The model is based on the assumption that a trader can suck all the risk out of the market by taking a short position and increasing that position as the market falls, thus protecting against losses, no matter how steep. Nearly every employee stock-ownership plan uses Black-Scholes as its guiding principle.
Excuse me: Merton and Scholes received the 1997 Nobel Prize in Economic for what - to transform the world into a mega-giga casino?
The problem is not a liquidity crisis, but too much liquidity flooding the market and whose value is getting increasingly worthless because there is too much money purchasing goods and services. But once a currency gets close to junk, we easily can imagine the amount of banknotes that are needed to achieve the same results. So indeed, more cash is needed to help the system stay afloat, hence the term 'liquidity crisis'.
To add to the injury, Michael Shedlock, a prominent contrarian, declared as of 01/29 that the bank reserves went negative, an observation based on a chart by the Federal Reserve of St Louis. Yep folks, most American banks are now insolvent or on the brink to become so. If it is that bad at BofA, how do the balance sheets look like at the other major banks? For the cherry on the cake, let's not forget that Fitch disclosed its fatally flawed Rating Model...but since the two others, S&P and Moody, didn't do a thing either, we ought to conclude they also are affected by the same infectious myopia. All we can do is to brace ourselves for the coming collapse of International Credit Ratings.
What the heck are the regulators doing, would you ask? That is a good but silly question. 
There is so much gaming out there, the latter are outsmarted and intimidated by the cliques they are supposed to monitor and rush to settle litigations as quickly as possible due to peer pressure. Having super-cop-regulators patrolling the stock exchanges, banks and brokerage firms would not only be proven extremely costly but futile. It is time to get real: the FDIC can insure deposits, but not purchasing power. Another regulation that will soon be proven completely worthless. To put it simply: we are freaking d-o-o-m-e-d!
No Place To Hide
Let's take a pause here: the other day, scientists confirmed a fact that every smart person already knows. Like ants or sheep, humans are easily led, they said. The telegraph.uk article continues: Researchers at Leeds University believe their findings could have important applications, notably in the management of disasters... with the global financial meltdown around the corner, how cynical is that? What will the Herds be looking like when rushing to the exits? What I want to say here is that the market behaves irrationally, when there is a booming mania, investors follow blindly and are thus uncontrollable.
CNN, as of Feb. 6, had a simple explanation for the stock market's mixed outcome, suggesting that rising inflation might prevent the Fed from making further interest rate cuts. Back to the market. This means that stock market players have not forgotten the Maestro's era of cheap money and its ensuing boom - and that nostalgia is flying high. If the fed's rates were going back to 1%, we're willing to bet that we'd have DOW 20,000 by now! Wall Streeters are completely irrational. As Helicopter Bernanke poured $200bn in freshly printed IOUs, the Dow rallied 416pts on March 11. They only are prolonguing the agony and in a deep state of desperation, Congressman Ron Paul asserted.
The truth is about to catch up with us. Even George Soros admits that 'we are at the end of an era of credit expansion' when saying that the crisis originates in the heart of US capitalism - please note this demonization of capitalism again. The debt tentacles have so many ramifications that it doesn't bode well: America will drag many in its fall. That is what happens when a currency is made the world currency reserve. 'The Davos elites knew that the USD would eventually give up, and they created the Euro to replace it - but will it work? Considering that the major European economies are practically on the brink, there is no magic solution. Unless the Chinese government starts distributing credit cards for free, don't hold your breath either: At 37 times trailing earnings, China undoubtedly has the second world's biggest stock-market bubble. Today international corporations invest massively in Vietnam where the production costs are one-third cheaper than in China.
The creation of the Euro was designed to enhance trade, employment and to prevent currency fluctuations, the Elites told us, remember? We see the results after less than a decade. Europe is prompted to 'its own Review Rules' following the investigation of the bailouts of two German banks hit by the subprime lending crisis in order to determine whether they violated rules on state aid for ailing enterprises. The German taxpayers must have a very bitter taste in their mouths. All this taxpayers’ money which poured into once-profitable banks that took excessive risks, profiting mainly the top 10% of the population among which we find top executives who evade €30bn of tax yearly... Is Germany, Europe's biggest economy, a corporate swamp? The Guardian.uk asks. Der Spiegel declared that the German State-Owned Banks on Verge of Collapse. The columnist doesn't mince his words:
.. greed and political protection that is symptomatic for many of Germany's state-owned, partially state-owned and public sector banks. It is an environment that can only thrive in the shadow of the state -- and that has drained more than €20 billion from the public treasury within the last decade. (Feb/20)
As of 02/22, FTimes.com ran an editorial in the same mold titled 'The fall of a financial model':
...Unlike the internet bubble, this is not a crisis based on irrational behavior but one of sophistication and disintermediation. The new risks produced by financial innovation were left to a sector that alone was considered able to understand its instruments. The crisis demonstrates the costs to the real economy and lack of an efficient self-regulating system.
Interestingly enough that same week, Spitzer dropped a bomb when declaring that Bush administration was predatory lenders' partner in crime; that the government chose instead to side with the predators. What have the democrats been doing during all this time? This is called a conspiracy of silence and of course nothing of this was aired on TV.
Since my editorial 'Hey Buddy, can you spare $1,000 trillion?' written in October 2007, the derivatives market grew from 516 to 681 trillion! Meanwhile the global stock market cap is approximately $51 trillion. Because derivatives are similar to insurances against value depreciation, how can we have such a big gap?! As of 03/08, Buffett and Gross warn of a disaster waiting to happen. The Derivatives bubble now five times bigger than five years ago is on the edge of explosion. We are in big trouble, guys! Bear in mind that what is occurring right now is the consequences of debts and their compounding interests added to the so-called financial innovations in order resell the same debts a zillion times.
Yet according to a survey released by Harvard Business School and Dartmouth College, Americans don't understand debt, which may be one reason that they have too much of it. Even those with a college degree don't possess an understanding of the basic finance ideas, the CNN columnist writes.
Considering the worlds deficits and imbalances, this shouldn't come as a surprise: how many prestigious degrees are there among the global elites? Are they just ignorant or have they gone bonkers while succumbing unrestricted stupid greed?
