With the bankruptcy of Detroit, and the light that is about to shine on the inner workings and the foundations of the financial system, it will become increasingly obvious how precarious is our current position. This issue is far larger than Detroit, and far larger than the United States. The financial system is global, and highly interconnected. Shocks can propagate very quickly, picking up momentum as they travel. We are seeing the beginnings of the next phase of the on-going credit crunch, in the US at the municipal and state level, but also in Europe and beyond. This is a good time to question the prevailing blind optimism and look instead for an understanding of how the system really works, and where its architecture and internal dynamics are taking us.
via Promises, Promises … Detroit, Pensions, Bondholders And Super-Priority Derivatives | The Automatic Earth