Rocky Vega

This was a surprising concept to come across in the Wall Street Journal… the “shadow government, the financial industrial complex.” Yet, what sounds at first like conspiracy theorizing is actually a sound criticism of the fact that the US government has basically ignored the lessons of the financial crisis and is more or less gearing up for a round two.

Despite entering into the first downturn so recently, and currently watching the Greek meltdown unfold, the US economy is still a mess. Worse still, the financial system has only grown larger, more complex and interconnected, and increasingly risk-seeking in different and dangerously innovative ways.

As described by the Wall Street Journal:

“Our budget deficit is a problem, but it’s not the core issue.

“Our shadow government, the financial industrial complex, is our potential Greece. High unemployment lingers, higher interest rates are on the horizon and U.S. aid to the mortgage markets is coming to an end. Government guarantees in the markets will be withdrawn leaving them exposed to the whims of confidence.

“Amid that uncertain state, Wall Street is chugging along as if the last few years were merely a blip. At Citigroup Inc., the financial innovators are readying a new, complex derivative that would act as kind of financial crisis insurance. Citigroup believes the derivative, dubbed CLX, won’t put Citi or taxpayers at risk, but they concede the contracts aren’t foolproof, a story we’ve heard before.”

Leave it to Wall Street, still reeling from the fallout of an economic disaster largely brought about by synthetic financial instruments, to continue expanding its arsenal. Worried about problems with complex and nearly-foolproof mortgage and other derivatives? Don’t be. Now Citi’s put into place vastly more sophisticated financial crisis insurance derivatives. Bring ‘em on!

Confidence inspiring… indeed.

Read the full story in the Wall Street Journal’s coverage of how the Greek debt fiasco shows how little has been done to prevent the next crisis.

Rocky Vega

Rocky Vega is publisher of Agora Financial International, where he advances the growth of Agora Financial publishing enterprises outside of the US. Previously, he was publisher of The Daily Reckoning, and founding publisher of both UrbanTurf and RFID Update -- which he ran from Brazil, Chile, and Puerto Rico -- as well as associate publisher of FierceFinance. Rocky has an honors MS from the Stockholm School of Economics and an honors BA from Harvard University, where he served on the board of directors for Let?s Go Publications, Harvard Student Agencies, and The Harvard Advocate.

Recent Articles

Video
Creditism and the Threat of a New Depression

Richard Duncan

In the 1960s, total credit in the U.S. broke the one trillion dollar mark...and since then, it has expanded over 50 times. But now, as Richard Duncan explains, the explosion of credit that's made America prosperous, threatens to take the entire economy down. And that could mean the return of another depression...


Advance Notice of the Next Market Crash

Chris Mayer

News flash: The future is uncertain. (Gasp!) But given this uncertainty how are you supposed to invest successfully? It would be nice to ride stocks on the way up... and bow out before the crash... but few are able to do it without sheer luck. Chris Mayer, searching for a successful method, looks back to the 1929 market crash for clues...


A New Bank that Challenges the US Dollar’s Reserve Status

Liam Halligan

As owner of the world's reserve currency, the US has enjoyed a cushy spot in the global economy. But with the rise of a group of rival countries the dollar's reserve status is under attack. And if it somehow gets knocked off its perch, the effects throughout the world (and in the US in particular) would be disastrous. Liam Halligan explains...


Diverse Opportunities in the Boomer-Controlled Market

Greg Guenthner

The US population is aging. The total number of births in the US peaked over seven years ago. And as the Baby Boomer generation enters retirement, it's becoming clear that there's no easy way to offset the trend. And that presents some unique investment opportunities most people have overlooked. Greg Guenthner explains...


5 Min. Forecast
What Your Grocery Bill Says About Your Investment Future

Dave Gonigam

Despite rapidly rising food prices, American households still spend relatively little on groceries. And while plenty of factors contribute to lower food costs in the US, that can lead to serious competition... and that means a good investment opportunity is right around the corner. Dave Gonigam explores...