oftwominds-Charles Hugh Smith: The Oil-Drenched Black Swan, Part 2: The Financialization of Oil.
All the analysts chortling over the “equivalent of a tax break” for consumers are about to be buried by an avalanche of defaults and crushing losses as the chickens of financializing oil come home to roost.
The pundits crowing about the stimulus effect of lower oil prices on consumers are missing the real story, which is the financialization of oil. Financialization is another word that is often bandied about without the benefit of a definition.
Here is my definition:
Financialization is the mass commodification of debt and debt-based financial instruments collaterized by previously low-risk assets, a pyramiding of risk and speculative gains that is only possible in a massive expansion of low-cost credit and leverage.
That is a mouthful, so let’s break it into bite-sized chunks.
Home mortgages are a good example of how financialization increases financial profits by jacking up risk and distributing it to suckers who don’t recognize the potential for collapse and staggering losses.
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