Thursday, August 18, 2011
Undeniable Truths of Money #2: For You To Get Out Of A Trade, Someone Else Must Get Into The Trade
That's why they call it a "trade."
When you find yourself on the losing end of a "sure thing" trade, the one thing you want more than anything else is to find someone to dump it to - at full price. The problem is if you know it, everyone else does as well. In order for your problem not to be your problem, it must become someone else's problem.
This is why we have marketing departments. We need to put lipstick on our pigs and sell them off to others.
This is the problem faced by our banking industry. They are massively offsides with regard to the assets they are holding. If they were fairly valued, they would all be sold at auction, and the banks would be dead. The government is allowing them to carry their assets at whatever fantasy valuation they want in order to prevent this. Part two of their strategy is to convince someone to take their bad assets - at full price.
In order for them to get out of their trade, someone else must get into their trade.
This is why they are trying to convince you to get out of your "worthless" dollars. These dollars are so worthless and hopeless, the banks are willing to do anything to relieve you of them, because when you think of "Good Samaritan," your mind immediately springs to bankers. They want to take your dollars and give you assets in return (the assets that dropped in value so much that it caused the 2008 financial meltdown) so as to spare you the horror of watching your savings destroyed by "inflation."
It wouldn't be much of a marketing success if the banks came to you and said, "Look, you have cash and we have these assets that are almost worthless. We were allowed to lie about their valuation, and we have been holding yields down with all the prestidigitation at the Federal Reserve so as to run down the value of the dollars you are holding, so how about giving us dollars as they are approaching their bottom in exchange for these overinflated assets that are killing us?"
No, that wouldn't work. They need a better strategy - something like, "Look at how these assets we are holding have held their values while your dollars are going worthless. You need to get into assets and out of dollars to save your livelihoods. We are Wall Street banks and we know what is best for everyone. Buy our assets, or we will go to the Treasury and force you to buy them through the government."
They want out of their assets and they want your cash. They need you (either voluntarily or through the government) to take them out of a trade that is killing them.