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How they’re playing the game

Roughly once a week, I admonish myself for spending too much time reading financial blogs. “Focus on the positive,” I tell myself. “Raging at politicians and banksters is a waste of your life energy. Build an alternative reality to theirs. Go and plant a carrot”.
So yesterday I went into the real world (well, Nice) and hung out with real people doing real projects. And I was much inspired. But on the train back, thanks once again to Illargi, I accidentally stumbled across this excellent piece by Justice Litle (sic) that explains how the people who caused the mess are now making billions gaming governments’ solution to the mess.
“Tragedy is turning into farce as the real intent of the bank rescue plan becomes apparent”, Litle begins.
“Imagine, for a moment, that I have a beat-up old mini-fridge in the back of my garage. It has a coolant leak, it’s a little moldy, and it smells like stale beer, but I’m pretty sure it still works.


“Meanwhile, you happen to be in possession of a rusty old lawn mower. The blade is caked beyond recognition with fossilized grass clippings, the gunk that passes for oil has never been changed, and the thing takes twenty or thirty pulls to start… but you, too, are fairly certain your lawn mower “works.”
“Now imagine that you and I make a deal. I will sell you my disgusting mini-fridge for the princely sum of a hundred thousand dollars. You, in turn, will sell me your ancient lawn mower for a hundred thousand dollars. I write a six-figure check out to you, and you write a six-figure check out to me.
“Nothing’s really happened, right? All we’ve done is swap two crap assets, neither one worth fifteen bucks in the real world, and furthermore swapped an identical large chunk of change ($100,000) between our respective bank accounts.
“But hold on! Did I mention that we both employ highly creative accountants?
“Here’s the good news about our little swap. Thanks to our exchange, I can record a massive profit on my books… to the tune of $99,900, or whatever sum is left over above and beyond the book-entry carrying cost for my fridge. And you can do the same with your lawn mower.
“In the real world, the only thing that happened is junk got swapped with junk. In fantasy-land accounting world, however, you and I both just conjured up fantastic profits out of thin air.
“And it gets even better… did I mention that the government has generously granted me a non-recourse loan in order to provide the funds with which to buy your $100,000 lawn mower?
“I didn’t actually have to move $100K out of my bank account and into yours, because $93,000 of it was covered by government loan. The same privilege was extended to you, of course”.
JT here: I have to go and plan a carrot, but you can read the rest of Litle’s piece here.

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