The Weekend Economists travel the Yellow Brick Road, November 14-15.
Well, I was going to try to tie this weekends WEE into events yesterday in France, but realized it might take me hours to get up to speed. So, on to the regularly planned Weekend Economists!
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Think back to your school years. Remember being assigned a book to read. Now, maybe you actually tried and finished reading that book (good for you), or maybe you just skimmed it, or maybe you just read the Cliff Notes. So now you go into class, knowing that you know this stuff. The teacher starts discussing the assigned book, and you're left pondering, "just what book is he/she talking about? There was nothing like that in the book I read." Yeah, we've all been there.
Fast forward a decade or a dozen (years, not decades), and you become aware on you own that there are certain books, movies, TV shows, even music, that have a hidden meaning beyond that which is obvious. This is the path we are taking today. I, for one, will focus on one book, The Wizard of Oz, mostly because I'm doing this WEE on short notice. But there are certainly numerous other examples. Feel free to join the main discussion, or add your own somewhere down the line.
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The Wizard of Oz. Just a children's book, correct? A storm displaces a girl far far away from home, and all she wants is to go home. But there have been several other reinterpretations of this book, the most famous of which follows.
Do remember that this following discussion is about the book. A few things were changed or eliminated in the movie.
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The Wizard of Oz as a satirical allegory of money and politics in 1900
Dorothy (and Toto) of Kansas
Dorothy, the protagonist of the story, represents an individualized ideal of the American people. She is each of us at our best-kind but self-respecting, guileless but levelheaded, wholesome but plucky. She is akin to Everyman, or, in modern parlance, "the girl next door." Dorothy lives in Kansas, where virtually everything-the treeless prairie, the sun-beaten grass, the paint-stripped house -- even Aunt Em and Uncle Henry -- is a dull, drab, lifeless gray. This grim depiction reflects the forlorn condition of Kansas in the late 1880s and early 1890s, when a combination of scorching droughts, severe winters, and an invasion of grasshoppers reduced the prairie to an uninhabitable wasteland. The result for farmers and all who depended on agriculture for their livelihood was devastating. Many ascribed their misfortune to the natural elements, called it quits, and moved on. Others blamed the hard times on bankers, the railroads, and various middlemen who seemed to profit at the farmers' expense. Angry victims of the Kansas calamity also took aim at the politicians, who often appeared indifferent to their plight. Around these economic and political grievances, the Populist movement coalesced.
In the late 1880s and early 1890s, Populism spread rapidly throughout the Midwest and into the South, but Kansas was always the site of its most popular and radical elements. In 1890, Populist candidates began winning seats in state legislatures and Congress, and two years later Populists in Kansas gained control of the lower house of the state assembly, elected a Populist governor, and sent a Populist to the U.S. Senate. The twister that carries Dorothy to Oz symbolizes the Populist cyclone that swept across Kansas in the early 1890s. Baum was not the first to use the metaphor. Mary E. Lease, a fire-breathing Populist orator, was often referred to as the "Kansas Cyclone," and the free-silver movement was often likened to a political whirlwind that had taken the nation by storm. Although Dorothy does not stand for Lease, Baum did give her (in the stage version) the last name "Gale"-a further pun on the cyclone metaphor.
The name of Dorothy's canine companion, Toto, is also a pun, a play on teetotaler. Prohibitionists were among the Populists' most faithful allies, and the Populist hope William Jennings Bryan was himself a "dry." As Dorothy embarks on the Yellow Brick Road, Toto trots "soberly" behind her, just as the Prohibitionists soberly followed the Populists.
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The Three Amigos
In the hope that the Wizard will help her return to Kansas, Dorothy embarks on the Yellow Brick Road to Emerald City. After traveling several miles, she encounters the Scarecrow, who does not "know anything" because he has "no brains at all." The brainless Scarecrow represents the midwestern farmers, whose years of hardship and subjection to ridicule had created a sense of inferiority and self-doubt. Populist leaders such as William Peffer and "Sockless" Jerry Simpson were often portrayed as deluded simpletons who failed to understand the true causes of their economic plight. The Populists' "stupidity" was also attested to by their apocalyptic rhetoric, conspiracy theories, and radical agenda, which included nationalization of the railroads, a graduated income tax, and the unlimited coinage of silver. Critics scoffed at their overblown rants, mocked their paranoid style, and dismissed their simplistic nostrums as the distempered ravings of "socialist hayseeds."
The picture of the Scarecrow is not so one-sided. His conduct on the journey through Oz is marked by common sense, resilience, and rectitude. He is not so dumb after all. As we learn near the end of the story, the Scarecrow-cum-farmer had brains all along-perhaps brains enough to grasp the true causes of his misery and the basics of monetary policy.
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Proceeding down the road, the duo encounter the Tin Woodman. Once healthy and productive, the Woodman was cursed by the wicked Witch of the East, lost his dexterity, and accidentally hacked off his limbs. Each lost appendage was replaced with tin until the Woodman was made entirely of metal. In essence, the Witch of the East (big business) reduced the Woodman to a machine, a dehumanized worker who no longer feels, who has no heart. As such, the Tin Man represents the nation's workers, in particular the industrial workers with whom the Populists hoped to make common cause. His rusted condition parallels the prostrated condition of labor during the depression of 1890s; like many workers of that period, the Tin Man is unemployed. Yet, with a few drops of oil, he is able to resume his customary labors-a remedy akin to the "pump-priming" measures that Populists advocated.
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Having liberated the Tin Man, the trio proceeds through the forest, only to be accosted by a roaring lion. He is none other than William Jennings Bryan, the Nebraska representative in Congress and later the Democratic presidential candidate in 1896 and 1900. Bryan (which rhymes with "lion," a near homonym of "lying"
was known for his "roaring" rhetoric and was occasionally portrayed in the press as a lion, as was the Populist Party itself. Bryan adopted the free-silver mantra and won the Populists' support in his first race against McKinley. Like the Lion of Oz, Bryan was the last to "join" the party. His defeat in the general election was largely owing to his failure to win the support of eastern workers, just as the Lion's claws "could make no impression" on the Tin Man.
Although Bryan's supporters considered him courageous, his critics thought him "cowardly" for opposing war with Spain in 1898 and the subsequent annexation of the Philippines. Yet, for anti-imperialists, who counted many Populists among their ranks, Bryan's unpopular stand was courageous indeed. Less courageous, however, were his final decision to vote for annexation (albeit as a tactical move) and his failure to fight vigorously for free silver in the election of 1900, both of which disappointed Populists.
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Oz, Emerald City, and the Wacky Wizard
The Land of Oz, with its varied landscape and diverse inhabitants, is a microcosm of America, and Emerald City, its center and seat of government, represents Washington, D.C. In an effort to be made whole, Dorothy and her band travel to the capital to see the Wizard, who presumably has the power to grant them their wishes. The journey to Emerald City corresponds to the Populist effort to acquire power in Washington, and the travelers recall the "industrial armies" who marched on the capital during the depression of 1893-97. The most famous of these, "Coxey's Army," was led by a successful businessman who urged the government to fund public-works programs (most notably a "good roads bill" to alleviate unemployment. Coxey, who hoped to meet with President Cleveland, was arrested for trespassing, and his proposals were ignored. Dorothy and company also face hazards on the road to Emerald City and are turned away by the Wizard, who shows little sympathy for their plight.
The Wizard, who "can take on any form he wishes," represents the protean politicians of the era, especially the presidents of the Gilded Age. Given the even division of Democrats and Republicans, and the razor-thin majorities of most presidential elections, candidates rarely took clear stands on the issues. As a result, voters often had difficulty in determining what the candidates stood for. The Wizard fits this description, for "who the real Oz is," Dorothy is informed, "no living person can tell." Indeed, when the foursome enter the throne room, the Wizard appears to each in a different form. Like many politicians, he is unwillingly to help them without a quid pro quo: "I never grant favors without some return."
Politicians are also infamous for failing to keep promises, and the great Oz is no different. When Dorothy's party returns after killing the Witch of the West, the Wizard keeps them waiting, then puts them off. By accident, the all-powerful Wizard is exposed and his true identity revealed. Far from a mighty magician, "Oz, the Terrible" is merely a "humbug," a wizened old man whose "power" is achieved through elaborate acts of deception. The Wizard is simply a manipulative politician who appears to the people in one form, but works behind the scenes to achieve his true ends. Such figures are terrified at being exposed; the Wizard cautions Dorothy to lower her voice lest he be discovered and "ruined."
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Much much more at the link.....
-----> http://www.usagold.com/gildedopinion/oz.html
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So now, tell me. Aren't thing today much like things back then? The eastern bankers oppressing everyday people. Candidates that rarely took clear stands of issues, or today, a candidate that takes every stand on every issue. Workers reduced to machines. A brainless mass of people. People and politicians with no courage at all. It goes on and on.
= new reply since forum marked as read
Why are so many drawn to the Sanders message? It's not because he's a political outsider. (He's a Senator who has spent his entire adult life in politics.) It's not because he's a good Jewish boy from Brooklyn. (Jews make up only about 2% of the American population.) And it's not because he's a self-declared socialist. (Few of us have any idea what that means in today's global economy.)
Rather, it's because so many of us want to stop our entire society from crumbling beneath the destructive power of runaway inequality. Here are 10 crucial economic facts that provide the glue for the Sanders message. (The charts are taken from Runaway Inequality: An Activist's Guide to Economic Justice.)
1. The rich are getting richer, the rest of us are not.
2. Wall Street/CEO Greed
3. The biggest banks are getting bigger.
4. Students are crippled with debt.
5. We lead the developed world in child poverty
6. You can't live on the minimum wage
7. The tax system favors the rich
8. The rich buy the political system
9. "The American Dream" is fading away
10. The largest police state in the world
Taking them on
Perhaps Bernie's biggest applause line is the one that sets us on our course. His campaign cannot succeed in one election. We need to connect with our neighbors and colleagues and help organize and mobilize for change.
"This campaign is sending a message to the billionaire class: Yes, we have the guts to take you on."
Let's hope he's right.
DETAILS ON PROBLEMS AND BERNIE'S PROPOSED SOLUTIONS AT LINK
Les Leopold is the director of the Labor Institute in New York. His latest book is Runaway Inequality: An Activist's Guide to Economic Justice (Chelsea Green, 2015). For bulk orders contact him at [email protected].
STRANGER THAN USUAL, THEY MEAN?
http://www.bloomberg.com/news/articles/2015-11-12/five-strange-things-that-have-been-happening-in-financial-markets
...Interesting things have certainly been happening in the underpinnings of global markets—things that either run counter to long-standing financial logic, or represent an unusual dislocation in the "normal" state of market affairs, or were once rare occurrences but have been happening with increasing frequency.
Here's a rundown:
1. Negative swap spreads
...At issue is the fact that swap rates—or rates charged for interest rate swaps—have dipped below yields on equivalent U.S. Treasuries, indicating that investors are charging less to deal with banks and corporations than with the U.S. government. Such a thing should never happen, as U.S. Treasuries theoretically represent the "risk-free" rate while swap rates are imbued with significant counterparty risk that should demand a premium.
That may have changed, however, as new financial market rules require interest rate swaps to be run through central clearing houses, effectively stripping them of counterparty risk and leaving just a minimal funding component. At the same time, funding costs for U.S. Treasuries are said to have gone up due to a host of post-financial crisis rules that crimp bank balance sheets (more on this later) causing costs to go up...
2. Fractured repo rates
The difference between different repo rates has been widening.
Source: Barclays
The repo market is the lubricant for the global financial system, allowing banks and investors to pawn their assets—typically U.S. Treasuries and other high-quality paper—in exchange for short-term financing.
While there used to be little distinction between the rates at which counterparties raised money against their U.S. Treasury collateral, there is now an increasing divergence. "You no longer have a single repo rate," Joseph Abate, Barclays analyst, said in an interview last week. "The market itself is fracturing."
...The repo market is the lubricant for the global financial system, allowing banks and investors to pawn their assets—typically U.S. Treasuries and other high-quality paper—in exchange for short-term financing.
While there used to be little distinction between the rates at which counterparties raised money against their U.S. Treasury collateral, there is now an increasing divergence. "You no longer have a single repo rate," Joseph Abate, Barclays analyst, said in an interview last week. "The market itself is fracturing."
3. Corporate bond inventories below zero
Analysts at Goldman Sachs made waves this week when they highlighted the fact that inventories of some corporate bonds held by big dealer-banks had gone negative for the first time since the Federal Reserve began collecting such data. That means big banks are now net short corporate bonds with a maturity greater than 12 months equivalent to $1.4 billion, bucking the longer-term trend of net positive positions.
The record-breaking event revived a flurry of concerns about so-called liquidity, or ease of trading, in the $8.1 trillion corporate bond market. Similar to the repo market, a confluence of new rules is said to have made it more difficult for banks to hold corporate bonds on their balance sheets. At the same time, years of low interest rates have encouraged investors to herd into corporate bonds and hold onto them tightly.
That has worried some people who fear a lack of liquidity could worsen turmoil in the market, especially if interest rates rise...
4. Synthetic credit is trading tighter than cash credit
Investors struggling to trade bonds amid an apparent dearth of liquidity have turned to a bevy of alternative products to gain or reduce exposure to corporate debt.
Such instruments include derivatives like credit default swap (CDS) indexes, total return swaps (TRS) and credit index swaptions. The rush for derivatives that are supposed to be more liquid than the cash market they track has produced another odd dislocation in markets.
Above is the so-called basis between the CDX IG, an index that includes CDS tied to U.S. investment-grade companies, and the underlying cash bonds. The basis has been persistently wide and negative in recent years, as spreads on the CDX index trade at tighter levels than cash.
"In exchange for the substantial liquidity of derivative indices, investors are often giving up spread right now, as most indices trade at a negative basis versus the comparable cash market," Barclays' Bradley Rogoff wrote in research published today. "The negative basis right now is near the largest we have witnessed at a time when there was not a funding crisis."
Investors may be ogling such synthetic tools not just because of their purported liquidity benefits but also because of funding benefits, a similar dynamic to the one currently pushing swap spreads into negative territory.
"These dynamics are part of a broader pattern whereby cash bonds that require balance sheet financing underperform their synthetic counterparts (e.g. ... CDX vs. corporate bonds)," Goldman Sachs's Francesco Garzarelli and Rohan Khanna said today in reference to sub-zero swap spreads.
5. Market moves that aren't supposed to happen keep happening
Much of Wall Street runs on mathematical models that abhor statistical anomalies. Unfortunately for the Street, such statistical anomalies have been happening more frequently, with short-term moves in many assets exceeding historical norms.
Barnaby Martin, a credit strategist at Bank of America Merrill Lynch, made this point earlier this year. The number of assets registering large moves—four or more standard deviations away from their normal trading range—has been increasing. Such moves would normally be expected to happen once every 62 years.
While Martin blamed much of the confusion on unexpected decisions by central banks—such as the Swiss National Bank's surprise decision to scrap its long-standing currency cap—there have been sharp market moves with seemingly little reasons behind them. Perhaps the best-known example is Oct. 15, 2014, when the yield on the 10-year U.S. Treasury briefly plunged 33 basis points—a seven standard-deviation move that should happen once every 1.6 billion years, based on a normal distribution of probabilities.
Some market participants have also blamed lower market liquidity for the wild moves. At TD Securities, analysts Priya Misra and Gennadiy Goldberg argued that similar liquidity issues to the ones related to corporate bonds could also be extending into the $12.8 trillion U.S. Treasury market...
6. Volatility is itself more volatile
In October 2008, Lehman Brothers had just collapsed, interbank lending had ground to a halt, the repo market seized up, and the future of the entire financial system was in question. At that time, a measure of expected volatility in the Chicago Board Options Exchange Volatility Index, or the VIX, hit 134.87.
In August, 2015 the stock market fell 5.3 percent and the same measure of implied volatility in the VIX closed at 168.75, after reaching an all-time intraday record.
Whatever one's opinions of the stock market selloff, you'd be hard-pressed to argue that global markets were more stressed in August than they were during the depths of the financial crisis. Instead, the vacillations in the VIX underscore a post-financial-crisis trend that has seen volatility explode into its own asset class.
A host of exchange-traded funds, futures, and derivatives products are now enjoyed by both big, professional fund managers and mom and pop retail investors. Meanwhile, some large investors have been pumping up their returns by selling volatility, with Pimco under Bill Gross perhaps the best-known example.
"The volatility market that exists today is much more complex than it used to be; ETFs, indices, futures, and options traded on all of the above have complex relationships that haven't been fully tested," George Pearkes, analyst at Bespoke Investment Group, said in an interview.
He added: "Eventually, as we saw in the wake of last August, equilibrium is found when dislocations occur. But getting there can be complicated. Volatility, in my view, hasn't changed. What's changed is how it's warehoused and shifted."
THOSE LAST TWO ARE MORE GLOBAL, LESS WONKY, AND A SIGN OF GROWING INSTABILITY IN THE GLOBAL ECONOMY...ANOTHER GOOD REASON TO LATCH ONTO ISLAMIC FINANCE! PULL THEM DOWN WITH US.
Greek bank investors are being asked to inject new funds into the lenders for the second time in less than 20 months, even as doubt remains that the country will receive the next round of bailout funds.
The National Bank of Greece SA and Eurobank Ergasias SA joined Piraeus Bank SA and Alpha Bank AE on Thursday in starting book-building processes as they seek to fill part of 14.4 billion-euro ($15.5 billion) hole in their accounts identified by the European Central Bank. The state-owned Hellenic Financial Stability Fund will contribute the rest from loans from Greece’s latest bailout, but not before imposing mandatory losses or "burden sharing” on shareholders and creditors of the banks.
“The recapitalization of Greek banks, perhaps the most critical problem for the Greek state today, has entered its most critical stage,” Emilios Avgouleas, professor of international banking law and finance at the University of Edinburgh, and Levy Institute President Dimitri B. Papadimitriou, said in a report on Thursday. “Instead of repeating the mistakes of the past, recapitalization should create an environment of hope amidst renewed efforts to repair the Greek economy.”
The fundraising comes as uncertainty hangs over the Greece’s own access to funds. A disbursement of as much as 10 billion euros from the European Stability Mechanism to the HFSF, which will backstop private capital injections with state funds, will only take place if the government reaches an agreement with creditors over a set of milestones detailed in the country’s bailout agreement.
European creditors want to extract more blood from a stone, in this case Greece.
Greece and its lenders are again at odds over the latest “bailout” funds, which is €2 billion that was scheduled to be approved for release by the famed Eurobgroup (remember them? That’s all the Eurozone finance ministers) on Monday. But a precondition for getting more dough was that Greece show enough “progress,” as in either have implemented or have committed to a sufficiently large number of “reforms”. “Reform” is Eurocrat-speak for austerian blood-letting. The creditors see Greece as coming up short. As we’ve pointed out repeatedly in our coverage of Greece, the lenders are hell-bent on seeing Greece remake its economy in ways that are guaranteed to make their loans fail, or perhaps more accurately, produce even greater losses than if they allowed for more investment and spending, rather than insist on punitively high budget surpluses and other destructive measures.
Why this fixation on implementing failed policies? The reasons vary by actor, but they include: delusion (as in they believe austerity “works” as in makes economies better), political necessity/survival (governments that implemented austerity programs at high costs to their citizens can’t be seen to be letting the greatest profligate, Greece, get off easy), a fixation with morality (Greece must suffer pour decourager les autres). But irrespective of the proximate causes of what looks like an exercise in sadism dressed up as economic orthodoxy, the creditors appear united, or at least united enough, to cram yet another set of punitive reforms on the already prostrated Greeks. Here are the big issues where the two sides remain far apart:
- Foreclosures. As part of the banking system bailout, the Troika wants more writeoffs of bad loans. They insist on a related measure, of lowering the value of homes that are subject to foreclosure from €200,000 to €120,000
- Increasing tax collections
- Increasing the VAT on private schools to 23%. I’m a bit mystified by Syriza fighting this measure if “private schools” are academies for the wealthy. But if the Greek Orthodox Church operates primary and secondary schools, as the Catholic Church does in the US, it could affect a much larger number of students at much lower levels of family income. Input from informed readers appreciated. Mind you, Syriza is proposing to find the funds to cover up this income loss elsewhere, but apparently have yet to satisfy the lenders on this point.
As anyone who remembers the US foreclosure crisis will attest, almost without exception foreclosing on homes leads to higher losses than keeping the homeowner in place. There’s no reason to think the results will be any different in Greece. First, foreclosed properties cost money to secure and maintain and often deteriorate rapidly. In Greece, unlike the US, you have much greater risk of civil disobedience with foreclosures, in the form of squatting or vandalism (and we had plenty here that was purely economic, such as stripping homes of copper and appliances). Second, who will buy these properties? Foreigners are at risk of being threatened physically. And the idea of buying properties and turning them into rentals for the displaced homeowners hasn’t worked out for investors in the US, where we’ve had a so-so economic recovery and a strong bounce in house prices in the weakest markets. The outcomes would clearly be worse in Greece. And that’s before you get to the offset of higher social costs from more homelessness.
Similarly, it might have occurred to the creditors that the threat of a bank holiday, which then took place, led many citizens to pull as much as possible out of their bank accounts. So Greece, which already had a large black market economy, has if anything more cash in circulation to facilitate even more domestic tax evasion. One can argue that the taxable economy is in a death spiral. The more the creditors insist on higher VAT, the greater the incentive to deal in cash to avoid the VAT, which means lower VAT receipts than projected, which leads the creditors to call for higher tax rates. Greece already has a huge problem with tax avoidance; the current program for dealing with it reads like a prescription to make matters worse. Even tourists are wising up. A contact recently vacationed in Greece and took tons of cash, and got substantial price breaks and much happier vendors/service providers as a result.
Needless to say, Greeks are not putting their cash back in banks. From the Telegraph:
Tsipras is again trying to resolve the impasse at the “political” level, meaning going to Merkel Hollande, and Juncker. This has a Groundhog day feel...So Greece is caught between a Scylla and a Charybdis. But unlike the myth, there’s no evidence that a path exists to navigate between them.
MORE BAD NEWS AT LINK
