A thoughtful and creative diary about the instabilities that emerge when the market is based on credit lines. Promoted by Specter

Our hero, Narcissis, was so taken with his own self image as an elite invester that he could not turn away. It would be his nemesis. He was making money in an unregulated hedge fund market. The scenario for profit was so tantalizingly and unimaginably beautiful, hedging complex market bets so you never lose, with naked shorts, imaginary IOU's for stocks that you bet will lose money, then sell without actually owning them and made a tidy profit. The final fantasy of all gambling men, making money at the craps game by betting on the loss. Narcissus was intoxicated, imagining the wealth created by this ultimate and sophisticated market fantasy, he could not stop himself from making money and falling in love with his own cleverness at playing the system. It was a beautiful scheme that would not stop staring him in the face.

He wore the snappiest suits, and was the much sought after hero of investment world, the hedge funder who fell in love with gaining on losing. He was celebrated by the richest of the rich who found a way to make money with virtual iou's. Many a University student swoons at the lure of becoming the ultimate winner, a financial engineer. Old fashioned engineering, building things you can touch, is much less appealing. There is much more money to be made in paperless bets and virtual ious. Yet at what cost?

Hedge funds, have become so enormously attractive because they take money off each end of transaction, win or lose you get a tasty piece of pie. It seems like such an incredible dream. And these virtual transactions, have been wholly unregulated. An attempt was made to regulate the mangers in 2005, but it was filled with loopholes. It is a craps game that is fueling speculation of an economic downturn in liquidity for capital investiments.

Pension funds and institutional investors began to look to hedge funds to beat benchmarks. The number of hedge funds worldwide has increased from approximately 600 funds with $38 billion in assets in 1990 to more than 8000 funds with $1 trillion in assets in 2004.

Consider the case of Bear Stearns: Their hilarious hedge holes -- the CDO-heavy High-Grade Structured Credit Strategies Enhanced Leverage Fund and its sister, High-Grade Structured Credit Fund -- cratered in early June, going from about $10 billion to a few hundred million in assets within a matter of months, even though the hedge fund itself had been barely up and running for more than 10 months.

You can play both sides against the middle -- the middle class, come to think of it -- and still win. Huge. So it was no surprise when the Wall Street investment titan decided to bail out its own hedge fund, to which it had committed only around $35 million, with over $3 billion and counting. As Bear Stearns Chief Financial Officer Sam Molinaro explained in a conference call, "There continues to be significant value in it."

Narcissus was pleased with his take of the profits.

What I find most ironic is the narrative by some on the hard right suggesting that liberals are the ones suffering from maligant narcisism.

Painted as self obsessed, the hard right claims the left's, attempt's to look out for the lesser among us is the heigth of selfishness. Unable to separate from reality, the claim contends that an affront on equal rights is seen as a sign of trifling self absorbtion. A mention of race is seen as blatant racism. The mention of promoting access to equal opportunity is seen as a selfish plot to promote a populist take over and the beginning of a new era of socialism. These talkers decry compassion and tout self interest. They mock human suffering and pledge only selfishness will save society at large. They hedge their bets that any talk of regulation can be dismissed as the hysterical self centered paranoid left, thinking that because mafia style investment execs have created a vapor lock where we find debt for jaguars and sprawling mansions.

The markets Thursday and Friday wiped out $526.1 billion in shareholder wealth from the stocks in the Standard & Poor's 500 index, largely due to crediters taking too much risk, in unregulated markets. There are more IOU's in the banks then there is money to back them due to the upward spiraling of the home market values that was driven by essentially easy access to credit. Bankers were recently forced to ease up on the 12 billion dollar loan to help Chrysler due to soft invester demand. A severe wake up call to crediters.

The Glass Steagal Act of 1933, a response to the crash of 1929, mandated a separation of collusion between investment bankers. Sixty Six years later, in 1999, it was repealed by none other than Bill Clinton. Nice shorts Bill.

Is the mirror of boundless greed, from which Narcissus can not avert his eyes beginning to crack?