Weapons of Financial Mass Destruction

I haven’t trusted our financial markets since I got suckered by an Eliot Wave theorist. That said, it hasn’t kept me from investing or trusting my 401K to “smarter folks” than I. That has proven to be a very dumb decision. My mattress does a better job lately.

I’ve been really suspicious of this “Perfect Storm” scenario of a cratering housing market, wipe-out stock market, wildly gyrating oil prices and Russian gamesmanship. I do not think any of this is accidental. The timing couldn’t have been better to create an earthquake in the American economy and political landscape.

We’ve had a bunch of national security wonks crafting theoretical models to game the system – including the financial system. They’ve commented often enough since 9/11 that a prime target is the US financial system. Well, game over. It’s been done. With the full cooperation of Congress, Wall Street and world markets. Can this masterful meltdown me traced solely to Wall Street greed, or did we have a little help from our “friends”? You decide. I think this was planned. Thank God for good ole American capitalist greed and goverrnment (Congress) intervention in the subprime housing market. It was a necessary ingredient in the perfect storm. And it seems some of our “friends” saw an opening and now the rest is history.

I don’t know if this guy, Shah Gilani, is a kook, or if there is something to his prognostications. But I am very alarmed. Here’s what he has to say about derivitives:

Some might consider financial derivatives to be a form of “Russian Roulette” that’s played for fun and extreme levels of short-run profit by a very small number of financial elites and academics. As you’ll see, these high-stakes games are played at the potential risk of total destruction of all the functioning financial systems on Earth. Perhaps this is why Warren Buffett repeatedly calls them “financial weapons of mass destruction” or something similar.

I have a great deal of respect for the opinions of both Mr. Soros and Mr. Buffett and it is my intention to show you; 1. Why they feel as they do about derivatives and 2. the potential scale of the threat posed by derivatives and other similar forms of “financial innovation”.

To help gain a “big picture” understanding of derivatives markets, one must start with a diagram. Here’s one I created to help lay the groundwork to convey my understanding: http://www.marketoracle.co.uk/images/2008/stable-financial-model.png

There is a sobering preview of things to come in this article.

I’m wondering if the Market Oracle is trying to give us heart attacks, or if there is more truth to their predictions than alarmist rhetoric. An analysis of government intervention is here.

Can we get out of this without massive unrest and upheaval?

Mitt Romney, what do you think? I mean, what do you really think.