It’s Like Speculating on the Mafia

February 6, 2013
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I highly recommend viewing one of Brazil’s biggest box office hits ever is “Tropa de Elite II” (trailer), which is a very intelligent film about the “sistema,” or corrupt system, in Rio de Janerio. It’s available  on Netflix (with subtitles) in the instant play/streaming section. The story involves the sleazy criminal alliance between a group of corrupt  politicians and corrupt police militia (corruptos), who move into a vacuum after the traficantes (drug dealers) and vagabundagem are run out of several of Rio’s largest favelas (slums) by Rio’s special police, the BOPE.  The corruptos (some of the best villains in film history) then take over the favelas unchecked, and in mafia style, exploit and control the communities through violence and intimidation.

The reason I mention this is that I strongly feel the global financial system especially in the developed nations, is nothing more than a sophisticated Mafioso-style sistema that’s working in conjunction with corruptos in government.  To speculate as a bull in this market is essentially the equivalent of trying to place bets on this Mafioso and the same kind corruptos who run Rio’s favelas in the not-so-fictional film.  These are the kind of people who will cut the throats of those making the bets in a heart beat.

This overtly criminal alliance will stop at nothing to rig and manipulate markets,  loot and steal, destroy transparency, lie and cover up misdeeds, and roll over anybody who gets in the way.  The stories about PM Ranjoy in Spain and Mario Draghi’s nonexistent “supervision” of Banco Monte Pashi ["EU's Systemic Corruption makes Solving Crisis Impossible"] are par for the course.  Just as in “Tropa de Elite II,” the sistema excels at scams, set ups, extortions, and negative selection of officials.

Just like the real Mafia, sometimes capos and underlings are expendable or need to be muscled:  case in point: Gangster Attorney General Eric Holder’s pursuit of stooge and sycophant Standard and Poor. Of course no one would suspect the U.S.’ phony AAA rating has anything to do with Holder’s move, heck no. The mysterious, middle-of-the-night bids whenever a little downside materializes in the market is symptomatic of capture by government in concert with large international banksters. Thursday, there was a story of an unknown algo accounting for 4% of the market’s volume, etc, etc. And then there is the constant stick saves of  puny yield securities of a nation now running 105% debt to GDP.

I’m not quite sure how one navigates a thin market run by criminals.  I don’t think it’s as simple as playing wash, rinse, repeat POMOs from the Fed and I certainly don’t think outsiders can bet on the sistema.  Since I feel money is being destroyed by these criminals,  I need to respond. For me, it comes down to the distortions and the fact that fictitious capital needs even more fictitious capital to sustain itself (a Ponzi).  A Ponzi ultimately collapses because it’s  supported by weak economic conditions.  Secondly a criminally run Ponzi always needs more suckers. Once the early players in a monster Ponzi like this one bow out, the chain can collapse regardless of the extent of Mafioso rigging and fabrication. Seth Klarman at Friday’s CSIMA conference probably put it best, suggesting that distortions in markets created by governments cause 100-year storms every three to five years, and that one is certainly brewing now.

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