Tuesday, May 1, 2012


- Alan Greenspan on CNBC (sourced from zerohedge)

I guess all you can do is let Greenspan's remarks put a grin on your face.  The source of the grin being the knowledge that Greenspan is now nothing more than a senile old man who will go down in history as the one who started the fiat monetary inflation (printing) of our system that will ultimately be its demise.

Let's consider for a moment what exactly it would mean if "equity," meaning the stock market, were truly the "collateral" of the financial system.  "Collateral" is something of perceived value that a borrower puts up to secure a loan.  Gold is now being used as the collateral of necessity for interbank lending purposes in Europe.  Why?  Because lenders do not trust anything else that's allowed to be used for that purpose.  In an opaque, tenuous form the U.S. Government's "full faith and credit" is being used as "collateral" to back its catastrophically enormous debt issuance and the money being printed up to fund that debt.  "Home equity" was the collateral source of the housing market bubble and collapse.

GAAP Accrual Accounting Methodology Is At The Root Of Financial Fraud

Let's think about this in terms of using an individual stock as "collateral" by taking a quick peak at Amazon.com (AMZN).  I have maintained for over a decade that AMZN takes fraudulent advantage of GAAP accounting gray areas - i.e. stretches them beyond the "grey" area of legality - in order to generate GAAP income.  As we know ad nauseum, this wouldn't be the first case in which the SEC and FINRA look the other way. Without going into technical details that would put you to sleep unless you love hard core accounting, in effect AMZN is a giant ponzi scheme which relies on the ability to grow sales every quarter in order to generate enough cash to cover last quarter's expenses.

The perfect example of this process starting to sputter and fail is AMZN's latest quarterly report.  In that, AMZN used non-cash gimmicks to generate almost 70% of its reported net income (equity method of income from investments).  It also sustained a $3 billion drawdown in its cash balances in order to pay off its bulging accounts payable account.  It's sales margins were almost negligible because AMZN subsidized the cost of everthing it ships (fulfillment) in order to generate sales.

At any rate, here's a look at AMZN's value as equity "collateral:"  It has a market cap of $104 billion; a p/e ratio of 191 - note: the true p/e ratio calculated by stripping away accounting games is likely at 4-5 times higher;  book value is $7.2 billion BUT nearly 50% of this is comprised of the intangibles of deferred tax assets and goodwill;  strip away intangibles and tangible book value is $3.8 billion, leaving a market cap to book value ratio of 27x.  One note of caveat, the tangible book value assumes a prima facie acceptance of AMZN's fixed assets, listed at $4.6 billion.  No doubt the market value of AMZN's fixed assets is likely lower.

So there you have it.  A good example of equity "collateral" according to Greenspan is a stock that trades at a near infinite multiple of true earnings and an absurd multiple of book value (most banks trade at a book value multiple of 1 or less).  Please indicate to me if you would lend your money against AMZN (if so, I may want to borrow some money from you lol).

Don't get me wrong, I love AMZN's service.  If I don't need something immediately, I can shop on AMZN and get a better price on almost anything than at any competing store in Denver.  Not only that, the price includes shipping in most cases.  It's great for the consumer.  But AMZN is one of the "poster child" stocks that represents the extreme liquidity and fraud bubble that now permeates every aspect of Wall Street and DC.  Eventually AMZN will collapse.

So looking behind the words that came out of Greenspan's mouth on CNBC - aka Bubblevision - we can see the true absurdity of the [Money Printing] Maestro's comments.  It's actually quite poignant to see the incredible intellectual decay of the author of "Gold and Economic Freedom" (1966) LINK  into a senile old babbling apologist for the monetary policies destroying this country.  In a way, the path of degeneration from the 1966 Greenspan to the 2012 Greenspan is emblematic of the path of decline of the United States...


  1. ..and isn't it this financialization of fraud that has kept average business owners struggling and the behemoths with access to sophisticated accounting and debt markets enriched? Isn't this the reason small business development is so weak and thus employment? They can't compete via Gresham's law?

  2. If equity were collateral, we could just print ourselves some new collateral, problem solved! But nobody would be that stupid. Would they?

  3. ...and if you can direct that stimulus through channels of friends and family you can choose "who makes it" in a digital world and "who doesn't"...a perfect crony capitalistic system!...always using the free market animal spirits bs excuse with a shoulder shrug to explain the unexplainable!

  4. I have some very smart friends that go on and on about Amazon's incredible growth. They cite that the amount of infrastructure Amazon Web Services was installing every month when they were a $1 billion company, they are now installing every DAY! I'm amazed not by the statistic but that my friends somehow believe this growth and technological future to be sustainable.

  5. forgive my ignroance, but isn't Greenspan agreeing with Ron Paul here? I have no background in finance or economics, but it seems as if Greenspan is arguing for sound money. I am shocked to read this, given that he was a Chairman of the Fed. When will our fiat system crash? Its got to right? Will it be that bad if it does? Can anyone give me some more reads? Thx

  6. michael schumacherWednesday, 02 May, 2012

    AMZN has played with it's accounting practices for over 10 years... only "spaceman" bezos is allowed to state that a device (kindle) is the largest driver of profits and fail to release any sales figures for them-to give but one example. Or how they took the "income" from Zappos and counted it as rev. before the deal was done. There are too many examples of this in AMZN's life. But it's all legal thanks to FASB.

    Bezos is special to the system as in his former life he wrote trading programs so this is the system allowing him to profit for all that "work".

  7. (Quinn, Littleton)

    "senile old babbling apologist"

    LOL, classic stuff!

    1. Dave I have a question for you...

      Why is it, that every night after markets close, gold goes down in foreign or access markets? It does this every night without fail. You would think that just once- in a normal operating market- that maybe gold or silver would actually be up once or twice. Can you explain this to me?



    2. Good question Brian. As everyone knows - even the CFTC - the gold and silver markets are heavily manipulated by the Bullion Banks, primarily JPM and HSBC, silver/gold respectively. Scotia, Barclays, Deutsche are also big players.

      One tactic they use to in the paper markets is to try and drive the price down to technical levels that trigger sell-stops set by the black box macro hedge funds (large specs). Because the bullion banks are also member/shareholders of the Comex, they know where the stops are set. If you know how to read chart technically, you can pretty much figure it out anyway.

      When the markets are at their most illiquid - like after the stock market closes but access/globex trading is still open, the bullion banks will try to bomb the market with paper to drive the price down, since there's usually not many buyers around (squash court, tennnis, cocktail hour). Other times gold often gets hit is the transition times between Hong Kong close and London open and Sunday night when globex trading opens. The massive hit in July 2008 and the hit in April 2011 were done on Sunday evening at globex open.

  8. Thanks Dave. Now if I could just figure out a way to profit from this predictable shit- it looks like a no brainer.