The Derivative Game

For traders that want to truly understand the economic issues of our time, and what the Bush administration did not create this, run to buy Harpers Magazine, January 2009 issue, or read it online, and STUDY The Ten Trillion Dollar Hangover.

This article explains the situation clearly, and how we got it into it. It takes the blame to the real culprits (Greenspan the lead idiot) and what Bush has done in allowing nearly every component of the economy to deteriorate in the past 8 years.

Before we talk of "socialism" or "the government" taking over (current talking head babble) learn of the situation and be part of not repeating it.

Friday Bush gave 17 billion to the "small three". So far Wall Street and the bankers have played a better hustle, led by Paulson, in the getting of money. And, the credit market remains utterly frozen, with banks raising the bar on open lines of credit, creating restrictive covenants, and generally keeping the money given them to loan.

The market hit a low of 8510 Friday, and there MAY be more downside. We open the week with no open signals.

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Here is how to understand the derivative game that has destroyed us:

Let's say you have a book to sell. It is a tangible product, built by words, ink, binding, advertising, a "list price", and is something marketable. But then someone says "I have a mirror, and can sell the mirror image of the book".

This is a "stock certificate". Then someone else says "I have another mirror; I can sell a mirror image of that mirror. This is derivatives. And it works a while, until you have 10,000 mirrors, and even then the image is almost perfect. People start to believe that these mirrors are almost the real thing. But at some point, the image is interrupted, a new light beam or a shadow, and then the mirrors all go.

This is what happened.

This is supply side economics, a mirror of building on debt and paying a few, not the many.

We now create mirrors again, in new massive government bail out, but these mirrors are honest in telling us we are creating debt to "pay ourselves out" and avoid the Great Depression.

We are the nation that "loaned 700 billion" recently and had the audacity to not even talk to China or Japan, who sponsor our debt.

Our arrogance has undone us, as we drive the Hummer for the bottled water. And have forgotten the war that "created the Hummer mentality".