Capitalism Crashing Never to be Seen Again?

"De Leveraging," what does it mean to you and me? On the surface we'd normally say, "not a fucking thing." But we are now at least ten feet under the surface and what we are seeing is more scary than any pols want to admit, probably because they have no answers. De Leveraging means selling assets you have bought with money you have borrowed and which you have to pay interest on; selling them means you recover the money and don't have to pay interest..or so you think. But when leveraged asset values drop it's "Houston, we've got a problem." Since almost everyone has "leveraged" their assets we are witnessing a meltdown that is a result of everyone having to sell "leveraged" assets, many of which are near worthless and can find no buyers. That means default to the poor schmucks who loaned out the money, and like it or not WE are the schmucks who loaned this money through our pension funds, 401Ks, bank accounts, and other "performing" assets like government bonds.

So engagement rings (now worth half of what we paid for them), cars, and so on ain't worth nothing, leaving many of us worth nothing also. Now the biggest bond holder on the planet is begging the government to bail them out, and like it or not business has failed us so government will have to pick up the four trillion dollar tab or see our ten trillion dollar economy crash, pulling the world down with us.

Compounding the "problem" of de leveraging is that mass selling of one asset depreciates the value of other assets....and on and on and on in an endless cascade of paper being made worthless by endless selling (or failed efforts to sell).

there have been prior periods when this trio has not done well and the U.S. economy has hardly blinked. However, the current year-over-year decline of over 10% has never really been witnessed since the Great Depression. However, the current year-over-year decline of over 10% has never really been witnessed since the Great Depression. That, in and of itself, is a potential red flag. Yet a 10% aggregate asset price decline does more than make us all 10% less wealthy. Because many of these assets are leveraged and margined, the more they decline, the more frequent and frenzied the margin calls, and if the additional cash flow is not provided, not only an asset liquidation but a debt liquidation follows. It is the debt liquidation that potentially turns a stagnant/recessionary economy into something much worse. In the housing market for instance, it is one thing to observe a 15% national decline in home prices. It is much more serious however, when margin calls in the form of monthly mortgage payments (many of which are in-creasing due to adjustable or option-related contractual provisions) lead to foreclosures, which in turn cause a debt liquidation. The bank in this case, takes possession of the home and dumps it back on the market, lowering the price even further, which leads to more foreclosures, which leads to….

How are Obama, McCain, Palin, or What's his Name addressing this issue? Tax cuts or raises in tax rates. Period. Ain't gunna cut it folks. I'm a firm believer in the "hold your nose and do what your have to do," and I say sooner rather than later. Look for the Fed to jump in, perhaps as soon as this weekend (yes, it's that bad) which means socialism or nearly so. Free Market capitalism is crashing on the reef probably never to be seen again.

Sunday AM add: Fannie Mae, Freddie Mac Are Taken Over by U.S. Treasury to Avoid Collapse