Economic Warfare

[tequila]

A financial firm's assets are in its investment portfolio. If the financial firm is stupid and has a portfolio full of hot air, it will deflate at the slightest puncture. The cause of the deflation is not the puncture, it's the gaseous nature of the portfolio. If the portfolio is solid, a puncture won't matter.

It is true that most US financial firms had pumped up their books with volumes of hot air, which left them insanely vulnerable. The eventual explosion has to be blamed on the decision chain that produced that vulnerability, not on the specific events that caused the deflation. Anyone running a financial firm should know there's a $#!tload of nails and needles out there and you will sooner or later brush up against them. If they pop your balloon, it's not the fault of the nails and needles, it's your fault for overinflating your company into a hot air balloon just to make it bigger.

Why do you figure short sellers targeted Lehman and Bear Stearns, and not, say, Wells Fargo?

Jackals prey on the weak. They aren't the cause of the weakness.

I think you are underestimating the fragility of any financial firm's portfolio. Firms that depend on trading for the majority of their profits are more vulnerable since they have fewer and riskier funding sources, but all financial firms hold assets which depend on counterparties. During a market panic, counterparty risk froze credit markets which the entire financial system depended on - it was a systemwide bank run, except that the run was on the shadow financial system which most firms depended on for financing. As you know, bank runs can destroy even relatively healthy institutions.

[bourbon]

The latest DC:

The Miscreants’ Global Bust-Out (Chapter 7): The Bernie Madoff Cover-Up, the Blind Sheikh, and the RLevi2 Algorithmic Market Manipulation Machine, by Mark Mitchell. Deep Capture, 20 May 2011.

I do not mean to suggest that Omar and Irfan Amanat are terrorists. But they definitely know terrorists, and are on exceedingly good terms with some of them.

It is therefore of possible concern that aside from founding Datek and Lightspeed, Omar and Irfan Amanat founded Island, the largest Electronic Communications Network (ECN) in America. In fact, they founded or served as key consultants to nearly every other major ECN in the nation.

Since ECNs act like their own private stock exchanges and enable stock manipulators to operate in anonymity, they are cited by U.S. government agencies as among the bigger loopholes that could be exploited by financial terrorists.

As it were, Irfan Amanat used one of his Electronic Communications Networks to engage in a massive market manipulation scheme. And it was precisely the sort of scheme that worries experts in threat finance.

This scheme was carried out in September 2001, in the days before and after the Al Qaeda attacks on the World Trade Center. While the timing may have been a coincidence, there is no question that Mr. Amanat’s attacks damaged the markets.

The Miscreants’ Global Bust-Out (Chapter 6): Man Financial and Al Qaeda’s Wash Trades, by Mark Mitchell. Deep Capture, 17 May 2011.

In 2008, one of Dawood Ibrahim’s top henchmen was Naresh Patel. Mr. Patel presided over an underground Al Qaeda and Mafia banking network with tentacles in the United Arab Emirates, India, Pakistan, China, Nigeria, Italy, Afghanistan, South Africa, the Congo, Nepal, the Cook Islands, Great Britain, and the United States.

The principal function of this network was to manage Al Qaeda drug profits — hundreds of millions of dollars that both Al Qaeda and its subsidiary, the Albanian Mafia, had earned from selling not just heroin, but also cocaine.
According to the U.S. Department of Justice, much of that money was transferred through banks in Dubai, and onwards to at least fifteen accounts that Patel held at Man Financial, the outfit that was (as we have seen) tied to Michael Milken, Bernie Madoff, Tuco Trading, and BKS in Moscow.

Patel traded huge volumes through these Man Financial accounts in 2008, but the DOJ didn’t catch him until 2009, at which point he was charged with transacting, through Man Financial, massive volumes of “wash trades” –simultaneously selling and buying commodities. He was doing the same thing with securities.

The DOJ described this activity as “money laundering” because money laundering was part of it, and money laundering is a concept that is fairly well understood by counterterrorism officials. Market manipulation, by contrast, is less well understood, judging from the fact that few people are ever prosecuted for it, though it happens constantly and, sometimes, on massive scales.

There is no sign that the DOJ understands that people (like Naresh Patel) who# deploy “wash trades” are not just laundering money – they are manipulating markets.# They use “wash trades” (simultaneously buying and selling the same securities) to create a tremendous amount of trading noise as cover under which they can manipulate prices down.

The Miscreants’ Global Bust-Out (Chapter 5): The Russians, their Friends, and Bernie Madoff’s Bear Markets, by Mark Mitchell. Deep Capture, 13 May 2011.

The Miscreants’ Global Bust-Out (Chapter 4): Michael Milken, the Mafia, and Some Powerful Hedge Funds, by Mark Mitchell. Deep Capture, 09 May 2011.

[Dayuhan]

Since when exactly was the Albanian Mafia an "Al Qaeda Subsidiary"?

Despite all the talk about "Al Qaeda's wash trades" etc, there is no specific reference here that credibly links AQ to any of this. Lots of peripheral reference to Justice Dept reports, but do you see any specific quotes or citations? Are there any credible, recognized experts on AQ that corroborate the allegations?

Why would an effort to "manipulate prices down" necessarily constitute an attack, let alone "economic warfare"?

[bourbon]

Why would an effort to "manipulate prices down" necessarily constitute an attack, let alone "economic warfare"?

Please read the report commissioned by the Irregular Warfare Support Group. It is evident that you have not, since your previous arguments, and now this question, are covered in the report.

[bourbon]

The Miscreants’ Global Bust-Out (Chapter 8): Al Qaeda, Iran, and Some Mafia-tied Agents of Economic Sabotage, by Mark Mitchell. Deep Capture, 23 May 2011.

Ingram knew quite a bit about collateralized debt obligations because he had previously worked as the head of the mortgage-backed securities desks at Goldman Sachs and Deutsche Bank. After leaving the big banks, Ingram ran his own high-flying company that specialized in trading mortgage bonds and mortgage derivatives, such as CDOs.

In addition, according to the DOJ, Ingram had gone into multiple lines of business with an Egyptian named Diaa Badr Mohsen, who had warehouses full of weapons – including Cobra helicopters, and Stinger missiles – in Miami and New Jersey.

Acting on a tip from a diamond trader named Randy Glass, the FBI began investigating the Egyptian as part of a larger sting operation focused on a mysterious Pakistani who was trying to buy components for nuclear weapons.

The court documents in the Ingram case do not name the Pakistani, but they make it clear that the Egyptian, Diaa Badr Mohsen, had expressed interest in supplying weapons to him. They also make it clear that the Egyptian had previously sold a lot of weapons to people in Pakistan and that he laundered the money from these weapons sales through Kevin Ingram.

In June 2001, the FBI arrested Ingram as he was about to board his private airplane and fly to Europe with more than $2 million in cash that he had obtained from undercover FBI agents posing as arms dealers.

The FBI also arrested the Egyptian Diaa Badr Mohsen, along with a Pakistani liquor store owner in New Jersey named Mohammed Raja Malik, who also dealt in sophisticated weaponry.

A few months later, the September 11 attacks occurred, and the FBI questioned the Egyptian Diaa Badr Mohsen extensively. This was because the FBI determined that it was likely that the Egyptian Diaa Badr Mohsen was tied to Al Qaeda. Indeed, the bureau suspected that the Egyptian might have direct ties to the 9-11 hijackers.

[Dayuhan]

In addition, according to the DOJ, Ingram had gone into multiple lines of business with an Egyptian named Diaa Badr Mohsen, who had warehouses full of weapons – including Cobra helicopters, and Stinger missiles – in Miami and New Jersey.

What a crock. That isn't what the link says. The link says that an FBI undercover agent offered Stinger missiles and Cobra helicopter parts as bait in a sting operation. There is nothing at all in the link that says the guys arrested actually had this stuff in their possession.

If you actually read the link, it looks like a couple of rather inept small time wannabes had illusions about making a score and ended up in jail. The only AQ connection is that Government agents once questioned one of the suspects about AQ connections, which is inevitable when an Egyptian or Pakistani is arrested for attempting an arms deal. None of the charges filed suggest an AQ connection and there's nothing to suggest that the questioning revealed anything.

The article says that after 2 1/2 years of investigation...

the government failed to identify a Pakistani connection or any other foreign would-be arms customers with possible terrorist links, and instead arrested two small-time Jersey City dealmakers-an Egyptian and a Pakistani

Not exactly something to get all breathlessly hyped up over. The article cited suggests no connection at all to AQ, any Mafia, or any "agent of economic sabotage".

Hard to imagine why someone would link to an article and so completely and deliberately misstate the contents. I guess they figure nobody will bother to click and check. Why anyone would bother to read material from people who play that sort of game, let alone take it seriously, is beyond me.

[Dayuhan]

Please read the report commissioned by the Irregular Warfare Support Group. It is evident that you have not, since your previous arguments, and now this question, are covered in the report.

How does that support the allegation that the Albanian Mafia is a subsidiary of AQ? The words "Albania" and "Albanian" don't even appear in the document.

Have you done much inquiring into this report... what the authors credentials are, what the track record and credentials of his "consulting firm" are, what other clients they've worked for, how often their work is referenced by recognized analysts, etc? The only thing I can see really demonstrated by that collection of pixels is that DOD spends its money in some very strange ways. Gotta wonder how much they paid for that little collection of speculative hypotheses.

I should start a one-man consulting firm of my own, and start trolling for contracts.

Unconvincing, to say the least.

[bourbon]

Unconvincing, to say the least.

But yet you offer no valid arguments against the points the author of the Irregular Warfare Support Group report has made. Rather, you have chosen to selectively engage singular points while at the expense of others.

Surely, if it is so unconvincing as you say, you then could easily refute the arguments the author puts forward.

[motorfirebox]

I've been thinking about the "it's just stock price" argument, and I'm not sure it holds water for several reasons. The simplest consideration is that falling stock prices make it harder to raise capital by selling stock. More broadly, a drop in stock prices can mean a drop in debt to equity ratio for companies--like investment banks--whose debts are publicly traded. This can, again, make it more difficult to raise capital, since the debt/equity ratio is often used to assess investment risk. A specific issue with the debt/equity ratio is that a high ratio can violate one or more debt covenants, forcing a company into unprofitable actions in order to get out of default.

Another facet is the effect falling share price can have on the board of directors. The directors' positions rely on shareholder confidence, which drops when share prices fall. So for that and other reasons, a company might very well choose to reduce their profit margin in order to maintain a higher share price (for instance, buying back shares if the price drops too low).

[bourbon]

America's dodgy financial plumbing - Too big a fail count: The sheer number of unsettled trades is rattling regulators. The Economist, 2 June 2011.

CLEARING and settlement are supposed to ensure that share, bond and derivative deals are completed safely and on time. These back-office processes are arcane, unglamorous and too often taken for granted—until things go wrong, when their importance becomes painfully apparent. The financial crisis of 2007-09 and the “flash crash” of American stockmarkets in May 2010 revealed numerous faults in the plumbing. Efforts are under way to mend these, but regulators have been slow to attend to some worrying new blockages arising from today’s high-frequency and tightly coupled markets.

The cracks in our clearing and settlement systems are the central issue detailed in both the Irregular Warfare Support Group report and Deep Capture. This article in The Economist scratches the surface of the issue, and provides a spiffy graph to visualize the massive spike in average daily settlement fails in US capital markets during second half of 2008.

[Dayuhan]

But yet you offer no valid arguments against the points the author of the Irregular Warfare Support Group report has made. Rather, you have chosen to selectively engage singular points while at the expense of others.

Surely, if it is so unconvincing as you say, you then could easily refute the arguments the author puts forward.

The obstacle is not the difficulty of refutation - it is very easy - but the volume of refutable material. It would just take too much time, and since nobody's takimng it seriously anyway, why bother? If someone would pay me as much to refute it as the poor oblivious American taxpayer paid to have it written, I'll gladly take the job.

I've been thinking about the "it's just stock price" argument, and I'm not sure it holds water for several reasons. The simplest consideration is that falling stock prices make it harder to raise capital by selling stock. More broadly, a drop in stock prices can mean a drop in debt to equity ratio for companies--like investment banks--whose debts are publicly traded. This can, again, make it more difficult to raise capital, since the debt/equity ratio is often used to assess investment risk. A specific issue with the debt/equity ratio is that a high ratio can violate one or more debt covenants, forcing a company into unprofitable actions in order to get out of default.

Another facet is the effect falling share price can have on the board of directors. The directors' positions rely on shareholder confidence, which drops when share prices fall. So for that and other reasons, a company might very well choose to reduce their profit margin in order to maintain a higher share price (for instance, buying back shares if the price drops too low).

That would be a valid point if stock manipulation had the ability to significantly depress the stock price of an otherwise healthy company for an extended period of time. I see no reason to believe that they can, or that it's been tried. A brief dip in the stock price will not significantly impair fundraising or disrupt management.

Short selling doesn't drive healthy companies out of business... the art of short selling is to identify and target the walking dead. Of course if there's a lot of walking dead out there that can cause problems, but the source of the problems isn't the short selling, it's the prevalence of walking deadness. If short selling seems to be causing major disruption the chances are the short selling itself is just a symptom of a much deeper systemic problem. The answer isn't t try and ban short selling, it's to try and prevent companies from getting into the kind of condition that will allow them to be damaged by short selling.

[motorfirebox]

Short selling doesn't drive healthy companies out of business... the art of short selling is to identify and target the walking dead. Of course if there's a lot of walking dead out there that can cause problems, but the source of the problems isn't the short selling, it's the prevalence of walking deadness. If short selling seems to be causing major disruption the chances are the short selling itself is just a symptom of a much deeper systemic problem. The answer isn't t try and ban short selling, it's to try and prevent companies from getting into the kind of condition that will allow them to be damaged by short selling.

You're putting short selling and other potential financial weapons in a box that is completely removed from the state of the markets and the prevailing market culture. Yes, such tactics won't work against otherwise healthy companies. The problem is that there are fewer and fewer otherwise healthy companies, and naked short selling and other forms of uncovered risk are a big part of the reason why. Your position is akin to saying guns wouldn't be a problem if everyone would just stop shooting each other.

[Dayuhan]

You're putting short selling and other potential financial weapons in a box that is completely removed from the state of the markets and the prevailing market culture. Yes, such tactics won't work against otherwise healthy companies. The problem is that there are fewer and fewer otherwise healthy companies, and naked short selling and other forms of uncovered risk are a big part of the reason why. Your position is akin to saying guns wouldn't be a problem if everyone would just stop shooting each other.

Not saying that at all, I'm saying that short selling is NOT a reason why companies are unhealthy, it's a phenomenon that emerges when there are many fundamentally unsound and overvalued companies around, and people start taking advantage of that. The short sellers are a symptom of the unhealthiness, not a cause. When a herd of buffalo is sick and hungry the vultures and jackals will gather, but the vultures and jackals aren't the reason why the herd is dying off.

I wouldn't agree that there are fewer and fewer healthy companies around. A lot of the unhealthy ones are gone; whatever they had going that was productive has been absorbed by better-run competitors. That's what recessions are supposed to do, and one of the reasons the recent recession was so bad was that the 2001-2002 recession was countered too effectively, before it could do what needed to be done after the absurdly inflated bubble years of the late 90s. The herd needs to be culled now and then, lest the sick multiply and infect the healthy.

[motorfirebox]

I'm not sure that's true this time around. We've allowed a lot of otherwise unhealthy companies to thrive, and have even allowed them to continue, in general, the unhealthy practices which got us all into this spot in the first place. We're getting rid of liar loans in the housing market (largely through the wholesome and healthy method of drying up credit almost completely), but we still have a derivatives bubble of between $500 trillion and $1.5 quadrillion.

Regarding stock price, "prolonged" is pretty relative, considering that we're trading over tens of milliseconds nowadays.

[Dayuhan]

I'm not sure that's true this time around. We've allowed a lot of otherwise unhealthy companies to thrive, and have even allowed them to continue, in general, the unhealthy practices which got us all into this spot in the first place. We're getting rid of liar loans in the housing market (largely through the wholesome and healthy method of drying up credit almost completely), but we still have a derivatives bubble of between $500 trillion and $1.5 quadrillion.

Largely true, but those are consequences of bad policy, not of short selling or of some shadowy conspiracy driven by AQ, the Albanian Mafia, Dr. Evil, or any similar entity. Economic policy that is shortsighted, driven by immediate political expedience, and/or just plain dumb has been a consistent theme since the mid/late 90s... and before, but that makes a reasonable start point, as it's where the current crisis really began to build.

What "got us all into this mess in the first place" is debatable and deserves more debate. Politicians of both parties have made a consistent and largely successful effort to lay all the blame on Wall Street, thus conveniently absolving themselves, but in truth Wall Street, main Street, and Washington DC all carry a lot of responsibility, with the latter probably carrying the most.

Regarding stock price, "prolonged" is pretty relative, considering that we're trading over tens of milliseconds nowadays.

Trading is very fast, yes, but the impact of stock price on a company's ability to raise funds or on boardroom stability plays out over a much longer period of time. A company has to be in pretty precarious shape to collapse because the stock price dropped for a few weeks.

[motorfirebox]

Heh, if there's any conspiracy, it's more than likely among the potential 'victims' themselves. Investment banks profit unimaginably from the current circumstances, for all that those circumstances could potentially wreck them and everyone else on the planet who doesn't live in a mud hut. But that isn't to say that a conspiracy to purposefully cause massive financial damage couldn't exist.

Effects on the boardroom was only one consequence of stock price that I mentioned. Besides the others I brought up, there's another facet--the companies who trade on those stock prices. A bear raid intended to cause financial damage does not necessarily have to damage the company being raided in order to be successful.

[flagg]

I've just posted over on the Energy Security thread as well.....

Has anyone familiar with or looked over Eric Janszen's iTulip.com forum?

Not trying to piss in his pocket or spam on his behalf, but I'm a believer.....the guy's analysis and calls since circa 1998 have been scary accurate.

He's also getting noticeably darker very recently in regards to our ability to avoid a major conflict in Asia over debt/energy sometime over the current decade.

Basically, he thinks that unless there is a massive write-down of credit bubble debt and laser focus on energy efficiency...then the alternative for the US is a major war NOT on US soil.

But in having said that while his economic/finance/energy analysis(from him and the alpha's in the community) is an order of magnitude better than most I've followed the weakness I perceive is the geopolitical/security side of the house.

It's not my intend to derail the topics/conversations....but I really rate his stuff..enough so to chuck it out there for consideration.

[Dayuhan]

Heh, if there's any conspiracy, it's more than likely among the potential 'victims' themselves. Investment banks profit unimaginably from the current circumstances, for all that those circumstances could potentially wreck them and everyone else on the planet who doesn't live in a mud hut. But that isn't to say that a conspiracy to purposefully cause massive financial damage couldn't exist.

Certainly investment banks can make profits during downturns, but I doubt they'd conspire to produce one, and I haven't seen any credible evidence to suggest that they have. Never attribute to malice (or conspiracy) what can adequately be explained by stupidity, short-sightedness, pursuit of immediate expedience, etc, ad nauseam.

Certainly a conspiracy to cause massive financial damage could exist, but it would need the motivation and the capacity, and it would need to have a refuge when discovered, which it would be. Most who have the capacity are in the boat already and haven't the motivation. Neither do we need a conspiracy to produce a mess; messes come up easily and often enough with no conspiracy. Again, never attribute...

Effects on the boardroom was only one consequence of stock price that I mentioned. Besides the others I brought up, there's another facet--the companies who trade on those stock prices. A bear raid intended to cause financial damage does not necessarily have to damage the company being raided in order to be successful.

Very few financial institutions would be so exposed to one company, especially a company in bad enough condition to be sunk by a bear raid, to really hurt them. If they were, they'd deserve to go down.

The conspiracy talk is to me a distraction from the real problems. of which there are many. One of the knottiest, which nobody has ever really solved, is this: given that good long-term economic policy is often unpopular in the short term, how does a democratic government pursue good policy without getting thrown out of office?

Has anyone familiar with or looked over Eric Janszen's iTulip.com forum?

He's also getting noticeably darker very recently in regards to our ability to avoid a major conflict in Asia over debt/energy sometime over the current decade.

Basically, he thinks that unless there is a massive write-down of credit bubble debt and laser focus on energy efficiency...then the alternative for the US is a major war NOT on US soil.

Any links to specific material on this energy/debt war prospect? All I get is requests for a paid subscription, which I've no immediate inclination to buy.

"Within this decade" seems too soon on the energy front, and I see no reason to fight over debt. I also can't see why a war over energy would be fought in Asia.

It will be quite a while before China has the capacity to fight a major war in the Middle East or Africa, and I doubt they'd be inclined to in any but the most extreme conditions. They might be tempted to make a grab for the Caspian, but that would more likely produce war with Russia than with the US. The Chinese are likely to want to fight energy wars with dollars, rather than bombs, as they've a surplus of dollars to fight with. Cheaper to outbid the rival than to fight far away from home, which poses many risks.

Seems superficially far-fetched, but hard to say without seeing the specific arguments, not that I'm about to pay for that privilege!

The front page of the site is a bit self-promotional for my taste, but I guess that goes with the niche he's trying to carve out.

[flagg]

Any links to specific material on this energy/debt war prospect? All I get is requests for a paid subscription, which I've no immediate inclination to buy.

"Within this decade" seems too soon on the energy front, and I see no reason to fight over debt. I also can't see why a war over energy would be fought in Asia.

It will be quite a while before China has the capacity to fight a major war in the Middle East or Africa, and I doubt they'd be inclined to in any but the most extreme conditions. They might be tempted to make a grab for the Caspian, but that would more likely produce war with Russia than with the US. The Chinese are likely to want to fight energy wars with dollars, rather than bombs, as they've a surplus of dollars to fight with. Cheaper to outbid the rival than to fight far away from home, which poses many risks.

Seems superficially far-fetched, but hard to say without seeing the specific arguments, not that I'm about to pay for that privilege!

The front page of the site is a bit self-promotional for my taste, but I guess that goes with the niche he's trying to carve out.

Some of his best content lives behind a paywall......again, I'm not trying to spam/spruke on his behalf.

I follow a good bit of financial/economics/energy commentary and the only one I actually pay for is THIS one...the important nuggets of info behind the paywall tend to make their way into the open forums and public domain pretty quickly.

My personal understanding and belief is that while Eric Janszen is running iTulip as a profitable business.....he clearly doesn't NEED to as he has had considerable verified entrepreneurial/investment success.

I find his analysis and commentary differs substantially from the analyst/commentary herd because EJ doesn't need the money, doesn't need to talk his book, and doesn't suffer from the effects and consequences of herd mentality.

Here's a rare appearance on CNBC(theyusually don't invite back folks who don't talk their book):

http://www.youtube.com/user/itulipdo.../2/kqOOnbMMemE

I'd suggest starting here( Eric Janszen, user EJ):

http://www.itulip.com/forums/forumdi...-Quick-Comment

http://www.itulip.com/forums/forumdi...-with-AntiSpin

as well as with user Bart here(he's provided some great indicators and has his own website at www.nowandfutures.com ):

http://www.itulip.com/forums/forumdi...art-s-Comments

and finally user GRG55:

http://www.itulip.com/forums/member.php/2424-GRG55

EJ has a book here that I would recommend:

http://www.amazon.com/Postcatastroph.../dp/1591842638

------

As stated, I think EJ/iTulip.com's biggest weakness is a lack of SME on geopolitical/security side of the coin.

But it's worth noting what I forgot to mention on my last post is his strong ability to read "kremlinology".

For example, he dumped silver(documented) recently just before the price crash in what is a very rare portfolio trade for him.....lots of reasons for him doing it...but a critical one was the lack of "political relevancy".

Silver isn't politically relevant......but gold and energy are.

So while I question his understanding of the security side of the house....his ability to decipher political decision making when it comes to finance/economics is very strong.

I'm speculating that what he refers to is a coming war in Asia over Energy(IF credit bubble debt is NOT written down and energy efficiency does NOT become a massive focal point) , I believe he is referring to a conflict between the US and China directly or via proxy thru Pakistan/India/Kablamistans with Russia playing a significant role as well.

But again....just speculation on my part....as I think his understanding(my opinion) of things like Saudi security and mass security investment is a bit superficial and hollow...say much like basing opinion and analysis on the SU solely on open source Reagan admin PR on Soviet buildup and capabilities in the 80's.

And EJ is not a "dark" guy...in fact he's quite the optimist(long-term)...but it's hard to miss his change to a darker tone recently...which is cause for concern.

I would also agree that China would try to play to it's strengths....dollars...but wouldn't the US also be tempted to leverage it's own strength via it's incredible conventional/unconventional force projection overmatch?

Temptation to use(literally and/or figuratively) it before you lose it due to increasing difficulty in sustaining the capability long-term?

Couldn't an argument me made that we are looking at some rough 21st century analogies to some of the events of the 1930's?

But I'm just a reserve infantry section commander and small business owner with an OK education and a strong interest in finance/economic/military history....I'm not professionally trained in analysis for either major discipline.

My personal feeling is that there seems to be a disconnect between strong conflict & security analysis and strong finance/economic/energy analysis...I guess that's why I'm an open advocate for trying to cross pollinate the two wherever possible to see what comes out of it, if anything, and try to better understand where we are likely headed.

[motorfirebox]

I feel like this discussion is being limited to a few points, mainly revolving around short selling. Short selling is, as has been pointed out, not a great weapon for long-term manipulation of the stock market--it's great for getting some quick profits out in the short term, but not much beyond that (in and of itself).

But short selling is not the only financial practice or instrument available. If I were going to construct a strategy of financial attack, my main weapon would probably be the CDS. Used correctly (or badly), a set of credit default swaps can act as a land mine, draining liquidity from a company very quickly.

Another point of limitation in this discussion is that only badly-run companies will put themselves into a position to be badly damaged by such tactics. I can only reiterate that we live under a badly-run economy in which individual risk is artificially lowered by raising collective risk. The housing market crash is an example of this--it bubbled because a combination of active policy and lack of oversight reduced the likelihood of any one company taking major losses on the toxic assets being produced. This continued until the bottom fell out under everyone all at once. So the idea that it's not a problem because only badly-run companies are vulnerable simply does not fly. It's not the only problem, certainly, but when you're dealing with a gasoline spill it's at least as important to not light matches as it is to clean up the spill itself.

The final point of limitation is the idea that a financial attack must be responsible for all of the current state of the economy or none of it--that because the potential for massive damage was created by accident, any triggering of that potential must also be accidental. I don't think the house of cards which comprises our current markets was--or could have been--set up the way it is on purpose; it's too big. But I think it's possible that someone could deliberately try to knock it down, and I think it's possible that they could succeed to a greater or lesser degree. I think it's somewhat less likely that such a deliberate act has already occurred on any significant scale, but I'm not entirely closed to the possibility.