By Charles Hugh Smith
Of Two Minds
October 23, 2010
When financial markets have become riddled with fraud, embezzlement and corruption that goes unpunished, then institutional players will avoid that market as crooked: the well has been poisoned.
The full consequences of what I termed The Rot Within: Our Culture of Financial Fraud and the Anger of the Honest (October 15, 2010) are now unfolding: the well has been poisoned. One of my most astute correspondents made a critical observation that I've seen nowhere else: once a market has been poisoned by fraud which goes unpunished, then institutional players will avoid that market as untrustworthy.
Without institutional trust and participation, the market then withers on the vine-- exactly what has happened to the U.S. mortgage securities market. The market for mortgage-backed securities has vanished, except for one player: the Federal Reserve, which has bought a staggering $1.2 trillion in the past 18 months to create the facsimile of an active market.
The well has been poisoned. The only mortgages being traded are those 100% guaranteed by the U.S. government: in effect, the risks intrinsic to a corrupted market have been shifted to the taxpayers, while the criminals who profited from the fraud and embezzlement got away scot-free.
Continued. . .
October 23, 2010
U.S. Financial Markets: The Well Has Been Poisoned (Anger of the Honest Part II)
U.S. Financial Markets: The Well Has Been Poisoned (Anger of the Honest Part II)
