Hometown: Ann Arbor, Michigan
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Hometown: Ann Arbor, Michigan
Home country: USA
Member since: Thu Sep 25, 2003, 02:04 PM
Number of posts: 81,105
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FASCINATING BIT OF HISTORY, A BIT LATE FOR THE HOLIDAY, BUT STILL RELEVANT TO OUR STUDY OF ECONOMICS
LONG, WORTHY READ
Posted by Demeter | Mon Jul 6, 2015, 07:48 AM (0 replies)
If you become stuck in a boring July 4 hot air speech, distract yourself with this question: Are the values that Western civilization allegedly represents still extant? You don’t need to get heavy into philosophy. See if you can find any of the professed values reflected in current events.
For example, Julian Assange, the founder of Wikileaks was granted asylum by Ecuador in order to protect Assange from persecution by Washington. Washington is determined to persecute Assange, because he did his job as a journalist and published leaked information that revealed US government crimes and machinations against other countries including US allies. Assange did what the New York Times did in 1971 when the newspaper published the Pentagon Papers leaked by Daniel Ellsberg. Assange has now spent three years inside the Ecuadoran embassy in London, because Washington has instructed its UK vassal state not to honor Assange’s grant of asylum and allow him free passage to Ecuador. What is happening to Assange is precisely what happened to Cardinal Jozsef Mindszenty, who was granted political asylum by the United States in 1956 and spent 15 years inside the US embassy in Budapest because the Soviet government instructed its Hungarian vassal state not to honor the grant of asylum. The Anglo-American world has morphed into the Soviet world.
Currently the US is attempting to overthrow the government in Ecuador in order to return the country to Washington’s control. If Washington succeeds in establishing a vassal state in Ecuador, Assange’s asylum will be revoked, and he will end up in Washington’s hands. Perhaps recognizing the threat to Assange, France’s Minister of Justice, Christiane Taubira, raised the possibility of political asylum for Assange in France. Assange responded to the opening and asked President Hollande for asylum and was immediately refused. Clearly, what was considered in 1971 to be heroic action in defense of democracy and a free press by Daniel Ellsberg and the New York Times has been transformed four decades later into a crime against the state. A civilization that can lose such important values in four decades is clearly in retreat from the values it professes. Today the professed values serve only as a cloak behind which the West hides its crimes.
Or consider the Greek referendum on Sunday, the day after July 4th. When the Greek government announced that it would let the Greek people decide their own fate, Western political leaders and media denounced the Greek government for practicing democracy. As far as Europe’s leaders are concerned, foreign elites, not the Greek people, have sovereignty over Greece.
One criticism of the Soviet Union was that it lacked a free press. Today the entire West lacks a free press...
MUCH MORE, ABOUT GREECE, THE US, AND DEMOCRACY OR ITS LACK THEREOF...
Dr. Paul Craig Roberts was Assistant Secretary of the Treasury for Economic Policy and associate editor of the Wall Street Journal. He was columnist for Business Week, Scripps Howard News Service, and Creators Syndicate. He has had many university appointments. His internet columns have attracted a worldwide following. Roberts' latest books are The Failure of Laissez Faire Capitalism and Economic Dissolution of the West and How America Was Lost.
Posted by Demeter | Sun Jul 5, 2015, 06:37 AM (4 replies)
On Monday, several mainstream media outlets repeated the latest press release by the FBI that country was under a new “heightened terror alert” from “ISIL-inspired attacks” “leading up to the July 4th weekend.” One of the more sensational outlets, CNN, led with the breathless warning on several of its cable programs, complete with a special report by The Lead’s Jim Sciutto in primetime:
The threat was given extra credence when former CIA director—and consultant at DC PR firm Beacon Global Strategies—Michael Morell went on CBS This Morning (6/29/15) and scared the ever-living bejesus out of everyone by saying he “wouldn’t be surprised if we were sitting next week discussing an attack on the US.” The first piece of evidence Morell used to justify his apocalyptic posture, the “50 ISIS arrests,” was accompanied by a scary map on the CBS jumbotron showing “ISIS arrests” all throughout the US:
But one key detail is missing from this graphic: None of these “ISIS arrests” involved any actual members of ISIS, only members of the FBI—and their network of informants—posing as such. (The one exception being the man arrested in Arizona, who, while having no contact with ISIS, was also not prompted by the FBI.) So even if one thinks the threat of “lone wolf” attacks is a serious one, it cannot be said these are really “ISIS arrests.” Perhaps on some meta-level, it shows an increase of “radicalization,” but it’s impossible to distinguish between this and simply more aggressive sting operations by the FBI...MORE
Posted by Demeter | Sun Jul 5, 2015, 06:30 AM (6 replies)
“Ruin, eldest daughter of Zeus, she blinds us all, that fatal madness—she with those delicate feet of hers, never touching the earth, gliding over the heads of men to trap us all. She entangles one man, now another.”
“This financial crisis in Europe would have left Greece in Ruins, but it’s been that way for 2,000 years.”
On this auspicious day (July 4) the Greeks are voting the issue of independence for themselves, their nation, their patrimony, and their future.
The Greeks, who taught the world "democracy," are doing it all over again, because too many people have been corrupted by greed and power, and have forgotten the lessons of 3000 years.
I wish I could boast that America, grateful for the lessons from ancient Greek thinkers which formed our Founding Fathers and our Founding Documents, is 100% behind the Greek effort, lending support both moral and substantial...but that would be a lie. America is in a fever-dream of greed and power and corruption. It barely recognizes Greece's existence, let alone its right to exist.
We live in interesting times--that ancient Chinese curse. We see history in the making, those of us who aren't glued to some commercial product of escape and fantasy. Our intrepid little band in this group seeks to know who, what, where, when and why. And How--how do we make Change? How do we further the Progress of Humanity towards those Greek ideals formulated so long ago:
Ancient Greek society was based on a devotion to the highest standards of excellence. This classical ideal of perfection was expressed through body, mind, form and spirit in Greek culture. From athletic prowess, the ancient Greeks sought the perfect body. Perfection of the mind was pursued through religion, philosophy and science. In sculpture and architecture, the perfect form was portrayed. Through comedies and tragedies, they found perfection of spirit. In every aspect of ancient Greek culture, could be found the classical ideal... http://scallion.hubpages.com/hub/The-Greek-Ideal
As we continue the search, let's reflect on history a bit: ancient history, recent history, history that might have been. Here's a first reflection to feed the thought:
“Call no man lucky until he is dead, but there have been moment of rare satisfaction in the often random and fragmented life of the radical freelance scribbler. I have lived to see Ronald Reagan called “a useful idiot for Kremlin propaganda” by his former idolators; to see the General Secretary of the Communist Party of the Soviet Union regarded with fear and suspicion by the Communist Party of Czechoslovakia (which blacked out an interview with Miloš Forman broadcast live on Moscow TV); to see Mao Zedong relegated like a despot of antiquity. I have also had the extraordinary pleasure of revisiting countries—Greece, Spain, Zimbabwe, and others—that were dictatorships or colonies when first I saw them. Other mini-Reichs have melted like dew, often bringing exiled and imprisoned friends blinking modestly and honorably into the glare. E pur si muove—it still moves, all right.”
― Christopher Hitchens, Prepared for the Worst: Selected Essays and Minority Reports
So mote it be, once again.
Posted by Demeter | Fri Jul 3, 2015, 03:28 PM (70 replies)
Introduction: About 75% of US employees work 40 hours or longer, the second longest among all OECD countries, exceeded only by Poland and tied with South Korea. In contrast, only 10% of Danish workers, 15% of Norwegian, 30% of French, 43% of UK and 50% of German workers work 40 or more hours.
With the longest work day, US workers score lower on the ‘living well’ scale than most western European workers. Moreover, despite those long workdays US employees receive the shortest paid holidays or vacation time (one to two weeks compared to the average of five weeks in Western Europe). US employees pay for the costliest health plans and their children face the highest university fees among the 34 countries in the Organization for Economic Cooperation and Development (OECD). In class terms, US employees face the greatest jump in income inequalities over the past decade, the longest period of wage and salary decline or stagnation (1970 to 2014) and the greatest collapse of private sector union membership, from 30% in 1950 down to 8% in 2014. On the other hand, profits, as a percentage of national income, have increased significantly. The share of income and profits going to the financial sector, especially the banks and investment houses, has increased at a faster rate than any other sector of the US economy. There are two polar opposite trends: Employees working longer hours, with costlier services and declining living standards while finance capitalists enjoy rapidly rising profits and incomes. Paradoxically, these trends are not directly based on greater ‘workplace exploitation’ in the US. The historic employee-finance capitalist polarization is the direct result of the grand success of the trillion dollar financial swindles, the tax payer-funded trillion dollar Federal bailouts of the crooked bankers, and the illegal bank manipulation of interest rates. These uncorrected and unpunished crimes have driven up the costs of living and producing for employees and their employers. Financial ‘rents’ (the bankers and brokers are ‘rentiers’ in this economy) drive up the costs of production for non-financial capital (manufacturing). Non-financial capitalists resort to reducing wages, cutting benefits and extending working hours for their employees, in order to maintain their own profits. In other words, pervasive, enduring and systematic large-scale financial criminality is a major reason why US employees are working longer and receiving less– the ‘trickle down’ effect of mega-swindles committed by finance capital.
Mega-Swindles, Leading Banks and Complicit State Regulators
Mega-swindles, involving trillions of dollars, are routine practices involving the top fifty banks, trading houses, currency speculators, management fund firms and foreign exchange traders. These ‘white collar’ crimes have hurt hundreds of millions of investors and credit-card holders, millions of mortgage debtors, thousands of pension funds and most industrial and service firms that depend on bank credit to meet payrolls, to finance capital expansion and technological upgrades and raw materials. Big banks, which have been ‘convicted and fined’ for mega-swindles, include Citi Bank, Bank of America, HSBC, UBS, JP Morgan, Barclay, Goldman Sachs, Royal Bank of Scotland, Deutsch Bank and forty other ‘leading’ financial institutions. The mega-swindlers have repeatedly engaged in a great variety of misdeeds, including accounting fraud, insider trading, fraudulent issue of mortgage based securities and the laundering of hundreds of billions of illegal dollars for Colombian, Mexican, African and Asian drug and human traffickers.
The Direct Impact of Financial Swindles on Declining Living Standards
Each and every major financial swindle has had a perverse ripple effect throughout the entire economy. This is especially the case where the negative consequences have spread downward through local banks, local manufacturing and service industries to employees, students and the self-employed. The most obvious example of the downward ripple effect was the so-called ‘sub-prime mortgage’ swindle. Big banks deliberately sold worthless, fraudulent mortgage-backed securities (MBS) and collateralized debt obligation (CDO) to smaller banks, pension funds and local investors, which eventually foreclosed on overpriced houses causing low income mortgage holders to lose their down payments (amounting to most of their savings). While the effects of the swindle spread outward and downward, the US Treasury propped up the mega-swindlers with a trillion-dollar bailout in working people’s tax money. They anointed their mega-give-away as the bail out for ‘banks that are just too big to fail”! They transferred funds from the public treasury for social services to the swindlers. In effect, the banks profited from their widely exposed crimes while US employees lost their jobs, homes, savings and social services. As the US Treasury pumped trillions of dollars into the coffers of the criminal banks (especially on Wall Street), the builders, major construction companies and manufacturers faced an unprecedented credit squeeze and laid off millions of workers, and reduced wages and increased the hours of un-paid work.
Service employees in consumer industries were hit hard as wages and salaries declined or remained frozen. The costs of the FOREX, LIBOR and ISDA fix swindles’ fell heavily on big business, which passed the pain onto labor: cutting pension and health coverage, hiring millions of ‘contingent or temp’ workers at minimum wages with no benefits. The bank bailouts forced the Treasury to shift funds from ‘job-creating’ social programs and national infrastructure investment to the FIRE (finance, insurance and real estate) sector with its highly concentrated income structure. As a result of the increasing concentration of wealth among the financial swindlers, inequalities in income grew; wages and salaries were frozen or reduced and manufacturers outsourced production, resulting in declines in production. Employees, suffering from the loss of income brought on by the mega-swindles, found that they were working longer hours for less pay and fewer benefits. Productivity suffered. With the total breakdown of the ‘capitalist rules of the game’, investors lost confidence and trust in the system. Mega-swindles eroded ‘confidence’ between investors and traders, and made a mockery of any link between performance at work and rewards. This severed the nexus between highly motivated workers, engaged in ‘hard work, long hours’ and rising living standards, and between investment and productivity. As a result, profits in the finance sector grew while the domestic economy floundered and living standards stagnated.
Financial Impunity: Regulatees Controlling the Regulators
Despite the proliferation of mega-swindles and their pervasive ripple effects throughout the economy and society, none of the dozens of federal or state regulatory agencies intervened to stop the swindle before it undermined the domestic economy. No CEO or banker was ever arrested for their part in the swindle of trillions. The regulators only reacted after trillions had ‘disappeared’ and swindles were ‘a done deal’. The impunity of the swindlers in planning and executing the pillage of hundreds of millions of employees, taxpayers and mortgage holders was because the federal and state regulatory agencies are populated by ‘regulatory administrators’ who came from or aspired to join the financial sector they were tasked with ‘regulating’. Most of the high officials appointed to lead the regulatory agencies had been selected by the ‘Lords of Wall Street, Frankfurt, the City of London or Zurich.’ Appointees are chosen on the basis of their willingness to enable financial swindles. It therefore came as no surprise on May 28 2015 when US President Obama approved the appointment of Andrew Donahue, Managing Director and Associate General Council for the repeatedly felonious, mega-swindling banking house of Goldman Sachs to be the ‘Chief of Staff’ of the Security and Exchange Commission. His career has been typical of the Washington-Wall Street ‘Revolving Door’. Only after fraud and swindles evoked the nationwide public fury of mortgage holders, investors and finance companies did the regulators ‘investigate’ the crimes and even then not a single major banker was jailed, not a single major bank was closed down. There were a few low-level bond traders and bank employees who were fired or jailed as scapegoats. The banks paid puny (for them) fines, which they passed on to their customers. Despite pledges to ‘mend their ways’ the bankers concocted new schemes with their windfalls of billions of Federal ‘bailout’ money while the regulators looked on or polished their CV’s for the next pass through the ‘revolving door’. Every top official in Treasury, Commerce and Trade, and every regulator in the Security Exchange Commission (SEC) who ‘retired to the private sector’ has ended up working for the same mega-criminal banks and finance houses they had investigated, regulated and ‘slapped on the wrist’. As one banker, who insists on anonymity, told me: ‘The most successful swindlers are those who investigated financial transgressions’.
Mega-swindles define the nature of contemporary capitalism. The profits and power of financial capital is not the outcome of ‘market forces’. They are the result of a system of criminal behavior that pillages the Treasury, exploits the producers and consumers, evicts homeowners and robs taxpayers. The mega swindlers represent much less than 1% of the class structure. Yet they hold over 40% of personal wealth in this country and control over 80% of capital liquidity. They grow inexorably rich and richer, even as the rest of the economy wallows in crisis and stagnation. Their swindles send powerful ripples across the national economy, which ultimately freeze or reduce the income of the skilled (middle class) employees and undermine the living conditions for poor working-class whites, and especially under and unemployed Afro-American and Latino American young workers. Efforts to ‘moralize’ capital have failed repeatedly since the regulators are controlled by those they claim to ‘regulate’.
The rare arrest and prosecution of any among the current tribe of mega-swindlers would only results in their being replaced by new swindlers. The problem is systemic and requires deep structural changes.
The only answer is to build a political movement independent of the two party system, willing to nationalize the banks and to pass legislation outlawing derivatives, forex trading and other unnatural parasitic speculative activities.
James Petras is a Bartle Professor (Emeritus) of Sociology at Binghamton University, New York.
Posted by Demeter | Thu Jul 2, 2015, 07:03 AM (0 replies)
There’s a reason the poor don’t rise up over inequality. Because our culture shames them... The question of why we aren’t angrier about our increasing income inequality is back, courtesy of Thomas Edsall at the New York Times. In a Wednesday op-ed he asks, “Why are today’s working poor so quiescent?” While Edsall believes living conditions are better for the poor than they were in the past (affordable televisions and air conditioners go a long way!), he flags something else to blame for the lack of public rage: the United States’ individualistic culture, one that has left all of us ever-more skeptical of appeals to group action. “There is very little social support for class-based protest, “ he notes. We take the increased economic risk that’s been shifted onto the individual for granted. Instead of anger, there is acceptance and resignation.
The “great risk shift” described by Jacob Hacker in his book of the same name is so thorough and complete, most of us no longer realize—never mind believe—that our world could be any different. We’ve internalized the language of the corporate state. And this, in turn, leaves us powerless to change our electoral dynamic, one in which both political parties have little to gain by addressing the issues of those most pummeled by the economics of our great income divide. But this analysis, while compelling, misses a vital piece of the puzzle.
We like to say that we don’t have a national religion in the United States, but that’s only true if you think of religion in the conventional way, with an organized structure and a place of worship. But we do have one national belief system. Think of it as the First National Church of Self-Help, where the tenets preach that we are responsible for all that happens to us, for good or ill. In the Church of Self-Help, there is no problem for which there is not an individual solution. As Nicole Aschoff writes about Oprah Winfrey in the recently published The New Prophets of Capital, “In her story, success comes from righteousness and hard work, not luck—so anyone can achieve it.” The unspoken but equally compelling piece: The converse is also true. Failure is a result not of ill luck but insufficient effort and a poor attitude. It’s not for nothing that Oprah promoted The Secret, the book that claimed we could positive-think our way into success.
This stuff is legion in the subject I cover, the world of personal finance. Millionaires are regularly held up as having better, more orderly, and more disciplined traits than others, and we’re told they rarely fall prey to negative thoughts. (Who is paying the not-unsubstantial therapist bills in cities like New York, Los Angeles, and Atlanta is never addressed.) When I Google the phrase “habits of wealthy people,” I discovered Inc. had published “7 Habits of Exceptionally Rich People” this past January, a post that must have proved popular, because it was followed by “7 Habits of the World’s Richest People” a few weeks later. Not to be outdone, Fortune then posted “5 Surprising Habits of the Wealthy” the next month.
In the Church of Self-Help, there is no problem for which there is not an individual solution. It follows by extension that if the wealthy are wealthy because of their more virtuous habits, the poor must need improvement...
MORE--CAPITALISM MEETS CALVINISM....
Helaine Olen is the author of Pound Foolish: Exposing the Dark Side of the Personal Finance Industry and co-author of the upcoming The Index Card: Why Personal Finance Doesn't Have to Be Complicated.
Posted by Demeter | Sun Jun 28, 2015, 12:41 PM (5 replies)
With certain pronoun adjustments, this is the day!
Now civil rights are extended to any two adult people who wish to merge their families into a new one. No ifs, ands, or buts.
It's been a long time coming, but media commentary is astonished by how fast the change has happened...I won't go into all the reasons why that could be (certainly the internet is a big contributing factor), but it is a good sign for a nation in desperate need of course correction that at least one thing happened in a (somewhat) expeditious fashion. It's been decades, of course.
As a woman, and mother of daughters, I could wish that women's civil rights in pay, reproductive choice and the like had advanced equally precipitously...that may be our next social cataclysm for those politicians still riding the rails or dragging their heels. Or maybe not. We've only been at it since 1973....
But next, the TPP and all that, and JOBS! Break up the banksters and throw them out of their jobs, if not into jail. Ditch the DINOS and send them back to the pre-Stone Age, where they belong.
But let the blessings of love and family descend upon us all. I wish X could have seen this day. He would have been thrilled.
But, in the meanwhile, with this big social issue out of the way, perhaps the nation's political attention and will can be turned to matters of an economic nature, effecting all people of all ages and classes.
Posted by Demeter | Fri Jun 26, 2015, 04:51 PM (46 replies)
When in a hole, stop digging. But when in a bubble, keep blowing. - Not very ancient proverb.
I think our ruling and wealthy elite are worried that they are stuck in their own ponzi scheme or bubble and are suffering from the general problem of all ponzis and bubbles – how to get out...You see, bubbles and Ponzi’s are fine as long as they keep going. As long as there are ever more suckers to recruit and as long as enough of those already in, remain confident and choose to stay in, there is no real reason a ponzi cannot go on and on. A perfect example is Madoff’s scheme. The weakness of all bubbles, ponzi or otherwise, is that all it takes is a rumour that it might be time to get out, that it might soon get difficult to get out, or that someone ‘in the know’ wants out, and a ponzi scheme pops like a soap bubble. They are notoriously unstable.
So if you are in one how do you get out?
I think this question is worrying our wealthy Over Class because stock markets around the world are over-valued and its their wealth which is most tied up in the markets. I think some of them are now rather worried that they have built themselves a luxury tower of paper wealth from which, when it catches fire, they will not all escape. I think they are right.
So, first, are the markets a bubble or ponzi?
Well if we look at the real economies of the West and then at the stock markets, the later have the look of a ponzi. I’m certainly not alone in thinking this. In Europe, the U.S. and Japan, over the last 6 years, in what we might call the ‘real economy’ of people making things, earning money and spending it to buy things other people have made, we have had either anaemic growth, no growth or outright contraction. And yet all the time the stock markets have roared ever higher....
On the ‘real’ side of things lets look at Caterpillar (CAT), the american heavy construction equipment manufacturer. It is often seen as a bellwether. CAT, as recently reported over at ZeroHedge, is now in its 28th consecutive month of declining sales.
And yet, its share price is $86 not far off its record highs, up from a low of $23 to which it fell in March 2009. $86 or thereabouts ever since 2010 despite 28 months of declining sales.
Is this supply and demand? I think not. Part of an explanation for this levitating share price is, as the ZeroHedge article points out, that the corporation has been buying back its own shares.
CAT had been using more and more of its cash (the red bar) to buy back its own shares inflating the apparent demand for them and therefore their price. It’s not illegal, but what does it do for the idea that share price indicates what a company is worth? And where was CAT getting the money with which to buy those shares? I doubt it was from profits given the long cumulative decline in sales. More likely it was from selling bonds i.e. using borrowed money. And indeed that seems to be the case. In May of 2014 CAT sold $2 billion of debt some of it dated as long as 50 years....So let’s take a look at what we have. In May of 2014, despite having already suffered a year of declining sales, CAT shares were the second best performing shares on the Dow Jones. Who was so keen to buy all their shares? Who knows. But CAT itself had just spent 175 million in buying their own shares in the first quarter (when it was the second best performing share on the DOW) and in the last quarter of the year went on to buy another 250 million dollars worth. In fact, and perhaps most critically, in January the CAT board had authorized $12 billion for buy-back. So the market know that a lot of shares were going to be bought up…by CAT. And not at bargain basement price either. Take a look at the record of their share price above and you’ll see that the board had authorized using borrowed money to buy their shares at around the highest price they had ever been. Hmm. Did buying all those shares encourage others to do likewise, especially knowing that CAT had a war chest of $12 billion earmarked for buying shares? Any ‘investor’ would know there was a buyer in the market who would be ready and willing to buy them back from him. The upshot would be a guaranteed buoyant market in CAT shares at a time when without such a buoyant demand a year of declining sales might just possibly have led to a steep decline in share price. Of course the official rationale for taking on debt to buy back shares is that debt costs are now low so its a good time to do it. The problem is that while in the short term it improves the look of the company’s share price and things like return on equity, it locks CAT, and any company that does the same, in to paying out interest on debt over the long term.
The systemic problem
If CAT were alone in being the only company whose share price looks to be over-valued based on actual profitability it wouldn’t matter and we’d be fine. But it isn’t. Here is what a recent note from Goldman Sachs chief equity strategist, David Kostin says – as reported at Zerohedge.
… in his latest weekly note to clients he said that “by almost any measure, US equity valuations look expensive.”
In other words almost everything looks over valued. Mr Kostin goes on to suggest one reason for the inflated prices is that
Corporations have so far used record profits to return cash to shareholders. S&P 500 firms have spent more than $2 trillion repurchasing shares during the past five years.
The key for me is he puts share buy back and returning money to investors together. Companies buy back their shares. This keeps their share price inflated in a market that has forgotten to worry about underlying profit and is fixated instead on short term ‘what someone will pay me for this bit of paper’. So the share price remain high and the experts tell us all is good. Wonderful in fact. But the money, some of it alt least, is being sucked out and given to those ‘investors’ who sold and cashed out. Now who are those people? Well we know that the wealthiest 10% own about 75% of all measured wealth and that the bulk of that wealth is not physical stuff but held in the form of financial products So it looks to me that as share prices are being kept high some are cashing out. Those who stay in are feeling happy because their shares keep going up in ‘value’. But of course its not that simple because someone has to keep buying in the market. So I suspect much of the cashed out money is still flowing back in to other shares to keep the market buoyant. Plus people will look at even a rigged market and say to themselves – “hey I’m missing out if I duck out of this bull market too early.” So they stay in even knowing the risks of a rigged market. Telling themselves there will be a better time later to cash out. And therein lies their danger. As Mr Kostin notes,
In 2007, companies allocated more than one-third of their cash use to buybacks ($637 billion) just before the S&P 500 plunged by 40% during the following year.
Seems like this was a strategy they tried before. And it is not just CAT and a few others it is market wide. Mr Kostin one more time
We forecast buybacks will surge by 18% in 2015 exceeding $600 billion and accounting for nearly 30% of total cash spending.
I think that is a systemic problem. $600 billion keeping stock prices buoyant and above any profit based valuation. And I’m not alone. Nobel laureate economist Robert Shiller of Yale University in a recent interview said, referring to the persistent bubble-like pricing in not just property but in stocks and various commodities,
“I call this this the ‘new normal’ boom — it’s a funny boom in asset prices because it’s driven not by the usual exuberance but by an anxiety,” said Shiller.
The fact that Schiller thinks this bubble is driven by anxiety is, to me, very significant. I think he is right of course. I do think there is a palpable anxiety driving this bubble rather than the exuberant ‘animal spirits’ that Greenspan so famously identified as the cause of bubbles. Schiller goes on to say,
“This is an anxiety driven world — the whole world is driven by anxiety. It is anxiety about the aftermath of the global financial crisis, it’s anxiety about inequality and about computers replacing jobs,” he said.
I agree with all those sources of anxiety. But I think he is missing out on possibly the major source which, as I’ve argued, is the anxiety of keeping your money in the market so as to maintain the inflated share prices, while at the same time trying to figure out how to get out, again, without popping the bubble. So – maintain and get out at the same time – no wonder they’re anxious. Round and round. Up and up. If you can’t get out and you are afraid there are not enough new buyers to keep your ponzi/bubble going what do you do? I think the answer is you and your friends do the buying yourself. If you and your friends are big enough players with enough to lose that defecting is really dangerous, then you actually have a workable incentive to keep playing. You buy the shares I sell and I buy yours (It doesn’t just have to be just buy-backs as per the CAT example). And I think this is what has been happening. Of course it only works of you are able, as a group, to have a really serious effect on the over all market. But if you think of the top 10% they certainly have that. I buy your shares and pay you your asking price. You do the same for me. Tomorrow we do it again and each time we ramp the price a little. The limiting factor, of course, is that we will not have enough money to buy all the shares as their price goes up and up. But that little problem can be easily solved if we have a friendly banker who will accept our shares as collateral for a loan. If our banker will extend us a loan and increase that loan periodically in line with the increase in value of the shares then all is good. Because the bank can just magic new money in to existence.
And if anyone get a creeping feeling that the banks are getting stretched a little thin or their margins – the interest they charge us for our loans above what they pay for borrowing – are too small for their comfort, then we all just tell the central bank that some new very low interest money is needed to juice the whole system. And since most of them are former us (bankers and financiers) they will understand. Plus they don’t want a systemic crash. It’s bad for their reputation and their personal wealth. So with help from bankers and central bankers our cash supply will keep pace with the bubble inflation. Let’s be clear the markets tell central bankers what is needed not the other way around. It is a myth that central bankers call the tune. They don’t. Certainly central bankers sit in their central banks board rooms and ‘make’ their decisions but it is what the private banks do, how much they loan, how much they inflate the credit supply, that has the whip hand in dictating what the central banks are obliged to do in order to keep the music playing.
Of course if everyone knows the whole thing is a bubble it might seem insane. But if your alternative is to see the bubble burst then its still a rational decision to keep playing. It will pop one day and all that paper will turn to ash. But if, in the mean time you have been siphoning off some wealth to buy up actual stuff then when the ash settles you will still own stuff. So keep playing. I wonder if this is why there is such a political push in the US and Europe to privatize anything and everything still in public hands? And this argument doesn’t even take in to account that the vast preponderance of the wealth of the top 10% is tied up in even more remote-from-reality paper. Certainly the wealthiest 10%, 5%, 1% 0.1% and 0.01% own mines and factories and land. But even those things are dwarfed by how much of the wealth is tied up in the paper wealth of derivatives, securities, loans, bonds piled on top of the inflated asset and share prices. You just have to think, for example, of the size of the OTC derivatives markets whose gross market value is somewhere around $21 trillion. A figure that is itself based upon the larger value of outstanding contracts which is about $630 Trillion. All of this would be dust, in a collapse that was not bailed out.
Is this actually happening?
Well price inflation certainly is. According to an article from AP a few days ago,
…professional investors are warning that companies are presenting misleading versions of their results….What’s worse, the financial analysts who are supposed to fight corporate spin are often playing along. ”Companies are tilting the results,” says fund manager Tom Brown of Second Curve Capital, “and the analysts are buying it.”
How bad is it?
At one of every five companies, these “adjusted” profits were higher than net income by 50 percent or more….Quarter after quarter, the differences between the adjusted and bottom-line figures are adding up. From 2010 through 2014, adjusted profits for the S&P 500 came in $583 billion higher than net income.
At the same time leverage is again creeping up to unwise levels. Not in the banks this time (not officially at least) but in Hedge funds where it is up to 2004 levels. It is a truism that risk never goes away it just migrates to where the regulators can’t see it or have no power to do anything about it. Even the slowest guys in the room, the regulators, are beginning to be worried...The point, however, is that there is an air of conspiracy about it. The companies (which includes financial ones) are playing around on the border between creative accountancy and fraudulent misrepresentation and the analysts and auditors are not correcting them. Much as we saw in the figures for all the banks in the run up to the crash. All of the big 4 accountancy firms were signing off on the robust financial health of banks sometimes mere weeks before said bank then collapsed. All of the big 4 auditors subsequently found themselves in court. So to suggest that companies, analysts and auditors might be not just allowing and enabling dangerous misrepresentations but even endorsing them is not really conspiracy theory, more painful experience...
A BIT MORE
Posted by Demeter | Thu Jun 25, 2015, 10:55 PM (0 replies)
If you’ve ever wondered just how powerfully 'collective thinking' grips most members of our species—including, by and large, those who most forcefully insist on the originality of their thinking—I have an experiment to recommend: go out in public and advocate an idea about the future that isn’t part of the conventional wisdom, and see what kind of reaction you field. If your experience is anything like mine, you’ll get some anger, some argument, and some blank stares, but the most telling reaction will come from people who try to force what you’re saying into the Procrustean bed of the conventional wisdom, no matter how thoroughly they have to stretch and chop what you’ve said to make it fit.
Now of course the project of this blog is guaranteed to field such reactions, since the ideas explored here don’t just ignore the conventional wisdom, they fling it to the floor and dance on the crumpled remains. When I mention that I expect the decline and fall of industrial civilization to take centuries, accordingly, people take this to mean that I expect a smooth, untroubled descent. When I mention that I expect crisis before this decade is finished, in turn, people take this to mean that I expect industrial civilization to crash into ruin in the next few years. Some people, for that matter, slam back and forth from one of these presuppositions to another, as though they can’t fit the concepts of prolonged decline and imminent crisis into their heads at the same moment. That sort of response has become more common than usual in recent months, and part of the reason may be that it’s been a while since I’ve sketched out the overall shape of the future as I see it. Some of my readers may have lost track of the broader picture, and more recent readers of this blog may not have encountered that picture at all. For that reason among others, I’m going to spend this week’s post summarizing the the decline and fall of industrial civilization.
Yes, I’m aware that many people believe that such a thing can’t happen: that science, technology, or some other factor has made progress irreversible. I’m also aware that many people insist that progress may not be irreversible yet but will be if we all just do that little bit more. These are—well, let’s be charitable and call them faith-based claims. Generalizing from a sample size of one when the experiment hasn’t yet run its course is poor scientific procedure; insisting that just this once, the law of diminishing returns will be suspended for our benefit is the antithesis of science. It amounts to treating progress as some sort of beneficent fairy who can be counted on to tap us with her magic wand and give us a wonderful future, just because we happen to want one.
The overfamiliar cry of “but it’s different this time!” is popular, it’s comforting, but it’s also irrelevant. Of course it’s different this time; it was different every other time, too. Neolithic civilizations limited to one river valley and continental empires with complex technologies have all declined and fallen in much the same way and for much the same reasons. It may appeal to our sense of entitlement to see ourselves as destiny’s darlings, to insist that the Progress Fairy has promised us a glorious future out there among the stars, or even to claim that it’s humanity’s mission to populate the galaxy, but these are another set of faith-based claims; it’s a little startling, in fact, to watch so many people who claim to have outgrown theology clinging to such overtly religious concepts as humanity’s mission and destiny.
In the real world, when civilizations exhaust their resource bases and wreck the ecological cycles that support them, they fall. It takes between one and three centuries on average for the fall to happen—and no, big complex civilizations don’t fall noticeably faster or slower than smaller and simpler ones. Nor is it a linear decline—the end of a civilization is a fractal process composed of crises on many different scales of space and time, with equally uneven consequences. An effective response can win a breathing space; in the wake of a less effective one, part of what used to be normal goes away for good. Sooner or later, one crisis too many overwhelms the last defenses, and the civilization falls, leaving scattered remnants of itself that struggle and gleam for a while until the long night closes in. The historian Arnold Toynbee, whose study of the rise and fall of civilizations is the most detailed and cogent for our purpose, has traced a recurring rhythm in this process. Falling civilizations oscillate between periods of intense crisis and periods of relative calm, each such period lasting anywhere from a few decades to a century or more—the pace is set by the speed of the underlying decline, which varies somewhat from case to case. Most civilizations, he found, go through three and a half cycles of crisis and stabilization—the half being, of course, the final crisis from which there is no recovery.
That’s basically the model that I’m applying to our future. One wrinkle many people miss is that we’re not waiting for the first of the three and a half rounds of crisis and recovery to hit; we’re waiting for the second. The first began in 1914 and ended around 1954, driven by the downfall of the British Empire and the collapse of European domination of the globe. During the forty years between Sarajevo and Dien Bien Phu, the industrial world was hammered by the First World War, the Spanish Flu pandemic, the Great Depression, millions of political murders by the Nazi and Soviet governments, the Second World War, and the overthrow of European colonial empires around the planet. That was the first era of crisis in the decline and fall of industrial civilization. The period from 1945 to the present was the first interval of stability and recovery, made more prosperous and expansive than most examples of the species by the breakneck exploitation of petroleum and other fossil fuels, and a corresponding boom in technology. At this point, as fossil fuel reserves deplete, the planet’s capacity to absorb carbon dioxide and other pollutants runs up against hard limits, and a galaxy of other measures of impending crisis move toward the red line, it’s likely that the next round of crisis is not far off. What will actually trigger that next round, though, is anyone’s guess. In the years leading up to 1914, plenty of people sensed that an explosion was coming, some guessed that a general European war would set it off, but nobody knew that the trigger would be the assassination of an Austrian archduke on the streets of Sarajevo. The Russian Revolution, the March on Rome, the crash of ‘29, Stalin, Hitler, Pearl Harbor, Auschwitz, Hiroshima? No one saw those coming, and only a few people even guessed that something resembling one or another of these things might be in the offing.
Thus trying to foresee the future of industrial society in detail is an impossible task. Sketching out the sort of future that we could get is considerably less challenging. History has plenty to say about the things that happen when a civilization begins its long descent into chaos and barbarism, and it’s not too difficult to generalize from that evidence. I don’t claim that the events outlined below are what will happen, but I expect things like them to happen; further than that, the lessons of history will not go.
With those cautions, here’s a narrative sketch of the kind of future that waits for us.
YOU'LL HAVE TO GO TO THE LINK...IF YOU DARE!
Posted by Demeter | Tue Jun 23, 2015, 06:33 AM (1 replies)
Saying there were no other options remaining and that continued intervention would only prolong the nation’s suffering, experts concluded Tuesday that the best course of action is to keep the United States as comfortable as possible until the end. According to those familiar with its condition, the country’s long, painful decline over the past several decades has made it clear that the most compassionate choice at this juncture is to do whatever is possible to ensure America is at ease during its last moments.
“We need to accept the fact that the U.S. doesn’t have long—simply helping it pass that time in comfort is the humane thing to do,” said economist Danielle Martin, speaking on behalf of a large group of experts ranging from sociologists and historians to lawmakers and environmentalists, all of whom confirmed they had “done everything could.” “Attempting to stabilize the country in its current enfeebled state would not only be extremely expensive, but it would also cause unnecessary agony as it enters this final stage. With how hard the nation is struggling to perform even basic functions, letting it meet its end naturally is the merciful decision here.”...Added Martin: “At the end of the day, it’s nearly 240 years old—what can you reasonably expect?”
Others agreed with Martin, saying that, with America having gradually become a weak, almost unrecognizable shadow of its former self, the priority now should be ensuring that it is given whatever palliative support it needs and using the remaining time to put the nation’s affairs in order. Sources also emphasized that citizens who have not already begun to emotionally prepare themselves for the country’s demise should begin to do so.
“At a time like this, it’s completely understandable to wish for some kind of 11th-hour miracle, but expecting the U.S. to somehow magically return to the way it was in its prime isn’t healthy or realistic,” said Georgetown University researcher Andrew Fischer, who later stressed that just because the nation still has “the occasional good day,” this should not cause anyone to get their hopes up for a sudden recovery. “It’s important to manage expectations and realize that sometime very soon, we’re all going to have to say goodbye.”
Many of those with close ties to the United States said they were having difficulty coming to terms with the country’s imminent passing, but that letting it go peacefully was ultimately for the best.
“At one point, I would’ve done anything if it meant having America around for just a little longer, but I can’t watch it slowly waste away like this anymore,” said Tampa, FL resident Kathy Muniz, adding that it “breaks heart” when she sees how hard the U.S. struggles to put on a brave face and pretend that everything is fine. “The kindest thing now is to just do what we can to keep the nation’s spirits up while nature takes its course.”
Posted by Demeter | Sun Jun 21, 2015, 08:46 PM (1 replies)