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What Gives

By James Howard Kunstler
on January 16, 2012 9:55 AM

The awesome exertions of the global banking system to evade the mandates of reality finally yield in a sickening slippage to epochal unwind. What a bad idea: to try to juke nature itself. In case you weren't paying attention over the weekend - and who really wants to? - the cosmic Brinks truck of free money went over a cliff, and the darn thing will keep free-falling until (at least) the American markets open again on Tuesday.

So, everybody and his uncle over in Europe got a sovereign debt downgrade and now the math changes for all the pretend bail-outs and back-stops that had been so exquisitely rigged through the long, nauseating autumn. Math is an annoying representation of reality, but hard to argue with. Bail-outs and back-stops finally became unaffordable even as poetic constructs.

Thus, we also approach the dreaded inflection point for the credit default swaps. Nobody believes that this Mount Everest of jive bond "insurance" can actually pay out, since the first instance of any attempt will bankrupt everybody. And yet there are the holders of all that paper who will object to, say, an 80 percent haircut on their Greek (and other) bonds. Surely some of them will try to invoke their CDS contracts. What then? Three possibilities that I see: 1) all parties and counter-parties go down the drain faster than you can say Benedict Cumberbatch; 2) all parties declare in unison that CDS were a prank that should now just be ignored, as if the cast ofDownton Abbey showed up naked at the dinner table; and 3) every sort of loan on God's Green Earth is instantly re-priced and the entire world turns into a flea market. How will America do with its stock of slightly pre-owned Dunkin' Donuts stores, a million-odd Elvis lunch-boxes, and all those old videos ofFriends? Don't you wish you'd invested in some hand tools?

ΜΟRE

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