Category Archives: The Dismal Science

The coup d’etat

Articles by others, conspiracy, current affairs, Illuminati, politics, Social Engineering, Tactical Polyvalence, The Dismal Science

Matt Tiabbi brings the thunder, as always:

The reality is that the worldwide economic meltdown and the bailout that followed were together a kind of revolution, a coup d’état. They cemented and formalized a political trend that has been snowballing for decades: the gradual takeover of the government by a small class of connected insiders, who used money to control elections, buy influence and systematically weaken financial regulations.

The crisis was the coup de grâce: Given virtually free rein over the economy, these same insiders first wrecked the financial world, then cunningly granted themselves nearly unlimited emergency powers to clean up their own mess. And so the gambling-addict leaders of companies like AIG end up not penniless and in jail, but with an Alien-style death grip on the Treasury and the Federal Reserve — “our partners in the government,” as Liddy put it with a shockingly casual matter-of-factness after the most recent bailout.

The mistake most people make in looking at the financial crisis is thinking of it in terms of money, a habit that might lead you to look at the unfolding mess as a huge bonus-killing downer for the Wall Street class. But if you look at it in purely Machiavellian terms, what you see is a colossal power grab that threatens to turn the federal government into a kind of giant Enron — a huge, impenetrable black box filled with self-dealing insiders whose scheme is the securing of individual profits at the expense of an ocean of unwitting involuntary shareholders, previously known as taxpayers.

Daily Telegraph fail

Articles by others, current affairs, debate, FAIL, lail, politics, quotes, Tactical Polyvalence, The Dismal Science, wingnuts

Warning: “Do nothing” wankfest ahead.

Via the Telegraph:

We need more risk and less regulation of the financial sector

Um, OK?

Capitalism is based on innovation.

Adam Smith rang.  He said “did you even READ my fucking book?”

But innovations are not always well understood when they first turn up. People buy too many of them and pay too much for them.

I just want to quote this as evidence the market does not always work perfectly and people are not rational consumers.  This will become important in a minute.

That is what happened in this crisis. People paid too much for financial products that they didn’t understand.

And sold them for too much.  And floated an entire economy on the basis they would keep selling forever and would never drop in price.  Oh, and there was something about lying to investors and firing people who disagreed with that assessment, using things like evidence and projected trends.  So not so much a naive mistake and more like carefully calculated get rich schemes.

Left to function alone, the market would have punished those that had invested in the companies that lost.

And everyone else, for good measure.  The market approves of collateral damage.

Companies going bust and investors losing their money are not a “failure of capitalism”.

Not even if they are making a yearly profit, yet go out of business due to a lack of credit during more quiet seasons?  Because that’s what is happening.

It is capitalism; and if you don’t like it, then you don’t like the system.

If you love Communism so much, why don’t you live there?

There was no need for the British government to bail out the banks last autumn.

Apart from that whole “turning into the next Somalia” thing, and everyone knows Somalia is a healthy and functioning market economy, with reported growth in such vital areas as piracy, terrorism, warlordism and mercenary work.

The wrong policy response – the one adopted – was to reward investor error.

Yeah, those silly investors, believing banking CEOs.  They should have beat them until they told them the truth about the risks they were taking!  Jack Bauer would do no less.

It saved the capitalists made rich at the expense of private capitalism.

If you hate that so much, why don’t you move to Cuba or something, Che?

Calls for heavy-handed regulation to restrict the actions of banks are the flip-side of acting so as to undermine the market’s means to punish poor decision-making.

Yeah, not allowing financially risky decisions with the threat of jail is totally not a punishment when compared to what The Market will do.

This means there will be less risk-taking in the economy as a whole – less innovation and experimentation, less diversity and dynamism.

I cite the Open Source Movement as proof people cannot innovate without a profit motive.

We will have an economy that grows more slowly and a society that is less tolerant, offering fewer opportunities for those who have no money but good ideas to get ahead.

Whereas a worldwide economic depression every couple of years won’t make people more intolerant or offer fewer opportunities at all.

The financial sector is unlikely to be able to return to sustained profitability without significant restructuring of a much more radical nature than the current favourites of creating “boring banks” and “bad banks”. Governments are now the major shareholders in these institutions, and they should insist upon their restructuring.

Typical commie, looking to the government to solve all your problems.

Imagine if, instead of all that, we had used £100 billion or £200 billion for tax cuts to stimulate the real economy.

Yeah, but imagine if we had used £300 billion to stimulate the Really Real Economy (for Realness).  Or £400 billion to titillate the Somewhat Less Empheral Economy.  Or, and I will admit we are pushing the boat out here, £500 billion for The One True Objective Economy That No Rational Person Can Deny?  What then, eh?  That’s the problem with you Commies, your lack of innovative thinking.

Ye gods, that was the biggest pile of fail I have ever read.

A look inside the corporate PR machine

Articles by others, conspiracy, current affairs, Internet - a series of tubes, media culture, politics, Propaganda, Tactical Polyvalence, The Dismal Science, wingnuts

There are two excellent pieces up on The eXiled right now which you need to be reading.  They are Is CNBC’s Rick Santelli Sucking Koch, and Koch activists teabag media.

I’ll leave you to read them in your own time, but I could smell the PR bullshit coming off these Tea Party protests from the start, I just didn’t have the time or the inclination to dig.  Nevertheless, an insight into how these things work is always nice.  As Ames points out

So today’s protests show that the corporate war is on, and this is how they’ll fight it: hiding behind “objective” journalists and “grassroots” new media movements. Because in these times, if you want to push for policies that help the super-wealthy, you better do everything you can to make it seem like it’s “the people” who are “spontaneously” fighting your fight. As a 19th century slave management manual wrote, “The master should make it his business to show his slaves, that the advancement of his individual interest, is at the same time an advancement of theirs. Once they feel this, it will require little compulsion to make them act as becomes them.” (Southern Agriculturalist IX, 1836.) The question now is, will they get away with it, and will the rest of America advance the interests of Koch, Santelli, and the rest of the masters?

Robert Gilpin on hegemonies and economic crises

20 minutes in the future, nukes, society, Tactical Polyvalence, The Dismal Science, war

I was reading Fifty Key Thinkers on International Relations earlier this week and ran across this interesting quote:

Essentially, Gilpin believes that all hegemonies are transient because the costs of maintaining them rise more quickly than the resources available to do so. On the one hand, the hegemon is unable to prevent the diffusion of its economic skills and technique to other states. On the other hand, the hegemon must confront the rising expectations of its own citizens. Over time, they will privilege consumption over production and resist further sacrifices in order to maintain the supremacy of the hegemon on the international stage. The combination of internal and external factors leads to what Gilpin calls ‘a severe fiscal crisis’ for the hegemon.

It then has a limited choice of options. If it wishes to maintain its power, it can either confront its internal obstacles and reverse the tendency towards complacency, or it can attack rising powers before they mount a challenge of their own. Alternatively, it can seek to reduce its overseas commitments and promote strategic alliances with other states. Gilpin illustrates the former with reference to imperial China, while in the 1930s, Britain attempted the latter course of action. Gilpin is sceptical about the lessons of history, however. While each of these options has been pursued with varying degrees of success in the past, neither has been able to prevent the onset of war to resolve the disequilibrium of global power. In the late twentieth century, such a conclusion raises urgent questions about contemporary stability in the international system and the need to discover means other than war for managing the process of change, as the next ‘systemic’ war is likely to be the last in the context of nuclear weapons.

Now, while this is unsettling reading, I don’t actually think it applies in this case, for one particular reason.  Namely, under current conditions, the economic crisis is globalized.  While the USA is indeed suffering, other nations who could become peer competitors to the US have been hit just as hard, if not harder.  And as we know, a broad economic base is essential to build the military muscle necessary to leap to hegemon status.

However, should one of those potential peer competitor nations recover while the US is still mired in trouble…when then there could be a real recipe for trouble.  It doesn’t seem likely, but it should not be discounted.

Some might suggest this analysis may be too state centric, however I very much doubt any of the current 4GW using organizations either have the capacity to create nuclear weapons in sufficient quantity, or the manpower and economic muscle to fight anything more than a guerrilla war.  In a systemic conflict, such groups would be wiped out with extreme prejudice.

Panic! at the economic disco

20 minutes in the future, Articles by others, Black Swan, Tactical Polyvalence, The Dismal Science

Just a short economic roundup:

Japan’s economy is going down the tubes at the fastest rate in 35 years.

Ireland could default.

Keep an eye on Eastern Europe (yes, I know the Telegraph are apocalyptic enough as it is, but hysteria aside, there are valid concerns about the state of the region)

China’s recovery may be riding on the back of sham loans

Kansas is having money trouble

Collateralized Loan Obligations could be next financial black swan.

Santander has liquidity issues.

In summation, things don’t look too good.  More and more, I find myself agreeing with John Robb, even when I actively try not to.

Always the bridesmaid, never the bride…

20 minutes in the future, Articles by others, counterculture, current affairs, Fascism, Law and Disorder, metablogging, politics, Propaganda, shameless self promotion, society, The Dismal Science

For some unthinkable reason, I was not invited to Technoccult’s roundtable on the future of the nation-state.  Probably because they’ve never heard of me, Wes and Edward aside, but I won’t let that get in the way of some good snark.  Besides, I can now claim to be a renegade renegade futurist, which justs adds to my edgy appeal.  Or something.

Anyway, good question.  The whole viability/decline of the state has become a very interesting question in light of the credit crunch.  And I have more than a passing interest in social organization in the past and present, in no small way due to reading John Robb for the past three years or so.

Continue reading Always the bridesmaid, never the bride… →

The Arctic Scramble

20 minutes in the future, Articles by others, current affairs, politics, resource scramble, Tactical Polyvalence, tensions, The Dismal Science, Tin-foil hats

While the eyes of conspiracy theorists are permamently fixed on the Middle East and Central Asia as the Last Great Battleground for easy access to oil, it looks like both NATO and Russia are capable of hiring slightly more intelligent people.

At least, those intelligent enough to realize that sitting under the Arctic circle are massive oil reserves, so far claimed by no-one.  And as the economic crisis continues to deepen, both are considering sending in military forces to show everyone who really owns the oil and gas hidden under the ice.

Russia is especially worried.  Their much inflated and hysterically claimed resurgence only came about due to stable political leadership, ie; Putin, along with the strategic use of Russian oil and gas reserves to improve the economy and rebuild its military power.  With the current economic crisis, consumption is down and oil prices have plummeted, putting Russia in a very precarious position.  Economic growth is not assured and Russia’s economy has not really diversified in recent years, arms sales aside.

NATO claims that global warming means sea routes previously closed would open again, and that military forces in the region could act as a stablizing factor to ensure possible rivalries don’t get out of hand.  And while this is true, we’d be fools to consider that the Russian interest in massive energy resources is not also a facor.

It is tempting to put a Cold War pun here, but I will refrain.  But I do wonder how China, Japan and other rising powers (such as India) would react to renewed tension in the Arctic circle.  Concentrating such a crisis away from Eastern Europe, the Far East or South Asia may have interesting repurcussions on previously stable alliances.

Keep an eye on this one.  It’s going to be a slow burner.

Private equity meltdown?

20 minutes in the future, Black Swan, rumour, Tactical Polyvalence, The Dismal Science

Nassim Nicholas Taleb has long been a favourite of ours at PD.com, well before the current crisis had materialized.  And since he has been proven remarkably right about the current crisis and how it is unfolding, its worth paying attention to him when he speaks.

Private-equity firms may follow banks into failure should U.S. stocks extend their worst rout since the Great Depression, said Nassim Nicholas Taleb, author of the best- selling finance book “The Black Swan.”…

The Standard & Poor’s 500 Index has dropped 4.7 percent this year following a 38 percent plunge in 2008 that was the worst in 71 years. Blackstone Group LP, manager of the world’s largest buyout fund, fell 78 percent since the end of 2007.

“Banks are being bailed out, and private-equity firms are going to go next,” Taleb said in an interview with Bloomberg Radio. “These people in a bull market look like geniuses. And now they don’t look that intelligent, and it’s going to get a lot worse for them. If the S&P goes down 20 percent from here, what will happen to private equity firms? They’re all under water.”

Layman’s terms.  You know all those venture capitalist companies with tons of money to throw at possibly profitable projects?  These are those guys.  And private equity was a boom market in the early 2000s, which is why, as Taleb says, these guys looked like geniuses.  Unfortunately, much of this boom was created by loose lending standards.  Now, why does that sound familiar…?

Private equity funds are raised by people with money to put them in the specific funds.  And, as we’ve noticed, the banks are not lending right now.  So unless you have the money to hand, cash for these firms and their managed funds is not immediately apparent.

The upshot of this is that there is going to be another round of bailouts, probably every bit as expensive as the banks.  Possibly slightly more helpful, in that such venture capital firms actually do invest and thus help create jobs.  But so long as the banks refuse to lend, this is a temporary solution at best.

I coulda cleaned up on this…if I had any money to bet

current affairs, FAIL, politics, rumour, strife, The Dismal Science

Iceland’s coalition government just fell into squabbling over…well, pretty much everything, it seems, but mostly whose economic policy sucks more and who should really run the country.

That sounds so familiar.

Anyway, yes.  This has been in the works for a while now.  The collapse of the Icelandic government should come as no surprise.  When 10% of your GDP gets wiped off, people get pissed.  There is a lesson in that, I think.

Keep an eye on the Baltic states and Hungary too.  Oh, and Italy.  The Italian government is pretty brutal, for a democracy, but all that means is that people are going to be even more pissed off and violent when they finally decide to act.

Online virtual bank run

Internet - a series of tubes, The Dismal Science

Now, this is fascinating.  No, I’m being earnest here.  I’ve always thought virtual words and games, like Second Life, to name a famous example, are not very noteworthy in and of themselves, but for the purposes of economics, wonderful.  Implenting crazy economic theories in real life, is, of course, somewhat dubious, ethically (has anyone told Milton Friedman or Vladimir Lenin this), but online, you can study the cause and effect of changes to a macro-economic system.  It turns economics into a far more testable subject. This may also be the case for other social sciences, especially political science, although I haven’t seen that pursued so far.

Anyway, the point of this is that in the massive world of Eve Online, a banker has vanished with 86 billion, causing a run on the banks.

Hat tip to Alex Tabarrok of Marginal Revolution