Changes...

Hello everyone,

My website has a new look!

www.umarsaeed.ca/

I've also just posted a piece about the unintended consequences of Wind Farms in Ontario.

If you'd like to continue with your subscription, just click on the subscription box at the bottom of the new webpage. You won't be receiving double subscriptions, as this site will be disabled soon.

Thank you,

Umar

The Big Picture

[This is the second piece on protesting at the G20. Part 1 is here.]

You see this picture? I know the kid that did that. He and his friends waited until Waterloo was completely asleep, and they set out to spray-paint the town with their words. Since he was driving, the kid was completely sober that night, although it was anything but a sober operation. What they realized as they stumbled through the night, whispering, looking out, keeping the car running, was that their footsteps would go unnoticed because the people of this town rested deeply at night.



He was on a high the next day when he took this picture. But as he retraced his steps from the previous night, he noticed that most of the graffiti had already been wiped clean off the glass. The town had seen this before.



As the kid continued to class, he paused at the words “Moderation Kills The Spirit,” painted with bold black lines on a white wall near the University bookstore, a high traffic area. Students walked by without noticing it. It would appear that this town slept deeply during the day too.


Why did he do it? What was his point? He had a different answer, depending on who asked. He was trying to make art. He was trying to make people think. He was trying to make reality TV. He was trying to make a difference. If you ask me, I think he was just trying to be heard.


Whenever he looks back at this picture, it reminds the kid that despite pulling a unique stunt in a quaint town, the people of Waterloo had been conditioned to categorize his actions with the actions of others, a general all-encompassing movement of frustration and protest against all things corporate. It didn’t actually matter that his intentions were different. That’s how everyone else had perceived it, and that’s why it was dismissed with such ease – they had heard it all before.



The kid’s story is a reminder of how society can dismiss any kind of message that even remotely resembles a protest. Even carefully placed words to inspire thought and skepticism of the world around us were simply signs of another protest, as far as the town was concerned. Some anti-corporate punks trying to destroy property, that’s all. 



I understand how much a large part of protesting is the need to be heard. But we must recognize that protesting is a medium, just like the walls were for spray-painting. It’s just a channel to communicate the message, and people are tuning out. Increasingly, protesters believe making a bigger bang is the answer because they aren’t being heard. But what if they did the opposite?



They have spent billions building a fence, securing the core, closing roads, hiring and housing police and security, creating relief centres, the list goes on. Why not hold a massive, all-encompassing Protest Bazaar at Downsview Park on the weekend? It would completely undermine this government’s actions and show the entire country, perhaps even the world, exactly what a waste of money this was. Let the media tape the hoards of cops simply loitering the empty streets of the Toronto core, riding around to coffee shops in packs, aimlessly, looking for something that will never come. I can’t imagine making a louder bang.



This plays on the forgotten benefits of protesting, the gathering, the mingling, the pamphlets, the lectures, the cross-linking, the recruiting, and in general, making people aware. Not only would the media cover it, ordinary citizens wouldn’t be afraid to participate in it. This stunt would nestle itself into the hearts of the massive Canadian majority that is angry at the cost of the entire program.



Whenever I look at this picture, I think about how hard the kid tried to make a difference. He slaved over choosing the right words. I think about all the students who never paid any attention to it. I think about how if he hadn’t done this, he would never have known what to do next.



It’s a mistake to think that there’s no point in protesting, in the same way as it’s a mistake to think protesting alone will bring about change.

Protest State

I have received a few comments on the increased swear words, but I wouldn't be doing the true spirit of the G20 any justice without this language. It would be like writing an episode of Trailer Park Boys without using the F word. Hopefully, I can set it aside and be my professional self once this is all over, but I do apologize for it in the meantime. This is the first part of two on protesting.

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Line up! Barricade! Single File! Where’s your buddy! Move out! We’re going to need more people down here! Who’s that?! Keep them together! Make them go west!

Bikes and Blue, every officer with shades, everywhere we went, all around us, every corner, in the distance, along the sidewalks, collapsing and recreating themselves over and over again, providing a Bike and Blue path for the protesters to march through, funneling protesters along the streets of Toronto, containing them. Andy and I were relieved that the police could distinguish us, two simple observers of the exercise, from the actual protesters. He wore a collared shirt and I stayed off to the side with my hands in my pockets. We basically just moved with the crews from CTV, CBC, CP24, SUN TV, OMNI, and some other channels I didn’t recognize.

This was my first time being out to a real live protest, and I wasn’t impressed.

More childcare! Help the Unemployed! Gay rights! Immigration Rights! Free Palestine! Aboriginal Rights! Who’s Streets? Our Streets! Who’s Esso? Our Esso!

I’ll classify this one as a hodgepodge of protests to kick off the G20. There was no real message. I was right beside the CBC guy when he arrived at the scene, asking the CTV lady casually, “what’s going on?” while preparing his boom mic.

“I don’t know what the fuck they’re trying to do,” she said, flipping through her notes. “Abortion, Aboriginal rights, Unemployment…basically fuck the police, I don’t know,” she sighed.

At this point, I was laughing, because she looked frantic trying to find a story. I saw it right there in her notes, she had actually tried to write down all the chants, as if it would come together on paper. As far as protests go, this can’t be good. I would think you need the media to understand what your message is. The big “win” with a peaceful march is for the media to pick up your message. These protesters didn’t come close, and the media was left to make the story whatever they wanted.

The only thing that had happened that justified any of us being there was that occasionally a police officer would take a protester, bring him off to the side, hold him and shove him around a little, you know, ask him some questions. My guess is that the protester tried to take the protest outside the Bike and Blue path, and the police said no.

Let me be clear: there may very well have been proper organizations with an actual message to propagate, but they were completely undermined by what actually transpired, which was perceived to be a large gathering of generic protesters that didn’t like police presence. Andy noticed I was angered by the “Police State” chants, and asked me what exactly a police state was. I told him I didn’t know, but this definitely wasn’t it.

When I think of a Police State, I think about Pakistan in 1999 when the nation was actually under Marshall Law under General Musharraf’s rule. He managed to democratically elect himself as the president in order to legitimize his reign, but my grandmother told me that when she went to vote that day, there was a military officer with a rifle standing outside the voting booth, telling everyone to go home because they had already voted. People like my father leave places like Pakistan because they want to be free. He would never consider Toronto to be a police state, and I tend to believe him because he has lived in a much crappier place. I suppose if you’re comparing Toronto this week, to Toronto any other week, it probably looks like a Police State.

All these cops will be gone by the end of the week. But this kind of protest wouldn’t work any other week of the year. Without the police presence, without an actual message, and without true organization, this is really just a bunch of people yelling, “Who’s Esso? My Esso!” And here’s where we need to address a particular distinction when it comes to freedom.

When the protesters were like, “We’re allowed to walk!” the police backed off because it’s true, you are free to walk. But when the protesters decide to go into the Esso station and occupy the building, preaching their yelling on private property, then freedom gets slightly more complicated.

We live in a free society, but only to a certain extent. Which is to say, you are free to do whatever you want, provided that it doesn’t interfere with the freedom of others. Certain freedoms take precedent, especially when it comes to private property. Someone could read this post and hate everything I’ve said, and he’s free to disagree with it, but what he can’t do is show up outside my door and start chanting, “Who’s Blog? My Blog!” In that case, I would call the police, and I would fully expect him to be removed from my premises. Let’s not mix up a Police State with the protection of our private property laws, something we all enjoy thoroughly as Canadians.

Something else I want to point out is how much the police were being antagonized, and they all stood there and simply took it with a straight face. Pigs! Assholes! Police State! Fuckin’ Cops! Fuck You!

It reminds me of one particular drunken night during my University days. We were desperately trying to hail a cab, and we accidentally hailed a police cruiser. It slowed down as it drove by, and one of my friends was a little slow to recognize it was a police cruiser, and said “Ah Cops,” waiving his hand at them, “What are you good for?” The cruiser hit the breaks. We froze. The cruiser reversed, and the two cops both got out of the car and approached us. One particular cop was clearly angered by what my friend had said. This “bad” cop looked each one of us in the eye and asked us who had said it. We stayed silent for a bit, until one of my friends claimed that he had done it.

The “bad” cop started to push my friend around, who had his hands behind his back the whole time, showing everyone including the “good” cop that he wasn’t participating in the exchange. At the same time, my friend was vocal that he hadn’t done anything wrong. We got lucky. So freaking lucky. An actual fight broke out at the bar across the street, and all of us boys started pointing it out to the cops with a sense of urgency. The “good” cop was relieved that he could pull his partner away from us and towards McMullin’s Pub.

Of course that cop shouldn’t have pushed my friend around, who by the way didn’t actually say it, and took the punishment for all of us. That cop was completely out of line. Yet, to me, the moral of that story is that when you antagonize someone, you should be ready to pay the price. What if it was a tow-truck driving by instead of a cop, and my friend had said a similar thing about tow-truckers, and the driver got out of the car and beat the shit out of my friend? Who cares if it’s assault? We all learn in grade school, that although “he started it” rarely has any bearing when it comes to justice, it has everything to do with the consequences we face as humans. When you antagonize someone, you should be ready to pay the price. This isn’t about laws or rights or the G20 – this is about how humans deal with each other.

I must admit, the shop owners and bystanders did pause for a moment out of their every day lives, and it got people talking to each other, and watching, and it maybe even made them think about something. But with so much police presence trying to contain the rage, there’s a huge potential for an anger collision that simply isn’t worth a moment of confused reflection by surrounding civilians.

There’s one sound bite that has stuck with me. It was a lady cop standing among her peers forming the lines of Bike and Blue, shaking her head as the protesters occupied the gas station, whispering to the cop right beside her, probably someone from out of town, “I’m so ashamed of my city right now.”

Why Are We Here?

Crap. I just realized I don’t want to be at the G20. Sure, I’m not working like everyone else, but I really don’t feel prepared for the giant clusterfu** they’re arranging for us. They picked some of the most commercially dense land to host this thing, right in the core of the city. If you asked me to name the big 3 of Toronto transportation, I would say: Gardiner, Union Station, Yonge Street. These pathways spew out thousands of commuters into the core, and then suck them back up at night. Good idea, guys. Let’s have the G20 right near the heart of that whole process.

Which begs the question; why not make the hectic conference-heavy days statutory holidays? Like a one-time G20 exception? We wouldn’t have to worry nearly as much about innocent bystanders in some stupid protester/police mishap. It’s guaranteed to reduce injury, and if they had thought of it on time, they could have reduced costs on safety and security too.

I used to be one of those people, zipping around the subway to work each day, and I know if I was still working in an office, I would definitely be taking these days off. However, I would be pissed that I was being expected to use my own personal vacation days, which is the same as using my money, for something that I didn’t ask for and provides me no discernable benefit.

But I wouldn’t just sit there and blame the government, though. I would go to my bosses and tell them why shutting down the office for two days is the financially correct decision. Then, my bosses would call an emergency board meeting. I would present my argument with an incredibly zippy powerpoint presentation, especially considering I had virtually no time to prepare it. "Thank you, Umar," they would say, and once I had left the room, they would throw their papers up in the air with jubilation, "he's done it again!"

Because of the spectacle, you’re going to get about as much work done as when it’s a snow day. People will show up around noon, and talk for an hour about how bad it was getting into work. Then they’ll take lunch. Coffee break. Probably turn on the computer at this point. Settle in. Hey! It’s 3pm already! Gotta get a headstart getting home – G20 factor, you know?

In the end, it’s going to cost companies plenty to supply the office with power and other “overhead,” for what will be a handful of largely unproductive days. Employers could treat it like a weekend: if people want to come in for any reason, they’ll get credit for those hours. Others can choose to stay home. It’s not so much that workers will remember their employers with reverence for giving them this time off; it’s that workers will never forget the employers that screwed them over by making them work during the G20 shit-show.

But who knows? Maybe people will convince their bosses to award them a couple of “sick” days off. If I were still working at an office, I would think the G20 was a perfect opportunity to take a break. Why not disrupt your everyday routine and try to use the free time to listen to the issues, opinions, and learn about why the whole world is going to hell? Too many people have opinions but don’t know why.

I get it. The government spent a lot of money on this thing and it would be nice if we paid attention. But instead of having the time to reflect on the issues and happenings, we’re going to be plowing through it in order to get to work on time. Hey Government! They! Whatever you are! Don’t go and create a very substantial physical barrier right in the core of Toronto and then ask us to deal with it during office hours!

Well, luckily for me I don’t work in an office anymore. Great. It appears I’m here voluntarily. It’s probably a good thing I don’t have to go to the office during the G20. I won’t have to speed walk through tight crowds, sighing and cursing, throwing my arms up in the air at every single barrier, person or thing that presents itself, pointlessly trying to get somewhere on time. Instead, I’ll be the guy you keep running into that doesn’t know what he’s looking for.

G20 Interruption

Sorry about this. That last final piece of this epic Goldman Sachs series, where I tell you exactly what to do with your money is going to have to wait. It's time to drop everything and witness what is one of the strangest spectacles in the world: the G20. The most important closed-door meeting ever to be held in Toronto.

My friend Andy has invited me to be the Yin to his Yang on this page: G20 Balance Sheet

Although Andy and I have a lot in common, we don't always see eye-to-eye on many of the contentious political issues. But together, we figured we'll provide balance on a lot of the issues at play. This is complete coverage, we'll get into the issues tabled at the actual meeting, as well as the shit-show that's taking place outside. In this blog I try my best to avoid politics, but over the next couple of weeks I'll have to drop all of that, because everything is contentious and everything is political. There will be a giant crowd and every single person will be standing for a reason and I want to know why.

Here's a little excerpt from our G20 website about my relationship with Andy, where we are coming from and what we're setting out to do:
_____________________________

Umar, speaking about Andy

Somewhere under the ownership of Ernst & Young, one of the largest accounting firms in the world, in their Bermuda office security tapes, there are telephone conversations that went like this (think Borat):

- Andy speaking.

- Naaaaace!

- Yekshemesh!

- Successsss

- Naace.

- May I speak to a one man they call Andy?

- Naaace! That is me! Please talk.

- Success! Are you naaace?

- Yes! Riiaaaaaight! I have a laaaeeemp at my desk! I am very naaaace.”

- Chenkoui.

- Chenkwaaay

This was the typical phone conversation between Andy and myself while at work. In Bermuda, Andy and I lived together while working for different companies. I was an auditor chasing hedge funds and wagging my finger all the way, while Andy learned the finer points of relating to big-time investors and their bags of money. Luck and circumstance brought us together, but the thing that truly unites us is that gut feeling that we didn’t belong in the industry of money. We had always felt like outsiders.

Here we are, almost a decade later, and a very expensive private meeting about global money matters is coming to our City. I am honoured to work with The Schnerg, a most insightful and witty writer, and as I recall, once a savvy street-smart VP in the investment industry. I’m excited to cover what is already becoming a spectacle without an event. It’s fairly obvious the G20 Summit of 2010 is important. We’re going to try and show you why.

Andy, speaking about Umar:

I first met Umar when he moved to Bermuda and was looking for a place to stay. It’s entirely possible that when I found out a Brown Canadian Chartered Accountant (Umar Saeed, BCAA) was interested in renting a room in my apartment, I thought to myself, “Zzzzzzzzz. At least the rent will get paid on time.” But I would never admit that publicly.

As it happened, all my preconceptions were wrong (except the one about the rent). Umar isn’t your typical accountant. For one, he has interests beyond adding and subtracting. Interests like art, music, writing, and having open conversations about current affairs. Hell, the guy wrote a novel about post 9-11 Washington and anti-Muslim sentiment. Does your guy at H&R Block do that?

Whether he’s debating the finer points of Cito Gaston’s coaching decisions, explaining for the umpteenth time how the sub-prime collapse happened, swimming in the ocean at midnite, writing for his blog, or just enjoying a bucket of fried chicken, the dude stays level-headed and open-minded at all times, and always seems to enjoy the moment. These are qualities that I admire, and wish I had more of myself.

So it was no surprise to me that we found ourselves leaving the financial services industry at the same time. We are birds of a feather, and don’t understand the beast that is big banking. Working for a giant, faceless corporation that thrives on conformity, waste and inefficiency had its perks for a while, but just wasn’t worth the pain and suffering in the long run.

In his mind, I think Umar sees himself as a middle of the road, moderate kind of guy, with firm but fair views. To me, he’s an idealist who hasn’t lost sight of reality. Somebody that knows an anarchist state isn’t likely to happen, and even less likely to succeed. Somebody that would love for all of us to share wealth equally, but is too wise to the game to think the guys at the top will allow it. So rather than beat his head against a wall, he looks for practical, workable solutions that could help as many people as possible to life’s problems, big and small.

Goldman on Trial - Part 3

We left off talking about Rating Agencies and how it was their blessing that allowed the public pools of money to invest in anything, from shares in Apple to Mortgage Bonds created by Goldman. We uncovered the junk bond logic that taught us that by pooling a bunch of risky assets together, the sum of those assets are worth more than the individual parts.

But does this logic truly extend to personal loans, like mortgages, credit-lines and credit cards? It is true: by pooling mortgages together, the risk that a handful of people will default is mitigated by the diversity of the pool. But because these are personal loans, there’s a conflicting economic principle that prevents the entire pool being worth more than its individual parts.

In the summer of 1998, I worked as a bank teller at the Royal Bank in Streetsville. It was me and a collection of middle-aged women that enjoyed pinching my cheeks and sharing their lunch with me when I forgot mine. As Autumn approached, the bank knew I was leaving for school, and they gave me an incredible parting gift. It was a $20,000 unsecured line of credit at the prime rate. “Use it if you need it.” Oh man, did I ever need it!

Let’s be clear: they didn’t just trust me; they believed in me. I wasn’t going to be paying this back for at least five years. In the end, it was a profitable loan for the bank. I paid every single penny of interest and principal back. But what if someone like Goldman wanted to pluck the loan and make it a part of a larger credit derivative transaction? What did my loan look like to a third party?

Immediately, it’s not looking good. No assets, no reliable source of income, and an insufficient credit history. Dig a little deeper and analyze the activity of the loan, and we discover that I was using the loan itself to pay the interest, and there was an “incident” on my record where I had gone over the maximum, for which my bank called my mother and let her know that they cleared my payments anyway.

I’m not saying the loan is worthless, but with an unsecured loan like this, a third party would be able to command a considerable discount when purchasing the loan. The Royal Bank in Streetsville, the original issuer of the credit line, is always in the best position to know what the loan is worth. Third parties don’t care about what a good guy I am, or what I plan to be when I grown up. When you summarize the stats, details like that fall off the table. This is why personal loans are always worth more to the issuing bank than a third party. Third parties can command serious discounts, because they will constantly stress they don’t know who the hell I am.

Collection agencies make a living like this. They buy other peoples’ loans in exchange for cash, but they always pay you less. That’s how they make their money - discounts. They are taking on the risk of collection.

But somehow, under the confused logic of Wall Street, our money managers weren’t under the impression that they were taking on collection risk. Oh no! This is a derivative! Have you seen what a shiny, fancy, black box that spews money from every direction even looks like??? We’re not a collection agency! Haha-LOL!!! We are sophisticated money managers!!!

The public pools of money bought these securities blindly, and overpaid for personal mortgages with our money. The packaged credit securities were too complicated to evaluate or understand, as our money managers demonstrated. It’s been well documented that surging house values was holding up everyone’s confidence in these Mortgage Bonds, while the ability of the borrower to pay back the loan was largely ignored. Needless to say, a personal loan is very much backed by the person who is borrowing the money. Which is to say, a drop in housing prices does not affect a person's ability to repay the loan. In hindsight, defaults/foreclosures have had a tremendous impact on housing prices.

As much as third parties try and objectify personal lending by calculating credit scores and appraising assets held for collateral, it can never compensate for a borrower that feels obliged to repay the loan. The junk bond logic falls apart with personal loans, because once you translate a person into a credit score with an asset, you have lost the most important piece of information: Trust.

So why did our money managers fall into a hysterical buying binge when it’s clear they didn’t understand what the product was? The popular answers are: corporate greed, short-term thinking, personal greed, bonuses, faulty valuation models, rating agencies, stock market madness in general, sub-prime loans, excessive risk-taking, the science of bubbles, Freddy and Fannie, Jim Cramer, Capitalism, Greenspan, Ayn Rand, CNBC, and now Goldman Sachs. Basically all things we can’t do anything about. These are all symptoms of the problem, but to see the problem itself we need to take a step back.

The problem is that we have propped up too many money managers who stand to benefit from other peoples’ money.

"Nobody spends somebody else's money as carefully as he spends his own. Nobody uses somebody else's resources as carefully as he uses his own. So if you want efficiency and effectiveness, if you want knowledge to be properly utilized, you have to do it through the means of private property."- Milton Friedman

When Friedman said this, he wasn’t talking about the Investment Management industry. His point was that big, bureaucratic institutions like the government didn't spend our money well. They still don't. And I'm saying Mutual Funds, Pension Funds and Insurance Funds act like big, bureaucratic institutions. I can't think of a single more bureaucratic organization than a corporation that has no true owner and is made up entirely of other peoples' money: the Fund. The essence of the quote is that if you want money to be spent wisely, the owners of capital (that's us! private individuals) have to stay close to the money.

We have allowed large private corporations to spend our money for us, expecting them to have the same sense of duty and responsibility as we would with our own money. This crisis wasn’t a failure in government regulation, nor was it a failure of capitalism. It was a failure of Funds to act in a capitalistic way. We are guilty too. We don't want to think about it. Just make my money grow, okay?

Combine that with our fear of the complex financial world, and it's only natural that we handed off the burden of personal financial decisions to “experts,” who represented us in a game they had no idea they were a part of. They played because they were being paid to, not because they were good at it. This is a game that we financed every step of the way. We paid the Fund to invest our money in Mortgage Bonds. We paid Goldman through the Fund, for the privilege of investing in Mortgage Bonds. Sometimes, we pay one group of Funds to invest in other Funds. We signed off on all of this.

In the fourth and final installment, we'll explore our big pools of money more specifically and see if we can get any of our money out of this ridiculous game. Perhaps more importantly, we'll try and determine what the hell to do with the money once we get it out.

Goldman on Trial - Part 2

In Part I, we discussed how the lawsuit against Goldman would serve more as a distraction than a resolution to the massive loss of wealth the world experienced. To fully understand what happened, it’s important to remember a couple of lessons we learned back in the 1980s.

Do you remember at the end of the Breakfast Club, when Claire started making out with Bender? It’s easy to understand why she did it. They had been cooped up in that library all day, revealing their cigarette burned souls to each other. Plus, if you're Claire, there's no better way to piss off your parents than to make out with a guy right in front of their car, as they come to pick you up from detention. Claire was feeling good; she was breaking the rules. But come Monday, you knew it was going to be awkward. How was Claire going to explain this to her friends? She didn't need this – not in her senior year.

That’s where the rating agencies come in. Our public pools of money can often act irrationally, in a way that has consequences in the long run. For decades, our public money sat in the safest types of bonds: Federal, Provincial, State, Municipal, and certain commercial bonds. A combination of regulation and ratings created a fence around the money, so it can't chase Benders.

The rating agencies issue a rating for each bond, and pensions are permitted to invest in only those bonds that have a high "investment grade" rating. In the past, the our pensions never invested in derivatives; they were real bonds that belonged to a single business. Ultimately, it is the rating agency’s blessing that allows our large pools of public money to be invested in anything.

There is something else from the 1980s that is critical to the story: Junk Bond trading. Investment banks were making a ton of money trading Junk Bonds. Traders discovered a profitable phenomenon. Because these bonds were rated poorly by the agencies, it meant that public pools couldn't buy junk bonds. But the public pools of money were so large and they represented such enormous demand, that it created a large disparity in the bond market. The demand for investment grade bonds was inflated in value, while the market for junk bonds thinned out so as to provide ample buying opportunities. Throughout the eighties, traders would buy junk on the cheap and profit with patience. Then a man named Fred Carr did something crazy.

In 1989, Fred Carr created a Collateralized Bond Obligation that changed the landscape of junk bonds forever. Carr worked at First Executive bank, and like every other bank at that time, they held a large portfolio of junk bonds. At the time, regulations required Carr to fully finance his reserves for these junk bonds. In other words, regulators were concerned that these junk bonds might default, so they made First Executive keep cash on hand, in case they failed. For every dollar of junk you hold, you must set aside a dollar in your vault. This was to ensure that First Executive could continue operations in case the bonds defaulted, or could not be sold due to market conditions.

Carr took all his junk bonds and pooled them together into a new corporation (Special Purpose Entity). Once all the junk bonds were in a separate entity, that SPE issued three types of shares. Class A would be guaranteed a return of 4%. Class B would get a return of 6%. The final class would get whatever was left over, and was by far the riskiest class since it was not guaranteed to get anything.

Carr knew that the risk of all the junk bonds defaulting at once was low. By pooling all the junk bonds together, he created a new financial instrument. Sure, maybe one or two bonds in the pool might default, but most of them would be fine. In the new pooling scheme he created, he could easily promise the first two share classes a reasonable return, while leaving the risk to the final share class that may or may not benefit - the risk of those few bonds defaulting fell entirely on the last share class.

After creating this new corporation that was made up entirely of junk bonds, First Executive proceeded to purchase 100% of the SPE. In reality, First Executive had the exact same portfolio as it did before the transaction. However, the way he had designed the shares of the new corporation (A & B shares being promised a fixed return, while the final share class bore all the risk of default), he was able to get around the reserve requirements. The first two share classes of the CBO would be rated highly by the rating agencies, and only the riskiest share class (aptly referred to as “toxic waste”), would receive a junk rating.

Previously, First Executive had to keep cash on hand for the entire pool of junk bonds. Now, they only had to set aside money for the riskiest share class. As a bank, there is an inherent advantage to keeping fewer reserves. It means they can lend more of their cash on hand, which means they can make more money. The risk to First Executive was exactly the same as before, yet by changing the legal form of their portfolio, they had persuaded the rating agencies using the junk bond logic of the 1980s.

For the next 20 years, everyone is doing what Carr did, except they're using mortgages, car loans and credit cards. Because the first two share classes receive the good credit rating, the public pools of money could now buy these products. And buy it they would. That public money has an insatiable appetite for above-average returns with investment grade risk. Add to that, it was in the bank's interest to facilitate these deals because they were incredibly profitable.

Rating agencies, often thought of as gatekeepers, opened the doors so our money could participate in credit pools that were previously restricted. Imagine, if you were Claire, and you showed up to school on Monday to discover that all your friends suddenly had a big crush on Bender. At that point, you don’t ask why; you just go for it.

Goldman on Trial - Part 1

Get used to Goldman being in the news for the next little while. According to this NY Times article, Goldman Sachs is being sued for knowingly packaging poor quality mortgages and other loans into a large credit derivatives bundle, and then selling it to the market. More than likely, the lawsuit is sparked by the fact that Goldman has been profitable throughout the financial crisis and it's really pissing everyone off. News of this lawsuit has triggered banks from other nations to begin investigations to see if they have a similar case. Did Goldman sell them shitty mortgage-backed securities too?

Winning this case is going to be next to impossible. Yesterday, I pretended to be a Goldman Sachs attorney while my father, quite angry over the matter, represented the prosecution.

Dad: How is this different than selling me bad apples? You hid the rotten apples at the bottom of the basket, so I didn't find them until later on.

Me: Let's make it a carton of eggs. If you walk out of the store with a carton of eggs, and discover that one is broken, is it the store's fault for selling you a broken egg or your fault for not checking? Don't buyers have to perform their due diligence on something before buying?

Dad: No. You knowingly made it hard for me to find these bad apples. You tied bows on top and hid them in a place where I couldn't see them until much later. And we can prove you knew this, because not only did you sell these apples to me, but after selling them, you short-sold the very same assets, fully knowing they were total shit and that they were going to drop in value. So not only did you gain from not holding them anymore, you actually profited from me losing.

Me: First, I think you have to agree with me that in a free market, you have to at least squeeze the apples before you buy them, or accept the bad ones if you didn't bother to check.

Second, since when am I not allowed to change my opinion on how I view the markets? Initially, we were happy to hold all sorts of apples here at Goldman. We had a very optimistic view of the mortgage markets, just like everyone else. But in 2007, it became clear to us that we might be too optimistic. We had to shed our risk by selling some of our mortgage-related assets. But since we were still holding on to some, we wanted to hedge ourselves by taking further positions reflecting our new point of view, that mortgage markets were inflated. We had to protect ourselves from the risk that there was a mortgage bubble.

Dad: But you knew they were bad assets. What if I can prove that you knew that?

Me: Even if you can prove that we knew that, how can you possibly blame us for wanting to protect ourselves. Acting in our self interest is not illegal. You had access to the same information on mortgages, so did Lehman, so did AIG, yet all of you continued to take the position that housing prices would continue to rise.

If you had come to the same conclusions as us, we would not have been able to sell those assets the way we did, we would have had to sell them for much less. But in any market, a seller is supposed to get as much as he can, while a buyer is supposed to pay as little as he can. If the real estate markets continued to rise, we would have lost and you would have won. Should Goldman then be able to sue you for being right?

It was at this point that my father became aggravated with me, and I had to hold his hand and remind him that I wasn't really a Goldman lawyer, and that I hated what was going on as much as he did.

My point was this is a very difficult thing to prove in court. There are some famous cases in derivatives law against Banker's Trust (Proctor & Gamble and Gibson's Greetings being the victims). In the P&G case, for example, Banker's Trust was able to persuade the Treasurer at P&G into entering risky interest rate swaps. At the time, interest rates were low, and P&G bet that interest rates would remain low. The treasurer there was making a tidy profit each month, which of course translated into better performance results for him as the treasurer.

In the early 1990s, the Fed reserve raised interest rates by a hair, and it came to be known that P&G had made some massive bets against rising interest rates. All of a sudden, P&G found itself trying to explain to its shareholders how it had incurred massive losses that had nothing to do with operations. It was natural for P&G (and similar victims) to pursue legal action against Banker's Trust.

P&G accused Banker's Trust of selling them something that didn't meet their requirements. They were sold a product that was excessively risky and complex, when really P&G just needed a simple hedge against interest rates. Their case, by itself, probably would not have held water, but as it turned out, Banker's Trust had been sloppy.

One of the traders was caught on tape talking to his girlfriend on the phone about how he was passing off risk to the P&G treasurer, and that the treasurer was clueless. In addition to this, the traders were caught talking to each other about how this deal was a "wet dream." Not only could they sell the swaps and collect a huge transaction fee, but when it came time to settling the cash involved, the traders had learned that P&G didn't know how to determine the payment. So Banker's Trust would call P&G and say, "so we're going to pay out at $89,000," and the treasurer would agree that this number sounded reasonable. Then they would hang up and giggle to each other about how they really owed ten times that amount.

Banker's Trust ultimately settled. They had to because the behavior of the traders was not about to gather any sort of sympathy. We will see if there is evidence of Goldman acting in a similar fashion, and surely if there are phone calls to girlfriends, and emails about how stupid the rest of the world is, they too might start to scramble. Currently, their stance is to claim this entire lawsuit is completely unfounded.

When the entire financial system collapsed in 2008, when small banks were allowed to fail, we effectively destroyed trillions of dollars. That was our money. All of us. The US government should be looking for a way to permanently change the structure of the financial system instead of trying to recoup a tiny fraction of the losses.

Pursuing legal action against Goldman will not fix the problem that hit all of us in the face in the fall of 2008. I'm skeptical about their chances of success in the lawsuit, but the bigger issue is that this lawsuit isn't suddenly going to scare those with better information from taking advantage of the weaker players in the market. Unfortunately, the pursuit of justice will only serve to distract us from the real issue, which is that the financial system has become an uncontrollable monster that very few people understand, and that nobody can control.

China

Although China and the United States don’t always agree on everything, their recent dealings have suggested that they were meant to be together. After spending so many years courting China, trying to get the timid nation to open its doors to global trade and business, China eventually came around and the two nations have been riding a honeymoon high ever since.

But things have been a bit rocky recently. They are staring right into each other’s eyes, faces void of expression, suppressing contempt for all the annoying things the other one does, realizing that they don’t have very much in common, and trying to search through the haystack for reasons to stay together.

In January of this year, I posted a piece discussing how we are witnessing the decline of the US dollar as it slowly loses status as the world’s reserve currency.

The price of gold, which was the world’s original reserve currency for centuries, continues to rise, as Investors try to find a safe place to park their money. Greece is being bailed out as it would otherwise have defaulted on its sovereign debt. In the past, this would have been a time where investors blindly purchase the Treasury notes of the greatest nation on earth.

But institutional investors are hesitating as America’s balance sheet continues to accelerate towards insolvency. There is no plan in place to reverse this. Let’s not even bring up the fact that they will have to incur more debt to finance further stimulus in an attempt to end the recession (or what they like to call “jobless recovery”).

Until now, America’s saving grace has been its relationship with China. China is the largest lender to the US, and the main reason is trade. China’s explosive growth for the last two decades is completely attributable to their ability to export manufactured goods, and America is their largest consumer. However, the natural balance of trades when one nation (US) continues to import from another (China) is that China’s currency will rise in value versus the American Dollar. As this happens, it becomes more expensive for Americans to purchase the same goods. That isn’t good for production (China), or consumption (US).

To offset this natural movement in the foreign exchange rate, China lends money to the US by purchasing American Treasury bills. Because these amounts are so large, it pushes the value of the American dollar back up relative to the Yuan. America takes the money it receives from the proceeds of these T-bills, and subsequently lends it out to banks. Banks lend it out to the rest of the economy, and they continue to purchase goods from China. This relationship is what allowed China to experience an industrial revolution for the very first time.

I encountered these facts in one of my most recent readings, The Ascent of Money by Niall Ferguson. He continues by saying, “…the importance of net exports to Chinese growth has declined considerably in recent years.” This implies that making goods affordable for Americans is becoming less important to the Chinese economy.

That statement explains a recent move in the markets by the Chinese government. In this article, the Associated Press mentions how a $5.8 Billion sale of US T-bills by China can potentially raise the cost of borrowing for the US in the future.

The value of bonds is inversely related to interest rates, so such a market move would raise interest rates in the US economy. However, rising interest rates will have detrimental consequences for an economy mired in a recession, as it would contract the money supply and stifle growth.

To top it off, China is trying to have its cake and eat it too. It is in the unique position of centrally controlling its foreign exchange rate, which means as it slowly tip-toes away from being America’s biggest lender, it can simultaneously offset the natural rise of its own by setting its currency exchange rate too low in order to retain its export advantage. The Americans find this practice unfair, as a low Chinese currency means they are able to retain an export advantage over the US and other nations. Because the US is trying to spark production in its own economy, things are heating up.

So now it becomes a political exercise for America to have other countries continue to purchase their bonds and hold the value of the US dollar up. We used to call America the most powerful nation in the world, but that’s no longer true. Power comes from position – you can only have power if others are dependent on you.

I mention Ferguson’s book as he spends a chapter discussing what he calls the symbiotic relationship between the two nations. He makes a bold prediction that we should expect to see tensions between the two nations as China becomes less dependent on the US. He even goes as far as saying we shouldn’t be surprised if it comes to war. In this Newsweek piece, he elaborates on some of the ideas he introduced in the book.

As alarming as that sounds, it’s not an unreasonable conclusion given that every single war mankind has fought could easily be expressed as a battle for economic resources and prosperity. Sure, there are other reasons too. China’s policy on human rights, the questionable credibility of its economic data, currency manipulation…the list goes on. America happily swept most of this under the rug while times were good.

But I understand what America is going through. It hurts to think about China going off on her own, making new trade relationships. At G20 meetings, every nation is hovering around her, laughing at all her jokes even though she’s not that funny. It’s almost as if she used America’s ability to consume goods in order to develop her own manufacturing infrastructure. And now she thinks she’s all that? Does she honestly think she can do better? The natural economic response to a situation like this is that America has to get a much hotter trophy girlfriend instead of whining and complaining about how annoying China is.

We Are Hunted

Here's a new way to find music. Sure, it's just another list. But how they have compiled it is what intrigues me. In their own words:

We listen to what people are saying about artists and their music on blogs, social networks like Facebook and MySpace, message boards and forums, Twitter and P2P networks to chart the top songs online everyday.

You can listen to the entire song and buy it directly from the site. We are beginning to see very unique commercial uses of social networks like twitter and facebook. By organizing all of the clutter from our Twitter/Facebook pages and tracking popular songs, We Are Hunted is able to extract and compile a list we have never seen before.

This is similar to what I spoke about months ago in the use of Twitter for certain stock market traders. In this piece, market traders who believe that the herd will overvalue/undervalue stocks can use Twitter/Facebook/etc to harness the public market sentiment of a stock at a particular time. If they believe the herd is irrational, then they are trying to time their bets against the herd to profit from massive irrationality.

The technology is out there and it's working. If you can think of a particular piece of information to mine from the Twitter/Facebook data set that would have value to someone, it would appear that you're in business.

Taxi!

Torontonians are tolerant people, but ask them about taxi drivers and they will slap you in the face with their frustrations. I’m no different.



Just the other day, my sister and I were going to a house party and we got this: "Can you tell me where that is? I forgot my GPS at home." I shook my head and my sister rolled her eyes. We kind of smiled and stayed quiet, and then my sister asked him, “Maybe you should know where you're going before you start driving.” She actually knew where it was, but I think we were both in agreement that this guy would have to figure it out. Maybe it was the brash way he spoke to us, or the fact that he put us on hold rather than the person on the cell phone, but we enjoyed watching him struggle.



On our way home that night, we settled into a cab and told him our destination, at which point he conveniently remembered that he had to be somewhere else. No eye contact necessary for this one. “Why couldn’t you tell us this before we got in?” “Why is your light on in the first place?” As we were getting out of the cab, a lone girl was about to get in and we didn’t allow it. “Oh, he’s got to be somewhere else!” and when he tried to talk to the girl we cut him off and told him to turn his light off and go away. At this point, if he was going to get another fare, it wasn’t going to be on this block. We were more than happy to waste our time preventing passengers from getting into his cab.



I understand why he did this. He was trying to be efficient. They don’t want my $12 fare, because those 10 minutes might cost them a $75 fare to Mississauga. In other words, it’s better to sit idle and wait for that fare instead of taking us home.

The best fares are a combination of distance and speed. You only need few of those to have a good night. But in fact, it is illegal for a cab driver to refuse a fare in Toronto (unless the driver feels threatened, or if you’re destination is out of Toronto).

Our taxi force is mostly made up of immigrants that can't find work elsewhere and it's getting crowded. It takes a mere 17 days to get a license. I talk to enough cab drivers to know that driving a taxi is just a bridge until something better comes along (taxis and security are the best jobs to have when you are looking for other jobs). It’s a treat to find a cab driver that is actually interested in being a driver. It begs the question: is there another way?

When it comes to Taxis, there's the London way of doing things, and then there's everything else. To become a Black Cab driver in London, England, there is a rigorous examination process that takes applicants, on average, four years complete. "The Knowledge" requires you to learn about 320 routes covering around 25,000 streets and landmarks.

This means being a taxi driver in London isn’t just a job, it’s a career. Because the process weeds out people who aren’t really dedicated or interested, it secures a better lifestyle for cabbies in London. It protects their income because only they can do what they are doing.

It’s also better for the city overall in terms of productivity. London is moving people around faster, which is obviously tough to measure, but a true benefit in a city riddled with traffic congestion.

However, there are downsides to having talented taxicab crew. Have you ever stumbled out of the bars in London at five in the morning? You won't see any Black Cabs waiting. If you ask around, people will point you to the buses. Of course, you'll completely laugh at this idea. If you ask around a little more, people will tell you a secret.

Depending upon your luck, a stranger will pull up in a car and ask you if you need a ride. He will urge you to quickly get into the car so the police don’t see this happening. The secret is that people in London make extra money in the evenings because they moonlight as unlicensed cabbies. These drivers profit from the fares that content cabbies leave behind. But this leaves lonely passengers susceptible to strangers with cars, a dangerous proposition for a simple ride home.

The way Toronto's current system works is to let taxi drivers figure it out for themselves if they are making enough money to live. It is assumed that the ones that make the least amount of money will drop out. It's self-regulated, dog-eat-dog style.

I'm not suggesting a massive reform to copy London's system, but it can't hurt to make the standards a bit higher. We would be protecting the income of cab drivers that plan to do it for a living. We would improve the quality of drivers on the road as well as reduce congestion. We can also stop raising fares so frequently, because the remaining cab drivers would have more work available (freezing fares and reducing the number of drivers helps the remaining drivers but not the cab companies, but I don’t worry about the companies based on the way they treat new cabbies).

I've had a lot of great cabbies, but there is one I'll never forget. When I entered the cab, he asked my permission to avoid the highways because, as he put it, "I have to keep moving." I looked at the clock and figured we had enough time to pursue his neurotic experiment. Was he actually planning on taking backstreets all the way to Pearson airport from downtown Toronto in the thick of rush hour?

That's exactly what he did, and it took him less than 25 minutes. He drove like he was white-water rafting, recognizing the current and letting it take him, but only occasionally re-directing himself toward our destination.

When I asked for his card he said he didn't have one. This guy knew the magic tunnels to the city and I was never going to see him again. I want to meet more cabbies like him. Don’t you?

Oh Canada! Wooh!

There was no way I was going to watch this game at home. My friend Steve met me outside of Hooters about an hour before the game. They were full. We raced to every other bar we could and it was the same story. We finally hit the King St. West Gabby’s (full too) when they informed us that the King St. East Gabby’s had lots of space still. Steve was in disbelief that the bars could be so full, so early, and I said to him, “Dude, this is the biggest hockey game in the last…” and I paused when he finished my sentence for me, “in forever.”

I can remember childhood sleepovers at my cousin’s house where my Aunt made us go to the library to do some reading. It was a forced break in the non-stop street hockey playing action. However, we had found a loophole. We spent the entire time in the video section of the library, where we scoured through the collection to find a documentary on the 1972 Summit Series. We became obsessed with it.

The heavily favoured Canadians were up against what was an underestimated and mysterious opponent, the Soviet Union. The Russians took the Canadians by surprise with their unbelievable speed and lightning quick passing. Their goalie, Vladislav Tretiak, is now heralded as one of the greatest goaltenders of all time. Valeri Kharlamov was doing stuff like this which made Canadians nervous. I watched the Kharlamov highlights over and over again, almost breaking my Aunt’s VCR.

The series went to the eighth and final game in a dead heat (3W, 3L, 1T). I’m skipping over the part where Phil Esposito made an apology to all of Canada on National Television, promising the country that they would try harder. The Canadians had to win this game. And then, Paul Henderson scored the game winner, a moment simply known as "the goal," a highlight that would be replayed over and over again for decades to come.

Nothing will equate to the 1972 Summit Series. It was the first international professional hockey competition of its kind. The fact that our opponents were secretive and played an entirely different style in contrast with the NHL made for interesting hockey. And let’s not forget, it was during the Cold War, which made it even more symbolic (beat Communism!).

But Sunday's gold medal match against the United States will be an adored Canadian memory. The story had everything, including a picture perfect ending. We came in as favourites, the US surprised us in the tournament with a dominant goaltending performance by Miller. We had to brace ourselves for one last match against an undefeated US team. The Americans broke our hearts with only seconds remaining in the third period. And then, Crosby scored the goal.

Steve was dizzy from screaming so loud after the goal. I had never handed out so many high fives in my life. On our walk to Dundas Square, anytime Steve yelled “Woooh!” someone would echo back. People were playing street hockey downtown. Everywhere we went, we all sang our National Anthem in unison (unlike Auld Lang Syne and other similar songs often sung by drunk people in unison, I realized on this night that Oh Canada is the only one I can sing with passion and not feel weird about it).

I’m not normally much for spirit, but I couldn’t help but be engulfed. Because Canada is composed of so many different cultures, it’s hard to find a single uniting cause. Sunday night, I lost myself in it.

It was a perfect night. The hockey game climax rolled right into the closing ceremonies. By now we were at another bar, and they were showing highlights from the entire Olympics, including the goal by Crosby. The guy next to me said, “They should just play that goal over and over, eh?” I couldn’t agree more.

The Waiting Room

Every couple of years, I pay a visit to one of the shittiest places in Toronto: Rexdale. In the mid-1980s, my family was poor and the five of us lived snugly in a two bedroom apartment there.

I was too small to understand, but my father was in a deep hurry to move out of that area. Rexdale was (and still is) a hotbed for poor immigrant families just starting out. Success meant you could graduate to some place like Mississauga, much safer and quieter in comparison. My father's career had a habit of failing immediately after succeeding, and housing five people in a two bedroom cement block was how you got your bearings during the lows.

When we finally moved, we were proud to leave everything behind. So what draws us back to Rexdale every so often? We come back to get our eyes checked.

Now, I'm sure everyone thinks their optometrist is the best, but Dr. Snow is seriously the best. He caught a hole in my retina a few years back when there was no reason to be looking. He could have prescribed me glasses when I was a kid but didn't because I was a borderline case (this is honourable because he makes money from selling glasses). My sisters praise him too.

But he's not friendly or hospitable in anyway. To be honest, I still get nervous when he asks me questions, because he has absolutely no patience for vague answers. For example, here is something that happened in my last visit:

Snow: Does anyone in your family have Diabetes?
Umar: Well...um…do you mean my immediate family?
Snow: Okay, let me repeat. Does anyone in your family have Diabetes?
Umar: Yes. But nobody in my immediate family.
Snow: It would help if you told me who it was.
Umar: Right…um…
Snow: For example, it is your father's mother?
Umar: Yes, actually my father's mother had diabetes.
Snow: Thank you. Who else?
Umar: Uh...also my mother's brother.
Snow: You mean your uncle.
Umar: Yes, my uncle. Sorry.

I know by now not to mess with him when he's flipping lenses in order to determine my exact prescription. You only say that lens 1 is better than 2 when it's clearly better. Otherwise, just say that it's the same. It's okay if he's mildly annoyed that you can't spot the difference between the two lenses. He will just sigh deeply, and continue to repeat the same sequences over and over. What you want to avoid is saying something like, "um....I think the first one is better." He totally loses it if you say you “think” something. You need to assert yourself. Man, I love that guy.

But this isn't about Dr. Snow. It's actually about the hour I spent in the waiting room. I listened to two men who spoke to each other with excitement in an otherwise quiet room. They had been re-united. They had worked for the same company a while back, and had lost touch since that company folded.

As they ran through the missing details in each others' lives, I couldn't help but notice that it was the same story repeating itself: company failure. As it turned out, both of them had worked for several different Ontario manufacturing companies in the area since the 1970s. One was an engineer and the other was in sales.

Personally, I've only worked in the service sector and from what I’ve seen people have a tendency to skip from job to job. Not only is there no desire to stay at a company for a long time, but there are rarely consequences to flipping jobs every few years.

These men didn't do this by choice. They had to leave because their companies kept dying. They talked about it with such nonchalance; reciting the names of fallen companies as if they were reminiscing over their favourite films.

I managed to enter the dialogue by sneaking in a question about manufacturing and its future in Ontario. Everyone in the waiting room got involved at this point. Below are some snippets of what was said, which I found to be both frank and enlightening:

"What was it Lee Iacocca used to say? It's all a big circle, you see? If you don't have the people making the cars, you won't have the people buying the cars."

"The worst mistake management made was to open their books and show the unions the money. They never had control after that."

"Free Trade messed everything up for us. We couldn’t compete after free trade."

"The thing is none of these companies lasted long enough for me to get a proper pension. But I'll be okay. I work every other week designing basketball courts for schools in Ontario. But believe me, son, it's not like in the commercials. Freedom at 65 was it?

“Actually, It's 65 now. They used to say 55!”

We all laughed at this, but when I turned my head Dr. Snow was waiting for me with his arms folded.

A Falling Empire

There is nothing more symbolic of America's economic reign than the US Dollar. You can trace the power of the Dollar back to World War II, where America not only emerged as political and military leaders, but the Dollar supplanted the British Pound as the world's most reliable currency. Although there were ups and downs before, there is something very significant about the current US Dollar decline we are witnessing.

What followed the War was sheer economic domination by America. Sure, they had some ups and downs, but in the end you could always count on Maverick to come through in a dog fight against 18 Russian Migs. That’s right, America’s economic reign was exactly like Top Gun. They broke all the rules, relied on talent and guts, beat all the bad guys, got the girl, and finished everything off with an epic 80s guitar solo anthem.

Being the World’s measuring stick has a tremendous advantage. When asset prices collapse, like they did in late 2008 during the Financial Meltdown, the safe place to put your money was a reserve currency. When the housing bubble burst triggering the meltdown, trillions of dollars went into US Treasury notes, increasing the demand for the American Dollar. Warren Buffet said that we had all just witnessed a new bubble form, and he was right.

But Empires don’t fall overnight. I always look back to what America did in 2003 as their fiscal point of no return. They committed to the Iraq War (the War that gained them nothing in terms of National security) and the combination of expenditure without the means of raising funds internally relegated the nation to decades of deficits.

The White House Accountant, David Walker, tried to warn the administration that this was not only unsustainable, but dangerous. He was forced to resign soon after that. What followed was a completely reckless monetary and fiscal plan, justified by the idea that the US Dollar wouldn't face any consequences simply because everyone needed the Dollar. Their currency wasn't like gold - it was gold, and they had the ability to print as much gold as they wanted.

Fast forward to today, and at this point their situation is laughable. They just spent a ridiculous amount on stimulus, and it wasn't nearly enough because they are still entertaining double digit unemployment figures. Walker has gone on the record, stating that the United States is “underwater to the tune of $50 trillion” in long term obligations.

Let me be clear. If this was any other nation, the entire World would have been on the phone asking for their money back. All US T-Bills/Bonds would have been severely devalued because the nation has no reasonable plan or prospect to pay its debt back. Their credit rating would have been diminished, and American hedge funds and investment banks would have been shorting the currency itself (engaging in a variety of contracts to sell the currency both now and later), which would serve to exacerbate the problem even further.



And so, I give you the signs of a falling financial landmark:

When India moved a large sum of money into gold, that was not only a wise economic move, but it was interpreted as a signal that no longer are they going to blindly keep using the US Dollar as their reserve.



Think about this. They moved their money into a commodity that hasn't lost value in over thousands of years, and this is somehow considered a speculative move as compared with purchasing US Dollar notes, pieces of paper backed by a promise to pay by a nation with an exponentially growing debt and no real plan to repay it.



Before the recent financial crisis, there were only whispers among the other World leaders about establishing a new measuring stick. Now there is an open and frank dialogue, because basically nobody wants to rely on the greenback anymore. They are working on new global currency. It wouldn't be a national currency, it would be something synthetic, representing all the nations collectively (think of the Euro, but more widespread).



I've read several articles giving the recent drop in the US Dollar a positive spin. They will point out how we've seen declines like this before (70s oil crisis and late 90s as well we saw CAD/USD at par). When you study the charts, they will show you that the US Dollar will always climb back up.

But that’s irrelevant. I’m not saying the US Dollar won’t make some sort of recovery in value. I’m saying our entire concept of how we define that value is about to change, and all America can do is watch.