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5+ years into the Greatest Financial Crisis and what has changed?  I could go into how balance sheets have blown out to ridiculous levels, money has been printed to cover up the financial sinkholes and accounting practices exist only at the pleasure of the banks who own the underwater assets.  I won’t do that today.  Zero Hedge put a piece out yesterday of a presentation by Kyle Bass titled “Kyle Bass Warns ‘The ‘AIG’ Of The World Is Back.’”  He said that “banks” (financial sorcerers) were offering Japanese “risk protection” for 1 basis point.  He claims to have purchased $500 billion worth for this 1 basis point (which if my math is correct cost him $5 million).  Now there is some “leverage” huh?!

I wrote about these types of derivatives as far back as mid 2007.  I asked at the time, “OK, so you win the bet but who is gonna pay?”  WHO could pay?  I wrote again several times in 2011 when the CDS of the US was starting to move up when the credit downgrade happened, “So the U.S. actually defaults, what financial institution is still going to be around to pay up?”  Do you see how silly this is?  In Mr. Bass’s case he bought $500 billion worth and presumably he is not the only one that this bank sold the “protection” to.  Is there any bank anywhere on the planet that could come up with this type of cash today?  I say “today” because there are no sovereigns in outright default and the world’s stock markets are at high levels (in other words, these are “good” times), what if times weren’t so “good?”  If no one could pay today then how will they be paid when everything is collapsing?

Let me put this in perspective for you.  $500 billion, doesn’t sound like much the way “billions” are thrown around like confetti does it?  The “admitted” on books accumulated debt of the 237 year history of the U.S. Is $16 trillion… or only 32 times the size of Mr. Bass’s bet!  When (not if) Japan fails, who’s going to bail out this little puppy trade (and presumably many more like it)?  Yes I know, the money will be printed and passed around to the winners (if they are lucky or politically connected) but what value will it have?  The currency system will then be demoted to one of “wumpum” money as Mr. Bass calls it or as I call it “monkey money.”  Don’t get me wrong, Kyle Bass is brilliant and is sitting on a huge pile of gold (which he believes will be the best investment over the next 10 years), but why would he purchase something… anything that he absolutely knows (must know) cannot ever be paid to him when he wins the bet?

THIS is our banking system.  THIS WAS our banking system back in 2008.  The banking system is a broke, untenable Ponzi scheme where it “works” …until it doesn’t.  This is also our “currency” or monetary system which is why you must have investments in real money.  It is also the reason why I just don’t get it.  I don’t understand why people got nearly suicidal on this latest pullback in the precious metals.  If you can understand that literally trillions of dollars (actually over $1 quadrillion) of leveraged and unbacked bets, pieces of paper and “digits” on computers have infested and now “represent” the monetary system, then why worry?  You possess real money while your bank accounts or Treasury bonds or “money under the mattress” will go the way of the dodo bird.  We are living the biggest, grandest most all encompassing Ponzi scheme of all time… “the best move is not to play the game!”  Which of course you aren’t if you own silver or gold but who cares about the game and “who’s winning” if everyone who plays will end up a loser?