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Archive for October 2011

The coming derivatives crisis that could destroy the entire global financial system

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Courtesy of Michael Snyder
Economic Collapse blog
Posted 21 October, 2011

MOST PEOPLE  HAVE NO IDEA THAT WALL STREET HAS BECOME A GIGANTIC FINANCIAL CASINO. The big Wall Street banks are making tens of billions of dollars a year in the derivatives market, and nobody in the financial community wants the party to end.

The word “derivatives” sounds complicated and technical, but understanding them is really not that hard.  A derivative is essentially a fancy way of saying that a bet has been made. Originally, these bets were designed to hedge risk, but today the derivatives market has mushroomed into a mountain of speculation unlike anything the world has ever seen before. Estimates of the notional value of the worldwide derivatives market go from $600 trillion all the way up to $1.5 quadrillion.

Keep in mind that the GDP of the entire world is only somewhere in the neighborhood of $65 trillion. The danger to the global financial system posed by derivatives is so great that Warren Buffet once called them “financial weapons of mass destruction”. For now, the financial powers that be are trying to keep the casino rolling, but it is inevitable that at some point this entire mess is going to come crashing down. When it does, we are going to be facing a derivatives crisis that really could destroy the entire global financial system.

Most people don’t talk much about derivatives because they simply do not understand them. Perhaps a couple of definitions would be helpful. The following is how a recent Bloomberg article defined derivatives….

Derivatives are financial instruments used to hedge risks or for speculation. They’re derived from stocks, bonds, loans, currencies and commodities, or linked to specific events such as changes in the weather or interest rates.

The key word there is “speculation”. Today the folks down on Wall Street are speculating on just about anything that you can imagine. The following is how Investopedia defines derivatives….

A security whose price is dependent upon or derived from one or more underlying assets. The derivative itself is merely a contract between two or more parties. Its value is determined by fluctuations in the underlying asset. The most common underlying assets include stocks, bonds, commodities, currencies, interest rates and market indexes. Most derivatives are characterized by high leverage.

A derivative has no underlying value of its own. A derivative is essentially a side bet. Usually these side bets are highly leveraged.

At this point, making side bets has totally gotten out of control in the financial world. Side bets are being made on just about anything you can possibly imagine, and the major Wall Street banks are making a ton of money from it.  This system is almost entirely unregulated and it is totally dominated by the big international banks.

Over the past couple of decades, the derivatives market has multiplied in size. Everything is going to be fine as long as the system stays in balance.  But once it gets out of balance we could witness a string of financial crashes that no government on earth will be able to fix. The amount of money that we are talking about is absolutely staggering. Graham Summers of Phoenix Capital Research estimates that the notional value of the global derivatives market is $1.4 quadrillion, and in an article for Seeking Alpha he tried to put that number into perspective….

If you add up the value of every stock on the planet, the entire market capitalization would be about $36 trillion. If you do the same process for bonds, you’d get a market capitalization of roughly $72 trillion. The notional value of the derivative market is roughly $1.4 QUADRILLION.

I realize that number sounds like something out of Looney tunes, so I’ll try to put it into perspective. $1.4 Quadrillion is roughly:

• 40 times the WORLD’S STOCK MARKET.

• 10 times the value of EVERY STOCK & EVERY BOND ON THE PLANET.

• 23 times WORLD GDP.

It is hard to fathom how much money a quadrillion is. If you started counting right now at one dollar per second, it would take 32 million years to count to one quadrillion dollars. Yes, the boys and girls down on Wall Street have gotten completely and totally out of control. In an excellent article that he did on derivatives, Webster Tarpley described the pivotal role that derivatives now play in the global financial system….

Far from being some arcane or marginal activity, financial derivatives have come to represent the principal business of the financier oligarchy in Wall Street, the City of London, Frankfurt, and other money centers. A concerted effort has been made by politicians and the news media to hide and camouflage the central role played by derivative speculation in the economic disasters of recent years. Journalists and public relations types have done everything possible to avoid even mentioning derivatives, coining phrases like “toxic assets,” “exotic instruments,” and – most notably – “troubled assets,” as in Troubled Assets Relief Program or TARP, aka the monstrous $800 billion bailout of Wall Street speculators which was enacted in October 2008 with the support of Bush, Henry Paulson, John McCain, Sarah Palin, and the Obama Democrats.

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EU leaders throw Europe a plutonium life preserver

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by Charles Hugh Smith from Of Two Minds
Posted October 27, 2011

The euro system was doomed from inception for fundamental reasons; trying to conjure up “something for nothing” solutions will fail catastrophically, and soon.

As Europe flails helplessly in the waves of insolvency, its leadership has tossed it a life preserver. Too bad it’s plutonium, and will take Europe straight to the bottom. Plutonium is of course one of the most toxic materials on the planet, and the “rescue” cooked up by the EU leadership is the financial equivalent of plutonium.

Stripped of propaganda and disinformation, the “rescue” boils down to this: something for nothing. Sound familiar? Isn’t “something for nothing” what inflated the bubbles which have popped so violently? The EU “rescue” conjures something for nothing in two ways:

1. The financial alchemist’s favorite magic: leverage. Take a couple hundred billion euros in cash, leverage it up with various magic (unlimited power is now at your fingertips!) and voila, you can suddenly backstop 1 trillion euros of banking-sector losses, all with illusory money. Something for nothing.

2. “Guarantees” to cover the first 20% of loan losses. This is being presented as the equivalent of 100% guarantees, because it is inconceivable that losses could exceed 20%. In other words, the credulous buyer of at-risk Euroland bonds is supposed to be reassured enough to load the wagon because 20% of the bond is backstopped.

This is something for nothing because the EU leadership is explicitly claiming the at-risk portion–80% of every bond–is somehow “safer” because the first 20% will be paid by EU taxpayers.

In essence, the EU is claiming that its illusory “something for nothing” magic will turn lead into gold. Abracadabra….oh well, close; it’s heavy, it’s metallic – oops, it’s plutonium.

The leadership is resorting to Cargo Cult incantations and legerdemain because the alternative is to raise the 1 trillion euros in cold hard cash needed to bail out the first wave of failed banks and underwater bondholders by raising taxes and cutting budgets, i.e. austerity. (Recall that the total bill will be at least 3 trillion euros, so 1 trillion is just a down payment.)

Raising cash the hard way is politically unacceptable in both France and Germany, not to mention every other nation in the EU, so the political lackeys of the banking sector and bondholders are cravenly substituting a “something for nothing” magic show which they hope will fool the global bond market.

Note to EU lackeys: there is no free lunch. Leverage is plutonium, not gold, and guaranteeing the first 20% of bonds that are doomed to lose 40%-75% is not terribly appealing to anyone not influenced by the ECB’s mind tricks. (“These are not the euros you’re looking for; move along.”)

No wonder France was so anxious for the ECB to crank up the euro printing press: they wanted– just like everyone else involved–something for nothing.

The best way to understand the EU’s current situation is to imagine an astoundingly dysfunctional family of deep-in-denial-addicts, screaming co-dependent parents, and grown-up grifters acting like spoiled brats, all trapped in a rat-infested, flooded flat that’s had the gas turned off for lack of payment – and there’s a plutonium life preserver glowing in the knee-high water. Admittedly, this analogy is imperfect, but it does capture the essential psychology of the end-game being played out.

A slightly more formal model for understanding the increasingly unstable dynamics of the EU is the post-colonial “plantation” model I’ve described before. The key characteristics of the Colonial Model of Capitalism are:

1. Low cost labor and low-value materials flow from the periphery (colonies) to the Empire (center), which then ships high-value, high-profit finished goods back to the colonies.

2. The colonies must buy the high-value finished goods on credit that is issued and controlled by the Imperial center.

Hmm – doesn’t this sound like the relationship of Germany to the European periphery? The euro cemented this co-dependency: Germany had the most efficient production, and once the euro raised the cost of production in the periphery nations, then of course nobody could beat Germany’s cost advantages. The euro actually lowered Germany’s cost of production in terms of foreign exchange rates while raising the costs in periphery nations that were previously able to lower their cost of production via currency devaluations.

Having surrendered that mechanism to access the deep credit markets of the center, then they had no choice but to buy the high-margin finished goods from Germany, as nobody else could make the same goods for the low German price.

These booming high-profit German exports of finished goods to the European periphery generated vast surpluses of capital that were then loaned to the periphery to enable their further purchases of German goods. Why risk the heavy investment costs of production in the periphery when Germany had the lowest costs of production and was willing to loan the buyers the cash needed to keep buying?

It’s the classic mercantilist-consumer co-dependency on a gigantic scale, with low-cost credit fueling both increased consumption and production. As long as the credit flowed in vast torrents of low-cost, easy to borrow money, the co-dependency looked like a “virtuous cycle.” Debt junkies eventually have to start servicing their debts, of course, and that’s when the ugly realities of colonial dominance become visible.

Germany casts itself in this melodrama as the wronged party, the industrious craftsfolk churning out high-quality goods who have somehow been lured into pouring hard-earned cash down various ratholes to save nefarious EU banks – including their own.

But setting aside the melodrama for a moment, let’s ask: how many German goods would have been imported by the EU periphery if those nations had been forced to pay cash for everything from the start? Precious little is the answer; the cash – in the form of actual surpluses available to spend on imports – would have run out immediately after the euro was launched.

In other words, the debt orgy enabled not just carefree consumption, it also enabled vast German exports to the Eurozone. Now we start seeing how the once-mutually beneficial co-dependency has become toxic: now that the periphery’s debtors have become debt-serfs, German exports to the periphery are contracting.

This helps explain why even the supposedly prudent Germans are seeking something for nothing as the painless answer to an intrinsically unstable and self-destructive system. When it all implodes, German exports to the periphery will be a shadow of their past glory, and the surpluses which enabled the leveraged orgy of credit will dwindle. (Germany’s other big export markets, China and the U.S., are also contracting.)

Sovereign currencies are the only mechanism for discounting differences in credit worthiness and production costs. The euro was established as the currency equivalent of gold, holding the same value in every member country. But the mercantilist/quasi-colonial model requires credit to flow from the center to the periphery, and that is precisely what has happened in the EU.

In the colonial model, the colonists are indebted and poor. The net value of their labor flows to the Imperial center as interest payments, and the banks at the center set the cost of money and the terms – naturally.

This co-dependency based on credit flowing from the mercantilist center to the periphery is both exploitative and systemically unstable. Now that the ontological instability of the euro is being revealed, the dysfunctional family members are blaming each other and desperately trying to conjure up something for nothing to bail themselves out of a system which was doomed to implode from its very inception.

All the complexity and confusion distills down to this: the EU leadership needs something for nothing to save the EU, but there is no free lunch. There is only one solution to the exploitation, the illusory leverage, the crushing debts: massive write-offs of all the bad debt everywhere in the EU. And since debt is someone else’s asset, then that means writing down the assets, too. The only way to clear the insolvency is to write off 3 trillion euros of debt-based assets and re-enable sovereign currencies. Anything else is simply more tiresome melodrama.

Things that make you go hmmm…

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by Grant Williams
25 October 2011
With deference to European readers, I have removed (most of) the original baseball references. Please forgive, Grant!! – Aurick

“Everyone needs the ECB to step up to the plate. The ECB has no excuse not to act. In trying to keep its monetary virginity intact, the bank threatens to destroy the Euro Zone. If that happens, nobody will be able to profit from its virginity.”
– Paul de Grauwe

“Simple Math:

The total overall cap [of the ESM] is 500 billion Euros

160 billion Euros has been spent

340 billion Euros remains

340 billion Euros + zero Euros = 940 billion Euros“

– Mike Shedlock, on the latest European ‘Masterplan’ to merge the EFSF + ESM

“The trouble with quotes on the internet is that it’s difficult to determine whether or not they are genuine”
– Abraham Lincoln

Right now, the team comprising the ECB, EU and the various parliaments that make up that fractured and faltering alliance are sending, in baseball parlance, pitcher after pitcher to the mound (sometimes in groups of two or three) trying to combine for the perfect game that they NEED in order to escape the debt trap they have backed themselves into.

Being in a situation where you lose unless you can pull something off against odds of multiple-thousands to one and pitch a ‘perfect game’ is a ridiculous spot in which to find yourself, but as this month has rolled by, it has become ever-more apparent that that is precisely where the Brussels Eurocrats now find themselves. It appears as though, as the pressure has ratcheted up this week, we are now in the ninth inning.

Personally, my own belief (as regular readers are by now well aware) is that the very best the Eurocrats can hope for is to extend the game by an inning or two, but their arms are tired, their bullpen is empty and, at some point, we are going to see an absolute avalanche of runs scored against them as the whole thing finally topples under its own weight.

This past week has been nothing short of farcical as the tension has built towards a crescendo that seemed at first to be willfully engendered in order to generate just enough sense of impending crisis to enable a resolution to be forced through in a similar fashion to that which preceded Henry Paulson and Ben Bernanke’s now-infamous closed-doors fright-fest (hyphenation alert!) that led to the passing of the TARP in late 2008.

Obviously, any and all capitulation towards outright bailouts (or ‘QEU’) must at least be seen to be against the will of the Germans and that proviso goes a long way towards explaining the raft of headlines that have flooded the Reuters and Bloomberg screens of investors all around the world this week. We have seen misdirection, scaremongering, u-turns and abject incompetence as well as the kinds of ‘leaks’ that are, frankly, laughable – the prime example being the ‘leaked’ draft copy of the Euro Summit statement which was printed, in its entirety, in the Daily Telegraph on Thursday – coincidentally at the precise moment when things were starting to come unglued as it became clear that this Sunday’s Summit would NOT produce the magic bullet required.

The statement itself is priceless. It begins with a bit of back-slapping for the passing of the EFSF (after no less than six months of wrangling and an eleventh-hour drama in Slovakia):

The strategy we have put into place encompasses determined efforts to ensure fiscal consolidation as well as growth, support to countries in difficulty, and a strengthening of euro area governance. At our 21 July meeting we took a set of major decisions. The ratification by all 17 Member States of the euro area of the measures related to the EFSF significantly strengthen our capacity to react to the crisis.

The agreement on a strong legislative package within the EU structures on better economic governance represents another major achievement. The euro continues to rest on solid fundamentals

It then moves on to more familiar ground; an agreement to display their strong determination to fix things. Nothing concrete, of course, but they sure as hell are determined:

The crisis is, however, far from over, as shown by the volatility of sovereign and corporate debt markets. Further action is needed to restore confidence. That is why today we agree on additional measures reflecting our strong determination to do whatever is required to overcome the present difficulties.

The rest of the text, should you want to read it, is here, but allow me to summarise it through a few select phrases that will save you the trouble of doing so:

“blah, blah, blah… All Member States are determined, blah, blah, blah… We want to reiterate our determination, blah, blah, blah… We reaffirm clearly our unequivocal commitment that, blah, blah, blah… All other euro area Member States solemnly reaffirm their inflexible determination, blah, blah, blah… The euro area Heads of State or Government fully support this determination, blah, blah, blah… All tools available will be used in an effective way to ensure financial stability in the euro area, blah, blah, blah… We fully support the ECB, blah, blah, blah… “

See. I told you they were determined.

But, buried deep in the draft are (amazingly enough) some specific measures that will surely help solve the crisis:

• There will be regular Euro Summit meetings bringing together the Heads of State or govern­ment (HoSG) of the euro area and the President of the Commission. These meetings will take place at least twice a year

• The President of the Euro Summit will be designated by the HoSG of the euro area at the same time the European Council elects its President

• The President of the Euro summit will keep the non euro area Member States closely informed of the preparation and outcome of the Summits

• As is presently the case, the Eurogroup will ensure ever closer coordination of the economic policies and promoting financial stability.

• The President of the Euro Summit will be consulted on the Eurogroup work plan and may invite the President of the Eurogroup to convene a meeting of the Eurogroup, notably to prepare Euro Summits or to follow up on its orientations

• Work at the preparatory level will continue to be carried out by the Eurogroup Working Group (EWG)

• The EWG will be chaired by a full-time Brussels-based President. He/she should preferably also chair the Economic and Financial Committee

…and my personal favourite:

• Clear rules and mechanisms will be set up to improve communication and ensure more con­sistent messages.

It’s at this point that the non-Europeans amongst you are possibly finally beginning to get the joke that anybody caught in the tractor beam of ineptitude that is ‘Europe’ (and by ‘Europe’ I mean the bureaucratic construct rather than the land mass) has understood for years.


Millions of Euros spent on days of‘talks’ to come up with solutions that fail to address any REAL problems.

Don’t believe me?

Article 47 of the Common Fisheries Policy will ensure that every fish caught by an angler is notified to Brussels so that it can be counted against that countries quota. If you go out for a day’s fishing and catch a couple of cod or mackerel you will now be required to notify the authorities or face a heavy fine.

There are EU regulations on the greenness of the person on the pedestrian crossing lights.

There are 3 separate EU directives on the loudness of lawnmowers.

Regulation (EC) 2257/94 – a great read, by the way – stated that bananas must be ‘free from malformation or abnormal curvature of the fingers’. It also contained stipulations about ‘the grade, i.e. the measurement, in millimetres, of the thickness of a transverse section of the fruit between the lateral faces and the middle, perpendicularly to the longitudinal axis’ …

And then there are cucumbers:

Under regulation (EEC) No 1677/88 cucumbers are only allowed a bend of 10mm for every 10cm of length.

Do you think any of those were drawn up in ten minutes on a single piece of paper?

No. (Actually, in fairness to Europe, they don’t have a monopoly on silly legislation: there IS a law in Alaska that makes it illegal to push a moose out of a moving aircraft.)

The Brussels bureaucracy has always been something of a laughing stock amongst the people of Europe – since long before the final creation of the EU, in fact. Way back in 1955, with a European union freshly on the drawing board ten years after the end of WWII, Russell Bretherton, an English Civil Servant was dispatched to Brussels to inform European ministers what Britain thought of plans for an ambitious new European treaty. Upon arrival, he had these words of wisdom for those assembled:

“Gentlemen, you’re trying to negotiate something you will never be able to negotiate. If negotiated, it will not be ratified. And if ratified, it will not work”

Three years later, the Treaty of Rome was signed, establishing the European Economic Community and from that day to this, the degree of meddling, interference and sheer bureaucracy has increased year after year until we find ourselves here.

Europe is broken and the people charged with trying to fix it are clearly not up to the job. There are way too many vested interests, too many national peccadillos and way too many good, old-fashioned egos in play for it to come down to anything but a last-ditch solution when they are forced into it – and that solution WILL be the printing of money in some shape or form which will help to magically inflate the debt away. The other alternatives are either just too painful (default/ forgiveness) or plain unworkable (growth).

A look at a selection of newsflashes that hit screens this week shows just how ridiculous things have become as everybody involved in trying to sort out the mess that is Europe attempts to get themselves in front of a microphone in order to let the world know just how important they are. Some of these appearances, it would seem, are stage-managed for maximum effect on markets – others are simply self-important politicians who just can’t bring themselves to utter the words “no comment”:

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The real contagion risk

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 by Chris Martenson
Posted October 24, 2011 


AROUND HERE, WE LIKE TO TRACK THINGS from the outside in, as the initial movements at the periphery tend to give us an early warning of when things might go wrong at the center. It is always the marginal country, weakest stock in a sector, or fringe population that gives us the early warning that trouble is afoot. For example, rising food stamp utilization and poverty levels in the US indicate that economic hardship is progressing from the lower socioeconomic levels up towards the center –that is, from the outside in.

That exact pattern is now playing out in Europe, although arguably the earliest trouble was detected with the severe weakness seen in the eastern European countries nearly two years ago.

Because of this tendency for trouble to begin at the periphery before spreading to the center, here at ChrisMartenson.com headquarters we spend a disproportionate amount of our time watching junk bonds instead of Treasurys, looking at weak sectors instead of strong ones, and generally spending our time at the edges trying to scout out where there are early signs of trouble that can give us a sense of what’s coming next. In this report, we explore the idea that Europe is the canary in the coal mine that tells us it is time to begin preparing for how the world might change if the contagion spreads all the way to US Treasurys (which is mathematically inevitable, in our view).

Why the US should care about Europe

At the very core of the global nuclear money reactor are US Treasurys and the dollar. If the dollar’s role as the world’s reserve currency wanes or even collapses, then the scope and pace of the likely disruptions will be enormous. Of course, we’ll be glad to have as much forewarning as possible.

Accordingly, it is my belief that if the contagion spreads from Greece to Portugal (or Italy or Spain), and then to the big banks of France and Germany in such a way that they fail, then rather than strengthening the dollar’s role (as nearly everyone expects), we should reserve some concern for the idea that the contagion will instead jump the pond and chew its way through the US financial superstructure.

While I am expecting an initial strengthening of the dollar in response to a euro decline, I believe this will only be a temporary condition.

The predicament is that the fiscal condition of the US is just as bad as anywhere, and we’d do well to ignore the idea, widely promulgated in the popular press, that the US is in relatively better shape than some other countries. ‘Relatively’ is a funny word. In this case, it’s kind of meaningless, as all the contestants in this horse race are likely destined for the glue factory, no matter how well they place.

While there are certain to be a lot of false starts and unpredictable twists and turns along the way, eventually the precarious fiscal situation of the US will reach a critical mass of recognition. Before that date, the US will be perceived as a bastion of financial safety, and afterwards everyone will wonder how anyone could have really held that view.

A good recent example of how swiftly sovereign fortunes can change: One day, everything was fine in Greece, which enjoyed paying interest rates on its national debt that were a few skinny basis points (hundredths of a percent) above Germany’s. A few short months later, Greece was paying over 150% interest on its one-year paper.

What I am asking is this: What happens when the same sweep of recognition visits the US Treasury markets? Is such a turn of events even possible or thinkable?  Here’s one scenario:

How contagion will spread to the US

My belief is that someday, perhaps within a matter of months but more likely in a year or two, the US Treasury market will fall apart as certainly and as magnificently as did Greece’s. Here’s how that might happen:

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The moral unraveling of the EU, bailouts and central banking

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by Anthony Wile
from The Daily Bell
Saturday, October 15, 2011

SLOVAKIA HAS NOW APPROVED THE EUROPEAN DEBT-CRISIS bailout fund, but the problems Europe is experiencing are similar to those faced by America in the grip of the Fed’s immense bailouts of the past two years. Increasingly, these are seen as morally repugnant by citizens throughout the West. And this has significant consequences that the mainstream press declines to report.

Dominant social themes work by omission as well as commission; in this column, I want to re-examine potential ramifications. I’ve done it before, but I think it’s worth repeating. Not enough commentators, even in the alternative media, point them out in my humble opinion.

Money continues to flood Western regimes and financial institutions with billions and billions that they don’t deserve and cannot properly apply. Perhaps there is no alternative but to “kick the can down the road.” On the other hand, perhaps the bailouts are part of a wider elite destabilization effort, one intended to generate chaos and misery that will pave the way for global governance and maybe a new world currency. This is the view of the more conspiratorially-minded among the alternative media.

For whatever reasons, the bailouts, against all logic, continue apace and are being increasingly resisted … not merely for their Draconian impacts but because people are using technology to become more informed. This bailout saga, therefore, has been unusual, not only for the incalculable wealth that’s been extended but also because it’s played out in front of millions.

The ramifications continue to be felt in my view. The push-back began in the US with TARP and then continued with revelation of US$16 trillion-plus (probably more) in short-term loans extended by the US Federal Reserve to financial institutions – not just in America but around the world.

Now US Congressman Ron Paul is conducting the Federal Reserve’s first “audit.” Ben Bernanke speaks, but his pronouncements have nowhere near the power or authority of his predecessor Alan Greenspan. Occupy Wall Street and alternative journo Alex Jones are both holding organized protests outside Fed buildings. In Southern Europe, protests and riots (Greece) rise wherever the EU and its bankers attempt to impose “austerity.”

The Internet has allowed people to see – finally – exactly what’s going on. Prior to the Internet, the controlled mainstream news would have explained in unison that the Fed “made massive adjustments to the global financial fabric to ensure that systemic collapse was mitigated …” or employed other nonsensical euphemisms. These sorts of non-explanations would have been repeated ad nauseum.

But in the era of the Internet, such gobbledygook has been effectively negated by literally millions of articles (and thousands of videos) explaining what central banking really is – monetary price fixing – and how central bankers “print money from nothing” to advantage their cronies at the expense of everyone else.

The system survived because it appeared so incomprehensible that it was beyond criticism. Not anymore. People around the world “get it” and the anger is breaching even the indolence of the political class. Eventually, if certain fundamental knowledge becomes widespread enough, the elites may have to take a “step back” as we have predicted they might. Resistance is spreading.

We can see this in Slovakia, where that Eastern European nation was the last holdout among euro-zone nations to approve the EU’s most recent sovereign bailout fund. On Tuesday, the parliament rejected the fund and brought down the government of Prime Minister Iveta Radicova. On Thursday, the parliament voted FOR it, but the point had been made.

Even parliamentary representatives, notoriously resistant to the public sentiment they are supposed to be accommodating, are now beginning to reflect the animosity of their constituents. The Telegraph‘s Ambrose Evans-Pritchard recently captured this sentiment in a column entitled, “EU bailout is racket for financial elites.”

Twenty years ago, no mainstream paper in the world would have run such an article – even given today’s extreme stress and provocation. But times have changed. The financial system has come in for criticism the likes of which has not been seen (or heard) for decades. Here’s an excerpt from Evans-Pritchard’s article:

What the Slovak debate has shown us yet again – as if the political storm in Germany over the past two months has not been enough – is that escalating bailouts are nearing their political limits. The traumatic affair almost brought down the German government. It has in fact brought down the Slovak government. You can’t keep doing this. Democracies are not to be toyed with …

Slovakia’s cry of defiance has not been entirely pointless. Richard Sulik – the speaker of parliament – has caught a mood of popular disgust that goes far beyond his own country. His objections are unanswerable.

How can there be any justification for a state of affairs where a poor but rule-abiding EMU state must bail out a serial violator with twice the per capita income, and triple the level of the pensions – a country which is in any case irretrievably bankrupt? How can it be that the no-bail clause of the Lisbon Treaty has been ripped up?

But he also touched on the most neuralgic issue, reminding everybody that the EFSF is ‘mainly for saving foreign banks’. These are French, German, British, Dutch, and Belgian banks, of course … ‘I’d rather be a pariah in Brussels than have to feel ashamed before my children,’ Sulik said … Bravo.

“Bravo,” writes Evans-Pritchard, summing up the New Age’s defiance to establishment ways. We began to write about this back in August of 2009 when The Market Oracle’s Stewart Dougherty – a financial consultant – sent us a column entitled “The Metastasis of Moral Hazard and its Effect on Gold.” He wanted us to see what he’d written. Here’s an excerpt:

The colossal miscalculation made by Washington and Wall Street is that they could control the moral hazard genie once they removed it from the bottle. They believed they could use the genie to enrich themselves with trillions of dollars’ worth of taxpayer money, and then replace it in the bottle before its magic spell of immorality metastasized throughout society at large. They assumed that the people would be too stupid to see what was going on. And that even if the people did figure things out, they would willingly wear the thick, choking chains of debt being welded to their necks by the financial elite and its Washington enablers.

Instead, thanks to the Internet and the democracy of information and insight it affords, the people were instantly wise to what was happening, and it stirred them. The concept of “an eye for an eye, a tooth for a tooth,” harkens to the Bible. And perhaps Shylock was speaking for all of humanity when he said, “If you prick us, do we not bleed? If you tickle us, do we not laugh? If you poison us, do we not die? If you wrong us, shall we not revenge?”

We thought then, and believe now, that Dougherty wrote one of the decade’s most profound columns, capturing the MORAL dimension of the fraud of “bailouts” and the impact of their fundamental – even obscene – unfairness. We wrote about his column (you can see it here: Have the Immoral Actions of Central Bankers Precipitated the Decline of the West?) and commented:

Dougherty has written a REAL article of REAL observations about the end of Western civilization. Sheesh, … Spengler’s Decline of the West in three darn pages … He’s right, he has gotten the morality right. It’s not just the culture of the West, or its promotions, or even its social organization that is finished.

You CANNOT, as a society, witness a couple of guys pull a trillion out of their back pockets without feeling, well … snookered. And after feeling snookered, something else begins to percolate. “Hey,” you say, “wait a minute. I sit here with my debts and my job and my house in foreclosure and this guy – THIS GUY – throws around trillions? Wait a minute. WHEN DO I GET MINE!”

Now the rage spreads.

The Internet Reformation is a process, not an episode.