Rumours, disasters and ‘re-hypothecation”.

The rumours are swirling.  Top of the list is “re-hypothecation”. Next is German bank re-capitalization. And last is an IMF Europe bail out fund.

At the end of the US trading day came a report from the Japanese press that the G20 were going to set up a $600 billion rescue fund for Europe.  American markets shot up. American markets may like it but given that IMF funding is mainly American, it means American tax payers would be on the hook. Unless the G20 change the power structure within the IMF. China might agree to stump up a far larger share of the funding but only if they are given an accordingly larger share of the power and control. The only other option, and the more likely one, is that the G20 gives the IMF the go-ahead for expanding its own IMF bond sales to back up its own lending. Which would preserve US control but relieve them of the politically damaging accusation that the US tax payer is bailing out European banks. Of course what would get little mention is who exactly would be buying these bonds and with what?

Everybody needs to sell their bonds/debt literally trillions over the next two years. My guess is they will all agree to buy each other’s bonds allowing everyone to claim to be fine, just fine. It is the classic life boat full of sailors drinking each others piss. Every morning everyone is dying of thirst but what do you know, every morning everybody has a full bowl they can generously offer to a friend.

But none of those details worry the markets who whose only concern is how much short term profit can I make. That was the big news last night. But in my opinion was not the most significant. For me it was the news reported in Germany’s Handelsblat that the German finance minister, Wolfgang Schäuble, was going to force German banks take government money to recapitalize.

As far as I can make out the Minister is saying that any bank he and SOFIN (the German Bail out fund) do not think is well enough capitalized, will be forced to accept state money probably in return for shares. In other words part nationalization. Commerzbank is the obvious candidate but I also think Germany will attempt to buy back from UniCredit , by force if necessary, the very large Bavarian bank HVB. I think several Landesbanks would also find themselves being nationalized. None of them want to be nationalized because it dilutes their share holders, spooks the markets and in the case of the Landesbanks, transfers jealously guarded regional banking power and prowess to the Federal government.

But more interesting to me is that the German government should allow rumour of this now just as the ratings agencies are saying that Germany’s AAA rating could be downgraded on fears of the level of German debt.  One of the reasons German state debt is low is Germany has not, unlike other nations, recapitalize its banks. If it did so its sovereign debt level would jump from where it is now about 70% GDP to about 84% GDP. Which would almost guarantee the loss of Germany’s AAA rating. It would also leave Germany far LESS able to foot the bill for a wider pan-Europe bail out fund.

So the question for me is, is this rumour/news a hint that Germany is deciding it is a better plan and safer plan for Germany to back away from a European bail out and concentrate its available fire power on saving its own highly indebted and insolvent banks. In other words, is this Germany pulling up the draw-bridge?  I can’t decide. The article talks about the recapitalization happening by 2012. I don’t believe that time scale. If they’re talking about it now, at such a dangerous and sensitive moment, it says to me it would happen a lot faster.

Which begs the main question, what has happened to precipitate such rumours and possible plans? Which brings us to ‘re-hypothecation’. As is so often the case it has been ZeroHedge who broke the story last night and followed with another article this morning. Followed this morning by Reuters.

The first ZeroHedge article seems to suggest what I also believe, that the ‘re-hypothecation’ story is at least part of why the German’s seem to have hit the panic button.

First what is re-hypothecation’. As usual it is not complicated, just stupid.And as always it is defended on the grounds that it ‘provides liquidity’ to the markets. Sadly it is supremely unstable liquidity which when it goes wrong does so massively. Hypothecation is very like repo agreements when an assets it ‘sold’ but with the guarantee to be ‘sold’ back for a given price on a given date. Leading to the obvious conclusion that it was not actually a sale at all – just a loan. But a loan disguised in ways that allow banks to lie . Which leads to the further question why invent Hypothecation if you already have repo? And the answer is Hypothecation is far worse. Here is a good description of it from the Reuter’s article,

…hypothecation is when a borrower pledges collateral to secure a debt. The borrower retains ownership of the collateral but is “hypothetically” controlled by the creditor, who has a right to seize possession if the borrower defaults.

Why do this? It’s in part about who gets to show what assets as still being on their books while others get to use said assets as collateral for their own loans. Which brings us to ‘re-hypothecation“. Who says an asset that has been “hypothecated” once can’t be “re-hypothecated”? Well actually no one. The UK and the US authorities have spent a decade removing any restraint of Hypothecation to bring us to where we are now.

So, Bank 1 has an asset. It badly needs cash because it’s nearly broke. It hypothecates its asset to bank 2. Bank 2 also needs/wants a loan.So it turns to bank 3 and says, I happen to have a lovely asset which I hypothetically control, would you like it? Bank 3 says great. So bank 2 gets its loan which it probably uses to make other loans, while the asset it got from bank 1 is re-hypothecated to bank 3. Now bank 3 hypothetically controls the asset. Bank 3 turns to bank 4 and does the same. We now have 4 banks three of whom hypothetically control the original asset which is in fact still where it started, in bank 1 – a bank which was in such trouble it had to hypothecate its assets. Along the way, however, three banks have used the asset to get themselves loans and all of those loans rest on hypothetical control of the original asset. A pyramid of loans and obligations rest on a single asset whose control is now not at all clear should any one along the chain need to assert their control or need it bank to pay off their debts – should anything go wrong in the the ventures into which they put the money they borrowed on the strength of the ‘asset’. And THAT my fellow citizens is why the bankers insist they get paid so much.

So now we have a whole new bag of questions. What assets do you think have been hypothecated and rehypothecated recently?  European bonds perhaps? And which banks might be heavily involved and exposed to the trade? German banks and British Banks? French banks. American Banks?

The collapse a few weeks ago of MF Global which I wrote about at the time was the first thunder-clap  from this rapidly approaching storm. It will not be the last.

Wells Fargo has been of recent times one of the large suppliers to Europe of short term loans – liquidity. And what is the classic defence of the use of hypothecation and re-hypothecation? Oh, I remember, it was that it provides liquidity. I wonder if Wells Fargo has quite a few assets it ‘hypothetically’ controls?  I wonder if Deutsche or Commerz or Soc Gen have more? And the British banks and brokers? Well London is the centre of the ‘re-hypothecation’ trade.

Cameron and Osbourn go off to Brussels with a trumpety trump like two bumptious Eton fifth formers, cock-sure arrogance and ignorance mixed, all puffed out cheeks and rehearsed school boy bluster. They are so behind the curve it makes me cringe.

 

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152 Responses to Rumours, disasters and ‘re-hypothecation”.

  1. liberatetutame December 8, 2011 at 2:13 pm #

    Yes, German (and French) banks will be recapitalised. Like climbers tied together on a rope they will be hauled up, but only when the rope is cut dropping those at the bottom. It is the bankers, clinging to the cliff by their fingertips, who are forcing the pace. Eurozone banks remain overleveraged, they have yet to take the medecine of 2008/9, and are weighed down. The question being asked now is where to cut the rope; whose citizens have the strength to haul their overweight bankers off the cliff? For, as the bankers point out, it is not going to help at this stage asking them to go on a diet.

  2. bill40 December 8, 2011 at 2:58 pm #

    Oh what a tangled web and well predicted by your good self. Reading Reuters it is clear that it is this power to leverage to infinity is made in the City of London. You know, the golden goose we all have to bow to.

    It’s Christmas soon, the traditional time to shoot geese. The problem is can we unravel this mess without returning to a stone agae economy?

    The guns,gold and grub brigade over at ZH might have a point.

    • princesschipchops December 8, 2011 at 3:31 pm #

      I think they’ve had a point for a long time Bill. When this crisis first occurred I talked to a lot of contacts I still had in Financial services, they were nearly all downbeat.

      One IFA told me that his firm had had a talk from a senior fund manager in London and he’d said that he thought their was a very high possibility of collapse. Not crisis, but complete collapse.

      There were also rumours of an insurance firm having a huge black hole at its center around that time. And again that wouldn’t be surprsing. Ultimately if nations default, if banks fail that brings the whole insurance industry down too.

      If I’d had the money to do it I would have – honestly – bought some land somewhere back in 2007/08 and tried to be self sufficient. Unortunately I have a mortgage, naff all equity left (where I live prices have fallen around 35% and I bought in 2004 so yeah) and am ill!

      But when this crisis first happened I thought we might be okay, as it played out and I realised with dawining horror that it wasn’t a liquidity crisis but one of solvency I felt then that there was really no way out.

      I might be proved wrong yet and I have been accused of being horribly over pessimistic but I cannot see a way out of this – not with the current leaders in place around the world.

      • bill40 December 8, 2011 at 6:48 pm #

        Princess,

        Get well soon sweetheart, from all your admirers at Golem and beyond!

        • Jim M. December 8, 2011 at 11:04 pm #

          Amen to that!

      • MrShigemitsu December 10, 2011 at 12:47 am #

        Get well soon, Your Highness!

    • shtove December 9, 2011 at 2:03 am #

      London.

      Where the bogus AIG contracts were written. Now the centre of MF Global theft of client funds. Oh – the banks there also cooked up the £5b theft of UK workers’ money through “mis-sold” PPI insurance.

      The Square Mile needs to be wiped out.

  3. princesschipchops December 8, 2011 at 3:34 pm #

    David – have you read Debt. The First 5,000 years? I think I might have seen it rec’d here but not sure? But I saw Gillian Tett rec’d it in The Guardian too and I’d heard good things so ordered it.

    I know you’ve said before that the only way out of this is to let insolvent institutions go and some form of debt forgiveness for nations etc. He makes the point in his book that no society that has been built on debt to the degree ours has has survived without debt forgiveness. If they try to force the payments of the debt (i.e. if they try to protect the creditors at the expense of the little people) they collapse.

    They normally collapse quite suddenly and dramatically and violently too! I’m only part way through as it is a big read but it’s very gripping.

    • Dylan. December 11, 2011 at 8:24 pm #

      That’s a great book.

  4. Charles Wheeler December 8, 2011 at 3:41 pm #

    As I see it, the bottom line Is: these loans were created at a time of rising asset prices: The loans inflated the asset prices, the asset prices encouraged more loans in a classic bubble economy. At a certain point those prices had to stop rising: “If something can’t go on forever, it will stop.” (Herbert Stein) The sub-prime phase was simply the last throw of the dice – a desperate attempt to keep money/debt flowing into a system that had effectively morphed into a giant Ponzi scheme. But, essentially, the game was up – as defaults start to pile up, it’s no longer possible to recover the debt by selling the asset. As more and more unwanted assets hit the market, the Minsky cycle goes into reverse – but the level of debt remains – with interest accruing. It can NEVER be paid off. Which is why governments have had to step in to stop a complete unravelling of INSOLVENT banks. But that doesn’t solve the problem because, guess what . . . the taxpayers’ charged with repaying the debt are drawing from the same pool of national income/potential income.

    The repo and re-hypothecation markets are simple attempts to shift debt off the balance sheet a la ENRON. Most of the focus so far has been on the on-balance-sheet economy, but as Nicholas Shaxson argues the virtual reality of the shadow banking system is where the real hidden depths are: http://goo.gl/mIsRs

    This seems to leave us with two certainties:

    a) paying back debt by borrowing more debt at interest is destined to fail unless growth can be restored to historic highs.

    b) imposing an endless cycle of austerity measures on the populace will drive economies into a deflationary death spiral and can only result in what Michael Hudson characterizes as neo-feudalism, with a majority doomed to the Sisyphean task of pushing the debt burden uphill as it’s bled dry by the rentier class.

    Which seems to suggest that, at some point, when the banks can no longer impose their interests on a desperate population, much of the debt will have to be written off and some form of debt-free money injected to re-set the system.

    Whatever it takes, the existing paradigm cannot prevail.

    But while those with power over policy-making continue to pretend that this is a sovereign debt problem caused by profligate governments ‘in the run up’ to the credit crisis (which is how it’s still being presented by the revisionists who dominate the mainstream media), rather than the direct result of thirty years of quack economics, the ‘last chance saloon’ summits will come and go.

    This article, from an unlikely source, offers the glimmer of hope that a sea-change in mentality may still be possible:
    http://goo.gl/HO8Am

    • Toby December 8, 2011 at 7:08 pm #

      “Whatever it takes, the existing paradigm cannot prevail.”

      Exactly!!

      The question is whether we’re going to perish with the paradigm. Nothing lasts forever; paradigms, species, planets and stars included. As for species, I believe over 99% of all species that ever existed on earth are now extinct, so going the way of the dodo is hardly unusual. And I do try to take the long term view. ;-)

      Gloom aside, there are alternative ways of thinking and perceiving, and I explore them at depth at my blog. Indeed, and to point out a couple quickly, systems theorist Niels Aakerstroem Andersen equates humanity’s ability to perceive scarcity as beginning with conceiving of things in an economic way:

      “The economic way of seeing the world automatically creates shortage. [ … ] Shortage does not precede the economic communication. Shortage occurs as a result of the binary division of the world into have/have not by the economic code; which, moreover, produces the possibility of economising on the scarce resources whether these be money or as translated into other problems of shortage such as a shortage of competency, shortage of food, shortage of oil, etc.”

      Perception is enabled by discoveries, experimentation, science. John Holt describes subjects as filters:

      “No one can say, “Here is Biology, here Mathematics, here Philosophy.” No one can point to Physics, or show us Chemistry. In reality no dotted lines divide History from Geography or Physics from Chemistry, or Philosophy from Linguistics, and so on. They are simply different ways in which we look at parts of the wholeness of reality and human experience and ask certain kinds of questions about them.”

      Princesschipchops sees a bleak future ahead, a depressive perception David Graeber calls a failure of imagination, and it is precisely this reluctance to change our habits of thought which is producing this failure of imagination. We cannot perceive or conceive of a different system. We all Just Know™ that price is value, that money is wealth, that you have to Earn A Living, and so on. But all of these things are new ideas relative to our biology, to our genetic makeup. Don’t get me wrong, ideas are mighty things, and both wonderful acts of generosity and terrible acts of evil are done in their name, but they are more mutable than flesh and blood. The “red in tooth and claw” idea we recently acquired about nature, this Law of the Jungle model of reality as merciless, ruthless, pointless, is new. This is very apparent from reading Graeber’s “Debt: …”, and there are many other books that show us how out of date this perception of reality is. Here is an article written by a biologist calling the selfish gene idea “arrant nonsense”:

      http://hplusmagazine.com/2010/04/20/miranda-wrongs-reading-too-much-genome/

      Here is a book published in 1902 (“Mutual Aid”) rich in fact and detail demonstrating that cooperation is as fundamental to natural processes as competition:

      http://www.calresco.org/texts/mutaid.htm

      And here is a talk given by Dan Pink to the RSA on how money is a very poor motivator of creative team work, the exact kind of work increasingly left over for humans as we are more able to automate all work which requires neither wisdom nor imagination:

      http://www.youtube.com/watch?v=u6XAPnuFjJc

      Recently, behavioural economics has shown, in multiple surveys, that happiness flatlines at $60,000 annual income. Money is not the be all and end all. We can redesign it, and the world will not come to an end. We do not need this money system, it needs us … to stay compliant and not engage our imaginations.

      My advice as someone who has not had his head in the mainstream for over three years now, and is a much happier man for it: Turn of the TV forever, and start using your imaginations. Then communicate with others. The only way through this impasse is by coming up with ideas outside its paradigm. OUTSIDE its paradigm. To be corny, we must dare to dream, then dare to do. The existing elite are not going to change anything, because they are there to keep the existing paradigm and structure alive and kicking. That’s their job, by definition. Because this paradigm has reached the end of its useful life, the only thing it is kicking is us. And we’re the only ones who can introduce something new.

      If not you, then who?

      • ahimsa December 9, 2011 at 2:04 pm #

        @ Toby

        Appreciate your thoughts. One point, is perceiving a bleak future ahead really a “failure of imagination”? This feels somewhat harsh on Princesschops. I seem to have understood part of what you were saying as somewhat dualistic: creatively envisioning a better world OR failing to do so. Pessimism or optimism.

        What I would like to add is that there is a spectrum of multiplicity of combinations and permutations. I can see the future as both bleak And bright AND grey all at once and then one at a time and then none. There may well be very real growing pains in our lives AND transitioning to alternative ways – no contradictions. I find at John Michael Greer’s blog he does a good job of steering a practical path between the polarities of optimism and pessimism involved in considering a post economic growth world http://thearchdruidreport.blogspot.com/

        The point I am trying to make is that for me, casting off habits or patterns of thought or behaviours to conceive of a different system, isn’t a simple stop go operation, it’s an ever-evolving, overlaping, self-referential process of learning honestly recognisng our habits/patterns, accepting them, letting go of them, new patterns.. is there really any “failure” involved?

        • Toby December 9, 2011 at 2:15 pm #

          Well said, ashima.

          Actually, I worried after posting that my comment might be seen as harsh on Princesschipchops. It wasn’t meant that way at all. Apologies if any offense was taken.

          As to duality and binary thinking, I avoid it like the plague, but my word it is deep in those habits of thoughts I try to leave behind. A lifetime’s work of course, always changing, always generating new challenges. Indeed, what do even success and failure really mean? Is either always and only good or bad? I don’t think so.

          So the failure of imagination I’m referring to is a general agreement or feeling that there is no alternative. To the extent I want to be binary about anything, I’d be binary on that. However, seeing an alternative ‘out there’ produces its own tension, elation and depression, of course. As one becomes an emissary of this or that alternative, one can become something of a Jehovah’s Witness, knocking on doors to spread the good news. I don’t want to point somewhere and say, “Look, perfection is over that hill! Follow me!” There is no perfection, and no one person should be leading any people anywhere right now.

          In short, I agree deeply with everything you say. Although, I remember having checked in on The Arch Druid and not feeling at home there. Perhaps I’ll take another look…

          • Hawkeye December 9, 2011 at 3:02 pm #

            Toby

            I recommend “The EcoTechnic Future” by John Michael Greer. As Ahimsa says, he navigates a pragmatic line between optimism and pessimism.

            His paper on Catabolic Collapse is a good taster:

            http://www.dylan.org.uk/greer_on_collapse.pdf

          • Toby December 9, 2011 at 3:42 pm #

            Thanks Hawkeye, I’ll read that pdf. He’s a good writer, that’s for sure, so whatever my reaction, his work is a pleasure to read.

          • Toby December 10, 2011 at 11:24 am #

            Hawkeye, thank you for that link to an excellent article. I love this perspective:

            “Broadly similar changes often distinguish precollapse and postcollapse societies. Thus the collapse of the western Roman Empire, for example, could be seen as a succession process in which one seral stage, dominated by a single sociopolitical “species” that maximized capital production at the cost of inefficiency, was replaced by a more diverse community of societies, consisting of many less populous “species” better adapted to their own local conditions, and producing capital at lower but more sustainable rates.”

            And this line is a classic:

            “If a lapse into fantasy may be excused, were nonhuman biota literate and interested in their past, a history of lake eutrophication written by meadow grasses would differ sharply from one written by fish.”

            I was just thinking before getting to that line that human ascent was wolf collapse. Wolves might well see human ‘success’ as wolf ‘failure.’ There is no objective ‘good’ to the ‘domination’ of this or that species, and JMG spells out this vital point very well.

            So thank you and ashima again. It seems I underestimated Mr Greer.

          • ahimsa December 10, 2011 at 1:16 pm #

            Hi Toby,

            Thanks for your reply. I sensed I could feel where you were coming from and it is a perspective I very much enjoy and try to embrace. My bugbear I suppose are “either or” dichotomies (á la Zen and the Art of Motorcycle Maintenance). Experience rarely tends to “either or”(though our thinking very often does) and my concern was that sometimes we can lose each other in dialogues, if parties are pushing different versions/visions in opposition when quite often they can be complimentary but considered at different levels.

            Glad you enjoyed the Archdruid’s perspective on our unfolding situation. I may be misreading him at times but my experience is that he is one of the few able to embrace seemingly opposite visions of industrial society structural decay and personal community(spiritual?) growth and still steer a pragmatic course appreciating both.

            Give me more scientists/engineers/etc with a taste for the transcendent and more free thinkers with an appreciation of nuts and bolts and entropy!

            Have you seen “A Stroke of Insight”?
            http://www.ted.com/talks/jill_bolte_taylor_s_powerful_stroke_of_insight.html

          • ahimsa December 10, 2011 at 1:28 pm #

            Hawkeye & Toby,

            Have you read “The Final Empire: The Collapse of Civilization and the Seed of the Future” by William Kötke, interesting breadth of analysis. I saw the book recommended at RanPrieur’s site.

            The old edition I think is still available online: http://www.rainbowbody.net/Finalempire/

          • Toby December 10, 2011 at 1:51 pm #

            Yes, ashima, I have seen that TED talk. Many times. The first time I saw it I cried. It absolutely blew me away. And yes,”Give me more scientists/engineers/etc with a taste for the transcendent and more free thinkers with an appreciation of nuts and bolts and entropy!”

            Although, I’m not sure about entropy. I don’t think we quite understand it yet. There I get very ‘spiritual,’ because I see no more fruitful approach to that concept. For example, I’m intuitively ‘sure’ the Big Bang theory is wrong. And I believe (that’s the right word) that Universe is pregnant with intelligence and life, but that there is no design. So I believe in, I guess, Universal intelligence, but not intelligent design. Charles Eisenstein’s Ascent of Humanity is excellent on this:

            http://www.ascentofhumanity.com/

            Shall look into Final Empire in due course.

          • ahimsa December 10, 2011 at 4:21 pm #

            Toby,

            Have noted your Charles Einstein citations and have read a few essays on gift economies. Nice to see his book available to read online. Will take a deeper look.

            Will leave discussion of entropy for perhaps another day. Suffice it to say I mentioned it with talk of infinite energy sources and perpetual motion machines in mind, which I feel become yet another distracting salvation myth.

  5. Golem XIV December 8, 2011 at 3:42 pm #

    Princess,

    No I haven’t read it I’m afraid. There is so much I haven’t read.

    But I agree with the idea that collpase is sudden and without warning. Those problems that are preceeded by warnings of their approach are met with some sort of plan and action. It is those our leaders don’t see coming or refuse to see that will get them.

    The ECB actions this morning are another piece of desperate foolishness.

  6. Dave Holden December 8, 2011 at 4:41 pm #

    One wonders whether a bank could end up hypothetically controlling an asset it had hypothecated out in the first place!

    • princesschipchops December 8, 2011 at 5:17 pm #

      Oh my god! Now that is just wonderful.

    • richard in norway December 8, 2011 at 6:11 pm #

      That had occurred to me as well, I’m sure that it does happen

  7. richard in norway December 8, 2011 at 4:42 pm #

    It will be another spike in the oil price which will cause the collapse, possibly due to a attack on Iran but could be cause by another event but when oil spikes it all falls down

  8. Charles Wheeler December 8, 2011 at 4:59 pm #

    “When we look through a different lens, a lens of political economy, we see what’s actually occurring.

    First, the real European economy is condemned to many years of austerity. That, in turn, means prolonged high unemployment, further weakening the bargaining power of wage earners vis-à-vis corporate capital. Europe’s economic elites also get new leverage to shrink Europe’s welfare state. Notably missing from the deal is any improvement in the regulation of finance, whose abuses caused the crisis in the first place.

    In fact, if all this sounds vaguely familiar, it is exactly the grand bargain that has been promoted for two decades by the likes of Peter G. Peterson, Robert Rubin, the members of the Bowles-Simpson Committee, and kindred millionaires who want an enforceable hammer to compel a balanced budget and shrink social spending. The only difference is that on the other side of the Atlantic, the euro crisis gave elites the leverage to pull off this deal.
    . . .
    In the meantime, financial elites have won a major victory. The pity is that the press has largely interpreted this in terms of saving the euro and calming capital markets rather than a question of who really benefits and who suffers. A very different strategy could have saved the euro, spared ordinary Europeans the pain of such extensive austerity, and reined in banks to prevent the next crisis from recurring. But that sort of policy change will first require a massive shift in political power.
    The American Prospect: http://goo.gl/7iXFM

  9. Charles Wheeler December 8, 2011 at 6:25 pm #

    Economics and Ideology – or, ‘positive’ economics my foot:

    “In this interesting Monthly Review piece, Marcello Musto applies that exact idea to Europe. Simply put, technocratic discourse is sometimes laden with violence against anyone willing to speak out against the “science” of economic thinking. The result, at least in Europe, is one of the most acute forms of class warfare.

    As Musto himself puts it:
    The separation between economics and politics that differentiates capitalism from previous modes of production has reached its highest point. Economics not only dominates politics, setting its agenda and shaping its decisions, but lies outside its jurisdiction and democratic control — to the point where a change of government no longer changes the direction of economic and social policy.

    Introductory economics should start off with a very simple idea: be immediately distrustful of anyone you see (especially elites) presenting the “consensus” view within the economics profession as the “right” policy platform. And, indeed, this is the type of “apolitical” discourse that can end up being the most lethal kind for workers or other groups with less power in the economy.”
    quoted in: http://goo.gl/ZroNj
    from: Marcello Musto: http://goo.gl/iYo7l

  10. Charles Wheeler December 8, 2011 at 6:36 pm #

    Yves Smith at Naked Capital has reservations about article on ‘re-hypothecation’ I posted earlier:

    “This article has gotten a lot of attention. However, it basically asserts connections and causality that it does not substantiate. And it is also poorly written and has some glaring errors. For instance, it calls repo GENERALLY off balance sheet when that is not true (and repo is comparatively easy to understand, so if the writer is over his head talking about that, I question his ability to analyze the other topics presented in the piece). The MF “repo to maturity” sounds as if it was designed to be a defeasance. But even so, that does not prove the role of rehypothecation also alleged in the transaction. And if MF Global DID rehypothecate as suggested, this means the loss of customers money was not criminal…just bad risk management. But this article is really sloppy. It may be right in part, but I can’t tell which parts.

  11. bill40 December 8, 2011 at 6:52 pm #

    Call me Captain Slow if you will, but I think I finally understand what is happening with the Euro. It is a test case for the privatisation of the money supply. No money can enter the economy unless through a private bank. The banks are demanding a monopoly of all money created.

    We\ all know that Gideons’ nonsensical economic policy is not the reason for our low interest rates. It is because the BoE can act in competion with the bond holders and print its’ own money.

    Knobble the ECB and bang goes the competion. Nice work if you can get it.

    • Charles Wheeler December 8, 2011 at 7:46 pm #

      This is Kevin Drum on the Euro mechanism: http://goo.gl/Kbv4P

    • richard in norway December 8, 2011 at 8:08 pm #

      It’s a bit more involved than that I think but to be honest I feel that we are all groping in the dark even some of the main actors don’t understand what’s going on. But one thing is that debt is money, money is debt. When debts are destroyed money is destroyed as well, if central banks create new money to fill the void that can destroy the debt money system, folk are starting to ask why can we print money for the banks and not for hospitals etc. And it is vital for TPTB that they get the money first, they want the ECB to print and replace the money being destroyed by debt destruction but they want the new money to come to them, so that they can use it for new loans etc. Then there is the other angle which is that the dollar is so diluted by QE that it is in danger of imploding, so the fed wants the ECB to print because it will dilute the euro and make the dollar look good in comparison, the fear for the fed is that if the dollar drops too far, folk will lose confidence in the dollar as a reserve currency. For Europe there is a chance that if they avoid printing they can take over as the reserve currency. The reason this is important is because currency are only paper or bytes but can be sloped for real things like oil and steel, right now if you want oil you have to have dollars and those dollar will end up back in the US, so in a sense the US gets its oil for free, Europe would very much like to have that privilege. So the fed has an interest in keeping the crisis going but its dangerous for them as well because so many US banks are on the brink, which is why it keeps coming with partial bailouts but at the same time leans on the rating agencies to cut credit ratings. Added to that is various other actors which have bets on the outcome, and some very big bets. Some are betting on ECB printing and some are betting against but unlike a horse race these folks can influence the outcome and are trying to do so. Like the holders of Greek cds who bought Greek bonds in an effort to deny a voluntary restructuring. And then on top of all this is national politics etc. I’m confused, there is much going on and so many at the principle actors have multiple motivations, like the new ECB chairman who is Italian and a banker and a goldamite, so god only knows where he is going to line up. No one is quite sure which way Goldman is betting.

      Anyhow that was the easy version!!?!?!

      • Pat Flannery December 8, 2011 at 10:30 pm #

        Thanks to you Richard, way over there in Norway and to my near neighbor here in Southern California, Kevin Drum, for some very thoughtful and insightful analyses. It is good that we have a global ring of brains working on this. It is a global issue.

        I know that Europeans see this mainly as a European crisis. Even Drum’s graphs show German as the main lender to the periphery. But who lends to Germany? Surely all that German money is not from retail deposits in German banks nor from German pension funds.

        Surely the money Germany lent to the periphery countries is “wholesale” money, ultimately traceable to the Fed wholesale window.

        Surely the Fed pushed cheap money to Europe (through Wall Street, mainly to “safe” German banks) to boost American exports to Europe who in turn “pushed” it to Greece, Italy, Spain and Ireland.

        My objective here is to refocus international attention on the role of the Fed and of American economic policy as a major cause of the Euro crisis.

        Somebody needs to do a graph showing the creditors of CORE countries i.e. Germany and France. So far we haven’t seen that. I think it would show that the crumb line leads right back to Wall Street and the Fed.

        Even “wholesale” loans have to be funded in dollars or some currency and the only unlimited source of currency in the world is the Fed.

        Pat Flannery

        • Rob May 20, 2012 at 9:55 pm #

          Pat. At last someone with the same thoughts as me.

          Did you get to the bottom of this issue?

          Rob

  12. ManukauJohn December 8, 2011 at 8:02 pm #

    What happens to the child who thinks guile and calculation trumps integrity and honesty?
    Bankers have forgotten their commerce is in trust, not money.

    “This weekend it dawned on me (and yes I am a bit slow) that the real issue here is not whether Europe gets a deal by late Tuesday night, rather it’s about how the EU can maintain any shred of credibility on its long-term ability to move the agenda beyond “saving Europe” to the longer term challenge of creating the next upswing in employment, growth and optimism.

    This is not a question of the need for a crisis, though I do believe it’s the only way we get true progress, it is more about an alarming decline in standards of behaviour by those in power. Simply put, they have become loose cannons. The IMF can lend thousands of per cent of its SDR quotas, the FED can print trillions of dollars if they deem it necessary and soon it appears EU political shenanigans will see the ECB printing money in exchange for politicians in Europe doing what they should have done in 1999.

    At its core, perhaps this is what the “occupy” movement is all about: it’s a protest against the violation of standards of behaviour by the ruling class, not just against the decisions they have made. And if that is the case, then I agree! We need debt brakes to stop the fiscal bloodshed, and we certainly need standards for how far central banks and politicians can devalue our hard earned, after tax salary by printing money.”

    Steen Jakobsen, chief economist for Saxo Bank

  13. Gavinthornbury December 8, 2011 at 8:44 pm #

    I have always thought that the upcoming collapse will be global and rapid, because the current civilization is an immensely complex, specialised and close coupled system. This leads to the likelihood of concatenation, where one falling domino knocks down several others and so on.

    A good explanation is given by Ugo Bardi in his blog “Cassandra’s Legacy”:

    http://cassandralegacy.blogspot.com/2011/08/seneca-effect-origins-of-collapse.html

    http://cassandralegacy.blogspot.com/2011/09/cassandra-and-limits-to-growth.html

    And also by Noah Raford in his recent talk to the LSE, “Collapse Dynamics: Phase Transitions in Complex Social Systems”

    http://news.noahraford.com/?p=48

  14. backwardsevolution December 8, 2011 at 8:52 pm #

    Re re-hypothecation:

    “What most people don’t understand is that when you open a brokerage account you allow your assets to be used to “borrow, pledge, repledge, transfer, hypothecate, rehypothecate,loan, or invest any of the Collateral”

    Absolutely standard boilerplate language.

    But here’s the problem — this is “in accordance with Applicable law.”

    This use, incidentally, is why brokers scream that trades are “just $5!”

    Well, yes. But your money is being used by the brokerage, more or less, as collateral.

    But there’s a difference between earning on your funds and securities (which brokerages do all the time) and stealing your assets. The latter occurs when the law is circumvented — whether legal or not. [...]

    THEY ARE THUS INHERENTLY FRAUDULENT CONSTRUCTS IN EACH AND EVERY CASE AND IF WE HAD AN ACTUAL JUSTICE SYSTEM IN THIS COUNTRY EACH AND EVERY INSTANCE OF THESE CONSTRUCTS WOULD BE TREATED AS A SERIOUS FELONY RESULTING IN ARREST, INDICTMENT, PROSECUTION AND IMPRISONMENT.”

    http://market-ticker.org/akcs-www?post=198790

    Read the whole article – it’s good!

  15. backwardsevolution December 8, 2011 at 8:57 pm #

    Re MF Global:

    “I simply do not know where the money is, or why the accounts have not been reconciled to date,” Corzine’s prepared testimony read. “I do not know which accounts are unreconciled or whether the unreconciled accounts were or were not subject to the segregation rules.”

    Sarbanes-Oxley requires him as the CEO of a company to (1) guarantee that effective risk controls and rules are in place and (2) monitor their compliance. It renders failure to do so — that is, the old-fashioned “I didn’t know” defense that was routinely used after 2000-era failures in the Internet space — a felony.

    Now of course Mr. Corzine is entitled to the presumption of innocence and he is entitled to a trial before being pronounced guilty, but the law on this point is clear: Executives, the CEO and CFO in particular, are required under Sarbanes-Oxley to factually know about matters such as this and they are required to attest to that knowledge — and the presence of appropriate and sufficient risk controls under penalty of felony indictment.

    It appears that Mr. Corzine has admitted in front of a Congressional Committee that he does not know, and therefore this appears to be a prima-facie admission that he is in direct violation of this law.

    If this is not dealt with on an expeditious fashion and the law is not enforced you have just seen proof on national television that there is no longer a rule of law in this nation of any substance.”

    http://market-ticker.org/akcs-www?post=198805

    • Golem XIV December 8, 2011 at 9:04 pm #

      Karl (who writes the Ticker) is always very, very good on the legality and otherwise of these issues.

      Glad you posted his thoughts. Thank you.

      • backwardsevolution December 8, 2011 at 9:16 pm #

        Golem – I like Karl. The guy is incredible: he owned his own Internet company, sold it at the top of the Internet bubble because he could see the writing on the wall. He is just a very bright individual and knows something about EVERYTHING: electronics, physics, math, law (contract and constitutional).

        He has been criticized for too often yelling “Fire” when it didn’t happen. That’s not to say he wasn’t right, just that TPTB put the fire out.

        Overall, a good citizen who loves his country and understands the importance of the rule of law.

        • richard in norway December 8, 2011 at 11:34 pm #

          You should read leverage, its very good although not as good as David’s book(going for the toady award here)

        • MrShigemitsu December 10, 2011 at 1:13 am #

          As long as you ignore his opinions on healthcare.

          • richard in norway December 11, 2011 at 10:32 am #

            Yes indeed his healthcare views are very harsh and he doesn’t accept that a nhs style service is the only logical and efficient option

  16. backwardsevolution December 8, 2011 at 9:22 pm #

    From Stoneleigh regarding ever getting your money back, even if you are in the right:

    “I don’t think the printed niceties in brokerage agreements will make the slightest bit of difference. Investors will be faced with a fait accompli once their money is gone. Complaining that agreements weren’t adhered to will make no difference once the money has disappeared into a giant black hole of credit destruction.

    Rules only exist in theory. Our shadow system has circumvented them in practice at every step. Rules will not protect you at all.”

    Be smart out there. Pay off debts, end your brokerage play, have cash and food on hand.

  17. Charles Wheeler December 8, 2011 at 10:33 pm #

    The Age of Turbulance:

    Of course, Greenspan famously admitted a ‘flaw in the model’ – though he still insisted that in general derivatives were ‘working well’ – http://youtu.be/R5lZPWNFizQ

    We’re now told that prosecutions against fraud may not be possible because the issues are ‘too complex’. One wonders whether – when things reach such a level of complexity that many of those working within the system (many CEOs admit they don’t fully understand the products their firms are dealing with – hence the need for over-simplified risk models like VaR) things have got ‘’too complex? Just as war is too important to be left to generals, maybe economics is too important to be left to economists and traders.

    Reading about the fate of Air France 447 – http://goo.gl/quLhG – I was particularly struck by this passage:

    “While Bonin’s behavior is irrational, it is not inexplicable. Intense psychological stress tends to shut down the part of the brain responsible for innovative, creative thought. Instead, we tend to revert to the familiar and the well-rehearsed. Though pilots are required to practice hand-flying their aircraft during all phases of flight as part of recurrent training, in their daily routine they do most of their hand-flying at low altitude—while taking off, landing, and maneuvering. It’s not surprising, then, that amid the frightening disorientation of the thunderstorm, Bonin reverted to flying the plane as if it had been close to the ground, even though this response was totally ill-suited to the situation.”

    Perhaps our economies were on auto-pilot for so long during the ‘great moderation’, politicians and economists, having lost the art of flying by the seat of the pants, are panicking, clinging to the mantras and routines they’ve memorised, incapable of creative thinking or straying outside the ideological envelope.

    Meanwhile, the alarms blaring STALL! fall on deaf ears.

  18. Charles Wheeler December 8, 2011 at 10:41 pm #

    ” . . .the dominant strain of conventional economics fails to take account of the key role that both debt and instability play in capitalist economies. In this view because one man’s debt is another woman’s wealth, the debt itself is held not to matter. This is based on a naive model under which debt is created by savers lending their money to borrowers.

    That’s not how it works in the real world, where banks in essence create money when they choose to make loans, only later looking for the reserves to backstop the deal. Nor does it reflect the way in which the shadow banking world of securitization and investment leverage creates money and drives prices and economic growth.

    . . .

    “The way you get out of a debt-induced crisis is by abolishing debt that never should have been extended in the first place,” Steve Keen, an iconoclastic Australian economist said in a talk with the Institute for New Economic Thinking.

    “You can do it in the slow grinding way of bankruptcy, or you can do it rapidly with a debt moratorium. The financial sector fundamentally has the responsibility for creating that debt — it should never have been extended in the first place. If we continue honoring that debt which was dishonorably extended, we face an incredibly long period of slowly reducing that debt in the grinding ways we allow.”
    http://goo.gl/82lhX

  19. Wirplit December 9, 2011 at 12:47 am #

    David Just to be clear on this re-hypothecation ..to bring it into individual terms. Is it the same as an individual A borrowing money using his house as collateral for a loan from B? A keeps the house but a charge is made on it so in the event of default the house is able to be repossessed . So far so normal.

    But then re-hypothecation means this same piece of collateral ( the house) is used as collateral again by the original creditor B for a further loan by a second lender C. C uses the house yet again as collateral for a loan from D. This goes on and on. So that the same house is now effectively owned by a string of lenders.
    So if C defaults then D can repossess the house to sell to repay C’s loan. But the house is owned by B….and by E, F, G etc so how can D sell the house?

    I cant imagine how this works in law…but is this right?

    If this is explained to ordinary people they would rightly think the financial world is mad.

    And when it is explained that their future is dependent on this kind of lunacy they are going to be mad

    • Golem XIV December 9, 2011 at 10:20 am #

      Wirplit,

      What I describe is, to the best of my knowledge, as it is. With this one proviso. Re-hypothecation is used by brokers often buying on margin. There was a good defence of the practice by a trader on ZeroHedge under the second article I linked.

      But his defence doesn’t really draw the sting of the main pont. Which is that there really is this almost total lack of any regulation. Which means that it doesn’t matter what or how it is supposed to be used. What matters is how it can be and is being used.

      Call MF Global to the stand.

  20. Mike Hall December 9, 2011 at 1:22 am #

    Lots of talk of collapse here in the comments. Understandable, I suppose, as it’s also the media strategy of the elites just now.

    But there won’t be a collapse. The program is incremental transformation to neo fuedal society. Which looks pretty much like rule by financial oligarchy, because, well, that’s another name for it.

    Of course, it does mean an incremental collapse of living standards (& life expectancy), starting at the ‘poor’ end & working up.

    ‘Official’ talk of collapse has the purpose of scaring both citizens & ‘useful idiot’ politicians & others into accepting, without debate or challenge, further entrenchment in law of the oligarchy’s power.

    (As bill40 put it earlier, to create a complete monopoly over money creation & allocation in private hands is a pretty close description.)

    As ever, Michael Hudson absolutely nails it:

    http://neweconomicperspectives.blogspot.com/2011/12/europes-transition-from-social.html

    The inevitable ‘crisis’ in a flawed euro design, using junk macro economics, is the culmination of 2 or 3 decades of planning by US/Europe elites to destroy the social democratic model of Europe. The final stages of the ‘coup’ are being put in place in an EU ministers meeting right now, with the oligarchy’s chief representatives in Europe – the ECB – pulling strings behind the scenes.

    IMO, the key point of weakness in their strategy is the ‘junk’ economics thinking which is designed to hide & obfuscate the important role that (democratic) governments +could+ play in citizens’ (largely labour’s) interests. If such was demanded of them, that is.

    It is of no use whatever to make demands based within the present mainstream junk economics paradigm. The illusion of difference in mainstream politics is already doing this to no effect whatever bar some occasional (very) marginal slowing toward debt peonage. (A little fluctuation in pace makes the ‘PR’ effort easier, but the direction doesn’t change.)

    The ‘post-Keynesian’ school of economists, the MMTers & others like Steve Keen describe macro economics operation correctly. I urge anyone looking for a core economic system & understanding to inform their fight against the rule by financial oligarchy to read the source material of the primary proponents. (Bill Mitchell & UMKC’s ‘New Economics Perspectives’ blogs.)

    • ahimsa December 9, 2011 at 12:25 pm #

      @ Mike Hall,

      Interesting conspiratorial commentary, countering talk of systemic collapse with talk of incremental(do you mean controlled?) transformation to neo-feudal society.

      Question: Do you the elites/oligarchy understand core macro economic operation correctly?

      These alternative narratives seem quite simalar-

      We are fed the line of:
      Systemic collapse possible unless we cede power to elites/oligarchy.

      And your suggestion:
      Systemic collapse not possible because elites/oligarchy are in control and have different agenda.

      I wonder, are the elites/oligarchy Too Powerful To Fail?

      • Mike Hall December 9, 2011 at 4:06 pm #

        No ‘conspiracy’ is required. The system is set up to flow wealth to the already wealthy – and has been that way for a very long time. Whether or not they know the detail of ‘why’, all the major players know where the lines in the sand are & what direction to ensure things go. And if they don’t, they will not rise to senior positions in any of the key institutions. Those at the top are in a very powerful position to decide who follows in their footsteps. Hardly surprising that there are also considerable social connections between players in the relatively small field of financial sector executives.

        Incremental shift to neo feudal conditions is the logical conclusion of the present macro economic system, so no control is required except to keep the system in place. Throughout the crisis the top few percent have continued to increase their wealth & power. Inequality has increased. Sure, some wealthy individuals have lost money & fallen. But actually very few. The aggregate situation is up, both in numbers of wealthy & their total wealth.

        I didn’t say systemic collapse is not ‘possible’. But the people in key positions, like Draghi at the ECB, will drip feed sufficiently to keep things from going over the brink. Whilst at the same time maintaining pressure to steamroller in the legislation they want. Note the speed with which the Greek PM was ditched when he suggested a referendum that might well have taken Greece out of the Euro.

        By the nature of their job, the financial sector prefers political leaders to be ignorant of the whys & wherefors, and these leaders may occasionally do a little thinking on their own. As when Merkozy proposed haircuts on Greek private debt. The attack on Italy’s sovereign debt interest rates was a logical demonstration of the financial sector’s power to persuade. Creditors are not to take a hit, haircuts have been dropped. Greece may well be dumped out of the Euro, with the IMF stepping in, but that wasn’t desired to happen before the crisis could be used to alter the Euro rules. So attention turned to Italy & left Greece on hold.

        Whether you consider it ‘conspiracy’ or not, a very serious game is being played by people who well understand the future implications for their class interests.

        The oligarchy look to be winning hands down. If you strip things down to their essential elements, the oligarchy’s financial & lobby power has a firm grip on all the major political parties. There isn’t one now thinking outside the neo liberal paradigm. An illusion of democracy needs to be maintained, so neo liberal lite is tolerated in at least one party. But the net direction of policy hasn’t changed in 30 years or so. There are serious, mainly financial, ‘barriers to entry’ for any new visions in politics.

        A representative of the US ‘Occupy’ movement made a good account of himself on BBC Hardtalk last night. Making similar points about the lack of plurality in politics, or real choice. But how many people were watching at 12-30am? Very few. And Steven Sakur was very combative, interrupting him many times attempting to put words (like ‘revolutionary’) in his mouth. Most citizens know something’s up with the system, but we won’t be seeing ‘Occupy’ getting anything more than mere soundbites on prime time news & certainly not with the usual even-handedness or outright fawning given to mainstream pundits.

        You only have to look around the world to see how much poverty can be imposed & still keep sufficient order. I’m sure the oligarchy are aware of this. Persuasion of ‘no alternatives’ in crisis conditions is a known tool to achieve step changes in levels of acceptability.

        So are the oligarchy too powerful to fail? Probably. But I’m not giving up yet ;)

        • ahimsa December 10, 2011 at 4:57 pm #

          Hi Mike,

          To be honest, I’m not clear on where you are coming from. Do we need to use inverted commas around the word conspiracy? Whether we speak of conspiracy theory or conspiracy fact, a conspiracy remains a conspiracy, a sort of illicit collusion?

          I go along with you regards the systemic nature of the beast,
          No ‘conspiracy’ is required. The system is set up to flow wealth to the already wealthy..,
          So no explicit agency by a particular group at work then. (Granted those with power/wealth will tend to act to preserve such a system, as do most people act to preserve their wealth/power)

          And we seem to agree that it is not unlikely that the elites/oligarchy don’t actually understand the principles of the system rather have learnt how to play the game,
          Whether or not they know the detail of ‘why’all the major players know where the lines in the sand are & what direction to ensure things go.

          My take is that with complex systems, even if players do understand there is still no guarantee they can influence events in a particular direction. Throw in a few black swans and I think there is plenty potential for a system collapse. And I confess that I sometimes find talk of ‘the oligarchy’, or ‘the working class’ somewhat disempowering, it creates a “them against us” victim mentality.

          As for my cheeky TBTF question, you seemed to suggest that collapse won’t happen because the oligarchy are too powerful to fail, well I don’t believe that for an instant. But hey, we don’t have to agree..

          • Mike Hall December 11, 2011 at 11:24 pm #

            Fair point about the inverted commas. I find the word conspiracy to be a much abused term in mainstream media, but perhaps we don’t need to worry too much here? That said, I think the kind of collusion implied by oligarchy likely a better description.

            I don’t think we disagree by much in fact? As you say there is some complexity, every detail cannot be assured.

            However, the level of control I’m talking about which I feel renders collapse very unlikely is that demonstrated by the ECB during the summit last week. Effectively, they announced that any & all ‘liquidity’ will be provided as required to all banks. I’d also suggest it’s pretty obvious by now that sovereign bond buyers will not demand interest above a certain level when it comes to very large countries like Italy. But just enough to keep the pressure up – a level clearly defined by the ECB’s secondary market intervention. Given that position, rather like the Fed’s in 2008, what’s the mechanism for collapse? Greece will likely exit the euro in due course, but besides a lot of ‘pricing in’, I think authorities have a reasonable idea now how to contain the fallout. Is a surprise exit by any other state likely? I can’t see it.

            I guess I do think the notion of ‘them & us’ is inescapable as regards the rentier class vs labour. They have opposite interests, I don’t see any way round that. That’s not to say eradication of a rentier class is either doable or desireable. But a society increasingly controlled by them is inevitably going to get very nasty for a lot of people. The more so as we head into serious global resource & pollution constraints.

  21. The Dork of Cork December 9, 2011 at 2:58 am #

    Sick , very sick.
    Something must be wrong with the banking business model.

    They need some PR advice me thinks

    http://www.youtube.com/watch?v=y7EoW0o7sHw

  22. Patrick Donnelly December 9, 2011 at 5:23 am #

    Rather colourful, considering I was eating breakfast!!!

    Of course they will hang together, but the BRICs will buy assets once they are down enough, while the banking victims buy debt!!!

    This was predicted and planned!! Germany is happy with the way things are going! Please get ahead of the media, you are better than this!

    This is really three articles, take the time to separate? In future? Pretty please?

    What do the banks do with their ability to “invest”? They speculate on short term movements, which they and their taxpayer funders can influence ….. INSIDER TRADING. They are relieving the gullible to recapitalize while funding bonuses, OK?

    The game now is more nakedly the same as before: OPM!!!!! Anyone who has paper, has …….. paper! No value. Just the thanks of those who converted his/her capital into their INCOME!!!!

    THIS IS A DEPRESSION! Anyone who did not get ill, is still deluded.

    To Princess: Land is available. Find someone who has skipped ahead of their debts and squat on their land! No capital cost unless you want to set up a corp selling it to you ….. and then go bankrupt after 13 months….

  23. Patrick Donnelly December 9, 2011 at 5:32 am #

    Mike Hall.

    Do you think there ever was democracy in the EU? There will be more once the mob wakes up. They are only part way into consequences as the depression deepens. Japan is actually OK, given there are fewer mouths to feed and it is socially cohesive, but then I remember operation Seal! That really dampens things!

    Wirplit,
    Correct except that they deal in larger numbers so probability in normal times, intervenes and the odd default does not interfere. It also usually means shares in jt stock companies quoted on an exchange…..

    Gavin,
    The system is so corrupt, centuries old in fact, that there are many outs! This is not asset destruction, just credit! Bankers will be the ones suffering …. unless they can pass it on and guess what, they can!!!!! How is that sudden catastrophe working out for ya? Any paper???

    • Mike Hall December 9, 2011 at 4:38 pm #

      ‘Do you think there ever was democracy in the EU?’

      Not in recent decades. I think the illusion of prosperity thru’ rising home equity & easy credit for all goods pushed all political parties toward a supposed ‘centre’ but still very neo liberal position, to attract votes. But, of course, as we now know, this was just the ‘suckering in’ phase. Now we need someone to challenge the system that (inevitably, but over a long time) caused the failure, they are no longer there with any significant power or organisation.

      Political power, both within governments & political parties has been very centralised for a very long time, among the top few. Such a structure was always very vulnerable to ‘capture’.

      I think the ‘party’ system, at least in terms of it’s ‘whip’ control is a big part of the problem. I wouldn’t allow any elected representative or candidate to be a member of any organisation. ‘Parties’ would then simply become lobbying entities with the same restrictions on providing financial inducement or assistance as anybody else. (Tho’ I would control the potential corruption issue at source – restrict the wealth aquisition of politicians & others representing citizens, for life. Apply special employment conditions reflecting the important nature of such a vocation.)

  24. Patrick Donnelly December 9, 2011 at 5:37 am #

    Charles Wheeler

    Are you nearly 100 yo? I met a CW in London in a park once! He said that Gow was electricity and now I believe him. See Electric Universe …… ! Spot on, but Steve Keen is an Aussie…

  25. Roger Lewis December 9, 2011 at 6:05 am #

    http://news.bbc.co.uk/2/hi/programmes/newsnight/9658250.stm

    I just watched this, what is interesting seems to be complete lack of imagination with respect to The basic money creation responsibilities that should be operated as a public good for the Commons. I was reading some other main stream stuff the other day a Book in which Vince Cable wrote the introduction without exception none of these people are willing to entertain the thought that a complete re design and re boot is required.
    The don’t tell the public anything and what the hell has this got to do with the people attitude is staggering to me. To be perfectly honest I feel like what I would like to see is a full blown revolution with the return of the bloody Guillotine. Turkeys will never vote for christmas off with their heads I say! Increasingly I feel more and more like a reluctant revolutionary looking for a barricade these people make very angry exasperation just isn’t a strong enough response.
    Patrick on the electric Universe Maurice Cotteral is very interesting ( I think he is Physics steve Keen in waiting) it is not just economics that has been on a wild goose chase these past 50 years. The Oil Lobby is to Science what the banking Lobby is to political economy.

    • Debra December 14, 2011 at 10:03 pm #

      Hi Roger,
      Haven’t I seen you over at Toby’s little saloon from time to time ?
      As someone living in the EU, I must say that ALL THOSE DIFFERENT COUNTRIES with different languages, different.. histories, etc etc, sometimes get laminated in the discussion about that most consummate of vague objects : the European Union, which to my mind has always had something of a pipe dream aspect to it, since there has never been any form of LINGUISTIC UNITY in the EU… Hard to create union/unity when there are so many DIFFERENT IDIOMS to try to make coalesce. Perhaps this was possible in the former, non bourgeois days of empire.
      That said, I am not at all keen on the idea of the return of the guillotine..
      I seriously recommend reading Ivan Illich to everyone here.
      Government by flesh and blood elites or… by impersonal automated SYSTEMS (and that includes corporations) ?
      And.. HOW TO REVOLT AGAINST SYSTEM, bring it to justice, and assign responsibility ?
      That is probably why LOTS OF BASICALLY INNOCENT PEOPLE get their heads chopped off during revolutions. Check out Illich’s book “Conviviality” where he mentions that THE IDEOLOGY is the problem, not the capitalist economy.
      As I also say elsewhere, you will get the ideology, those dominant ideas that govern our world in…. Descartes’ “Discours de la Méthode”, a SLIM SLIM SLIM book written in the 1600′s which will make you despair of trying to chop off the head of a City Trader, or even an IMF official.
      The wisest men have concluded in the necessity of learning to cultivate one’s garden. I agree.

  26. Pat Flannery December 9, 2011 at 8:06 am #

    11:00 PM Pacific Time

    It seems pretty clear to me that Britain and the US want to sink the Euro. But what if the 17+ pull it off? What if the Euro emerges stronger? It could do just that, if the 17 insist on at least a 50% private bonds write-down. What if the entire Euro block burned the bond holders? Wouldn’t that be an even worse outcome for Britain and its key financial services sector? Not to even mention the chaos on Wall Street.

    This struggle between Britain and Europe (between the Anglo world and the Germanic) is a repeat of 1913/14, only this time the option of going to war is non-existent. Surely nobody forsees a British expeditionary force landing in Flanders or the US bombing Berlin.

    This crisis may unite Europe as never before. The 17 can easily figure out what they owe each other and default on their external debt. That’s what America would do. Make no mistake, for Americans it is always America uber alles. Maybe the Germans will teach the other 16 what Europe uber alles would look like.

    This is scary stuff. Britain is playing a dangerous game. Blair would not have declared war on Europe as Cameron has done – on behalf of the City, where he comes from.

    • richard in norway December 9, 2011 at 12:34 pm #

      Blair would have done the same, of that I am certain. Truth be told no British politican has any choice the British economy is entirely dependent on the financial services industry. It like being a kidnap victim, when your kidnappers goes out shopping you hope that nothing happens to him/her because they are the only ones that know where you are and have the keys. You could say that UK politicians are suffering from Stockholm syndrome

    • Mike Hall December 9, 2011 at 4:48 pm #

      I think all oligarchic systems have factions fighting among themselves, but dissolving the Euro would harm them all, so I don’t see that as a strategy. Note Geithner’s clear admonitions to bring the ECB into play. With a debt/bond strategy tho’, not simple ‘currency issuance’ of course, perish the thought.

      I suppose I’ve already said this in other words, so apologies if it’s repetitive. I see the brinkmamship as a softening up process to ratchet up control in a sizeable jump that wouldn’t be possible in ‘normal’ circumstances. Very much Naomi Klein’s position in ‘disaster capitalism’ etc.

  27. allcoppedout December 9, 2011 at 8:22 am #

    My attempt to post just exploded. Is this a sign? I was agreeing with Roger Lewis. My subject was biochemistry and though we get a lot wrong, we at least try to model reality, if limited to structured realism (our make up in evolution and theories mediate reality), we do try to keep track on ‘H’ factors and ‘re-H’ factors – I can’t help thinking of ‘Preparation H’ in respect of this obvious accounting dodge (it melts away or gets lost down the toilet, operating where the sun don’t shine).

    Steve Keen says we should pay more attention to science and actual maths and in our network models and practice we mark ‘original capital’ in order to trace its path (say by marking cells with radio signals). I can’t see much problem with models that prevent such matters as low German government debt and banks that aren’t re-capitalised and so on, but rarely see anything like this. Attempts to make economics science are political in much the same sense science confronted with religion and instruments of torture (where do you work?).

    In this, we need to get rid of dubious lay notions of science as “value-free” and the false “objective voice” of public discourse – stuck in 19th century Pulitzer flummery.

    I’ve (unusually) Sky and BBC news today and we clearly need a network of our own.

  28. Toby December 9, 2011 at 11:26 am #

    Failure of imagination, that’s the source of the doom and gloom. Here’s how David Graeber expresses it towards the end of his excellent book on debt:

    “How did we get here? My own suspicion is that we are looking at the final effects of the militarization of American capitalism itself. In fact, it could well be said that the last thirty years have seen the construction of a vast bureaucratic apparatus for the creation and maintenance of hopelessness, a giant machine designed, first and foremost, to destroy any sense of possible alternative futures. At its root is a veritable obsession on the part of the rulers of the world—in response to the upheavals of the 1960s and 1970s—with ensuring that social movements cannot be seen to grow, flourish, or propose alternatives; that those who challenge existing power arrangements can never, under any circumstances, be perceived to win. To do so requires a vast apparatus of armies, prisons, police, various forms of private security firms and police and military intelligence apparatus, and propaganda engines of every conceivable variety, most of which do not attack alternatives directly so much as create a pervasive climate of fear, jingoistic conformity, and simple despair that renders any thought of changing the world seem an idle fantasy.”

    We are not allowed to propose alternatives. Indeed, they are not allowed to be mentioned, unless to be laughed at. There Is No Alternative. Well, the defenders of the status quo would say that, wouldn’t they? And their main weapons of control are information and money (where money is a form of information anyway). We are obliged to abstain from both as much as we can, then begin building The New.

    The task of building a new social system is enormous, but if we want something better, if we want to evolve into a maturer, wiser, more beautiful ordering of ourselves, a loving partnership with our environment, it’s going to take a lot of work. This is no cause for depression, it’s cause for action, rebellion, in as peaceful a way as we can muster. Even an act as local and ‘insignificant’ as turning off the mainstream media is a start. From there we can look to build networks of like minds which pool skills and knowledge, like doctors, plumbers, farmers, teachers, builders, nurses, etc. Hard work of course, but better than watching the news and getting depressed. It’s time to create, and time is running out.

    • Mike Hall December 9, 2011 at 5:00 pm #

      So how are you doing with your ‘local’ neighbours there Toby? Are they here, posting up, joining in the fun & mutual encouragement?

      Greetings & welcome to Toby’s Berlin neighbourhood from all two or three of us from this tiny speck of rural Ireland :)

      BTW, if some political candidate comes knocking saying… ‘I want to fight for a change in economic system to MMT and Functional Finance, please give me your votes’…have you and your neighbours decided on a yes or no on that yet?

      (Just wondering… ;) )

      • Toby December 9, 2011 at 8:33 pm #

        You don’t like me, Mike, that much is clear.

        What I push at will take generations. At least, that’s what I envision. Nevertheless, big things start small.

        As for what I’m doing locally, I left my job and am training to become a teacher. I’m setting up gift-based English lessons for ex-colleagues, starting soon. But I’ve been at this since the 1st of November, have yet to get my qualification, and am not sure whether Berlin will be our last home.

        But when people treat me like you do, I see no reason to be particularly forthcoming.

        • Mike Hall December 9, 2011 at 9:30 pm #

          It’s not about liking you or not liking you Toby. Sort of reminds me of the Israeli standard PR response to cry anti-semitic! and attempt to personalise issues when it’s purely about Israeli government policy.

          I’m attempting to nudge you into considering that matters may be a little more requiring of our urgent attention, rather than over ‘generations’.

          The financial oligarchy are accelerating their efforts, if anything. Don’t you think we should be trying to take some serious steps, however short of your philosophical ideals they might intially be?

          For example, the Occupy movement are out there getting abused, arrested & their heads beaten by militarised police. Should we not be trying to help in supporting them & trying to get behind some practical proposals that might gain support of the wider public, with some real potential for transforming change? At least for the present generation of our children, if not our own?

          I happen to think the present crisis is a window of opportunity for positive change just as much as it is for the ruling elites to ramp their agenda. What do you think?

          In my opinion, there’s no shortage of writing on the more abstract philosophical visions of what society many would like to see in due course of ‘generations’.

          Anyhow, in your attack on the messenger, rather than the message, I guess you don’t want to engage with the more pressing questions?

          • Toby December 10, 2011 at 8:19 am #

            Don’t play innocent. There are ways of asking questions, and you engage me aggressively the vast majority of the time. Those cleverly deployed smileys don’t actually convey any friendliness or politeness, their opposite in fact, and you know it. Besides, I answered you, briefly; but you, as usual, have ignored that answer, and played dumb again. What part of my answer didn’t you understand?

            You hurled your questions at me as if you think all I’m doing is pontificating, as if all I am is my posts here at this site, as if practical matters don’t concern me at all. I don’t recognise the person you’re addressing, because it’s not me. Hence my, ‘You don’t like me, Mike, that much is clear.” You make no effort to engage intelligently, then hypocritically accuse me of not engaging.

            As I just wrote:

            “What I push at will take generations.”

            These things take time. I’m doing what I can step by step. And I’m not attempting to lead anyone, either. In my opinion it is the debate that matters right now, particularly because that’s where my skills are. I’m working on other skills which are more practical, but that takes time too.

            “Anyhow, in your attack on the messenger, rather than the message, I guess you don’t want to engage with the more pressing questions?”

            What are you doing, Mike, if not attacking the messenger? You make an attempt, after the fact, to convince me (and others) that you were just asking some pointed questions (which would be fair enough), but the post is there for everyone to see. And I’m amazed you can even ask me this question:

            “I happen to think the present crisis is a window of opportunity for positive change just as much as it is for the ruling elites to ramp their agenda. What do you think?”

            Isn’t that abundantly clear?

            And you compare me with an Israeli PR agent?

            And cite The Occupy Movement which I’ve supported vocally at this site and at my blog before your warm words in its direction here. Bizarre! I don’t recognise the person you’re addressing.

            “Don’t you think we should be trying to take some serious steps, however short of your philosophical ideals they might intially be?”

            Of course! So why do you waste you time posting here, Mike? In what way is posting on a blog not an attempt to join the debate and influence events, in however small a way. At this site, how are you different from anyone else? Or do you think your own efforts here are the crucial, practical things that need to be done? Blogs are for discussing. We are constrained by that reality. I come here to discuss.

            And no, I did not shoot the messenger in my first response. I responded to the (not very well) hidden aggression of the question, a question which I couldn’t (and can’t) take seriously, because this is a blog, and because there is far more to me than what I post here. Had you really wanted to know what ‘practical’ things I’m doing to back up my admonitions here and elsewhere, how about a phrasing along these lines:

            “Hi, Toby. Tell me, what are you actually doing, on a practical level, to practice what you preach?”

            But no, you opened with:

            “So how are you doing with your ‘local’ neighbours there Toby? Are they here, posting up, joining in the fun & mutual encouragement? ”

            That’s clearly aggressive, Mike. Perhaps I shouldn’t have responded in kind, but then I would have disappointed you, and I wouldn’t want to do that.

            I don’t care whether you like me or not. I’m not looking for your friendship, or anyone else’s. But I do ask to be treated with the respect and politeness with which I treat others. That much, at least, I have earned. You are consistently abusive, and for the life of me, I can’t figure out why. But there it is.

  29. The Happy Hobbit December 9, 2011 at 4:06 pm #

    I stumbled across this blog about a month ago and have been fascinated by the great articles, opinions and discussions. I’ve learned a great deal and have had my eyes opened wide. Thanks to all the contributors.

    I’m a nobody – no banking or high finance experience, no economics degrees, just an ordinary guy with a job and a mortgage. I hope you don’t mind if I make my own (probably niave) observations and comments.

    I look at the number of suggestions on here that the problems are systemic, and that the system needs a reboot and a redesign to a different economic model. That may well be the case, but surely such a redesign could only be brought about by those not currently in power. But we live in a completely different world from the feudalism of previous centuries. Then, rulers would often be removed by force by others within the ruling class. Realistically, the only time an entire system was overthrown was in 1917 in Russia. And look where that led!

    We in the West oggle at the ‘Arab Spring’ where the populace rises up against dictators in order to implement some form of democracy. But we have had ‘democracy’ for a couple of centuries now and in doing so, we have handed power to a minority (in my view that is the definition of western democracy anyway – the rule of the majority by the minority – but that’s for another day). Greed and jealousy now stalk the streets of western countries, egged on by policies of the ruling elite as sops to the masses (Thatcher’s ‘Tell Sid’ campaign anyone?)

    So the working classes and the middle classes will complain, may riot, may go on strike. They may even bring down the currently elected government, to be replaced by… a new lot, same as the old lot. The mob will not be strong enough to bring about the kind of seismic change needed.

    The vested interests of politicians, financiers, media barons are now vast, their tentacles in all aspects of our lives; and their grip on power is lock tight. I cannot see how they will be overthrown, even though the system itself may collapse.

    Some on here have spoken about debt cancellation as a way to restart. But who will do the cancelling? And who’s debt might be cancelled? Will it just be the banks and brokers who have their debt ‘forgiven’? What about Jose Publiciano? If this road is travelled, I’d be willing to bet (my mortgage debt) that somewhere down the line, all the high finance debt will be written off – which will effect no-one that matters – whilst all the credit card and mortgage debt that individuals can’t repo or re-hypothecate (is that REALLY a word??!) will remain, leaving Joe Average poor, and the financial institutions in position to start the whole thing all over again.

    • Mike Hall December 9, 2011 at 6:04 pm #

      Well, in those terms, most of us here are ‘nobodys’, but more than ever before they (us) are what’s needed, in my view, to step up, educate themselves as required & demand change.

      IMO, your post is excellent! Right to the nub of things….when so much is messed up, where do we begin to offer solutions? It’s always great, speaking for myself, when a new poster offers up encouragement, doing so in such an eloquent & clear manner, all the more so, so thanks, do continue!

      I recognise all the issues you raise & have long thought about both the long term vision it’s important to have, and what first steps toward that might be most practicable. (I’m talking years here, long before the financial crisis hit.)

      For me, over the last 10 months or so of studying alternatives in economics (starting with only an MBA program background) I’m firmly of the belief that MMT & ‘Functional Finance’ offers the best option for a campaign demand. I aimed my studies at economists who not only correctly forecast the ‘crash’, but had a clearly stated methodology for doing so. MMT includes such economists among their ranks.

      It’s paradigm changing in that it firmly places an equal, if not even dominant role for government to create debt-free money, to be spent directly into the real economy for public purpose. In doing so it safeguards an appropriate role for private sector enterprise, but offers an effective way to achieve the right balance. It opens up a whole new world of public debate on how an economic system can work for society, not the other way round.

      MMT correctly describes, at the operational level, the macro economic possibilities of the fiat money systems we already have. This makes the required changes to existing function very (very) easy to make. But in doing this it strikes at the heart of the failed (from citizens’ perspective, not the ‘rentier’) ‘junk’ macro economics thinking of the status quo.

      It takes a little time to study. Macro economics is often counter intuitive, behaving very differently to the kind of household or business (currency +user+, ‘micro’) economics we’re more familiar with. But once you ‘get it’, the implications are, well, paradigm changing. You will understand why banks are so keen to keep the mysteries of money creation firmly in their own monopolistic hands.

      If you haven’t tried the link as yet to Bill Mitchell’s blog, I reccommend you do. His commentary, with links to further explanation of theory, from an MMT perspective is the best there is. Other MMT related blogs are very good too, particularly New Economics Perspectives, from proponents at the University of Missouri Kansas City.

      http://bilbo.economicoutlook.net/blog/

      http://neweconomicperspectives.blogspot.com/

      http://mikenormaneconomics.blogspot.com/

      http://moslereconomics.com/

      http://www.nakedcapitalism.com/

      http://heteconomist.com/

      http://www.3spoken.co.uk/

      Other sites I like in the ‘post Keynesian’ school of economics, all with much common ground with MMT…

      http://rwer.wordpress.com/

      http://www.debtdeflation.com/blogs/

    • Patricia December 11, 2011 at 8:49 am #

      When I was young my mother told me that all second mortgages in New Zealand were wiped during the Depression and yet when I try to confirm this memory on google nothing comes up. Perhaps I dreamt it.

  30. Charles Wheeler December 9, 2011 at 4:33 pm #

    It’s the GLOBAL economy, stupid . . .

    ‘EU Summitry is Futile’: http://goo.gl/4vgAE

    It’s interesting that, in the upswing ‘globalisation’ was the watchword – the great benefits of the borderless, frictionless flows of capital seeking out the best returns was the apotheosis of the neoliberals’ utopian vision.

    And yet, since the whole process has begun to unravel, the same commentators are trying to pretend that there are firewalls in place which can protect some parts of the global economy from others. Something of a contradiction?

  31. Gordon Donald December 9, 2011 at 5:00 pm #

    After numerous recommendations here and elsewhere, I’ve just started reading Debt The First 5,000 Years. It looks like an invaluable antidote to the bulk of comment and analysis in the mainstream media. The BBC’s Paul Mason did recommend it in The Guardian last week. Mason, though, as the BBC’s token dissenting lefty economics commentator, is hardly ever let out (it might puncture the BBC’s cosy neoliberal consensus and disturb the illusion that Ed Balls provides the opposition to George Osborne).

    Another useful book is ‘Modern Political Economics – Making sense of the post-2008 world’ by Yanis Varoufakis, Joseph Halevi and Nicholas J Thoecarakis. One of the authors, Varoufakis has a blog
    http://yanisvaroufakis.eu/
    and has posted a discussion he had with Max Keiser about the European crisis
    http://yanisvaroufakis.eu/2011/12/04/euro-unwinding-fast-talking-to-max-keiser-on-on-the-edge-about-how-the-unwinding-may-play-out/
    Here he suggests that if the eurozone were to collapse it would be as a result of Germany leaving to re-establish the Deutschmark.

  32. John Souter December 9, 2011 at 5:42 pm #

    Veto at the Channel: Continent isolated.

    Not a word on either side for financial reform or regulation.

    It would seem the failed gurus of finance are still in charge.

  33. Charles Wheeler December 9, 2011 at 5:47 pm #

    @The Happy Hobbit

    That is the great conundrum: those with the power to change the system have a vested interest in not doing so. But, maybe, as the economy continues to implode, enough ‘insiders’ will start to be burned (a la MFGlobal) and recognise that their own enlightened self-interest dictates a different approach – the parable of the goose that lays the golden eggs comes to mind. We’re already seeing commentators on the right beginning to voice reservations about the direction of policy on both sides of the Atlantic. The recent article about growing inequality by Sonia Poulton was shocking not for its content, but because it was published by the Daily Mail!

    As the concentration of wealth accelerates, and the ‘middle classes’ start to feel shut-out, as the standard of public healthcare and education and the state of infrastructure deteriorates further – private wealth begetting public squalor – a reaction might set in.

    Shifts like this have occurred in the past, for instance when L.T. Hobhouse set out a blueprint for ‘New Liberalism’ early in the 20th century (http://goo.gl/eoIHf), as the utopian vision of the laissez-faire liberals began to crumble under the weight of rising poverty, offering a choice other than eugenics.

    Again, after the Depression, a more inclusive approach developed which recognised that everyone – even the super-rich – could benefit from living in a more equal society. The architects of the post-war settlement were men like Beveridge, Keynes, FDR (almost despite himself) – personally wealthy members of the ‘ruling class’, not a hotbed of socialists. A lot of the focus on rising inequality has centred on ethics, but even the IMF (not renowned for leftist leanings!) has recently published papers which question the economic efficiency of increasing levels of inequality. Men like Warren Buffet and George Soros have voiced concern about the economic trends they personally profit from.

    Perhaps enlightened self-interest will save the day?

    Clutching at straws maybe, but there are some signs of hope that an attitudinal change is possible: http://goo.gl/bdXwM

    John Galt may have had his day?

  34. Charles Wheeler December 9, 2011 at 7:45 pm #

    “You Maniacs! You blew it up! Ah, damn you! God damn you all to hell!”

    ““If European counties the size of France or Italy actually defaulted and triggered CDS, there would be total carnage and meltdown. It would be the end of the world, and at that stage it’s likely your counterparty would be the least of your worries.”
    ZeroHedge: http://goo.gl/myunQ

  35. Wirplit December 9, 2011 at 7:54 pm #

    So is this the way the re-hypothecation and other banking collateral scams you are describing, might collapse?
    ….as Reggie Middleton is here predicting …?

    “The modern central banking system has proven resilient enough to
    fortify banks against depositor runs, as was recently exemplified in the
    recent depositor runs on UK, Irish, Portuguese and Greek banks – most
    of which received relatively little fanfare. Where the risk truly lies
    in today’s fiat/fractional reserve banking system is the run on
    counterparties. Today’s global fractional reserve bank get’s more
    financing from institutional counterparties than any other source save
    its short term depositors. In cases of the perception of extreme risk,
    these counterparties are prone to pull funding…..This is what precipitated the
    collapse of Bear Stearns and Lehman Brothers, the pulling of liquidity
    by skittish counterparties, and the excessive capital/collateralization
    calls by other counterparties. Keep in mind that as some counterparties
    and/or depositors pull liquidity, covenants are tripped that often
    demand additional capital/collateral/ liquidity be put up by the
    remaining counterparties, thus daisy-chaining into a modern day run on
    the bank!”

    http://www.zerohedge.com/contributed/what-more-valuable-opinion-major-rating-agency-or-opinion-blog-go-ahead-i-dare-you-answe

    • Golem XIV December 9, 2011 at 9:54 pm #

      Wirplit,

      Yes just as Reggie describes it. Plus a few others. Here’s one. I can’t give you the names of the banks involved for obvious reasons. But I was told this by one of the two parties actually involved.

      Back in ’07 one of the UK’s largest most prestigeous banks was a major funder of certain SIV deals housed in Ireland. As the early part of the bank debt crisis began, the assets in the SIV’s began to lose value. The UK bank received cash calls to prop them up. These they were legally obliged to provide. At first they did so as per the contracts.

      But the amounts escalated quickly. A call one day for 25 million became 150 million the next. One day the UK bank called their Irish partner and said we’re pulling our money and you’ll get nothing further from us. The Irish bank pointed out that the UK bank was legally required to fulfill its obligations. To do otherwise was not just bad faith it was illegal.

      The UK bank said, “If you’re around in 6 months, sue us.” The money halted. The UK bank is still very much alive.

      That story comes from someone involved.

      That’s another way this sort of thing unravels. In fact I would suggest it is the more likely way. There is little honour amongst thives. None whatsoever among that sort of banker.

      • Jim M. December 10, 2011 at 12:56 am #

        David,

        It would appear that Ann Pettifor shares some of your concerns re: hypothecation

        http://www.debtonation.org/2011/12/why-eu-summit-futile-this-is-a-global-banking-crisis/#more-5674

        And Tyler Durden seems none too happy with London’s part in enabling MF Global to replicate the AIG fiasco.

        http://www.zerohedge.com/news/why-uk-trail-mf-global-collapse-may-have-apocalyptic-consequences-eurozone-canadian-banks-jeffe

      • Neil (the original one) December 10, 2011 at 1:02 am #

        Telegraph:

        “The Financial Services Authority will admit next week that it has not fully investigated several of the major causes of the failure of the Royal Bank of Scotland three years ago.

        “The long-awaited report, due to be published on Monday, has already been branded a “missed opportunity” by one senior politician as it emerged the regulator had only looked in depth at two out of the seven reasons identified for the lender’s near collapse in October 2008.

        “Specifically, the FSA report, which will run to about 490 pages, has only investigated the circumstances surrounding RBS’s takeover of ABN Amro and the losses made by the bank’s investment banking division.

        “Issues understood to have been left largely unstudied by the regulator’s report are RBS’s excessive reliance on risky short-term funding; uncertainties over the bank’s underlying asset quality; and the company’s culture and corporate governance in the run-up to its failure.

        [...] The report is not expected to call for any action to be taken against any other RBS managers or directors. This would be in line with the findings of the PricewaterhouseCoopers investigation commissioned by the FSA into RBS and which forms the backbone of the document.”

        Full article here http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/8947482/FSA-to-admit-it-has-not-fully-investigated-RBS-failings.html

        • Neil (the original one) December 10, 2011 at 1:07 am #

          “The eurozone banking system is on the edge of collapse as major lenders begin to run out of the assets they need to keep vital funding lines open

          [...] “If anyone thinks things are getting better then they simply don’t understand how severe the problems are. I think a major bank could fail
          within weeks,” said one London-based executive at a major global bank.

          Many banks, including some French, Italian and Spanish lenders, have already run out of many of the acceptable forms of collateral such as US Treasuries and other liquid securities used to finance short-term loans and have been forced to resort to lending out their gold reserves to maintain access to dollar funding.”

          http://www.telegraph.co.uk/finance/financialcrisis/8947470/Eurozone-banking-system-on-the-edge-of-collapse.html

  36. Mike December 10, 2011 at 2:37 am #

    @bill40

    The banks already have a private monopoly on money creation. This is not about giving them a monopoly – they’ve had it for years. Check out http://www.positivemoney.org.uk if you want a run-down on how it works in the UK.

    @Mike Hall

    I like your style. The feeling I get from these shenanigans in Europe is that the same old PRS strategy will be used to manufacture the trajectory they desire, namely full federal integration of the EU in order to centralise taxation and spending in the name of “stability”. That’s exactly what’s happening right now as Merkozy ram through all manner of rules to strip sovereignty from member states. The EFSF articles even give diplomatic immunity to employees of the new fund, places the headquarters on “sovereign” territory outside of EU jurisdiction and allows them to demand any sum of money within 7 days from any member state without negotiation. Oh, and the mechanism for joining is illegal under most national laws as it forbids the member states from ever leaving once they’ve joined, which is against the rules of most democracies as any democratic government is only allowed to make decisions that can later be reversed.

    The US passed the NDAA codifying indefinite detention without trial, the UK is bringing in “state of exception” rules for the Olympics which could end up never being repealed, Italy and Greece are already being administrated by unelected governments composed of appointees from the financial sector…and the band played on.

    The trajectory is lockdown, pure and simple. No other state of affairs will allow the wealthy and powerful to preserve their wealth and power in a world plagued by resource shortages, declining fossil fuel supplies, crop failures and water wars.

    In the words of George Orwell, “if you want a vision of the future, imagine a boot, stamping on a human face, forever”.

    • Neil (the original one) December 10, 2011 at 10:15 am #

      Telegraph:

      “Dave Hartnett, who turns 61 in February, will quit his role as permanent secretary of HM Revenue and Customs by the end of next summer, the tax authority said on Friday.
      The news came as HMRC admitted it had begun an inquiry into Osita Mba, the whistle-blower who disclosed that managers had let Goldman Sachs off tax penalties. Mr Mba is facing disciplinary action, which could lead to him being fired or prosecuted, depending on the outcome of the investigation.
      Mr Hartnett caused a political storm in October when he admitted to a committee of MPs that errors had been made when negotiating a tax deal with Goldman.
      During the Public Accounts Committee, Britain’s most senior tax collector was forced to defend revelations that he oversaw and signed off a deal that saved the bank £10m of tax, saying the settlement had been reached because a “mistake had been made” for which he was “very sorry”.
      The error followed a dispute involving an offshore company used to pay bankers’ bonuses but Mr Hartnett refused to explain the full details at the committee, citing taxpayer confidentiality.
      He was also grilled over another controversial deal which saw HMRC forgive Vodafone as much as £4.75bn in tax.
      The mobile phone company paid just £1.25bn of a tax bill that was around £6bn for its takeover of MannesMann in 2000.
      A further two companies are known to have been forgiven large bills – but are protected from disclosure under law.
      Mr Hartnett caused further outrage last September when he apologised to over a million people following underpayment of taxes – just hours after a refusal to say sorry attracted criticism.
      HMRC said last night it had begun an investigation which could lead to Mr Mba being sacked for leaking sensitive information.”
      http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/8947255/Dave-Harnett-to-step-down-from-HMRC.html

      • John Souter December 10, 2011 at 12:16 pm #

        Complicate any thing and keep adding to it and you will create confusion.

        Complicate any concept that has not a ‘thing’ and not only will you create confusion you will add chaos to it.

        The present paradigm has politicians confused, with only their egos to pose on; leaving the financial shamans wallowing in the chaos they have created by their legitimised crookery.

        Both are blind and digging like mad to deepen a nonsensical ditch. Eventually there will be a groundswell of commensense that will bury them.

      • MrShigemitsu December 11, 2011 at 12:42 am #

        What do you reckon? A year before Hartnett gets a job on the board of Goldman Sachs and Vodafone? Or less….?

    • Mike Hall December 10, 2011 at 12:51 pm #

      Appreciate your comments, Mike.

      Wasn’t it the proposed ESM mechanism that had all the anti up on demand & full legal immunity clauses, or does the EFSF have the same? Anyhow, a point well made.

      I did notice that arrest & indefinite detention without trial bill recently passed by the US Senate. It gives the US military the power to arrest any US citizen, including on US soil. Essentially legitimising Guantanamo on the US mainland for anyone the military feels like arresting. One would think that would be clearly unconstitutional but with the politicisation of the Supreme court – with a right wing/republican bias – that may not make much odds now.

      The US military have already reported their ‘public order’ concerns over impending global energy supply constraints. Is this part of there response, it seems so? Very Orwell indeed.

      I’m tempted to write a little more on the notion of ‘conspiracy’. Here’s how I see it.

      At a very senior level in the tranatlantic elites, say, for example the key organisers of the Bilderberg group, I’d have no doubt that there’s a very long standing agenda to crush the Social Democratic ethos that clearly most EU citizens support. But most of the regular discussion I think more likely simply revolves around arranging the system to suit their interests. Those being defined as what works in favour of the creditor, ‘rentier’, class, with the financial sector & banking at the top of the food chain there.

      That a group of the ‘rentier’ banking & big business class get together to chat doesn’t concern me that much. Free association & all that. We can hardly draw a distinction because they happen to be rich & in powerful positions.

      However, where it does get seriously against the public interest is where they get substantial private access to political leaders & others who are in public or semi-public institutions. Again, I would think the discussions & agreements are informal, concerning the refinement of common interests rather than conspiracy. But when officials with a clear broad public interest remit are involved, then surely this is antithetical to the principles of democracy. Democracy being about the interests of the majority, which, by definition cannot be the exclusive interests of the ’1%’ super rich. Especially when we place no restrictions on the pay offs & largesse that is often heaped on public officials & political leaders when they leave office. Surely Tony Blair’s £20m ‘consultancy’ contract with bank JP Morgan is a deeply undemocratic corruption (small ‘c’, if not big ‘C’) of fundamental principles, particularly in the context of reckless banking behaviour which has caused the biggest crisis & recession since the 1930s. Blair, of course, was also a Bilderberg attendee. Whatever one thinks of ‘conspiracy’, none of this can be seen as healthy for democracy.

      • Charles Wheeler December 10, 2011 at 1:39 pm #

        “Again, I would think the discussions & agreements are informal, concerning the refinement of common interests rather than conspiracy.”

        I don’t think they meet at Davos to talk about the weather but, as Dan Alpert of Westwood Capital puts it: “Alpert doesn’t believe there was a capitalist conspiracy; his point is that had there been a conspiracy, the outcome wouldn’t look much different.” http://goo.gl/KU59b

        When Andrew Marr bristled at having his independence questioned by Noam Chomsky, Chomsky replied: “I don’t say you’re self-censoring – I’m sure you believe everything you’re saying; but what I’m saying is, if you believed something different, you wouldn’t be sitting where you’re sitting.”

        The term ‘conspiracy theorist’ (conjuring up images of grassy knolls, or extra-terrestrial lizards) is flung at anyone who suggests there might be some collusion between vested interests, to tag them as ‘nutters’ – despite the fact that history is littered with bona fide conspiracies.

        But there need be no conspiracy – as wealth and power become more and more concentrated, a simple confluence of interest does the rest.

        • Mike Hall December 10, 2011 at 5:52 pm #

          Nicely put Charles, exactly!

  37. steviefinn December 10, 2011 at 12:13 pm #

    Testing some posts not uploading

      • Mike December 10, 2011 at 5:00 pm #

        Brilliant article! Fisk rules.

        • Charles Wheeler December 10, 2011 at 10:12 pm #

          On that point, this is a tremendous read: http://goo.gl/3QzPJ

        • Patrick Donnelly December 11, 2011 at 8:36 am #

          Fisk is in bed with them, and is merely piling on as we now all know what Jefferson said was correct. The shock and awe, at the banking implosion occurring in slow motion at a city near you, will be used to reshape the world in the way that the planners wish and Fisk is not detracting from that.

          • Dave December 13, 2011 at 11:09 am #

            I see the glitch has come back as posts are now arriving UPSTREAM .

            Experimenting in REPLY to last commenter.

            —————————————————————————————–

            Mike Hall December 13, 2011 at 1:03 am #
            Must watch video of talk by Dr Heiner Flassbeck, former German deputy finance minister linked here:

            ‘Class war Low Wages & Beggar thy Neighbour’

            http://www.nakedcapitalism.com/2011/12/class-war-low-wages-and-beggar-thy-neighbor.html

            Truly excellent.

          • Mike Hall December 13, 2011 at 10:37 pm #

            Hmmm….trying the same experiment as Dave to get this post in chronological order..

            ——————————————————————————————————-

            Steve Keen has published on his blog an excellent chunk of his work explaing the role of banks in creating new money as debt feeding an asset bubble.

            This is the mechanism studiously, one might say maliciously, ignored before and since the global financial crisis, by the ideologues of mainstream theo-classical macro economics.

            http://www.debtdeflation.com/blogs/2011/12/10/debunking-macroeconomics/

          • Mike Hall December 14, 2011 at 12:39 am #

            Just watched Ann Pettifor on Newsnight. She was excellent. A number of economists were asked to put forward one chart to illustrate what they considered the most vital point in the ongoing global crisis. Ann was chosen to appear on the program, explain her chart & engage in studio discussion.

            Highly resonant with Keen’s work on debt, Ann showed a chart displaying the massive rise in private debt relative to government debt over the last 20yrs. Pointing out that the political & mainstream economics focus solely on the government debt is completely ignoring & misrepresenting the real problem.

            Fellow studio guest, Gillian Tett of the FT, said Ann deserved credit for flagging this huge rise in private debt some years before the bust.

            Excellent! Great to see an MMT economist make such a good account of themself on MSM. :)

            Ann’s blog:

            http://www.primeeconomics.org/

          • Roger Glyndwr Lewis December 14, 2011 at 1:21 pm #

            A bit of light relief I had fun jamming along with this in my studio yesterday.
            Great to see some popular culture getting the message out. I am quite interested in what was called the 1968 counter culture.
            I actually really like my recording jamming along to this I might upload it too.

            http://www.youtube.com/watch?v=5u5FtriA8tA

          • Roger Glyndwr Lewis December 14, 2011 at 1:35 pm #

            Same deal with comments posting. This piece is really inspirational.

            http://www.globalresearch.ca/index.php?context=va&aid=28146

          • Dave December 15, 2011 at 12:54 pm #

            Charles Wheeler December 14, 2011 at 10:26 pm #

            The doomsday ‘copula-based correlation model’!

            http://goo.gl/2F0kO

            Very sound explanation Charles, but it appeared UPSTREAM in the comments, because that old glitch has returned..

            To avoid that, REPLY to the latest poster at end of thread.

          • John Souter December 15, 2011 at 2:39 pm #

            Well Done Charles and Dave – it seems the virus that felled the elephant has finally been exposed.

            Now we only need to eradicate its effects and develop our immunity to it.

  38. Charles Wheeler December 10, 2011 at 4:16 pm #

    Worth watching before it expires on iPlayer

    Inside Job: http://www.bbc.co.uk/i/b0183l0t/

  39. Mike December 10, 2011 at 4:51 pm #

    @Neil (the original one)

    The Vodafone tax debacle was even more dirty than that – John Connors, Vodafone’s head of tax, worked at HMRC with Dave Hartnett until 2007. By 2010, he was deriding Britain’s tax regulations on behalf of his corporate paymasters. Any inkling that we don’t live in a country as fundamentally corrupt as any African dictatorship is pure delusional thinking.

    @ Mike Hall

    I believe you’re right. I may have been describing the ESM, not the EFSF. Apologies for any confusion.

    As for the Bilderberg meetings, I’m not sure about rules in the UK, but it is a violation of US law for a US government official to meet officials from other governments outside of official government business. So that’s an annual law-breaking extravaganza just on that count. I agree that it doesn’t have to be “conspiracy theory” to point out that wealthy and powerful individuals get together for their own interests and not those of the public they’re paid to serve.

    Here’s a link to an interesting report from the Pentagon about fuel scenarios by 2015…I’ll give you a hint – it ain’t pretty: http://www.peakoil.net/files/JOE2010.pdf.

  40. Mike December 10, 2011 at 4:59 pm #

    And just to round off my feelings on the issues of democracy, political trajectory and financial oligarchy, I bring you the words of Frank Zappa, musical genius and political shit-caller:

    “The illusion of freedom will continue as long as it’s profitable to continue the illusion. At the point where the illusion becomes too expensive to maintain, they will just take down the scenery, they will pull back the curtains, they will move the tables and chairs out of the way and you will see the brick wall at the back of the theater.”

    Welcome to Europe 2012, ladies and gentlemen.

  41. Charles Wheeler December 11, 2011 at 2:23 pm #

    OTC Derivatives and TEOTWAWKI

    http://youtu.be/jLt05sN7vK0

  42. Charles Wheeler December 11, 2011 at 2:44 pm #

    OTC derivatives, MFGlobal and the meltdown – allegedly

    http://youtu.be/jLt05sN7vK0

  43. Charles Wheeler December 11, 2011 at 5:18 pm #

    Prisoner’s Dilemma + Beggar Thy Neighbour = End of Euro?

    “the final outcome being history repeating itself once again, in that no civilization has ever collapsed from a deflationary collapse but always from the authoritarian response to it”
    http://goo.gl/EUkY7

  44. John Souter December 12, 2011 at 9:21 am #

    The true meaning of common sense is a sense that is common to all people.

    Physics is a common sense in as much as it applies to all irrespective of whether its commonly known or not.

    The equation of supply and demand is sense known to all in the individual and everyday but what happens when supply cannot meet demand?

  45. steviefinn December 12, 2011 at 12:50 pm #

    When desperation & darkness flourish, they start to crawl out from under their stones.

    http://www.businessinsider.com/krugman-fascism-on-the-march-in-europe-2011-12?utm_source=dlvr.it&utm_medium=facebook&utm_campaign=europe

    • John Souter December 12, 2011 at 2:33 pm #

      Stevie -the only option fascism presents is a myth of appearing to be in control.

      It is the fascists who wear the boots under the pinstriped trouser leg and march silently that are the most insidious and odious.

      • steviefinn December 12, 2011 at 4:32 pm #

        John

        I quite agree, but I would still be worried about the other class of fascist, those who tend to like uniforms, weapons & targeting handy scapegoats. People like Raul Moate for instance, given some real power by a charismatic leader who knows that the mobs intelligence level is equal to it’s lowest common denominator. Orwell was rightly worried about the working classes leaning towards fascism & I don’t think things have changed since then, it’s still the same old homo sapiens f^&*ing things up. The pinstripes might be where the real power lies but they also somewhere down the line need foot soldiers to do the dirty work, once they succeed in labelling all their critics as communists.

        I am working class myself, I have known plenty of people in the past who if push comes to shove, would soon start throwing their weight about, they don’t really need a myth, just an excuse & someone to fulfil the role of unter menschen, Asians & immigrants, I would think in Englands case.

        Any sort of extremism worries me, extreme greed has got us here.

        • John Souter December 12, 2011 at 6:29 pm #

          Stevie – I share your concern especially on the ability of the unter menschen you illustrate to be cajoled into believing they represent the uber menschen.

          But somehow – and this may be down to nothing more than a desperate attempt on my part to retain a sense of humour – I consider the conscience of mankind in commonality has developed over the last century despite the idiocy of our governance and through it the apathy it has created.

          As an atheist I regard religion in much the same way as the money myth – both make promises based on fictions that distort reality. But that said, remove the fiction and apply the moral philosophy from many religions -including Christianity – and you have a fairly decent foundation to base the moral and social paradigm on, and, as a step in the development, if not quite the evolution of man, it has, and may yet have, an important role to play. The same can’t be said for the money game.

          While I believe society as a whole has risen above the beast; I have to admit it can be personally challenging to not advocate turning the other cheek but to rub faces raw on the multi-hypothicated faeces they demand we bow the knee to.

          Candidly my greater concern is with the rate of consumption (demand) as opposed to resources (supply) than this quagmire of monopoly money game.

          • StevieFinn December 12, 2011 at 8:11 pm #

            John.

            I hope you are right about the conscience of mankind.

            I have seen & experienced the veneer of civilisation all so easily peeled away & I have felt the euphoria of becoming part of a mob. Reason is swept away, those around you become your forever true companions for no good reason & however momentarily, you feel as powerful as the combined sum of the mobs parts. There is also a feeling that you are safe as long as you are not different from those around you, so you make an effort not to stand out.

            When I watched & read about the Milgram experiment, I first thought to myself, ” I wouldn’t torture the learner” but I have no way of knowing if that is true, once you lose yourself in a situation the ability to say with certainty how you would react in another situation is totally undermined. Incidentally, the results from the experiments over 50 years have stayed consistently the same.

            http://en.wikipedia.org/wiki/Milgram_experiment

            One of the reasons the dissident Republicans in Northern Ireland havn’t enjoyed anything like the same support from the Catholic population as the provisionals had, is due to the fact that most people, with the exception of communities in the Ardoyne & other inner city estates, have been doing OK. They now have equal rights with the Loyalists, mortgages, kids going to uni etc. & are able to get on with life.

            The troubles started as a civil rights movement demanding equal rights for votes, housing & employment. The provisionals only got the support that a guerilla army needs to be effective because of these factors, coupled with Thatchers brutal clampdown. I remember seeing an interview with a British army General who gave similar reasons for the war in Bosnia. He also said that he had never met such friendly people of all communities, & could not believe what they ended up doing to each other. The same thing has been said of the people of N.I.

            If the Greek level of austerity, with say Spains level of youth unemployment comes to the UK, I would be very worried about tensions rising again between communities, as they scramble for the fewer & fewer crumbs from the high table. On the mainland I hope that the EDL or BNP never get themselves an inspirational leader the like of Mosley, or such a person as described by Huxley in ” Point Counter Point ” hopefully one of these nasty groups will end up with someone like Roderick Spode & give us all a laugh.

            I know I am being pessimistic, & I really hope I am wrong to be so.

  46. Hawkeye December 12, 2011 at 1:45 pm #

    The City of London is most likely to be the Re-Hypothecation capital of the world:

    http://en.wikipedia.org/wiki/Hypothecation#Rehypothecation

    So Cameron is essentially saying to Europe that the UK reserves the right to continue its fictitiously backed leverage capital creation til the cows come home.

    This can only end very badly, not just for the world economy, but especially the UK.

    • richard in norway December 13, 2011 at 2:10 pm #

      More than that, he wanted a guarantee that the city would still have euro denominated markets which would blow the German/ECB hard currency strategy out of the water. It was a basic attempt at corpse robbing. But I seem to be the only British person who thinks that Dave was a piss taking opportunistic spiving bastard, when I read his demands I was surprised they didn’t kick his head in but I’m guessing they didn’t understand the full implications

  47. Charles Wheeler December 12, 2011 at 6:52 pm #

    Blast from the past from a commentator in 1994: On derivatives: “We are moving towards the outer limits of acceptable risk-taking.”

    “You cannot enrich a country by impoverishing its people.”

    Some lefty agitator? No, Sir James Goldsmith: the whole interview is an interesting watch – this is the concluding section: http://youtu.be/IDxufaKZLjc

  48. Charles Wheeler December 12, 2011 at 7:21 pm #

    “I’m surprised that people are not more outraged by this direct assault on every fabric of their lives. It’s an assault on the very idea of community, and an assault on the commitments that we make to each other through the medium of government. Why is it that a promise made by a politician to the people that elected them—to provide free education for instance—has a less moral standing than the promise that politician has made to a banker? It seems insane. But it’s simply assumed nowadays.”
    David Graeber: http://goo.gl/mpObC

  49. John Souter December 12, 2011 at 10:00 pm #

    Stevie -re Milgram. People believe ‘experts’ especially those who claim to speak with authority and are backed in their claims by a tame and mesmerised media. I, like most, tend to believe the authority and expertise of the medical profession and, generally, respect their advice on the basis they know what they’re doing and are committed to achieving the best they can. Why shouldn’t I, nobody can be an expert on everything, and expertise should be allied to excellence not elitism.

    Were it not so the financial Gordian knot we are struggling under today would not have been allowed to ravel and certainly its claims to de -regulation and market freedoms could, if not would, have been crushed or contained had the information available today through Google and the internet been available.

    Consider the medium that has allowed to wing their dubious practices around the globe and build their surreal fortunes on is the same medium you, I, and the 99% are using to hold them to account.

    The very same medium that in the isolation of the keyboard allows individual thought and conscience take precedence over the baying of the mob. Even on this, David’s blog, you get enough links by commentators to keep you reading practically 24 X 7. If that’s a fair indication it asserts the wilderness has never been a lonely place and now at least it isn’t suffering a drought of knowledge and opinion.

    As to the Irish situation; history has worthwhile lessons to digest but provides few templates worth following. Chance combines with chaos and the best laid plans and worst intentions are melded in the mix of everyday confusion. It was Ireland’s luck that a bullet found Collins, leaving the way clear for DeValera to profit from the formers integrity and loyalty. Had Collins lived I believe the six counties would have been part of Eire by the 1930′s. but while that may have solved the question of State it provides no template to say it would have solved the sectarian divide.

    There’s no doubt we have allowed the Rat Race to challenge for dominance but as yet I do not believe we have raised the Race of Rats.

    • Charles Wheeler December 12, 2011 at 10:36 pm #

      “The very same medium that in the isolation of the keyboard allows individual thought and conscience take precedence over the baying of the mob.”

      But maybe not for much longer?: http://goo.gl/mJuwa

  50. Mike Hall December 13, 2011 at 1:03 am #

    Must watch video of talk by Dr Heiner Flassbeck, former German deputy finance minister linked here:

    ‘Class war Low Wages & Beggar thy Neighbour’

    http://www.nakedcapitalism.com/2011/12/class-war-low-wages-and-beggar-thy-neighbor.html

  51. Dave December 13, 2011 at 11:06 am #

    Mike Hall December 13, 2011 at 1:03 am #
    Must watch video of talk by Dr Heiner Flassbeck, former German deputy finance minister linked here:

    ‘Class war Low Wages & Beggar thy Neighbour’

    http://www.nakedcapitalism.com/2011/12/class-war-low-wages-and-beggar-thy-neighbor.html

    Thanks Mike . Excellent !.

    frog2

  52. Charles Wheeler December 13, 2011 at 2:47 pm #

    Mirage of ‘capitalism’ and extraction

    Interview with Yves Smith of Naked Capitalism: http://goo.gl/1W23F

  53. johnm33 December 13, 2011 at 3:38 pm #

    excellent post over at london banker today
    http://londonbanker.blogspot.com/

  54. backwardsevolution December 13, 2011 at 6:13 pm #

    Re re-hypothecation:

    “The rules on broker’s ability to A) Hypothecate and B) Re-hypothecate in the USA are spelled out in Reg T. This set of rules has been established by our good friends at the Federal Reserve Bank. [...]

    • Except as otherwise agreed in writing by the OTC derivatives dealer and the counterparty, the dealer may repledge or otherwise use the collateral in its business;

    • In the event of the OTC derivatives dealer’s failure, the counterparty will likely be considered an unsecured creditor of the dealer as to that collateral;

    • The Securities Investor Protection Act of 1970 (15 U.S.C. 78aaa et seq.) does not protect the counterparty.

    Well there you have it. Reg. T does permit the broker to “repledge” (AKA re-hypothecate). In the event of default by the broker, the counterparty will be considered an unsecured creditor. (AKA customers lose money). And SIPC provides zero protection to account holders in the event of a broker default. [...]

    The nice folks at the FRB are having a big meeting this week. Reg. T and MFG will almost certainly be on the agenda. I have to believe all those smart folks at the Fed have figured out that we have a problem. We may well get some announcement on this topic by Friday.

    Any changes to Reg. T will have profound effects on global markets. Not only the exchanges/asset prices will be affected, this has the potential to derail the global economy. We are already in a very dangerous liquidity situation. If the Fed is forced to change margin rules, liquidity will dry up for an extended period of time. Forced changes in Reg. T will prove to be a Black Swan event.”

    http://brucekrasting.blogspot.com/2011/12/fed-mfg-and-reg-t.html

  55. backwardsevolution December 13, 2011 at 6:25 pm #

    Re: Bruce Krasting’s article cited above:

    “The article says that Canadian customers got their money back (U.K. and U.S. customers did not) because Canada doesn’t allow re-hypothecation, but someone in the “Comments” section said that:

    “I’m an advisor at a Canadian brokerage firm. Just had a look at our T&C [terms and conditions] document and it’s essentially as above.”

    So maybe the Canadian government bailed out the customers? Who knows.

    Another comment was:

    “As I understand, the City of London has NO LIMIT on the amount of funds which may be re-hypothecated. Which is one reason that all the major banks have a presence there. They merely tunnel their customer accounts through the City of London and voila, they are not bound by the US 1.4 limit. Typically they use 4x…”

    Another comment was:

    “Years ago, it drove me nuts that my Schwab statements said, on page 3 … that I also had “margin” status.

    I went NUTS! I never, ever, buy on margin! And, I told them if they didn’t take this off … they’d lose my business. So, I no longer have “margin status” on my portfolios.”

    This guy protected himself before he continued to deal with Schwab.

    Someone else in “Comments” wondered whether the MERS situation in the States, where the deeds were not held in trust, was also a case of where the banks were using them as collateral.

    Oh what a tangled web!

  56. Mike Hall December 13, 2011 at 10:30 pm #

    Steve Keen has published on his blog an excellent chunk of his work explaing the role of banks in creating new money as debt feeding an asset bubble.

    This is the mechanism studiously, one might say maliciously, ignored before and since the global financial crisis, by the ideologues of mainstream theo-classical macro economics.

    http://www.debtdeflation.com/blogs/2011/12/10/debunking-macroeconomics/

  57. steviefinn December 14, 2011 at 11:49 am #

    Those nice guys from Goldman Sachs are planning to make a killing from green energy sources.

    http://www.rollingstone.com/politics/news/the-great-american-bubble-machine-20100405?page=8

    Graphic showing who is the US government, guess who.

    http://thinkmarkets.files.wordpress.com/2011/12/crony-capitalism.jpg

  58. Roger Glyndwr Lewis December 14, 2011 at 1:34 pm #

    Just found this piece really inspirational so I thought I’d share the link.

    http://www.globalresearch.ca/index.php?context=va&aid=28146

  59. Charles Wheeler December 14, 2011 at 3:50 pm #

    Max Keiser hyperventilates (again): http://goo.gl/Lgcb0

  60. Zardoz December 14, 2011 at 6:58 pm #

    Just a bit of background for you about Credit Agricole. I’ve just got back from visiting some friends in france who moved there this year and opened a CA bank account.

    They’ve had terrible trouble with CA, and two interesting things came out of their endless stories of woe.

    Firstly, they have been trying and failing to move money from a CA branch where they first opened an account, to another one in the bit of France where they now live. It always seems a complete pain to make the transfer, and it has to be done in person with lots of paper forms filled in, just to move money from one CA account in their name to another CA account in their name.

    Some enquiry to the nice off-duty teller in the cafe got the explanation that the bank is actually structured as a load of independent entities, much like a franchise, and that the computer systems of the different branches do not really talk to each other very well. All transfers have to be done by fax only, and it is all done manually at each end, which is why it takes for ever and can only be done if the ‘right man’ is in the office that day.

    My thought on this isthis: if true, then if their systems are that poorly integrated, then how can anyone in Paris have any real idea of how much crap is buried out in the provinces?

    And secondly, it is really hard to get money out of their account. They were never told there was a withdrawal limit but discovered after depositing tens of thousands of euros that there is a daily and monthly withdrawal limit.

    And recently they cant get even that much out – now cant get out more than 150 euros a day, despite the ‘limit’ being 350 (and despite the bank having vast amounts of their cash!).
    After that the cash machine says ‘contact issuer’. Going inside gets a reply of ‘computer says no, sorry, can’t do anything’.
    They’ve been trying to close the account and transfer it elsewhere for a while but somehow the paperwork isn’t ever quite right :-(

  61. Charles Wheeler December 14, 2011 at 10:26 pm #

    The doomsday ‘copula-based correlation model’!
    http://goo.gl/2F0kO

    • Dave December 15, 2011 at 12:48 pm #

      Charles Wheeler December 14, 2011 at 10:26 pm #
      The doomsday ‘copula-based correlation model’!
      http://goo.gl/2F0kO

      Very sound explanation Charles, but it appeared UPSTREAM in the comments, because the glitch has returned..

      To avoid that, REPLY to the latest poster at end of thread.

  62. Toby December 15, 2011 at 11:12 am #

    I see Mike (December 10, 2011 at 2:37 am) has mentioned NDAA. Here’s an article on that (and SOPA) everyone should read:

    http://www.businessinsider.com/ndaa-set-to-become-law-the-terror-is-nearer-than-ever-2011-12

    As I keep on saying, the only moral reaction is rebellion, but that’s getting harder and harder. Will posts on the internet containing the word rebellion be flagged and deleted in the future? FTA:

    Annoy the government too much, or criticize Congress’ infinite wisdom and mercy, and you may find yourself in military prison for the remainder of your life, without access to a trial or attorney. Even if you’re an American citizen on US soil.

    This is a brave new world. Watch what you say. Be mindful of who you associate with. You may criticize your government within the privacy of your own home, amongst close family or friends, but do not post negative comments online. Do not assemble. Do not protest. Do not agitate. Do not give “comfort” to the “enemy.”

    Is that hyperbole? Perhaps, but justified hyperbole I feel. The state apparatus will defend itself at all costs. In self-defense we must teach ourselves better and juster forms of self-governance. As Goethe put it, “Which government is best? The one which teaches us to govern ourselves.”

    • steviefinn December 15, 2011 at 12:10 pm #

      @Toby

      Very scary, it seems to me that TPTB are kind of kicking the can again. This time putting in measures that will force resistance underground which will give them the illusion of safety, in order for them to be able to continue with their behaviour, which I think they have no intention of curbing, because they simply cannot help themselves, like the power junkies they are.

      Unless our serfdom becomes permanent, the bubble of anger & frustration will eventually burst, they have now I think ensured that when it eventually does it will be very very nasty.

      I sincerely hope that reason will prevail or be forced upon them by events before we have to wait for someone to say the equivalent of ” Let them eat cake “.

      Is this really happening ? I am having to pinch myself, it’s like some ghastly nightmare.

    • keekster December 15, 2011 at 1:23 pm #

      The USA is beginning to look more like a banana republic every day. Protestors are jailed everyday, and you will only hear about it on RT and on the internet. Having just read Reinventing Collapse, its interesting what the populous of the Soviet Union did in its dying day, and that was to turn its back on authority, by growing its own food, and paying as little attention to the ruling elite as possible etc, and the ruling elite was very successful in collapsing the system by itself. There is no doubt that the US will collapse no matter what the ruling elite do. However, the suffering of its people will be great in the process, I fear.

      • steviefinn December 15, 2011 at 2:58 pm #

        Again in the US, but perhaps a worrying precedent for bloggers.

        http://blogs.seattleweekly.com/dailyweekly/2011/12/crystal_cox_oregon_blogger_isn.php?source=patrick.net

        • John Souter December 15, 2011 at 6:32 pm #

          Stevie -re the Oregon blogger – rumour has it, or in my opinion should cover.

      • Toby December 15, 2011 at 3:12 pm #

        Yup, like a Twilight Zone nightmare, too weird to be true. Most frustratingly of all, there’s very little you can do except communicate with others. The slow task of building something new outside the crumbling state apparatus is a multi-generational process, but big things have little beginnings. We shouldn’t give up hope. That’s what the system seems to want of us, it wants us to believe There Is No Alternative.

        The US is a Banana Republic, the UK is not far behind (perhaps even ahead), and Germany, where I live, is hot on their tails. I’m sure other states of the ‘affluent’ West are cooking similar soups to boil us all in. In Germany it’s illegal not to have health insurance in a system which profits from sickness and disease, not prevention, and the prices to insure are exorbitant. It’s also illegal to home school your kids once they’ve entered the state education process. I heard just recently that a couple were jailed for sticking to their guns and refusing to submit their children to state education. In short, the state-market double-whammy will hammer away at what’s left of planetary resources, including us ruled, and extract, extract, extract. Until, that is, the collapsing house of cards can’t be concealed any more.

        For those who already see the collapse, the task is to build networks, pool skills, communicate, understand, discuss. Who knows what can be accomplished— right now it doesn’t look possible to do much more than blog and post comments on blogs, or moan with neighbours—but even little things, like Time Banks, farmers’ markets, gift exchanges, and so on, gently and slowly build the new. Getting out of the rat race, as I have done, is a big part of it, but for some that is flat out impossible. However small, we must do what we can.

        Difficult times, and there are no easy answers. Uncertainty is what characterises this period, and it’ll stay that way for quite some time yet. Time to knuckle down, I guess, and work!

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