Is the Big Bust yet to come?

Moreover, financial transactions have become so huge and complex that a small miscalculation or anomalous or freakish event may unhinge the whole financial system. With “trillions of dollars ... presently held in shaky hedge funds and derivatives markets,” Mike Whitney says, “there’s nothing anyone will be able to do if the market takes a steep and sudden downturn … The Plunge Protection Team and the CRMPG [Counterparty Risk Management Policy Group, the self-appointed 'authority' from hedge funds and big banks formed to preserve 'their' financial system] illustrate the collusive relationship between the banking establishment, the uber-corporations and the state.

“They’ve worked assiduously to remove the safeguards which have traditionally protected the average investor from hucksters and scam-artists, and paved the way for a full-system breakdown. The market is more vulnerable now than anytime since the late 1920s … The country now faces the growing probability of an economic tsunami triggered by the rickety hedge funds, the falling dollar, and the rapidly deflating real estate bubble. The solid foundation of government oversight and regulation has been eroded by the persistent attacks of the corporatists and banking giants. The entire system is now on shaky ground. When the scaffolding starts to fall, the futile manoeuvrings of the Plunge Protection Team won’t make a bit of difference.”

We do not know for certain whether the Plunge Protection Team was convened into emergency session or not. It would be surprising if it were not and it would not be at all surprising if there was some actual intervention in the markets to smooth away some of the volatility and to prevent the market from going into too sharp and sustained a fall. It would be surprising too if there was not close co-operation among the central banks at least of the Group of Seven although we can only conjecture what form that co-operation might have taken and how effective it might have been.

It might have been so effective - in collaboration with the activities of the Plunge Protection Team and other devices - that the recent flurry will turn out to be no more than that and that, at least for a time, order will return to world markets.

We cannot be sure but at least that is a possibility. However what is much more certain is that the underlying instabilities, the ever nascent volatilities and the limitations on what might be optimistically regarded as "control mechanisms" have not been removed nor have they gone away.

They are waiting there, quietly but arrogantly, in the wings. If their time has not yet quite come on this occasion, they will still be patiently waiting there for the next unpredictable event to detonate a climactic explosion on the world's financial markets. The odds seem increasingly to be that they will not have long to wait.