Let’s ignore the media and its crisis of the day.  Let’s focus on the reality of what happening or the major trend being established.  History  is repeating itself. You lean the lesson or you’re doomed to commit the same mistake again and again and ….  Simon Johnson, MIT prof and former chief economist at IMF  on history repeating itself - “The Quiet Coup”

Simon Johnson, co-founder of BaselineScenario.Com by arunabhdas

Simon Johnson

History Repeats Itself

“The Quiet Coup” in the current issue of the Atlantic magazine demonstrates that we have seen the same kind of financial crisis happening over and over again. Let’s look deeper into Johnson’s editorial.

There is a coup. A  oligarchy takes over. They enrich themselves by plunging the country further into debt and what ends up is a explosive revolution or an outside entity – The IMF (International Monetary Fund) for which Johnson was the chief economist intervened to fix the problem.

The same thing has happened here. From 1975 to 1983, he points out that financials made up “16% of domestic corporate profits” and it rose “41%” in the USA.  As this financial oligarchy grew in power, it bought most major politicians from Republican  Senator Phil Graham who wrote the original deregulate the shadow finance industry in 98 to Democrat Chris Dodd who inserted bonuses for AIG executives today.

Perhaps there was a hidden conspiracy, perhaps it was pure greed, perhaps it was arrogant stupidity and perhaps some combination of the three.  What matters more than the cause is the solution. For the IMF the solution that worked was to break the oligarchy, temporarily nationalize the banks, insert regulations, turn shadow banks into much smaller institutions, spread the wealth and then allow smaller capitalist banks/ industries to grow. Tough medicine.

Right now in the USA the shadow institutions – corporate giants (example- GE), Shadow banks (Citigroup), Insurance Companies (AIG) & Former Financials (Morgan Stanley)- the oligarchy – is fighting any change. Their mantra is the world will fall apart if you don’t allow us exist and work in the shadows.

The Bottom Line - The oligarchy needs to be broken, these shadow industries need be separated, no company should be too big to fail, and regulations imposed.  All of this is going to hurt Wall Street in the short term and hurt our economy. But the IMF has shown in the long run it can and has worked. 

If your interested in the best primer out there of the financial meltdown that is going to significantly impact almost everything YOU do over the next few decades see Johnson’s The Baseline Scenario’s Financial Crisis for Beginners outline and explanation




Index Percentage % Volume
Dow +3.14% up
NASDQ +3.89% up
S&P500 +3.81% up
Russell2000 +5.90% -


Technicals & Fundamentals

Major rally sparked by increased profits of major shadow bank Wells Fargo announcing much better than expected profits. Volume again confirmed the rally over all major US and most world stock markets.

XLF - The ETF that tracks financials (mostly shadow banks) rose +15.54% in increased, well above average volume. Volume, therefore, confirmed the move higher.  Also significant was the fact that XLF broke out of a three week long consolidation pattern.  - Investors411 has predicted an upside move out of consolidation  for weeks

Baltic Dry Index – broke its 21 day streak of moving lower and actually gained 1%. Stabilization here is good news.  The downward slope was an ominous sign, but it looks like this measurement of world trade has stabilized for now. Good news for bulls. (see chart at side of blog) Since this has 

Technical Outlook – After a major rally what bulls want for a minimum is for volume to decrease and markets to hold onto over 50% of gains. Obviously preferable would be another rally day in big volume.

  • For traders Friday and this rally is mana from heaven. 
  • For long term investors this rally a “suckers” rally.

More on this later. 


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