Singularity and the Event Horizon in the Financial Crisis

Singularity is defined as:

1. the state, fact, or quality of being singular
2. something distinguishing a person or thing from others
3. something remarkable or unusual
An event horizon is defined as:
the surface of a black hole : the boundary of a black hole beyond which nothing can escape from within it.
There is nothing in the entire universe that does not start with a single event or a single person’s actions. Nothing.  As I pondered that thought the other evening, I brought it to bear in context of the current global economic crisis. We tend to think of these things as a group of actions that precipitate the events.  However, when you consider that credit derivatives (CDS) seem to be the weapon of mass destruction, the first question that comes to mind is where did CDS’ come from in the first place.
First, there is no doubt that CDS’ are the culprit.  Consider these statements from some of the world’s leading experts in the matter:
  • A Nobel prize-winning economist (George Akerlof) predicted in 1993 that CDS would cause the next meltdown
  • Warren Buffett called them “weapons of mass destruction” in 2003
  • Warren Buffett’s sidekick Charles T. Munger, has called the CDS prohibition the best solution, and said “it isn’t as though the economic world didn’t function quite well without it, and it isn’t as though what has happened has been so wonderfully desirable that we should logically want more of it”
  • Former Federal Reserve Chairman Alan Greenspan – after being one of their biggest cheerleaders – now says CDS are dangerous
  • Former SEC chairman Christopher Cox said “The virtually unregulated over-the-counter market in credit-default swaps has played a significant role in the credit crisis”
  • Newsweek called CDS “The Monster that Ate Wall Street”
  • President Obama said in a June 17,2009 speech on his plans for finance industry regulatory reform that credit swaps and other derivatives “have threatened the entire financial system”
  • George Soros says the market is still unsafe, and that credit- default swaps are “toxic” and “a very dangerous derivative” because it’s easier and potentially more profitable for investors to bet against companies using them than through so-called short sales.
  • U.S. Congresswoman Maxine Waters introduced a bill in July that tried to ban credit-default swaps because she said they permitted speculation responsible for bringing the financial system to its knees.
  • Nobel prize-winning economist Myron Scholes – who developed much of the pricing structure used in CDS – said that over-the-counter CDS are so dangerous that they should be “blown up or burned”, and we should start fresh
  • A leading credit default swap expert (Satyajit Das) says that the new credit default swap regulations not only won’t help stabilize the economy, they might actually help to destabilize it.
  • Senator Cantwell says that the new derivatives legislation is weaker than current regulation
So who “invented” the CDS?  Meet the Mistress of Destruction:  Blythe Masters

Blythe Masters is Managing Director and Chief Financial Officer ( look surprised!) of J.P. Morgan Investment Bank. Previously, she was a Managing Director and Head of the firm’s Global Credit Portfolio and Credit Policy and Strategy Groups. In that role, her responsibilities included the proactive management of credit and market risks of the bank’s retained credit positions arising from lending and derivatives activities, as well as developing credit strategy, policies and limits to measure and control credit risk and coordinate the financial and risk reporting of the firm’s credit activities. Masters served as 2003 Chair of the Corporate Credit Markets Division and is Co-Chair of the International Swaps and Derivatives Association’s Credit Derivatives Market Practices Committee. She received a B.A. in economics, with honors, from Trinity College in Cambridge, England.

Masters, who hails from the same clod of soil as Harriet Harman, is apparently an even greater monster, having been the creatrix of Credit Default Swaps. Blythe Masters learned how to sew body parts together at Cambridge University, and got her lab, electricity supply and a hunchbacked personal assistant named Igor from those great humanitarians at JP Morgan. Masters was also once quoted as saying that her fiduciary nonesuch was the equivalent of “a free lunch”, something which of course, unless you are a food critic, simply doesn’t exist.

A trader and a manager of global credit derivatives and structured products business. The head of Global Credit Portfolio and Credit Policy and Strategy. And just prior to that position, the Chief Financial Officer of JP Morgan’s Investment Bank. Her CDS scheme has made JP Morgan not billions, but trillions of dollars. $4 trillion to be precise.

This is the single person responsible for bringing down governments, crashing economies, bringing untold hardships to hundreds of millions of people.  Quite frankly, historically given the amount of devastation she has caused in the world, she should be right up there with Hitler, Stalin, Rasputin, Saddam, and others.  When you look at the cost of the damage in real dollars, the devastation of World War Two pales in comparison.

However, I bring this to light not to rail on Mistress Masters as one might think.  I point it out to illustrate the power of a single individual in our reality.  Although this certainly is indictment as to how destructive one individual’s thought and intellectual creation can be, it also points out the power we all have.  The potential to affect the entire world and civilization as we know it.  WE ARE VERY POWERFUL, all of us.  The question is:  Where is our Blythe Masters in the “white hat” to counter the forces of greed and hubris? It is hard to believe and I won’t accept the fact that not one politician, one world leader, or one financial mogul will step up and end CDS’. Not one in the whole world.  I know you are out there and you want to do the right thing.  DO IT. STEP UP. If nothing else Blythe Masters proves it can be done.  One person can change everything.


Author: redhawk500

International business consultant, author, blogger, and student of life. After 35 years in business, trying to wake the world to a new reality. One of prosperity, abundance, and most importantly equal opportunity. it's time to redistribute wealth and power.

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