The Market Ticker

From Bloomberg:

The Fed extended currency-swap programs with the central banks of Australia, Brazil, Canada, Denmark, the U.K., the euro region, South Korea, Mexico, New Zealand, Norway, Singapore, Sweden and Switzerland. The Bank of Japan will consider an extension when its policy makers next convene, the Fed said.

The dollar value of outstanding swaps has risen more than sevenfold since the Lehman Brothers Holdings Inc. bankruptcy in September, to $465.7 billion as of Jan. 28. "

$500 billion eh?  How good is the collateral?  Oh wait - these are swaps so there isn't any.

Uh.... just one question - what if one of these nations pulls an Iceland while the line is open?  Canada, for example, doesn't bother me, but how about South Korea......

Just curious Ben.  You know, last time I checked, given the sort of activity we're seeing in places like Japan, where their economy has contracted at rates worse than any economy has ever recorded, even in The Depression, the people gotta wonder - are these lines "safe"?

Don't you think that Congress and American People deserve some details?  After all, is it not our tax dollars that are supporting your $500 billion in "temporary" help that now appears to be a lot more than temporary?  After all, you did originally say that this was just for six months...... looks like you were wrong (again) eh?

Just curious.

This is FOUR people who you've appointed that can't pay their damn taxes, including your Treasury Secretary?

The latest is that Daschle has withdrawn, of course.

CHANGE WE CAN BELIEVE IN?

I'll tell you what would be change.  Since it appears that a huge percentage of the current and former Congressional delegation has cheated on its taxes - after all, what are the odds you only picked the tax cheats, if you want me to believe in your idea of CHANGE you will immediately order all member of Congress in both Houses to undergo full IRS audits all the way back to the Statute of Limitations (three years), along with all of their staff.

You and I know know it won't happen, but I'll tell you what - I keep hearing people say they're going to file absolute crap this year.  Utter garbage.  "The Dog ate my Schedule C."

If The American People do this, Mr. President, government funding will collapse.  The IRS can't possibly audit everyone and we all know it.

Your administration is dangerously close to creating a full-on tax revolt among Americans.  You would not believe how often I have heard this among people both online and off in the last couple of weeks.  The anger, especially when the people who are cheating are folks like Daschle and Geithner, is VISCERAL - these are the people who both wrote the tax code and were involved in the bailouts and handouts which you expect we the people - ordinary Americans - to pay for.

Here is what Daschle said previously:

"Make no mistake, tax cheaters cheat us all, and the IRS should enforce our laws to the letter. " Sen. Tom Daschle, Congressional Record, May 7, 1998, p. S4507.

But you, Mr. President, expect Americans to file truthful tax returns and pay their taxes as due?

I file and pay every year exactly what I owe.  No cheating, no games, no BS.  I spend upwards of a full week preparing and checking my tax return to make sure that I pay every dollar that is due (but not one more!)  But now we discover that every day another one of your appointees in your "new day" for Washington DC has cheated on their taxes and in the case of Daschle and Geithner they knew they owed the money and didn't pay until you tapped them?

Against this backdrop you expect ordinary Americans to file and pay for bankster bailouts to cover the fraudulent actions of the banking and securitization industry?

You might want to rethink this one, and I can come up with only two ways to do it:

• Audit EVERY Congressperson and EVERY staffer in your administration, including yourself.  Everyone, all the way back to the statute of limitations, with the results of those audits made public.
• Ditch the IRS and the current tax system entirely (mooting the question) and move the nation to The Fair Tax, thereby firing all the tax lobbyists and game-players in DC and elsewhere.

Frankly I prefer #2 but #1 is acceptable.

"Do nothing", on the other hand, may well NOT be accepted by The American people. 

If what I hear in my day-to-day the patience of "The People" is about done.

Bill Gross once again....

"To PIMCO, the remedy for this deflationary delevering and mini-depression is simple and almost axiomatic: stop the decline in asset prices. If that can be done, the real economy will level out as well. When home prices stop going down, newly created households will be more willing to take a chance on ownership as opposed to renting. If stock prices consolidate, recently burned investors will be more willing to invest, as opposed to stuffing their 401(k) mattresses with Treasury bills. Business investment, jobs, and profits should follow quickly behind.

The solution to Ponzi finance is more Ponzi finance?

I guess if you've been a part of the Ponzi system its hard to look beyond it.

Earth to Bill: Housing is shelter, not a speculative vehicle.  It is a place to sleep, cook, eat, shower and crap.

"Capitalism at its philosophical and practical center depends on credit, and while new loans can be and are being advanced via the banking system, it’s a much more difficult task to force shadow banks to lend. That lending depends on securitization which in turn depends on stable and eventually higher asset prices than currently exist. "

Earth to Bill: Credit extended beyond current production is PONZI FINANCE.  All such schemes eventually collapse and this one is no exception.  1873, 1929.  History, Bill, History. Get over it.

You own a calculator with an exponent function Bill.  I'm sure of it.  If you don't have one you can hold in your hand your Windows software has one built in to "Accessories."

Bill has his own "pie in the sky" nonsense embedded in his missive, such as this piece:

"Modern day capitalism depends on the successful refinancing and issuance of securities at a price and yield level not significantly divorced from past experience. That is the same thing as saying that current yields must come close to matching the economy’s embedded cost of debt if default is to be avoided."

A better (more accurate) way of putting the second sentence is that production must always cover all costs plus the cost of financing or that financing is PONZI FINANCE.  Of course that's not what he said.

The reason that securities and yield cannot be issued at levels "not significantly divorced from past experience" (as Bill demands in the first sentence) is that the previous 20 years have been marked by PONZI FINANCE where said yields were depressed and prices elevated based on OUTRIGHT FALSE PROJECTIONS OF PERFORMANCE AND FRAUD.

Yet Bill's view is that prices must improve.

How can one "improve" the price of something that is correcting to its true underlying value once the fraud and falsehood is removed?

Bill is asking for the mathematically impossible or rather, praying for yet another round of Ponzi finance and/or yet more fraud, this time sponsored and committed by the government!

Sorry Bill, but no.

You will not get your wish. 

You cannot get your wish.

The gig is up; those foreigners who supported and enabled the game (whether unwittingly or believing they could run for the door in time) have discovered gravity also, and are now suffering through their own problems as a consequence.

You would be wise to determine how to make money at the intrinsic value of the underlyings in these instruments. 

You know, housing as a place to sleep, eat, crap and shower?

Commercial Real Estate as a place to sell things where the paper written on it can be reasonably retired over, say, 10 or 20 years?  Yes, I know this means CRE prices will be cut dramatically - maybe by half - as 20% or more of all the puff-piece "shops" that have sprung up in the last 20 years go under, offering baubles that can't be justified for purchase based on intrinsic value and the current earnings (not Ponzi-credit) of consumers.  And?

C&I bond issues that actually fund the production of things that can be and are sold within the next few months or years, like airplanes, jet engines, avionics, buses and wind turbines, rather than paying the interest on existing debt and levering up acquisitions at insane multiples?

Fact is Bill that an awful lot of securitizations of the last 20 years were based on false and even fraudulent (that is, knowingly false) representations of "expected" performance over time.  "House prices go up 10% a year forever" is just one example of such crap, while real incomes rise at 2% a year and even that is skewed towards the higher-earners, with the lower half of all households earning the same, after inflation, that they did in 1990!  The "solution" to this problem in 2003 was to SELL $8/hour hairdressers no-doc loans to buy $500,000 houses - debt they could not possibly pay on the original terms - without telling them that when, not if, the music stopped they'd lose their home and credit rating.

The law of exponents makes such "securitizations" fraudulent in the first instance, and now those entities that relied on such claims and promises, from commercial entities to municipalities, are learning that they were SOLD a pig in a poke by people who were either starry-eyed or simply ripping people off.

Wake up Bill; the Ponzi-finance of the last 20 years is gone not only will not return - it cannot return, at least until all the people burned by it this time die off.

Just like the last time Bill, people will not allow anyone to pull that crap on them again.  After the 1930s the games were gone and buried until essentially everyone who lived through the pain was dead; then we had yet another crop of MBAs who decided that "this time its different."

The end of the rope for this generation has been reached and it is a long way down; your complaint and demand sounds an awful lot like the guy who jumps off a 100 story building and as he passes the 50th floor someone asks "how's it going?" and he says "heh, not bad so far."

There's only 50 floors left.

Got Gravity Bill?  Sure seems that way from the graphic at the top of your missive.

Welcome to the real world where debt written on an asset must be supported by the current cash flow  generated by today's production of things, not tomorrow's projections of exponential growth that are mathematically impossible to sustain over long periods of time.

When in the course of human events........

Hattip to Jesse's Cafe....

HCR 6 – AS INTRODUCED

2009 SESSION

09-0274

09/01

HOUSE CONCURRENT RESOLUTION 6

A RESOLUTION affirming States’ rights based on Jeffersonian principles.

SPONSORS: Rep. Itse, Rock 9; Rep. Ingbretson, Graf 5; Rep. Comerford, Rock 9; Sen. Denley, Dist 3

COMMITTEE: State-Federal Relations and Veterans Affairs

ANALYSIS

This house concurrent resolution affirms States’ rights based on Jeffersonian principles.

09-0274

09/01

STATE OF NEW HAMPSHIRE

In the Year of Our Lord Two Thousand Nine

A RESOLUTION affirming States’ rights based on Jeffersonian principles.

Whereas the Constitution of the State of New Hampshire, Part 1, Article 7 declares that the people of this State have the sole and exclusive right of governing themselves as a free, sovereign, and independent State; and do, and forever hereafter shall, exercise and enjoy every power, jurisdiction, and right, pertaining thereto, which is not, or may not hereafter be, by them expressly delegated to the United States of America in congress assembled; and

Whereas the Constitution of the State of New Hampshire, Part 2, Article 1 declares that the people inhabiting the territory formerly called the province of New Hampshire, do hereby solemnly and mutually agree with each other, to form themselves into a free, sovereign and independent body-politic, or State, by the name of The State of New Hampshire; and

Whereas the State of New Hampshire when ratifying the Constitution for the United States of America recommended as a change, “First That it be Explicitly declared that all Powers not expressly & particularly Delegated by the aforesaid are reserved to the several States to be, by them Exercised;” and

Whereas the other States that included recommendations, to wit Massachusetts, New York, North Carolina, Rhode Island and Virginia, included an identical or similar recommended change; and

Whereas these recommended changes were incorporated as the ninth amendment, the enumeration in the Constitution, of certain rights, shall not be construed to deny or disparage others retained by the people, and the tenth amendment, the powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people, to the Constitution for the United States of America; now, therefore, be it

Resolved by the House of Representatives, the Senate concurring:

That the several States composing the United States of America, are not united on the principle of unlimited submission to their General Government; but that, by a compact under the style and title of a Constitution for the United States, and of amendments thereto, they constituted a General Government for special purposes, -- delegated to that government certain definite powers, reserving, each State to itself, the residuary mass of right to their own self-government; and that whensoever the General Government assumes undelegated powers, its acts are unauthoritative, void, and of no force; that to this compact each State acceded as a State, and is an integral party, its co-States forming, as to itself, the other party: that the government created by this compact was not made the exclusive or final judge of the extent of the powers delegated to itself; since that would have made its discretion, and not the Constitution, the measure of its powers; but that, as in all other cases of compact among powers having no common judge, each party has an equal right to judge for itself, as well of infractions as of the mode and measure of redress; and

That the Constitution of the United States, having delegated to Congress a power to punish treason, counterfeiting the securities and current coin of the United States, piracies, and felonies committed on the high seas, and offences against the law of nations, slavery, and no other crimes whatsoever; and it being true as a general principle, and one of the amendments to the Constitution having also declared, that “the powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people,” therefore all acts of Congress which assume to create, define, or punish crimes, other than those so enumerated in the Constitution are altogether void, and of no force; and that the power to create, define, and punish such other crimes is reserved, and, of right, appertains solely and exclusively to the respective States, each within its own territory; and

That it is true as a general principle, and is also expressly declared by one of the amendments to the Constitution, that “the powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people;” and that no power over the freedom of religion, freedom of speech, or freedom of the press being delegated to the United States by the Constitution, nor prohibited by it to the States, all lawful powers respecting the same did of right remain, and were reserved to the States or the people: that thus was manifested their determination to retain to themselves the right of judging how far the licentiousness of speech and of the press may be abridged without lessening their useful freedom, and how far those abuses which cannot be separated from their use should be tolerated, rather than the use be destroyed. And thus also they guarded against all abridgment by the United States of the freedom of religious opinions and exercises, and retained to themselves the right of protecting the same. And that in addition to this general principle and express declaration, another and more special provision has been made by one of the amendments to the Constitution, which expressly declares, that “Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof, or abridging the freedom of speech or of the press:” thereby guarding in the same sentence, and under the same words, the freedom of religion, of speech, and of the press: insomuch, that whatever violated either, throws down the sanctuary which covers the others, and that libels, falsehood, and defamation, equally with heresy and false religion, are withheld from the cognizance of federal tribunals. That, therefore, all acts of Congress of the United States which do abridge the freedom of religion, freedom of speech, freedom of the press, are not law, but are altogether void, and of no force; and

That the construction applied by the General Government (as is evidenced by sundry of their proceedings) to those parts of the Constitution of the United States which delegate to Congress a power “to lay and collect taxes, duties, imports, and excises, to pay the debts, and provide for the common defense and general welfare of the United States,” and “to make all laws which shall be necessary and proper for carrying into execution the powers vested by the Constitution in the government of the United States, or in any department or officer thereof,” goes to the destruction of all limits prescribed to their power by the Constitution: that words meant by the instrument to be subsidiary only to the execution of limited powers, ought not to be so construed as themselves to give unlimited powers, nor a part to be so taken as to destroy the whole residue of that instrument: that the proceedings of the General Government under color of these articles, will be a fit and necessary subject of revisal and correction; and

That a committee of conference and correspondence be appointed, which shall have as its charge to communicate the preceding resolutions to the Legislatures of the several States; to assure them that this State continues in the same esteem of their friendship and union which it has manifested from that moment at which a common danger first suggested a common union: that it considers union, for specified national purposes, and particularly to those specified in their federal compact, to be friendly to the peace, happiness and prosperity of all the States: that faithful to that compact, according to the plain intent and meaning in which it was understood and acceded to by the several parties, it is sincerely anxious for its preservation: that it does also believe, that to take from the States all the powers of self-government and transfer them to a general and consolidated government, without regard to the special delegations and reservations solemnly agreed to in that compact, is not for the peace, happiness or prosperity of these States; and that therefore this State is determined, as it doubts not its co-States are, to submit to undelegated, and consequently unlimited powers in no man, or body of men on earth: that in cases of an abuse of the delegated powers, the members of the General Government, being chosen by the people, a change by the people would be the constitutional remedy; but, where powers are assumed which have not been delegated, a nullification of the act is the rightful remedy: that every State has a natural right in cases not within the compact, (casus non foederis), to nullify of their own authority all assumptions of power by others within their limits: that without this right, they would be under the dominion, absolute and unlimited, of whosoever might exercise this right of judgment for them: that nevertheless, this State, from motives of regard and respect for its co-States, has wished to communicate with them on the subject: that with them alone it is proper to communicate, they alone being parties to the compact, and solely authorized to judge in the last resort of the powers exercised under it, Congress being not a party, but merely the creature of the compact, and subject as to its assumptions of power to the final judgment of those by whom, and for whose use itself and its powers were all created and modified: that if the acts before specified should stand, these conclusions would flow from them: that it would be a dangerous delusion were a confidence in the men of our choice to silence our fears for the safety of our rights: that confidence is everywhere the parent of despotism -- free government is founded in jealousy, and not in confidence; it is jealousy and not confidence which prescribes limited constitutions, to bind down those whom we are obliged to trust with power: that our Constitution has accordingly fixed the limits to which, and no further, our confidence may go. In questions of power, then, let no more be heard of confidence in man, but bind him down from mischief by the chains of the Constitution. That this State does therefore call on its co-States for an expression of their sentiments on acts not authorized by the federal compact. And it doubts not that their sense will be so announced as to prove their attachment unaltered to limited government, whether general or particular. And that the rights and liberties of their co-States will be exposed to no dangers by remaining embarked in a common bottom with their own. That they will concur with this State in considering acts as so palpably against the Constitution as to amount to an undisguised declaration that that compact is not meant to be the measure of the powers of the General Government, but that it will proceed in the exercise over these States, of all powers whatsoever: that they will view this as seizing the rights of the States, and consolidating them in the hands of the General Government, with a power assumed to bind the States, not merely as the cases made federal, (casus foederis,) but in all cases whatsoever, by laws made, not with their consent, but by others against their consent: that this would be to surrender the form of government we have chosen, and live under one deriving its powers from its own will, and not from our authority; and that the co-States, recurring to their natural right in cases not made federal, will concur in declaring these acts void, and of no force, and will each take measures of its own for providing that neither these acts, nor any others of the General Government not plainly and intentionally authorized by the Constitution, shall be exercised within their respective territories; and

That the said committee be authorized to communicate by writing or personal conferences, at any times or places whatever, with any person or person who may be appointed by any one or more co-States to correspond or confer with them; and that they lay their proceedings before the next session of the General Court; and

That any Act by the Congress of the United States, Executive Order of the President of the United States of America or Judicial Order by the Judicatories of the United States of America which assumes a power not delegated to the government of United States of America by the Constitution for the United States of America and which serves to diminish the liberty of the any of the several States or their citizens shall constitute a nullification of the Constitution for the United States of America by the government of the United States of America. Acts which would cause such a nullification include, but are not limited to:

I. Establishing martial law or a state of emergency within one of the States comprising the United States of America without the consent of the legislature of that State.

II. Requiring involuntary servitude, or governmental service other than a draft during a declared war, or pursuant to, or as an alternative to, incarceration after due process of law.

III. Requiring involuntary servitude or governmental service of persons under the age of 18 other than pursuant to, or as an alternative to, incarceration after due process of law.

IV. Surrendering any power delegated or not delegated to any corporation or foreign government.

V. Any act regarding religion; further limitations on freedom of political speech; or further limitations on freedom of the press.

VI. Further infringements on the right to keep and bear arms including prohibitions of type or quantity of arms or ammunition; and

That should any such act of Congress become law or Executive Order or Judicial Order be put into force, all powers previously delegated to the United States of America by the Constitution for the United States shall revert to the several States individually. Any future government of the United States of America shall require ratification of three quarters of the States seeking to form a government of the United States of America and shall not be binding upon any State not seeking to form such a government; and

That copies of this resolution be transmitted by the house clerk to the President of the United States, each member of the United States Congress, and the presiding officers of each State’s legislature.

As I peruse through the earnings reports of a number of firms this quarter, I am struck by the carnage that has been wrought on companies like GE (NYSE: GE) and Textron (NYSE: TXT)

Recessions are obviously bad news for all firms, and large industrials are no exceptions.  But the destruction to these firm's value is not really found in their net production of "things", like Jet Engines and Avionics.

No, that is found in these firms attempts to get too cute by half by becoming a "financial superstore" along with a builder of "things."

Some of the blame for this insanity lies with the CEO, who is the "helmsman" in any firm.  But not all.

The rest lies with the financial geniuses that have been cranked out at an ever-increasing pace by our "higher" education system.

And when I say "higher", I mean this sort of "higher":

(Heh, if its good enough for a swimmer.....)

In all seriousness, this nation's firms need to take a serious look inside their board rooms, executive suites and their corporate mission statement.

If there is a place where I "missed it" during the last eight years, this has been it.  General Electric and Textron, as just two examples, became finance companies that happened to build jet engines and avionics, instead of a jet engine company that happened to finance some of its customer's purchases.

Finance, in the end, must return to whence it came.  And "whence it came" predates the 1990s - because the last set of really impressive blow-ups in the industrial and equipment spaces happened for the same reason this set did.

Anyone remember Lucent?  I do - very well.  Spun off from AT&T Bell Labs, Lucent was a telecommunications hardware powerhouse.  The 5E telephone switch, internet call termination equipment and more.  They bought up Livingston, a maker of common terminal equipment for ISPs (much to my chagrin) along with many others.

Enter a whole host of sprinting telecommunications firms, among them Winstar Communications.  Winstar had a vision - they were going to take over the (telecommunications) world.  A common dream, among entrepreneurial firms, but one that is frequently not realized; after all, only one firm in ten among small businesses even survive five years, and among midsize and large firms there are plenty of "lots of pieces" stories scattered on a field of what was pristine grassland before the firm did a lawn dart imitation.

Unfortunately Winstar relied on market-based leverage - that is, the ability to go into the marketplace and borrow money like mad, using the word "Internet" as the key that unlocked the door.  Greedy investors of all stripes smelled blood (money) and quickly beat a path to their door, allowing them to access funds from both the equity and debt markets. 

But that wasn't enough.  See, Winstar had tremendous ambition, but pulling fiber, lighting it up and then providing the switching, infrastructure and terminal equipment to actually make that fiber useful is an expensive thing.  You can't factor your employees but you sure can your receivables and you can finance your equipment.

Enter Lucent.  Lucent was also on a quest to take over the world, but in this case their world was Internet-related hardware.  They (correctly) surmised that plain old-fashioned voice telephone switching was going to become a business that was destined to end in the tears of collapsing margins.

Lucent was a perfect fit.  But Winstar wanted to conserve capital, as great profits were just around the corner - but current cash is a finite resource.  Lucent was only too happy to oblige, and financed billions of their own hardware internally.

Thus the die was cast.

On 4/18/2001 Winstar Communications filed Chapter 11 and sued Lucent, alleging a breach of obligation by Lucent in their strategic partnership.  The triggering event for that filing was a debt payment that Winstar defaulted on in the amount of $75 million about a week previous.

What went wrong?

Plenty.  At its root, Winstar was a company that, like many, was engaged in a build-out race that was extremely difficult to manage successfully.  They, along with many others including MCI/Worldcom, failed to successfully navigate the shark-infested waters.  Among the sharks were unrealistic and even fraudulent claims by market participants - the most often-cited being the claim that "The Internet is doubling every three months!"  That was true in 1995, when Win/95 first hit the scene - I can attest to it, as I was running a company in that space (a firm that ultimately was sold to Winstar!)  But by 1998 that explosive "new adopter" growth was over - yes, there was growth to be had, especially in building out business-class services and enhancing capability, but the industry had also matured greatly and was in its "let's see how much margin we can squeeze out" phase.

At the root of Lucent's problems, however, was its willingness to get away from its core competence and try to make money off esoteric financial products.  Sound familiar?  It should - it's what has brought down the share prices of mighty industrial firms like General Electric and Textron this time around.

Do we ever learn?

It would appear not.

Why do I wax poetic (or polemic, depending on your point of view) about this aspect of the markets? 

Because if we are to recover and find our way in this economy, and to become what America has been known for through most of its 200 years, we must recognize that finance is a utility, not a means of making money in and of itself.

CNBC and the rest of the "punditry" is entirely missing the point.  Everyone is looking for how we "unfreeze" the credit markets, but this is wrong-headed and stuck - literally - in the 1990s.  We learned exactly nothing from Lucent's blowup, and now we get a second try at learning these lessons, this time spread among not only our banks but our major industrial firms as well.

There is no shortage of finance as a utility function.  There never has been and there never will be.  Short-term self-liquidating trade credit for sound firms who didn't get "too cute by half" is and will remain available.  Finance for a home purchase where you put down 20%, have a reasonable coverage ratio (36%) on debt-to-income and are financing for a fixed term of years is and will remain available.  Finance for car purchases where you put 20% on the table and finance for three or four years is and will remain available.

What's not available and should never return are the "too cute by half" games that far too many financiers and financing arms of major corporations have engaged in. 

And let me be clear - essentially all of these deals have and do rely on some sort of misrepresentation - whether it be starry-eyed "blue sky" projections (e.g. "home prices never go down") or out-and-out fraud ("stated income" loans and inventing values to plug into models when you're not provided them.)

Just last night S&P downgraded a monstrous set of "ALT-A" mortgage deals (warning - Excel link from S&P) that reads like a "who's who" of various banking institutions, both extinguished and standing.  Washington Mutual, Bank of America, IndyMac and more - all the "big names" in the ALT-A space are represented.  Many of these deals were downgraded to "D", or DEFAULT.  So much for those who claimed that the "market prices" on these securities were "too pessimistic"; will we see those people paraded on CNBC and humiliated in public?  Of course not.

We the people - as shareholders either directly or indirectly through mutual funds and 401ks - must demand that the "kings of finance" that come out of these so-called "business schools" be shown the door and go clean the toilets at WalMart.  I lay a major part of the blame for this mess square at the door of these so-called "higher education" institutions where they crank out MBAs by the boatload, most of whom have spent six years figuring out how to ignore the mathematics of exponents and the inevitable liquidation that must follow credit expansions.

I've met more than my share of these geniuses and they all point to their "superior education" while the firms they work for go straight down the drain as a direct consequence of their attempt to get too cute by half with financial engineering.  An $80 HP-12C tells you more about the truth of exponential functions that lie at the root of all interest-bearing financial systems than a $200,000 "education" from these bastions of old-growth cruft.

We can only produce if we produce.  I know, its a tautology, but the only free lunch in the world comes from the Sun.  You can grow it, mine it or manufacture it - no matter what "it" is.  That's all the value there is; when the wrench-turning and welding stops the value-adding ends.

Everything else you do is a value SINK, not SOURCE.

If I build a jet engine I have a jet engine.  It can propel an airplane, and that has value.  But when I take that jet engine and turn it into a discounted cash flow and then slice and dice it into tranches and sell it off into the marketplace via my "financial wizards" I am consigned to get less in total than if I just sold the engine outright.

Why?  Because nobody works for free, that's why, and the only way I can pretend to get more value this way than via direct sale is when I cheat.  That is, when I invent a model that has too-rosy assumptions, either because I have stars in my eyes - or fraud in my heart.

We as Americans must look at the future differently and discard the ways of the past.  We must eschew the institutions who refuse to take responsibility for turning out MBAs by the boatload and consign both their graduates and the institutions themselves to the dustbin of history.  These people and these institutions have not advanced our common wealth and weal - they have destroyed it. 

Finance is a utility function and we as Americans had better recognize that as the fact that it is.  We need financing of some sort; throughout history there has been a means of financing production over short periods of time.

But financial engineering is not and never can be a profit center.  It is a profit drain in that for each hand a deal passes through more value is extracted - not added.

All claims to the contrary are fraudulent on their face and must result in criminal penalties and civil disgorgement of every nickel allegedly "earned". 

We would not be here were it not for the "financial engineering" that has been fraudulently sold off to the world as a means of "creating value."  If we are to return to financial and economic stability instead of a world where "bubble-blowing" is the meme of the day we must eject both the progeny of these "higher education" institutions as well as the institutions themselves who refuse to accept their share of responsibility for the mess they have both fomented and profited from.