Into The Grey Zone The future is always a grey zone, never black and white.

Personally, I mark the "public" moment of this financial crisis to July 2007, when two Bear Stearns hedge funds were both completely wiped out. Neither had anything to do with oil or oil trades. Both were highly leveraged funds that were simply in way over their heads. And those funds were symptomatic of the entire financial industry at that time.

One commenter over at The Automatic Earth was recently disparaging comments he read over at Zero Hedge. I began a reply but it became long enough that I felt it better placed here instead.

From the February 6, 2010 discussion at TAE, people were asking about timelines and population targets. This post is an attempt to answer that question in slightly more detail. An in-depth look at this topic could cover multiple volumes.

Ham radio operators were fired upon when they tried to reach Port Au Prince to assist in setting up communications. They were fired upon by escaped convicts. Gangs return to Haiti slum after quake prison break. The gangs also went to the Justice Ministry and burned everything that still stood in order to destroy all criminal records forever in Haiti. They are armed with automatic weapons. They are killers. And now they are back in the population, en masse.

People assuming hyperinflation are assuming that the cash injected into the system will be spread equally or nearly equally, resulting in competitive bidding with more dollars for the current pool of goods and services. I believe this assumption to be in error.

How do we fix it? This is a question I hear over and over again. People want to know what regulatory reform to take, what laws to pass, what criminals to prosecute, all in order to "fix" the system. Another variant to this question is "How do we undo the damage done so far?" Each of these questions assumes that the system continues as-is, that is to say, broken, or that the system gets fixed. In posing the question, the biases of the questioner are exposed. I'm not suggesting malicious intent on the part of those asking these questions, but rather culturally imparted ignorance of the alternatives.

Commercial real estate turned uglier this month, as expected. Many people have lost sight of the fact that October 15th was the end of the extension period filed by businesses for filing 2008's taxes. Many small businesses took this extension hoping that 2009 would provide the growth and the revenue necessary to pay 2008's tax burden. Alas, it was not to be and as these small shops close down, the commercial real estate they occupy now becomes vacant and non-paying resulting in further deterioration of the CRE market.

The US government continues borrowing at a pace that seems beyond absurd. For September 2009, the Treasury borrowed $572 BILLION dollars in that month alone. As I write this it is only October 7th, yet the Treasury has borrowed $130 billion so far this month. These numbers are so absurd, so far beyond the pale that I don't think anyone really understands the magnitude of this mess. And yet at the same time, asset values continue to collapse. Deflation is clearly winning this game but the government printing press is going to have an impact even in deflation, mainly in the form of transferring your wealth to the robber-barons of Goldman Sachs.

Over at Calculated Risk, I was recently compelled to respond to a story about homelessness. I like Calculated Risk. I really do. But I feel that its author ignores one of the key aspects of this entire recession - fraud. My comment that I left there is below the fold, reproduced here since I'm not sure the blog owner will allow it to stand.

Taylor, Bean & Whitaker Shuts Down Lending Operations. One of the last large independent sources of mortgage funds is being shut down. Loans that were in the pipeline are dead and will not close. TBW laid off 5000 people yesterday as well. Additionally, TBW is tied tightly to Colonial Bank who has already reported negative core capital ratios (which are grounds for shutdown and seizure by the FDIC). If you read the article, Colonial's rescuers was... TBW! And now TBW has been shut down. Colonial is a dead bank walking. The only question is why hasn't the FDIC shut them down? Karl Denninger (amongst others) asks Is The FDIC Broke And Covering It Up? It sure is starting to look that way.