UNDERSTANDING BAC AND the banking crisis, and a few other things to boot. What I have taken the time to share with you here I know is not for everyone, for a number of reasons, but many minds come to this table, many silent ones, from whom we never hear. Therefore, perhaps some will find it presents an alternative view to the mainstream that media would have us see.
To do one's own 'due dilligence' somethng we are constantly urged to do, we need as much information as possible upon which to evaluate, and stimulate our own minds, and form our own conclusions. We do not have to accept any.
How people love to find a useable correlation between an a and b set of circumstances that will provide them an 'edge' in their market 'speculating'.
Applying a little of what should be 'common sense' reasoning( but, it seems, nothing is less common) should tell them that if ever a discovered correlation should be so rigid, and work so well, or even reasonably well, that it could become 'a rule', we could all become millionaires. And, if we all could become millionaires, then we would need to be, if only to survive economically, as demand for goods would rise, and so would prices....and......
But wait, even that latter 'rule' taken from basic economics is not necessarily true, as in 'rigid', for then it would be a 'law', and there are no 'laws' in economics, though many refer to them as such. Nothing in economics, which is a behavioural 'science,' and therefore can be manipulated, can be proved empirically,
We have to accept by facing the evidence, we live in a 'virtual real' world, and a simple definition of virtual reality is - an artificial environment that is created with software and presented to the user in such a way that the user suspends belief and accepts it as real.
Now that is what is happening, constantly, and increasingly, in the financial markets, economies, and politics. The 'software' can be metaphoric as a perception placed in the head (mind). Maybe it adds real meaning to the expression - being 'soft in the head' (smile).
In a world of derivities, one simple meaning is - A derivative is any financial instrument, whose payoffs depend in a direct way on the value of an underlying variable at a time in the future. This underlying variable is also called the underlying asset, or just the underlying. Examples of underlying assets include - well, i will just deal here with one, the applicable one to the context of our virtual real world - a derivative can be on another derivative, which in turn can be on another derivative, which in turn.....'by George I hope you have got it' (might exclaim Professor Higgins).
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It is my premise that it was derivatives which had become the unsustainable bubble that is currently bringing down the 'financial house of cards'. Not because it is really unsustainable, because imagination, and perception is not finite, only we set the limits. But, because it was relatively new, and appeared to work so well, financial derivatives got out of hand to a point where even the perpetrators, the professional practitioners, the manipulators, (these euphemisms) reached to where they had lost sense, of themseves, what was reality. Consequently, they had to call a halt to take a breather, do some serious accounting, and rob the public purse to return some sanity, and financial stablity in order to rebuild with some
hoped for better understanding of this wild derivative beast.
Like money in the bank, if everyone who had a deposit there wanted to draw it out at the same time, the bank could not fulfil its obligation. Luckily, except in extremely rare occasions it doesn't happen. It is perhaps more so with gold, most of what is in existence is stored. I would say that if everyone who had bought gold, one way or another, wanted to take possession, today, there would not be sufficient in existence, never mind the vaults, to meet that demand, even given a year to do so. And this is why the price is not in the stratosphere, the demand is being met by that which is not real. Such is the world of derivatives, the world of virtual reality where, in the words of the song - 'anything goes'.
As I said earlier, the Financial Markets will be rebuilt, banks will thrive and rule the day, again, as they are the fulcrum by which all else is raised.
Unfortunately, I fear, that it will be 'derivatives' that will rebuild it, or help to. Virtual reality has few, if any, bounds and that has an attraction which, like a drug, will be found too hard to give up.
If you have managed to reach so far - Happy days, and may you live in profitable times.
