Securitization and Inflation

May 11, 2021

We are in roaring twenties mode. All asset prices are inverted to value. Value in any society is completely dependent, in any society, on median income. If you want to have a rising tide for the economy as a whole, median income must rise. It is an immutable principle. But periodically speculative irrational fever takes over and this time it is being promoted and aggressively pushed by Wall Street banks.

Practically all of the current inflation is directly related to securitization. Wall Street has found a way to put money into the hands of consumers in exchange for an unlimited license to issue, sell and trade unregulated securities. As a result, the incentive is to complete deals with consumers/homeowners without any risk of loss and with profits that far exceed the deal with consumers. It doesn’t matter if consumers don’t pay or if the deal with consumers makes no sense and will not succeed as the consumer intended. What matters is maintaining the illusion of a loan deal.

So the payments to consumers are merely incentive payments to sign the deal. Wall Street can pay whatever is necessary to get the consumer to sign. It can offer any incentive that is necessary. Offering low rates on what appear to be loan products accomplishes two objectives — it gives unwary consumers a cheap source of what they think is credit and it maintains the illusion of a loan.

It wasn’t housing demand that pushed housing prices far into the stratosphere over the median values in 2008 and it isn’t demand for assets that is pushing up those prices now. The value remains the same — tied to median income.

So we are all stuck in a maelstrom of furious speculation. The tulip craze in Holland comes to mind, where many who had built considerable wealth lost everything because they switched from making things and providing service to speculation in a flower that could be grown almost anywhere.

The Fed is also fueling the nuttiness by issuing more currency into a marketplace that is already overstocked with currency. But the main problem is the aggressive marketing and sales of investments that are masquerading as loan products.

Hardly any average consumer knows that they are investing in a securities scheme every time they accept the “loan product” labeled by Wall Street firms whose business has never been lending. It has always been about the creation, issuance, sale and trading of securities. Consumers get nothing out of the profitable scheme and get all the risk of loss on the apparent loan.

Capitalism will invert and self-destruct unless we are able to get back to something resembling free market forces. Lying to people is not capitalism or representative of a free market. It is theft. There can be no self-correction in a market where most people do not have any access to information or clue about the nature of the transactions in which they are investing their time, money and effort. All markets will continue their corruption until the basic element of commerce is corrected — money.