Wednesday, 14 December 2011

Depression And Democracy - by Paul Krugman

Below is a piece by Nobel Prize winning economist Paul Krugman...
... in entirety because there is a whole load of sleepwalking going down.

"It's time to start calling the current situation what it is: a depression. True, it's not a full replay of the Great Depression, but that's cold comfort. Unemployment in both America and Europe remains disastrously high. Leaders and institutions are increasingly discredited. And democratic values are under siege.

On that last point, I am not being alarmist. On the political as on the economic front it's important not to fall into the "not as bad as" trap. High unemployment isn't O.K. just because it hasn't hit 1933 levels; ominous political trends shouldn't be dismissed just because there's no Hitler in sight.

Let's talk, in particular, about what's happening in Europe - not because all is well with America, but because the gravity of European political developments isn't widely understood.

First of all, the crisis of the euro is killing the European dream. The shared currency, which was supposed to bind nations together, has instead created an atmosphere of bitter acrimony.

Specifically, demands for ever-harsher austerity, with no offsetting effort to foster growth, have done double damage. They have failed as economic policy, worsening unemployment without restoring confidence; a Europe-wide recession now looks likely even if the immediate threat of financial crisis is contained. And they have created immense anger, with many Europeans furious at what is perceived, fairly or unfairly (or actually a bit of both), as a heavy-handed exercise of German power.

Nobody familiar with Europe's history can look at this resurgence of hostility without feeling a shiver. Yet there may be worse things happening.

Right-wing populists are on the rise from Austria, where the Freedom Party (whose leader used to have neo-Nazi connections) runs neck-and-neck in the polls with established parties, to Finland, where the anti-immigrant True Finns party had a strong electoral showing last April. And these are rich countries whose economies have held up fairly well. Matters look even more ominous in the poorer nations of Central and Eastern Europe.

Last month the European Bank for Reconstruction and Development documented a sharp drop in public support for democracy in the "new E.U." countries, the nations that joined the European Union after the fall of the Berlin Wall. Not surprisingly, the loss of faith in democracy has been greatest in the countries that suffered the deepest economic slumps.

And in at least one nation, Hungary, democratic institutions are being undermined as we speak.

One of Hungary's major parties, Jobbik, is a nightmare out of the 1930s: it's anti-Roma (Gypsy), it's anti-Semitic, and it even had a paramilitary arm. But the immediate threat comes from Fidesz, the governing center-right party.

Fidesz won an overwhelming Parliamentary majority last year, at least partly for economic reasons; Hungary isn't on the euro, but it suffered severely because of large-scale borrowing in foreign currencies and also, to be frank, thanks to mismanagement and corruption on the part of the then-governing left-liberal parties. Now Fidesz, which rammed through a new Constitution last spring on a party-line vote, seems bent on establishing a permanent hold on power.

The details are complex. Kim Lane Scheppele, who is the director of Princeton's Law and Public Affairs program - and has been following the Hungarian situation closely - tells me that Fidesz is relying on overlapping measures to suppress opposition. A proposed election law creates gerrymandered districts designed to make it almost impossible for other parties to form a government; judicial independence has been compromised, and the courts packed with party loyalists; state-run media have been converted into party organs, and there's a crackdown on independent media; and a proposed constitutional addendum would effectively criminalize the leading leftist party.

Taken together, all this amounts to the re-establishment of authoritarian rule, under a paper-thin veneer of democracy, in the heart of Europe. And it's a sample of what may happen much more widely if this depression continues.

It's not clear what can be done about Hungary's authoritarian slide. The U.S. State Department, to its credit, has been very much on the case, but this is essentially a European matter. The European Union missed the chance to head off the power grab at the start - in part because the new Constitution was rammed through while Hungary held the Union's rotating presidency. It will be much harder to reverse the slide now. Yet Europe's leaders had better try, or risk losing everything they stand for.

And they also need to rethink their failing economic policies. If they don't, there will be more backsliding on democracy - and the breakup of the euro may be the least of their worries."

And with that we wish you a happy solstice cos we're out of here...

Sunday, 11 December 2011

Bankers Made Off, Politicians Cream Off, Businesses Rake Off. Quis Custodiet Ipsos Custodes?

When banks, governments, organisations and individuals veer to psychopathic, Machiavellian misanthropic behaviours, who exists to protect the 99% from the antisocial rampages of the 1%?

The magnificently named Jed Rakoff is one such man.
Rakoff is the New York District Judge who has thrown out of court the ludicrous accommodation between Citigroup (an over-sized too-big-to-fail bank) and the Securities and Exchange Commission (SEC), the regulatory body.
Citigroup and the SEC had reached an out-of-court arrangement of $285 million settlement over a range of criminalities by the bank with the usual proviso that the financial organisation refuses to accept any responsibility for the crimes in lieu of the hush money/ plea bargain.

This is not justice as nothing prevents Citigroup from behaving in exactly the same manner again and the behind-closed-doors agreement disarms disgruntled investors ripped off by the bank.

And ripped off they were...
... Citigroup established a fund that was deliberately designed to fail, in the style of Goldman Sachs.
Citigroup persuaded clients to invest in this fund while the internal traders at the bank were taking on this mug money for profit.
Investors lost not far short of a billion dollars while Citigroup pocketed $160 million (meaning that the fine, in reality, was just $125 million).
This places Citigroup in violation of the provisions of the 1933 Securities Act.

But Rakoff claims further that the bank undertook deliberate deception and fraud which opens the route to civil litigation.
As The Economist states: "The absence of the [civil litigation] charge in the Citi complaint makes some wonder if the scope of charges is inversely proportional to the size of defendant."

And the SEC are sharing a king-sized double with the politicians in Congress too.
Members of the House have recently been exposed by CBS of trading on inside information for proprietary gain.
Such politicians have been shown to outperform the market by fully 12%!

The Economist: "It is remarkable, though, that congressmen's investments have been so laxly supervised... They are able to trade freely, even if they find out before anyone else about regulations or events that could affect specific industries or the stockmarket as a whole."

Of course, we cannot expect that the SEC should do its job as it is directly funded by Congress and any decent SEC analyst is head-hunted by the very financial institutions that are being forensically evaluated.

Still the doublespeak criminalities of the abusers are the most revealing.
Spencer Bachus is the House Financial Service Committee chairperson.
CBS accused Bachus of benefitting from financial inside information.
And the Bachus response: "It is absolutely essential that we do restore the public's trust."

William Burroughs: "To speak is to lie/ to live is to collaborate."

Corinne Maier: "Chief executives should be guillotined to the sound of 'La Carmagnole'."

Thursday, 6 October 2011

A Wunch Of Bernankers

Some posh Brit gets taken out.
His missus gets carted off.

And all this from a supposedly secure 6* VIP Luxury Branded Experience on the beautiful coastline at the border of Somalia and Kenya.

Oh no!
A copycat crime.
This demands wall-to-wall media coverage.

Meanwhile in Somalia, Kenya and Ethiopia, 12 million people are starving in a famine that was predicted 3 years ago but which donor nations chose to ignore as they were too busy declaring class war on their own citizens.

Of course.
If these vacationing posh people had paid a proper percentage of tax in the pound, these narratives might have had a happier ending for all concerned.

The framing of the argument over the increasing income inequalities across the globe around this level of tax issue is something that should be resisted.
As Warren Buffett has pointed out - he pays a lower percentage rate of tax than does his secretary.
The rich do loopholes and then some.

Instead of framing the argument around whether it would be preferable if the class warmongers were to pay 55% rather than 50% of a markedly reduced real income figure, why not tackle the speculators who toy with everyone's lives?
And then deal with the myriad of loopholes, structural moral hazards and misanthropic infrastructures that allow tax avoidance to occur well before any tax inspector gets anywhere near the figures.

Dani Rodrik in 'The Globalization Paradox, Why Global Markets, States and Democracy Can't Coexist': "What do all these men in their twenties and thirties sitting in front of huge computer screens, who move hundreds of millions of dollars across the globe at a keystroke and determine the fate of nations' currencies, really do? Do they serve to eliminate inefficiencies in the market and bring currency values close to their true underlying economic worth? Or do they magnify the ups and downs in the market by acting like a herd and chasing phantom profits."

And the banks go along with the phantom profits ruse because whenever the king is about to shed his clothing, along comes the central bank to bail out the markets with quantitative easing or some other doublespeak.

The Economist: "Berkeley's Mr Saez and Peter Diamond, a Nobel laureate at the Massachussets Institute of Technology, ... say that taxing investment income is justifiable. It is often hard to draw a clear distinction between investment and labour income, especially for top earners. A low or zero rate of tax on corporate and capital income may simply encourage top earners to change how they take their compensation. The case of carried interest in private equity and hedge funds provides an example. Fund managers earn a share of profits as compensation, which is treated as capital income for tax purposes... There is a compelling argument that such compensation is simply labour income, however, and that the current pattern is basic tax-avoidance."

The uproar that greeted the possibility of a transaction tax on market trading is a further instance of the framing of an argument.
London would not lose jobs and nor would any other financial centre if the tax were global and obligatory - if you have world markets, you must have world regulation.
Piecemeal regulation constructs loopholes or competitive advantage depending on your perspective.

Shell companies set up in the British Virgin Isles with opaque ownership - tis difficult to tax what one cannot see...
Off-exchange trading and Dark Pools and even deeper pools that operate without ANY regulation whatsoever...
Swiss wealth management where leading banks pay negative interest on blood money from around the world, taking their slice of the action...
Grey markets, black markets, back-handers and kickbacks, monopolies, cartels and, probably most problematical of all, just four large global accounting firms that individually sign off the books of businesses that not only have been tied to the one accounting firm for decades but also purchase consultancy services off the same firm.
The demand for the bending of the rules and the by-passing of realities by human nature morphs into something far more sinister with the passage of years.
How can there be any objection to Barnier's big push for accountancy firms not to be able to offer consultancy work to clients?

While we're at it, we're at it, we're at it...
How about insisting that no business may use the same accountancy firm for more than five years?
Now that would bring in a few shedloads of tax!

And we'll have a maximum wage, thank you very much...
Faiza Shaheen: "We need a maximum wage to complement the minimum wage. That is, we need maximum pay ratios within companies and across sectors to put an end to chief executives getting paid more than 250 times what the cleaning staff earn."

Cashheads = Smackheads - incremental antisocial greed.

John Dewey: politics is "the shadow cast onto society by big business" and the smaller that government the less shadow cast for people to observe who is really marionetting our existences.

Take that fantastic phantasmagoric ruse the Private Finance Initiative (PFI).
Slack Jaw and the War Criminal managed to get the nation 11 billion pounds worth of public building and on current public reckoning it would appear that we will be paying those privateers £70 billion in return.

It is worse than that.
Several Institute of Directors, Chambers of Commercy, Masonic sorts have confirmed to me that the real figure could be as high as £250 billion but that the current shadow are disguising the depth of the future misery for fear of been downgraded to junk status sooner than necessary.

Just saw a house I liked.
One hundred and ten grand.
If I offer 2.5 mill, that should get it...

Rampant inequality produces instabilities that are unsustainable and, additionally lead to a poorer quality of life for all.

A recent survey in The Economist concluded that future tax will have to be transferred from business to the consumer ie a regressive top-down tax.
And this is despite high-earners currently paying less tax than was the case historically.
But it appears that the only way for businesses to globally compete in late capitalism is to speed to the least ethical practices targeting short term profits far ahead of strategic needs.
Self-defeating in every way.
If Steve Jobs had just concentrated on making amazing techie stuff instead of getting eaten up with legalistic patent power play against competitors then perhaps the pancreas might not have scored that winning goal...

But we must finish on a high note...

One cannot be other than delighted on hearing that fraudster MP Elliot Morley has been released from prison after serving just four months of his 16 month sentence.
Good job the fecker wasn't carrying a bin liner and balaclava when he was nabbed for robbing and thieving and stuff.

Monday, 30 May 2011

Dark Pools Produce Black Swans, Black Pools Produce Black Holes

...And Other Aesthetic Fetishisms Of The Hyperlate Capitalist Disorder

Incipit parodia...

There is a Russian saying - another's soul is a dark pool...

The infrastructure of financial markets is an inverted underground pyramid, which would seem apt for such a pernicious Ponzi scheme.

Firstly, we are presented with the public markets with their tenuous links to Reality but then there are the Dark Pools and, most importantly, deeper still the even Darker Pools (Black Pools?).

All investment banks operate their own proprietary Dark Pool out of sight of regulatory bodies and non-insider traders.

This is dodgy enough.

But these separate pools then conglomerate and trade off one another in even Darker Pools which effectively are the High Stakes Poker Tables that determine every hyperreality.

And who can blame an antisocial corporate body for behaving in such a psychopathic manner?

Would one rather place one's trade secretly and anonymously in non-regulated underground markets and earn the kudos of the brokerage (plus rewards) while gaming the release of this information to the public markets OR would one prefer going to the public markets, dealing with the Commitment of Traders Reports etc with the associated risks of all sorts of upsets from the loss of input price to getting cornered?

Before moving to a more specific evaluation of Dark Pools, Black Pools and Black Swans, let us focus for a moment on three aspects of the ongoing Depression - Quantitative Easing (QE), the banks and outsourcing.

QE has only been successful in blowing an equity bubble.
There is no credit growth in the remainder of the economy.
Effectively, the investment bankers have been betting on a certainty utilising our money as their trading bank, having lost their cash and assets in a previous gamble gone wrong.
There is no investment in the 'real' economy because these people understand that it is fucked.
Meanwhile all of our existences go to pot.

As Noam Chomsky says, we are dealing with "cognitive regulatory capture" by the banks, shadow markets and exchanges.

The Economist: "My main worry is that central banks are repeating the same mistake they have made for the last 25 years. They have intervened to support asset prices by cutting rates whenever markets faltered. This encouraged speculators to borrow money to buy assets, inflating one bubble after another. QE is just the logical endpoint of this process where central banks are cutting out the middleman and buying assets directly.
In the long run, however, asset values are constrained by the growth rate of the economy. Any attempt to maintain them artificially will either end in failure or will be successful only by inflating other prices until they come in line."

Phillip Stevens: "There are a couple of things to say about Britain's banks. They still pose a serious threat to the nation's long term stability and prosperity. They rely for their profits - for the huge bonuses paid to senior staff - on the fact that taxpayers are underwriting the risks. Thus public subsidy is turned into private profit."

Additionally, the competitive nature of neoliberal banking causes structural deficiencies on the road to anti-competitive monopolies or, if we are lucky, duopolies or cartels.

In Australia, meanwhile, the Big Four Banks are forbidden by bipartisan agreement to take each other over.
John Grimond: "That meant they [the banks] had no incentive to pump up their share price or earnings through dealing in dubious products."

But Oz is progressive in both taxation and welfare, at the opposite end of the continuum from the psychoregressive HyperImperium.

And it is the HyperImperium and its client states that are seeing the first serious contraction in the broad money supply in modern times.

Psychopathic short-termism pervades all aspects of this system.

Take outsourcing...

The fundamental stupidity of the globalising firms utilising outsourcing, offshoring and other psycho-fads was that by removing skilled employees, supply bases and infrastructure, distribution networks and sourcing plants from their home country, they had absolutely nothing to return to once the inevitable wage inflation took off in the outsourced territories.
They destroyed, in an act of selfish greed, in order to optimise short term returns to their shareholders.
Strategic this was not.

Through leaving externalities out of their system, the Friedmanists produce successions of Black Swan events, statistically unlikely eruptions in the system caused by chaos and stuff.

Naseem Taleb sums up the current financial crisis even if the imbecility of his concept of Anti-Fragility is just another ruse to continue with a system that has nowhere left to turn.
Super-systemic risk out-quantums evolutionary shock absorption any day of the week.

The current crisis has three causes:
a) an increase in hidden risk and exposure to low probability events (Black Swans). Too much debt was taken on and debt forces one to be very accurate in one's forecasts as a small error leads to ruin.
b) there were asymmetric incentives allowing traders to bet against the probability of events with other people's money leading to lots of rich traders and lots of poor investors.
c) There was a misunderstanding of the tail risks fostered by 'theories' such as Value at Risk which Taleb describes as "the biggest charlatanism in intellectual history" - What? Even bigger than Hayek. Having such models is worse than having no models at all.

His within-system solution is to have maluses as well as bonuses to prevent traders and executives gaming the system.

A deconstruction of the entire farcical edifice would, of course be, preferable.

But let us return to the pre-hypothesis of Anti-Fragility.

Being human, all of our market constructs share structural similarities - currency markets, the insurance industry, options and futures, bookmaking - effectively a hierarchy of psychopathic matrices that only vary to the degree that they are willing to sell their own grandmother.

Taleb's attempt at deep thought is simply myopic.
For sure, all systems are in a state of constant flux and benefit from the shocks and new templates that roller-coaster along their evolutionary paths.
Such equilibrium states are a conglomeration of these instabilities.
But this does not justify pushing aspects like man-made climate change to the limits as there is another level to evolutionary progress - a quantum one.

For the sake of the argument, look at football betting markets in-running.
As the action unfolds in front of our eyes and the roles of the participants become clear, the state of equilibrium is repeatedly disturbed by micro-events on the field of play.
As these motivational and manipulated inputs progress, there is a build up to a completely different quantum reality - the change from a 0-0 scoreline to 1-0.
Once the goal has been scored, the anti-fragility continues but at an entirely new level.

So it is with climate change - Taleb needs to get holistically Real!

Living in a world of state-based economic systems, it should not be surprising that statist structures mimic the Dark Pool/Black Pool template.
For example, Jean Claude Juncker (Chair of the Euro Group of Finance Ministers) has spoken of the need for "secret, dark debates in economic policy making."

Ah! Democracy...

Jack Rasmus: "On June 1, stock markets in New York and around the world declined in levels not seen since last summer 2010. Days and weeks immediately ahead will likely register even further significant market declines, as the obvious becomes increasingly evident: the U.S. and other major global economies are once again on the cusp of a significant slowdown."

The double-dip Cassiopeia-shaped Depression is alive and well with even Barclays Capital pondering that "Malthus may turn out to be right, but with broader implications than he may have imagined."

The degree of simulation is surreal - we are experiencing "the generation by models of a real without origin or reality: a hyperreal" according to Baudrillard.
In 'The Perfect Crime' he goes further...
"The only suspense that remains is that of knowing how far the world can derealise itself before succumbing to its reality deficit or, conversely, how far it can hyperrealise itself before succumbing to an excess of reality (the point when, having become perfectly real, truer than true, it will fall into the clutches of total simulation)."

Meanwhile Slavoj Žižek foresees a time when "money will finally become a purely virtual form of reference, no longer materialised in any particular object."

The Hegelian concept is to progress from the green immediacy of life to its great conceptual structure allowing us to mature without losing the origin.

Free market capitalism, in its psychopathic short-termist greed, has lost this plot big style...