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Truly that line was just too humors for me to pass up (at least to me), but in all honesty it is a fairly accurate representation of our current financial situation. Which is why in this post I will cover with a very very wide brush a lot of complex detailed data that in the interest of time I will not be able to explain, so I encourage you to view this post http://www.hearditinabar.com/2008/10/14/it-would-not-be-a-big-dealif-it-did-not-effect-your-paycheck-mortgage-college-loan/ for more information on the subject, and for everyone in eye sight of this article I encourage you with all my heart to read this incredible article in Conde Nast Portfolio – http://www.portfolio.com/views/columns/wall-street/2008/10/15/Credit-Derivatives-Role-in-Crash.

So here we go. “Market fundamentalism” is a crock. How is that for an opening statement? Well in my humble opinion it is true, in today’s world at least. Market fundamentalists believe that the market is the most effective mechanism for allocating the flow of money into or out of a particular area, which if analyzed in a vacuum chamber may be accurate, but in today’s market place to few have the power to keep accurate checks and balances on the process (please visit – http://www.portfolio.com/interactive-features/2008/10/Timeline-of-Derivatives-Market for an interactive representation of the timeline for derivatives).

Take for instance J.P. Morgan and the Broad Indexed Secured Trust Offering or “Bistro” for short. This was the catalyst for what in large part was the major reason for the economic crisis we are currently in. To make a long story short J.P. Morgan (”JPM”) had a significant portion of its extendable debt obligated to 300 or so key clients, however these clients essentially had letters of credit for the money as opposed to a traditional loan on the books, therefore having the obligation outstanding kept JPM from being able to utilize this money in more profitable areas which became a real problem for the bank. Enter Blythe Masters from stage left please. Blythe Masters understood the delicate situation JPM was in, and he conceived a strategy with his fellow JPM bankers to utilize a little known instrument called a credit-default swap, which was originally brought to the market place by another institution call Banker’s Trust. In short what Blythe and the gang came up with was a way for JPM to sell its debt in the open market through a Credit-default swap instrument called Bistro. Well long story short it was successful, JPM offloaded $9.7 Billion dollars worth of risk and started a revolution in the industry. As a side note, by successful I do not mean that the investors in Bistro made money, in fact most lost their shirts when one of the companies inside the package defaulted, but rather success in this case means JPM freed up capital and the market was willing to help them do it.

Virtually overnight banks around the world were taking debt and putting it on the open market. At first it was primarily made up of corporate debt, but where the real prize lay was with the mortgage backed default swaps, welcome the seeds of a future financial crisis…

Ok, I gave you that information so I could take a big jump forward and discuss my original topic of market fundamentalism is a crock. As you have probably discerned from the previous few paragraphs the foundation blocks for our current financial crisis are not as exciting as say Dancing With the Stars or whatever it is that people watch on t.v. these days, it is in fact quite dull. This total and complete dullness combined with complex financial structures makes for a market that only an elite few can understand, control and participate in, and this is where the break down not only begins, but ends.

If something as obscure as a C.D.S. can bend if not break the largest economy in the world, then how does one stand up with a straight face and tell the 95% of Americans that will never buy, sell or hold a C.D.S. product directly that the market will correct, manage and perfect itself. The answer is it can not. If the playground is so small that only a small fraction of the market can participate in and benefit from it, then it is by all accounts not a fair playing field, because even though most people are not going to investigate C.D.S. instruments they are smart enough in other areas to know that a small group of people with much to gain are easily corrupted, and in this case corruption ran unabated. Credit rating agencies were adjusting numbers to give the original C.D.S. instruments a moderate rating instead of the horrible rating it deserved. Financial institutions were swapping out good debt for bad debt as long as the rating agencies had not lowered the rating yet. This was a game of who can be one step ahead of the other, and eventually ladies and gentlemen their feet landed right up our backsides.

The long and the short of it is simple. The Reagan era economic policies work, as long as you can keep greed out of the market, or at least keep the greed spread out amongst the general participants, so everyone has an equal shot at winning. But what we experienced over the last 10 years was a system of corruption and greed that concentrated 95% of this nations wealth into on 5% of the population, and by my standards at least, that is the biggest travesty of the whole greedy decade. It clearly demonstrates that those who have the money are the best at making the money, and the family without money is the best at paying for the greed when it is all said and done.