Monday, March 26, 2012

Prediction: Next Crisis from Risk with SPEs&Ds...L&C

 Do you know what SPEs are? Companies use them in many creative ways, but mostly to hide debt to allow them to borrow money at low rates. The concept should be banned or at least modified so that the effects to the financial health are known and understood. Even then, because of our human nature we are still prone to take on more risk than we should. Let me digress.
does that name ring a bell? They specialized in Special Purpose Entities(SPE). They would start a new company under one of their directors and place some assets with it. They would then borrow, say $100 million and immediately move the money to Enron's coffers. Hey, our Federal Government does the same thing. LBJ put the Viet Nam War off the books, as well as recently with G.Bush. This is corruption! ...but don't let me go off the handle because Social Security, Medicare and federal pensions are also unfunded and off the books to the tune of $54 trillion. Man, we are doomed...
In More Ways Than One
Why? Gerald Wilde, a Canadian psychologist tackled the same question in his book, Target Risk. He found that humans have a tendency for lower risks in one area by taking greater risks in another. This is the same problem NASA had with the O-rings on Challenger. Sure they showed wear & tear, but they held. Blast off! This is why I predict that a crisis will arise from SPEs, probably attached to some form of derivative, which by the way has global risk to the sum of over $500 trillion or ten times the value of the entire world. We are so doomed! If there was one place to begin anew and try to a step-by-step approach back to normalcy, I'd say,"END the FED!"
LIARS and CROOKS: See above with debts that are not under liabilities on our book keeping.