Financial fuckery thread

[LMNO]

And so I can assume that the "freshwater economists" (Anti-Keynesians from Chicago and their ilk) are merely ideological puppets for the plutocracy?

[Cain]

Yes, although in many cases, they really don't know this is the case, they are true believers.

John Gray, the former libertarian political theorist in the UK, is quite instructive here.  He explains that a lot of the Neo-liberal thinking is an attempt to return to the classical liberalism of Adam Smith, Ricardo, Cobden etc.  But as he continues, the economic systems they proposed had fundamentally different priors to those we currently have, namely, a god actively involved in the affairs of man and who loved humanity.

Therefore, he sees a "return" to classical liberalism as a farce, because many of the theorists do not hold these priors, and so they search for alternative explanations to back up those theories, which of course is a logical fallacy right there.  It's a form of fundamentalism, to him, and in fact directly mirrors religious fundamentalism not only in terms of origin, but also in that it is a shallow parody of the depth and complexity of the theories that have gone before (Smith and Cobden, for instance, considered classical liberalism not the best system, but the least worst, and were quite aware of the flaws inherent in it).

Neo-liberal economists have been lavishly funded by certain key interests at top Universitities, most notably Chicago, which has led to generations of economics students being taught theories which are...suspect to put it mildly.

Not that the Keynesians are much better, to be honest.  While Keynes does have a certain level of respectability, there is a lot of disagreement over how to actually implement his theories, some of which are, to put it plainly, whack.  Furthermore, in the currently existing world, social democracy of the sort Keynesians generally seem to support, is not a credible answer.  For all their flaws, the bastardized Keynesian/MMT/neo-liberal economic model massively outperforms social democracies in terms of economic output.  Sure, it tends to be mostly in terms of rentier theft and fraud, and has a distressing tendency to crash every decade or so...but nevertheless, the social democratic model still relies on an ever-growing economy, which is not going to happen in a world of dwindling energy resources.  The Neo-liberal model also suffers because of that, but it will make a lot of money for certain people before it all comes crashing down.  The misery will not be more equally distributed, as it likely would under a social democratic system.

[Cain]

Speaking of energy resources...

http://www.atimes.com/atimes/Global_Economy/NB28Dj05.html

The end game is about to begin. On the one hand you have the noise and rhetoric. Greedy speculators gouging gasoline prices; mad mullahs preparing to wipe Israel off the map; bunker buster bombs and fleets being positioned; huge demand for oil from the BRIC countries; China's insatiable thirst for oil; the oil price will head for $200 a barrel and will never again fall below $130 ...

On the other hand you have the reality.

Oil Markets

The oil markets are completely manipulated and orchestrated, and the conductors of the orchestra have the benefit of having already held a rehearsal in 2008.

History never repeats itself, but it does rhyme. This time around it is not demand from the United States that is collapsing, but European Union and United Kingdom demand, as oil prices in euros and pounds sterling have never been higher. In the meantime, the US is awash in oil as domestic production quietly increases, flushed out by the high prices.

As I have outlined in previous articles, the culprit for the high oil prices between 2009 and 2012 – with the exception of the speculative "spike" between March 2011 and June 2011 driven by Fukushima and Libyan price shocks – has been passive investment by risk-averse investors, which enabled producers to support oil prices at high levels.

Much of this passive money underpinning the market and enabling producers to monetize inventory pulled out of the market in September 2011, and another wave pulled out in December 2011.

What is now happening is the end game: an orchestrated wave of noise that is drawing in speculative money. This is enabling the producers who are actually in the know to hedge by selling production forward during what they confidently expect will be a temporary – and pre-planned – managed fall in the oil price.

The Game Plan

The smartest kids on the block knows that gasoline prices much over US$4 per gallon will be both deflationary and lethal to President Barack Obama's re-election chances. So that won't happen other than briefly.

I am by no means the only commentator who has pointed out the complete counter-productivity of these oil sanctions. The smart kids are well aware that oil sanctions are completely useless, and simply enable China to fill its strategic reserves at a discount to the market price at the expense of Greece and Italy in particular.

But the US has been quite happy to let the EU – as useful idiots – take the economic hit. The high oil prices caused by all this noise and nonsense are actually a net benefit to Iran – which rattles its sabre loudly as elections approach.

The effect of a managed decline in oil prices to, and probably over-correcting well through, $60 a barrel – which is coming fairly soon – will be extremely beneficial to the US in two ways.

Firstly, it will be catastrophic in particular for Iran, Russia and Venezuela – not exactly on the White House party list – whose hugely oil-dependent revenues will collapse. The ensuing economic mayhem will open these countries up to regime change and to rescue plans which Wall Street will be dusting off.

Secondly, the US population will be laughing all the way to the gas station as gasoline prices fall – at least temporarily – below $2.50 a gallon and release purchasing power into the economy, thereby doing the president's re-election chances no harm at all.

What will then happen is that members of the Organization for Petroleum Exporting Countries will panic and genuinely reduce their production. The Saudis/Gulf Cooperation Council will again orchestrate the inflation of the oil price – as they did in 2009 – comfortable in the knowledge that they have been able to hedge against this temporary fall in prices at the expense of the speculators currently pouring in to the market.

That's the game plan as I see it of the smartest kids on the block. What could ever go wrong?

Continue reading for the full scope.  I might X-post this to the ""News which highlights the structure of the system" thread too.

[Mesozoic Mister Nigel]

Ohhhh, very interesting! I know I've said it before, but I'm expecting this year to be chock-full of interesting developments.

[Scribbly]

The FT are breaking a new story right now (haven't been able to find it mentioned elsewhere) which implies that the banks conspired to set interest rates.

The full article is here I don't know if you can see it without signing up but I'll try and summarize the key points.

As we know a large part of the credit crunch was down to banks being unwilling to lend to one another.

What determined bank 'confidence' was their Libor rating. Every day employees at the major banks are asked: "At what rate could you borrow funds, were you to do so by asking for and then accepting interbank offers in a reasonable market size, just prior to 11am?"

Regulators are now uncovering evidence which suggests banks colluded in order to try and manipulate interest rates. At best, they have been massaging the answer to the question to make themselves look stronger than they are (after all, if they look strong then the answer to the question genuinely does become better for them). At worst, it is a cynical manipulation which has caused untold damage to the EU economy. Amongst other things, the average US adjustable rate mortgage is linked to Libor.

It looks like most of the major banks are holding their hands up to some kind of culpability in this, which implies that the rot goes very deep and is undeniable.

[Cain]

Unusual Libor ratings were also at the heart of what brought down Lehman Brothers. 

Is there anything to suggest how far back interest rates were fixed?  I'm thinking especially summer 2007, if the data is available.

[Scribbly]

One employee is specifically called out for his actions in 2007. It sounds like they could be looking back over everything from the past 26 years (which would take a very long time, obviously), but the article isn't entirely clear on that point. Although a lawyer for a bank attached to the investigation is playing down the cooperation and scale, the FBI, Department of Justice, Commodity Futures Trading Commission, European Commission and Financial Services Authority are all called out as probing into this area, as well as the Japanese Securities and Exchange Surveillance Commission

[Cain]

The specific bank I had in mind was French.  I think.  I'm going to take a nap, then I'll research and come back with what I have, as I am fairly sure it is related.

[Cain]

Bank of America has put $55 trillion worth of derivatives risk onto American taxpayers

http://www.bizjournals.com/sanfrancisco/news/2011/10/21/bank-of-america-derivatives-merrill.html

Bank of America    reportedly shifted $55 trillion of risky derivatives from its Merrill Lynch    unit over to its retail bank, which holds deposits ultimately backed by U.S. taxpayers.

The move, initially reported by Bloomberg this week, moved into the full glare of the public spotlight by Friday.

The New York Post reported that the "funky Merrill Lynch derivatives" were transferred at the request of those on the other side of the derivative trade after the bank's debt was recently downgraded.

That's not surprising since ratings downgrades often trigger calls for more collateral from derivatives holders wanting to ensure their counterparties are good for the money if they have to pay up. With the derivatives now in the hands of the banking unit, FDIC-insured deposits can be tapped to make good on those derivatives, if necessary.

"There are many reasons trades are moved, this is common practice across the industry and done at the request of the client," said BofA spokeswoman Colleen Haggerty. "These trades do not impact FDIC insurance or insured deposits. Derivative positions are hedged and subject to robust risk-management practices and do not pose any material risks to the bank."

Those reassurances do little to allay concerns.

[Cain]

So, the UK is now planning to sell off its roads to sovereign wealth funds.

I predict this having a hilariously tragic series of consequences, a few years down the line.

[Mesozoic Mister Nigel]

Bank of America has put $55 trillion worth of derivatives risk onto American taxpayers

http://www.bizjournals.com/sanfrancisco/news/2011/10/21/bank-of-america-derivatives-merrill.html

Bank of America    reportedly shifted $55 trillion of risky derivatives from its Merrill Lynch    unit over to its retail bank, which holds deposits ultimately backed by U.S. taxpayers.

The move, initially reported by Bloomberg this week, moved into the full glare of the public spotlight by Friday.

The New York Post reported that the "funky Merrill Lynch derivatives" were transferred at the request of those on the other side of the derivative trade after the bank's debt was recently downgraded.

That's not surprising since ratings downgrades often trigger calls for more collateral from derivatives holders wanting to ensure their counterparties are good for the money if they have to pay up. With the derivatives now in the hands of the banking unit, FDIC-insured deposits can be tapped to make good on those derivatives, if necessary.

"There are many reasons trades are moved, this is common practice across the industry and done at the request of the client," said BofA spokeswoman Colleen Haggerty. "These trades do not impact FDIC insurance or insured deposits. Derivative positions are hedged and subject to robust risk-management practices and do not pose any material risks to the bank."

Those reassurances do little to allay concerns.

Yeah, that's not at ALL sketchy. 

[Cain]

Initial reaction to the budget: what a clusterfuck.

[Anna Mae Bollocks]

i encountered some folks a couple years ago online that were part of some effort to promote a general debt amnesty under the auspices of 'Jubilee' as described in the Leviticus, where all debts are forgiven. (these folks weren't pushing for the forgiveness and pardoning of criminals, however  )

i haven't heard hide nor hair of their attempts since then, so they were obviously unsuccessful in spreading the meme, but I wonder if the time is ripe to spread this notion through the religious right?  What would the republican leaders do if it became a statement of christian faith to support a debt amnesty as prescribed in the good book?

That's the first thing I thought of. Jubilee.

The religious right has an extremely filtered perception of bible reading, though. */obvious* I love pointing them to the 23rd chapter of Matthew since it describes them to a T, it makes them mad as fuck but it doesn't change anything.

[Freeky]

So, the UK is now planning to sell off its roads to sovereign wealth funds.

I predict this having a hilariously tragic series of consequences, a few years down the line.

Private roads??  WHAT COULD GO WRONG?   

[Cain]

Going by the nationalisation of the railways, absolutely everything.

Also, the only large toll road operated in the UK has been the M6 Birmingham North Relief Road...which has not exactly been a roaring success