty and the lower income classes into a kind of debt servitude that is reminiscent of that imposed by company stores in the West Virginia coal towns in what we had hoped was a bygone era.

Andrew’s essay is important, because the problem he is describing exists  against the backdrop of the Great Recession, which now, three years after the banking system started to collapse, may be on the cusp of a full blown debt deflation, triggered by another, even more catastrophic banking collapse.   My introductory comments are intended to help you understand that magnitude of that danger that Andrew is describing.

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The following charts (Figures 1 & 2), based on the most recent data released by the Federal Reserve,

portray ratio of debt to gross domestic product over time.  Figure 1 shows how the cumulative debt changed in the entire system, with debt expressed as a percentage of the GDP produced by the economy. The debt ratio for the entire economy should not be thought of as an absolute measure of debt burden but as an indexof that burden, and is an indicator of the comparative pressure of that debt regardless of the overall size of the economy.[1]  Thus, one can compare

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changes in earlier years to those in later years.  Figure 2 plots the sector burdens separately for the components in the private sector (note: since Federal Debt is arranged in bottom position in Figure 1 it is also the same shape that would be plotted in Figure 2; other categories, like state and local debt have been ignored because over time their ratio changes have not been significant enough to the alter the pattern in the figures).  What do these figures tell us?

The Mark-to-Market Fantasy

Banks on the Brink

by ANDREW COCKBURN
Counterpunch, Weekend Edition October 21-23, 2011

“If the Occupiers start chanting ‘Mark to Market,’” an attorney highly conversant with the darker workings of the Wall Street-Washington complex told me, “we’ll know they’re serious.”   Such a call would quickly presage the collapse of our “too big to fail” banks, for it would highlight the fact that a huge proportion of the assets of Bank of America, Wells Fargo, JP Morgan, and Citigroup consist of loans that will never be paid back and are therefore essentially worthless. The so called “recovery” of our leading financial institutions from the post-Lehman abyss has depended on a fraudulent valuation of these assets, but stripped of the fiction, the banks are insolvent.

Read full analysis.

Phi Beta Iota:  The banks are on the brink–wildly fearful of a run on stocks and deposits–and the US Government knows they are on the brink–and is wildly fearful of nation-wide violence.  Pissed off white people will make the Watts Riots looks like an effete tea party.  There is good news.  The close OccupyWallStreet gets to understanding the depth of the depravity of the government that enabled and enables Wall Street, the lack of intelligence and integrity within that government, the closer we get to being able to demand and secure the Electoral Reform Act of 2012, in our view the sole means by which a non-violent revolution might restore the integrity of the U.S. Government.