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The Miracle of Solvency

The lies which got us to the purgatory we are in, are being told all over again, right now, in every bank in the Western World. Not by accident, but on purpose, by men with calculators and degrees, in the full knowledge of what they are doing, why and for whose benefit.

Every religion has its holy days. The days when the priests face their god and perform the rituals that renew the covenant between them. For believers it is the renewal of their faith, of their promise to believe in and serve their chosen God in return for which God will protect them. Global Finance is no different, and these days approaching New Year are their Holiest of Holies.

The Jews have Yom Kippur – The Day of Atonement, the Christians have Christmas and Easter – marking the birth and resurrection of their saviour. Bankers have the Day of Reconciliation – when the year’s accounts must be reconciled. When all their deeds must be accounted for, all their actions weighed and a final reckoning made.

So spare a thought this New Year for the auditors of Deloitte, PcW, Ernst & Young and of course, Ireland’s favourite, KPMG as they, in solemn convocation with Chief Risk Officers, Chief Finance Officers, of the world’s largest banks, perform the Ritual of Reconciliation and reveal, by the grace of  creative accountancy, number massaging and rank but ordained lying, the great Miracle of Solvency once again. Sing Hallelujah!

For it is crunch time for year end accounts.

Deep inside every bank, dealers have been sitting, staring at their phones hoping the bank’s Risk Manager wouldn’t call them to ask what a certain trade they made this year was actually worth, what value should be booked for it and what risk weighting applied to it?  For as we approach the Day of Reconcilliation the dealers must call up the details of the deals they did, the assets they bought and sold or lent or borrowed and account for them. The Bank’s CRO (Chief Risk Officer) must then, by law, satisfy him or herself that the numbers presented are true and the valuations fair and honest, and sign off on them accordingly. Whereupon, the CFO (Chief Finance Officer) must look upon the assembled accounts of all the actions of all the traders on all the  trading desks and compile the bank’s accounts for the year, showing capital adequacy (enough capital to cover the bank’s liabilities as laid down in international law) and then these accounts must be passed to the ‘Independent’ Auditors for them to check and scrutinize till they too are wholly satisfied that the accounts present a true and faithful picture of the health of the bank.

You might be tempted to think, given the magnificence of the glass and steel temples of global banking and their auditors, and given the number of people with powerful sounding titles and the size of the fees and bonuses they pay each other, that this process must be rigorous and testingly honest. You’d be wrong.

Once. long ago, the purpose of the ritual may have been to sort the solvent from the insolvent, the strong from the weak, but today it is about declaring that all banks are saved. None shall be forsaken. They are all to be declared solvent, none of them with a stain upon them.  You might think I am being flippant but I’m not. Ask yourself how many of the auditors will find their clients insolvent? Or how many banks will appear in public in the coming weeks with accounts that show they are insolvent or even just in trouble? That is no longer what the ritual is about. The ritual is about finding how everyone is fine. Regardless of the fact, played out year after year, that within months, sometimes only weeks, of the miracle of solvency being proclaimed, banks will ‘unexpectedly find’ they need to raise more capital. These days the miracle does not last and wears off.

Not long ago I spoke to a senior risk manager of a German bank who described a particular incident from a year end reconciliation. He found a particular derivative trade that had to be accounted for, but the trader who had made the deal had left the bank some years earlier. No one knew the details of the trade and no one could value it. So the risk manager sought out the counter-party to the trade. Perhaps as the people owed the money, they would know, at the very least, what they were owed. It turned out to be a very large Swiss bank. Sadly for his New Year holiday, the Risk Manager found the trade had been booked in Singapore. He waited up and called. The Swiss Bank at first denied any knowledge of the trade. It was so long ago, they too had no recollection. However our Risk Manager couldn’t simply pretend it never happened. There was an accusingly empty box on the spread sheet. Eventually the Risk manager said, well my best guess – and it was a guess based on the imperfect paperwork of the original deal with no subsequent details of risks or changes in value – ‘My guess is we owe you X.’  To which the hugely brilliant and highly paid bankers who were owed this money said, ‘Yeah, fine. Let’s call it that’, and hung up. This isn’t hear say. It happened as described.

The figure was duly inscribed in the ledger, the Risk Officer signed off, the CFO signed off, the auditors signed off, obligingly, for the clients who were paying them handsomely for this service, and the accounts were declared complete and perfect. They did the job they were designed for – to show the bank in its best possible light and obscure any irregularities or blemishes. And bonuses were lavished right and left.  As it turns out this particular bank was anything but all right – Not that you would ever have told from those accounts – and eventually needed a vast bail out from the tax payers of the nation it was parasitizing.

And lets be clear about how serious the lies we are talking about are. The accounts are what investors use in order to decide if it is safe to invest in or lend to a bank. It wasn’t safe. But that fact was nowhere in those accounts. As it will not be in the accounts of any of the major banks of the western world this year, like last year,  like the year before and the year before that. The culture, the religion, of lies and liars, is too powerful.  The auditors are not there to reveal anything unpleasant about the banks. They work for the banks. Are paid by them and look forward to many more payments for many more accounts.

Earlier this year (2011) Michel Barnier, the European Union’s internal market commissioner proposed reforms which would have broken the intimate and unhealthy relationship that exists between banks and their auditors and broken the cartel-like power of the Big Four auditors who between them audit almost all the large banks.  He proposed that banks should have to have two auditors examine their books, one of which should be a smaller firm, not of the Big Four, and that auditors would no longer be able to audit a banks’ books year after year after decade. He proposed a limit of nine years. After which the bank would be obliged to change.

All the proposals were defeated after lobbying from banks, auditors and even many of the EC commissioners themselves. Too much personal and corporate power and proft would have been imperiled, too much ugly truth brought too close to public awareness.

The Auditors are not there as guardians of truth telling, working for you and me. They are there to keep the banks and bankers hard and thrusting for the year ahead. The Auditors do their work on their knees.

And what of the Risk Officers and Risk and Audit Committees of the banks themselves? This is after all where the ritual of Reconciliation mostly takes place. Can we look to them for honesty and integrity? Let me put it this way. Bank of Ireland (not to be confused with the Central Bank of Ireland), just appointed (on December 23rd) a certain Mr Patrick Mulvihill to its Board as a non-executive Director AND to its Audit Committee and Risk Committee. Mr Mulvihill spent much of his career at Goldman Sachs where he was on the board of GS Europe and on their Audit Committee. Make of that what you wish. One thing’s for sure, he will be perfectly suited for the job he’ll be expected to do.

He, like all those working for and around him, will decide if the sovereign bonds of Italy and Spain, for example, are to be booked as risk free AAA rated sovereign Euro bonds, or risky bonds which the market won’t touch for much less than 7%. Sovereign bonds are considered virtually risk free in the part of the bank which considers which assets count as solid capital to underpin liabilities. But are traded as risky and therefore lucrative in another. Will the banks book the profit of the risky version but asses the risk weighting from the risk free version? It’s like Quantum mechanics for liars. You get to have it be a wave or a particle depending on which suits you at a given moment.Which will it be? Are sovereign bonds risk free or lucratively risky?

And what about mark to market valuations? Will the Risk Committees and Audit Committees give a clear valuation of the banks assets? Or will they do what they did earlier this year, and move any ‘risky’ assets, that they have valued at ‘mark to model’ fantasy prices and which would surely lose a lot of ‘value’ if ever they were marked to market –  move them from the ‘Available to Trade’ column where market to market is required, over to the ‘Hold to Maturity’ column where mark to model is fine? What do you think? Will they go for honesty and transparency or press a few keys and move billions from one column to another? And remember the assets hidden from view like this won’t be ‘held to maturity’ if the bank gets in trouble.  At that point the bank will move them back again and sell them and the accounting fiction will become clear for what it is – a lie.

This year the banks are in no better shape than they have been since the debt bubble burst. In fact they are in worse shape because the nations they depend upon for endless bail outs are enforcing more and more savage cuts to social spending of every sort – education, health and welfare, and people are beginning to feel the pain.

This year the banker’s propaganda machine will have to move up a gear or two. Those who question the offical party line will perhaps have to be positively demonized. Certainly the barrage of ‘there is no alternaitve’ will have to become louder. And the threats of doom if we don’t do what we are told will have to become more dire.

This year the Miracle of Reconcilliation will do its job for the bonus seekers but will then wear off quickly leaving behind a smear of threats and anti-democratic thuggery.


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134 Responses to The Miracle of Solvency

  1. Jeremy Bridges December 29, 2011 at 9:10 pm #

    I read your blog regularly. A model of erudition. I have learned much. Likewise the contributions of your Readership are of a similar quality, and are greatly admired.
    Please forgive this 74 year old ex postal worker if my “solution” to the purgatory we all immersed in is somewhat basic.

    Shoot the Buggers. The whole damn lot of ’em.

    Warmest Regards.

    A very Happy New Year to you all.


    • Mukoshi December 30, 2011 at 8:30 am #

      It must be a ‘generation thing’; seconded

      • seven December 30, 2011 at 1:34 pm #

        Nah not generational. I’m 44 and have thought that since ….

        • bert December 31, 2011 at 12:57 am #

          25 year old checking in.

    • Maria das Santos January 4, 2012 at 4:13 pm #

      I’m a 54year old cleaner for oligarchs here in Chelsea and I will quite happily see guillotines being used on the banksters and their facillitators.
      Meanwhile,at Nottingham University School of Business,summer 2011,a student and his father demanded a 2:1 degree,so that junior could follow papa into an accountancy career with PWC.The accountants must not get away with the facillitation.

    • Caratacus January 6, 2012 at 12:14 pm #

      Only just discovered this site (I know, I know..) and the first comment I read was yours, Jez.

      Somehow I think I may become a regular reader 🙂

  2. Charles Wheeler December 29, 2011 at 9:29 pm #

    “The auditors are not there to reveal anything unpleasant about the banks. They work for the banks. Are paid by them and look forward to many more payments for many more accounts.”

    Just see the global banking system as one giant ENRON

    • pabelmont December 30, 2011 at 6:55 pm #

      What’s so much fun is this: that if the banks were “audited” by employees of the banks, with salaries topping out at $100,000 (or EU equiv), we’d all be suspicious at once. But since the “auditors” are “independent” and are paid huge fees (and pay their leaders huge salaries and bonuses and parachutes and kitchen sinks), we are required to believe in what they say. And what do the say? They say (alas, correctly), “This bank is solvent according to customary accounting practices.”

      If the big accounting firms were required to rank all the banks that they surveyed each year, there might be a small chance that anyone wondering whether or not to lend to a bank might be well served by the charade just described.

      If 1% of any bail-out would have to be paid by the “auditor”, some honesty might intervene, although maybe not, insurance being what it is.

  3. Pat Flannery December 29, 2011 at 10:16 pm #

    The scandal is that all the banks do not have to “reconcile” on the same day. Thus the big four audit firms can move “assets” around, showing up on one bank’s balance sheet today and on another tomorrow. That is exactly what Ernst & Young did in Ireland while “auditor” for two big banks.

    We have a long way to go before we get any real reform. We might start by holding our finance and justice ministers to account. After all they are the guys who tax the rest of us (finance) to pay for the banks’ and auditors’ criminal activities which go unpunished (justice).

    We already have appropriate laws. We just don’t demand they be enforced.

  4. Roger Glyndwr Lewis December 29, 2011 at 10:27 pm #

    Smoke Mirrors and Hypocrisy, Happy New Year.


  5. Charles Wheeler December 29, 2011 at 10:59 pm #

    The thought that stayed with me after latest Keiser Report: “How can you have a counter-party on $700tn in derivatives?”

    It’s all OK until the first domino drops.

    Reading this in the Guardian yesterday: “Banks deposited a record €412bn (£343bn) with the European Central Bank overnight on Monday, a sum close to the “wall of money” it pumped into Europe’s banking system a week ago in an attempt to head off a second credit crunch. The flood of deposits surpassed the previous record of €384bn reached in June 2010, and topped the €347bn put into the ECB “shelter” last Thursday, just before Christmas.

    Banks are using the low risk – but low return – ECB facility in preference to lending to other banks. High levels of distrust in inter-bank lending markets could lead to a liquidity freeze of the kind experienced at the beginning of the 2008 crisis.

    Last Wednesday, the ECB attempted to lubricate the flow of money between eurozone banks with three-year loans at around 0.75% as fears mounted that one or more eurozone banks might run out of cash. There was also speculation that banks might use the cash to buy up eurozone loans and ease the debt crisis facing some countries. A total of 523 banks took up the offer, applying for loans totalling more than €489bn. It was the largest amount the ECB had ever offered in a single liquidity operation and equivalent to around 5% of eurozone gross domestic product. They received the cash on Friday and now seem to prefer parking it back with the ECB, where it earns only about 0.25%, rather than lend it on to other banks, even though it would earn higher interest rates.

    Reminded me of this:“Thus the professional investor is forced to concern himself with the anticipation of impending changes, in the news or in the atmosphere, of the kind by which experience shows that the mass psychology of the market is most influenced. This is the inevitable result of investment markets organised with a view to so-called “liquidity”. Of the maxims of orthodox finance none, surely, is more anti-social than the fetish of liquidity, the doctrine that it is a positive virtue on the part of investment institutions to concentrate their resources upon the holding of “liquid” securities. It forgets that there is no such thing as liquidity of investment for the community as a whole. The social object of skilled investment should be to defeat the dark forces of time and ignorance which envelop our future. The actual, private object of the most skilled investment to-day is “to beat the gun”, as the Americans so well express it, to outwit the crowd, and to pass the bad, or depreciating, half-crown to the other fellow.

    This battle of wits to anticipate the basis of conventional valuation a few months hence, rather than the prospective yield of an investment over a long term of years, does not even require gulls amongst the public to feed the maws of the professional; — it can be played by professionals amongst themselves. Nor is it necessary that anyone should keep his simple faith in the conventional basis of valuation having any genuine long-term validity. For it is, so to speak, a game of Snap, of Old Maid, of Musical Chairs — a pastime in which he is victor who says Snap neither too soon nor too late, who passes the Old Maid to his neighbour before the game is over, who secures a chair for himself when the music stops. These games can be played with zest and enjoyment, though all the players know that it is the Old Maid which is circulating, or that when the music stops some of the players will find themselves unseated.

    Or, to change the metaphor slightly, professional investment may be likened to those newspaper competitions in which the competitors have to pick out the six prettiest faces from a hundred photographs, the prize being awarded to the competitor whose choice most nearly corresponds to the average preferences of the competitors as a whole; so that each competitor has to pick, not those faces which he himself finds prettiest, but those which he thinks likeliest to catch the fancy of the other competitors, all of whom are looking at the problem from the same point of view. It is not a case of choosing those which, to the best of one’s judgment, are really the prettiest, nor even those which average opinion genuinely thinks the prettiest. We have reached the third degree where we devote our intelligences to anticipating what average opinion expects the average opinion to be. And there are some, I believe, who practise the fourth, fifth and higher degrees.

    If I may be allowed to appropriate the term speculation for the activity of forecasting the psychology of the market, and the term enterprise for the activity of forecasting the prospective yield of assets over their whole life, it is by no means always the case that speculation predominates over enterprise. As the organisation of investment markets improves, the risk of the predominance of speculation does, however, increase. In one of the greatest investment markets in the world, namely, New York, the influence of speculation (in the above sense) is enormous. Even outside the field of finance, Americans are apt to be unduly interested in discovering what average opinion believes average opinion to be; and this national weakness finds its nemesis in the stock market. It is rare, one is told, for an American to invest, as many Englishmen still do, “for income”; and he will not readily purchase an investment except in the hope of capital appreciation. This is only another way of saying that, when he purchases an investment, the American is attaching his hopes, not so much to its prospective yield, as to a favourable change in the conventional basis of valuation, i.e. that he is, in the above sense, a speculator. Speculators may do no harm as bubbles on a steady stream of enterprise. But the position is serious when enterprise becomes the bubble on a whirlpool of speculation. When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done. The measure of success attained by Wall Street, regarded as an institution of which the proper social purpose is to direct new investment into the most profitable channels in terms of future yield, cannot be claimed as one of the outstanding triumphs of laissez-fairecapitalism — which is not surprising, if I am right in thinking that the best brains of Wall Street have been in fact directed towards a different object.

    This is the dilemma. So long as it is open to the individual to employ his wealth in hoarding or lending money, the alternative of purchasing actual capital assets cannot be rendered sufficiently attractive (especially to the man who does not manage the capital assets and knows very little about them), except by organising markets wherein these assets can be easily realised for money.
    Keynes, General Theory

    When there’s a rush for the exits . . .

  6. steviefinn December 29, 2011 at 11:20 pm #

    While the auditors write their works of fiction, Business Insider have come up with their own apocalyptic year end audit. 800 billion monthly rollover to support European banks RBS shares down 50% in the last 12 mths etc. Leonardo Da Vinci had better be the one doing the creative accounting.


    • Phil December 30, 2011 at 12:52 am #

      The taxpayer will make a profit when the State-owned banks are resold! ; )

      Fred ‘the shred’ Goodwin… FUCK. YOU.

  7. Happygrecian December 30, 2011 at 12:36 am #

    Looks like the Mayans may have been right about 2012…

  8. Masurian December 30, 2011 at 1:20 am #

    Apropos the New Year as far as Ireland is concerned:


    • Pat Flannery December 30, 2011 at 2:24 am #

      If Ireland had a property tax as in the US, its recession would be much worse due to lost government revenue. Just thought that might help.

      • steviefinn December 30, 2011 at 2:44 pm #

        Hi Pat
        I’m not sure if stamp duty is similar to the US property tax you mention. I think in 2007 stamp duty was charged at about 4% on the buying price of a house, I was going to put value, silly me. There is a chart below which shows how Irelands over dependence on indirect taxation has hit the country hard since the downturn.


        • Pat Flannery December 31, 2011 at 5:24 am #

          Thanks for the link Stevie. I have “favorited” it.

          The difference between Irish stamp duty and US property taxes is that stamp duty is a once off point of sale tax whereas real estate taxes in the US are what you used to call “rates” in Ireland, we pay 1.25% of the assessed property value every year, Nov and April. It is what finances local government including schools up to high school.

          By law the county tax assessor has to revise property values downwards if values fall. Because of vastly reduced sale prices the bottom has fallen out of local revenues for all local services including many social services. Sales tax, the equivalent of your VAT, goes to the State.

          Our new Democratic Governor in California Jerry Brown just killed 400 local redevelopment agencies that were syphoning off huge chunks of property tax to developers. They are now mad as wet hens. I love it. Good for Jerry. Awnold was a lackey of the developers and the bankers. There is going to be the father and mother of all political fights in California in this election year over the pproperty taxes that used to be diverted to local “redevlopment” which was horribly abused by the developers aided and abetted by their lackey politicians.

          So we all have our problems, just different ones.

  9. Billy ray valentine December 30, 2011 at 3:44 am #

    Quibble: Easter is a celebration of the resurrection of the savior more so than the death.

    • Golem XIV December 30, 2011 at 11:01 am #

      Billy ray valentine,

      Quite so. Fixed. Thank you.

  10. The Dork of Cork December 30, 2011 at 3:58 am #

    Censorship is everywhere , particularly the devastating weapon of poltical correctness.

    Repeatedly blocked from posting on the Irish economy site again from one particular cog in the system , a young cog who has form.
    For what its worth here it is – it has some relevance to your discussion I guess while this centred on why the Irish will simply not respond to a seemingly reflex flight & fight stimuli.

    Stanley Kubricks “studies” go far to close to the bone I guess.

    Its the credit mutation – we have been exposed more then most so it follows we are have mutated to a excessively large degree.
    The lethal dose was administered via the Tallaght syringe back in 87.
    Given the population seems to be successfully deprogrammed from the nation state indoctrination after 100s of years of effort finishing with the taking off air of the surprisingly pagan national anthem switch off.
    This inaction is predictable.
    It seems the elite has moved on from the post cabinet war experiments and the peoples memory has been quietly erased.
    Perhaps we need to accept our betters prefer a little bit of Ludwig van rather then good old Frederic these days.
    Its not surprising that the export centre of the nation state meme (Holland) should be last to hold on to a few of the old memories

  11. Patrick Donnelly December 30, 2011 at 9:00 am #

    Pat Flannery

    I love to disagree! The lack of property taxes, easily policed and paying for local improvements, made Irish land cheaper to own, paradoxically also made it more highly levered as the cost of owning was so cheap. Not only will the repayments, lack of new loans hit the price, but a whacking great land tax will also destroy all value in owning land! Housing on it or not, it must all be taxed! It is the only way to keep paying my centrally liable pension!!!

    I hope you don’t live there still?

    • Pat Flannery December 31, 2011 at 8:46 am #


      I’m confused. Are you for or against a property tax (rates) in Ireland?

      Not that I am holding up the US as a good example but here the assessed value is divided between land and “improvements” i.e. buildings. Vacant land pays minimal tax and is assessed based on its current zoning. In Ireland that would discourage the brown envelope briber/speculators. Zone changing is always at the heart of corrupt land use.

      One of the (political) advantages of local services funded by local property taxes is that it ensures a very high level of local involvement in local government, town, city or county. Real estate taxes collected locally are spent locally by locally elected officials.

      Again I don’t want to tout California as a great example but land use issues here are the hottest political issues there are. All zoning laws are set locally. Every development permit and every zoning change is heavily debated at local forums. A developer has to go before the local legislative body at a public hearing and make his case. There are sometimes 100 public speakers.

      I do not like the centralized Irish Bord Pleannally model or whatever it is called. It is too open to bribery by wealthy individuals and big developers.

      I am not sure whether you were asking me if I still live in California, if so the answer is yes. I have been here for 35 years. But “bas in Eireann?” – if I could endure the weather.


    • Joe R January 3, 2012 at 11:32 pm #

      Secret Agent Donnelly again of Irish Revenue ( government dept. of taxation ) !

      I’m going to have to correct you.

      A note and apology allround first I’m sorry for boring you non Irish out there but I need to explain the recent history and nature of stamp duty in Eire on property;

      Stamp duty on property transactions only kicked in seriously if you were paying over 270K or weren’t a first time buyer. Average national house prices around 2006 were higher than this. Dublins were very much higher. After that 270K mark, and 90K before if it was your second mortgage ever you coughed up an average about 10K per 100K sale price so on a transaction of say 1.5 million euro the government would pock 150K for a property just being sold. Basically a first time buyer at the worst end of the market paid not very much but they are probably deep in negative equity now. A large percentage of the money was paid by speculators, on borrowed money.

      Many new-ish ( say inside 15 years ) poorly built speculative properties were being flipped many times in their short lives for up to 500K easily ( a basic two bed apartment in Dublin cost this in 2006 ) so the government was picking up an easy 30-40K for doing sweet fanny adams in these transactions between ‘investors’.

      If I can give an example of another affect – many ordinary properties in Dublins southside were and still are valued at over a million euros ( they had gone from 50,000 punts to about a million in zip time at the start of the celtic tiger. If a regular enough family in South County Dublin wanted to move to a similar area say slightly larger house with an extra bedroom to accommodate teenagers, etc, they could end up handing over 100k to the government just for the privilege. Many stayed put and remodelled or extended their houses with the money instead. There were any amount of extensions to be seen in the property pages and architectural house and home magazines of Ireland.

      Back to my counter arguement;

      Stamp duty from property transactions was worth 3 Billion euros in 2006 to Eire’s government and a mere 200 million euro in 2010. It was decreasing in 2011 last we heard. ( link below courtesy of Mr Nama Wine Lake ) as he says “So it would appear that transactional activity dropped some 93% ( across that period ) ”

      Link http://namawinelake.wordpress.com/2011/12/16/stamp-duty-on-irish-property-sales-in-2010-just-e600000-collected-in-longford-and-leitrim/

      2006 was the height of property speculation in Eire. The Irish government in addition to all other forms of taxation was realing in about 5 per cent of its total income just from these taxes on property sales. Of course the property boom was a bonanza time alround for taxation in Ireland. The Irish governemnt does tax corporate business – it taxes people in the domestic economy. In this case it was taking its share of the mounting private debt of the Irish nation.

      The government then threw this extra temporary boom generated speculative ( originally borrowed ) dosh the way of permanent expenditure by deciding to first increase the number of civil servants and then pay all you civil servants ( and themselves ) way too much money for ever and ever and ever…

      ( What happened to housing as a right, as a need? Well in a property pyramid we don’t think about this it will be alright on the night jack – the pyramid will sort everything out!)

      Cue a huge government defict when this boom money ( + all other taxes deirived from it) disappeared. There was a total collapse in tax revenue of 16 billion euro – about one quarter of the entire revenue of the state in 2006 between 2006-2010.

      Theres a comparison of 2006-2010 revenue and expenditure in ireland http://www.irisheconomy.ie/index.php/2011/08/23/government-accounts/

      …and in summary from the link thats “Since running close to a balanced budget in 2007, expenditure has increased from €68 billion to €70 billion while revenue has fallen from €67 billion to €51 billion. ”

      Hang on no-one foresaw this! …..the property pyramid thing was meant to go on and on and on wasn’t we are living the dream here how could this be…..

      Oh and did I mention that this tax income for Ireland was large paid from loans so its still being paid off? Or better still are defaulting so the tax-payer is now coughing up for this too?

      And Mr Donnelly – as for your assertion that absence of taxation on property in Ireland somehow directly affected the heavy leveraging of property – you have it backwards I’m afraid.

      Property was going always to get leveraged as long as bankers and developers ( and politicians too ) thought a quick buck could be made. Petty taxes were never going to stop that. They were a fraction of even auctioneers fees on the same sites. Interests rates and an abundance of credit are more important added to a believable line in ponzi scheme salesmanship.

      What a non-transactional tax would have done is kept government relatively income stable and sustainable. By extracting a similar amount of money every year for the more or less fixed amount of property in the state you get stability all round. Instead the Irish minister in charge engaged in pro-cyclical spending with this windfall tax ( this particular genius is now commissioner McCreevey of the EU) on increasing personnel numbers and increasing wages in the public sector in the run up to 2006 which led to large amounts of people going out and getting big mortgages ( calculated as a factor of disposable income remember! ) and borrowing to pay paying yet more stamp duty….

      Oh did I mention he did his best to lower income taxes while keeping VAT high too? Regressive measures which functioned to further overheat the economy…

      Point of trivia – it 23 per cent VAT on rubber johnnies there…( disease and birth control is a luxury in Irish taxation law – how catholic!).

      Do you get it yet?

  12. Charles Wheeler December 30, 2011 at 12:51 pm #

    Anyone got any goats?

    ”Opacity is absolutely essential to modern finance. It is a feature not a bug until we radically change the way we mobilize economic risk-bearing. The core purpose of status quo finance is to coax people into accepting risks that they would not, if fully informed, consent to bear.

    Like so many good con-men, bankers make themselves believed by persuading each and every investor individually that, although someone might lose if stuff happens, it will be someone else. You’re in on the con. If something goes wrong, each and every investor is assured, there will be a bagholder, but it won’t be you. Bankers assure us of this in a bunch of different ways. First and foremost, they offer an ironclad, moneyback guarantee. You can have your money back any time you want, on demand. At the first hint of a problem, you’ll be able to get out. They tell that to everyone, without blushing at all. Second, they point to all the other people standing in front of you to take the hit if anything goes wrong. It will be the bank shareholders, or it will be the government, or bondholders, the “bank holding company”, the “stabilization fund”, whatever. There are so many deep pockets guaranteeing our bank! There will always be someone out there to take the loss. We’re not sure exactly who, but it will not be you! They tell this to everyone as well. Without blushing.

    This is the business of banking. Opacity is not something that can be reformed away, because it is essential to banks’ economic function of mobilizing the risk-bearing capacity of people who, if fully informed, wouldn’t bear the risk. Societies that lack opaque, faintly fraudulent, financial systems fail to develop and prosper. Insufficient economic risks are taken to sustain growth and development. You can have opacity and an industrial economy, or you can have transparency and herd goats.

    I have presented an overly flattering case for the status quo here. The (real!) benefits to opacity that I’ve described must be weighed against the profound, even apocalyptic social costs that obtain when the placebo fails, especially given the likelihood that placebo peddlars will continue their con long after good opportunities for investment at scale have been exhausted. By hiding real economic risks from those who ultimately bear them, status quo financial systems blunt incentives for high-quality capital allocation. We get capital allocation in bulk, but of low quality.

    I do think there are alternatives to goat-herding and kleptocratically opaque semi-fraudulent banking. But adopting those would require not “reform” but a wholesale reimagining of status quo finance.


  13. havantaclu December 30, 2011 at 1:57 pm #

    “Our research proves false the claims that technology and the market will take care of major problems. This faith is not based on any real understanding of the problem. Both the market and technology reflect the values of those who create them. When people disregard nature, ignore social inequality, and believe that force is the way to resolve conflict, then they will create markets and technology that destroy nature, widen the gap between the rich and the poor, and promote warfare. The claim that technology will solve our problems permits our leaders to shirk their responsibility. We need to hold them accountable. Our book is unique from others that talk about specific global problems such as climate change, the loss of tropical forest, depleted groundwater systems, and related issues. We do not see these issues as problems, but instead they are symptoms of an underlying problem. The real problem is our governance system. Pressures arising from population and economic growth will manifest one place or another. If you solve energy problems, you will have a food shortage. Solve that, and you will encounter difficulties from pollution or resource scarcity. There is no permanent solution without changing the governance. We need a system that looks far ahead, respects the complexity of the globe, and works to avoid deteriorating important resources.”

    — Prof. Dennis Meadows, co-author ‘Limits to Growth — 30 Year Update’

    Found this in a Guardian thread and felt it has some relevance to what we’re discussing here. At present, it would seem, we are in a loop where the solution to one problem creates the next, or where the ‘next’ problem is ignored until its negative effect on things we are taught to value has grown too great.

    Can anyone see the nation, or even the individual, who might be able to challenge short-termism? Because at present the short-term seems to get shorter by the week, and the long-term is so far out of sight as to have been forgotten completely.

  14. Foucalt Tudoux Wimay December 30, 2011 at 3:18 pm #

    Back on the subject-
    Auditors are just like ratings agencies and regulators (and MSM) -captive.
    There is no reason why HMRC or Companies House can’t commission the audits, and contracharge the clients. I mean, for whose benefit is the audit intended?
    That way they could enforce impartiality, and better still, break up the big 4 (or is it going to be just 3?) into 50 pieces.
    Perhaps they could even force them back into being partnerships.

  15. Charles Wheeler December 30, 2011 at 3:27 pm #

    Peripheral Vision?

    “Decades ago macroeconomics resembled an “intellectual witch’s brew”, according to Olivier Blanchard, chief economist of the International Monetary Fund. It contained “many ingredients, some of them exotic—many insights, but also a great deal of confusion”. Things then became more rigorous and refined: disagreements remained, but within set limits. Now, on the blogs, the economic conversation boils and bubbles again. That ferment is surely spreading into the academy—and in time some new quintessence will be brought forth, perhaps from materials now considered base.

  16. Charles Wheeler December 30, 2011 at 3:49 pm #

    “Let’s recap. After incompetently building bank behemoths by piling little banks up on one another like badly built cairns, bank executives lied to everybody, borrowed all the money they could to fuel their gambling, and demanded taxpayers bail them out. Throughout that time and after, their companies functioned incompetently, consistently abusing homeowners and wrongfully rendering many people homeless. And the bankers, including even mythical, initially innocent Banker Bob, have been paying themselves millions of shareholders’ dollars each year. If that’s not moral bankruptcy in motion, what is it?

    And I haven’t even mentioned how the bankers consistently push the “irresponsible borrower” myth and all the policy-paralyzing consequences that flow from it. Manufacturing and propagating that myth is in itself a demonstration of moral bankruptcy.

  17. steviefinn December 30, 2011 at 8:22 pm #

    Stolen from Rui Ventura on the Slog.

    Fed ECB bailout ?


  18. John Souter December 30, 2011 at 9:41 pm #

    For the sake of our communal reason and for the new year to come, we have to get this financial quagmire into some rational perspective.

    It is not Armageddon in the sense of a nuclear world war would be in its ‘not – for – profit madness. This is an idiocy without substance other than for one set of electric digits to consume an other set of electric digits and victory goes under the name of profit as equally meaningless digits

    This is a game played by a small coterie who claim they are ‘the elite’ by the mass of digits they hold, and should anybody want to get involved in their game they must borrow the stake from them and pay services charges and interest on it. The enticement of this game was it was ‘money’ from nothing, the rewards high and the stakes were risk free. It was manna from digital heaven and through the advances of technology, heaven was spewing out digits in greater quantities and speed than their minds could evaluate. It became the ultimate resource curse created by a resource that has no substance and little true purpose other than to create an addiction.

    The ‘elites’ have been very successful in creating that addiction and claiming their rewards from it. But the problem for ‘elites’ is they eventually get tired of the mongrel diet that feeds them and the slaver over the diets enjoyed by their peripheral members. In fact this trait is in all our natures but not necessarily our nurture and in most circumstances what nurture corrupts nature destroys.

    So what would happen – how intense would be the pain were we to stop the addiction and
    start the cold turkey?

    I suspect the pain will be as illusory as the gains of the game. Sure there would be changes to lifestyles and a re-evaluation of values but, in essence life after a few faltering steps, will go on with more true energy and a lighter load to the next hurdle on our path of evolution.

    Would we starve, be homeless reduced to a constantly threatened existence. No we’re far too resourceful for that. In fact there’s a far greater risk of these conditions becoming prevalent if we allow the ‘elites’ to continue.

    Would commerce, industry, markets, trade, even capitalism clunk to an abrupt end? No it wouldn’t. It’s part of our nature and even our nurture of it hasn’t all been bad, just diverted and distorted by the wrong reasons by the wrong people for the wrong purpose.

    So what do we do to leave this hurdle behind us -remember we’re not aiming for utopia; just to get on with our lives and allow our successors to move on to the next hurdle.

    First we have to remove the distortions created by the ‘gambling’ of money. The assets held (or claimed) by the ‘elites’ will, I believe, be as illusory and the Emperors clothes and have less substance than a cod-piece.

    National governments take back control and responsibility for the administration. quality and economic integrity of there term in governance under the peoples sovereignty.

    Central Banks, will become National Banks. They as will any other institution of government will have citizen members chosen from a random list of localities on their board. These members will not be unduly constrained from reporting their interpretations of the boards policies or decisions to the body public.

    The National Bank will be responsible for printing all the money needed to maximise the stability required to maintain commerce and legitimate services while the auditing and valuation of the old, dubious investments are in moratorium. All costs associated with the audit and there eventual value and resolution will deducted and paid into the common purse along with any taxes due.

    In time the National Bank, in partnership with the Government and the Audit office will decide the amount of money in circulation in line with the earnings envisaged/generated by the nation.

    For businesses over a stipulated size Commercial banks will not be allowed to lend money for any thing other than short term (3 months) cash flow problems. For longer term investments they will take shares in the company, thereby maintaining their interest and expertise in the long term viability of the company and its administration.

    For genuine new start and innovative small to medium sized companies, they will be entitled to apply for loans at rates fixed at 2% above or half the commercial rate -whichever is the smaller – than the rates charged by the National Bank. Depending on the nature and volume of their business the borrower will agree to their books being inspected by Audit Inspectors at regular intervals.

    Governments will not be allowed to subsidise businesses nor provide grants in order to entice business without first submitting a fully costed appraisal to the Audit Office and the National Bank both of which will have citizen members. Where its deemed appropriate the amount involved could be offered as a loan and written off when at least four times the amount of loan has been paid in tax by the company.

    For clarity of position the word avoidance will be removed from the lexicon of the Tax Office. Corporations and businesses over a certain size will be assessed on their tax liability and scheduled for payment on a monthly basis. Should their end of year audit prove they have paid too much tax either a rebate will be made or their assessment reduced for the requisite amount of months in the following year.

    Tax will be collected at one rate and from a single source (probably on purchases) except in the case of income from overseas investment and unearned income, where any income accumulated over £50k per annum will be taxed at £80%

    Utilities and the commercial running of the Nations natural resources will be owned by the nation and run as commercial businesses except the shareholders will be the people, the government the non executive directors and the directors equally responsible for the viability and success of the business as they would be in a dynamic private commercial enterprise.

    Terms of employment will be applied on a common template throughout the nation.

    Members of parliament will be responsible to their constituents and if chosen to serve on the executive to the people as delegates not representatives.

    Whatever method is adopted by the people in choosing the delegate, the ability to competently carry out the responsibilities of the winning delegate will not be restricted to languishing in ‘opposition’ due to the vagaries of political clubs and allegiances. The executive will be formed from all parties equal to the ratio of votes won in the election. For the purpose of integrity on issues placed in parliament, a shadow executive will be formed along similar lines, with the exception the shadow cannot be from the same stable as the executive in charge – and he/she will be given exactly the same advice and facilities. (Never again do we want to hear the whinge of “If only we had known” used as an excuse to turn promises into lies.)

    Executive members will not be allowed to have direct access to or from Lobbyists. Instead Lobbyists will present their petition to a selected committee who will select MPs at random to hear and report on the petitions relevance and purpose. The full petition and the petitioners will be made available for public scrutiny as soon as it is registered by the selection committee.

    Finally -though of course it isn’t – and I believe most important of all, we have to get rid of this paradigm where everything is measured by price without any recourse to the costs in social and moral values other than cheap bling created to keep the politicians in power.

    Experience has proved they are too easily bought and, unfortunately, we allow ourselves to be too easily sold.

    Discuss, add, argue and modify – we have a path to run and a hurdle to reach without the slough of despond shackling us down; and who knows – we may have all the best to come in the new year.

    All the best to You All.

  19. glen valentine December 31, 2011 at 9:52 am #

    Nice one John souter. I rarely read anyone going out on a limb and detailing an alternative. I will read your post again and hopefully come up with some contrabutions

  20. The Happy Hobbit December 31, 2011 at 12:35 pm #

    John Souter, thank you for kick starting what I hope will be a lengthy discussion. I admire your efforts, I do. There is much that I agree with in your manifesto (though assuredly not everything). As a long term societal goal, it has much to commend it. I would imagine that you would be labelled a communist in the US!

    Whilst I am keen to read and be involved in a debate about the type of system we would like in the future, I am more interested in the journey. How will we get to whatever promised land awaits?

    Let us suppose that a system of Finance and Governance such as you have outlined is a worthy goal. You speak of capitalism being part of our nature. I agree. But sadly our natures contain other, even baser instincts. And these favour those with a vested interest in maintaining the status quo.

    When we speak of the ‘elite’, we are not dealing with a single despotic leader and his small cadre of toadies, a la Stalin or Gaddaffi. There may only be a few ‘super-rich’, but the spread of moderate wealth is much broader. The middle classes have wealth, comfort and a NIMBY attitude that guarantees inertia. We sit in our comfortable chairs watching comedians satirising politicians and bankers, and then turn over and shake our heads and tut at the anti-capitalist protesters on the news. And those protesters themselves don’t even know what they really want.

    It behooves those of us who sit and ponder the future to consider first and foremost human nature, how values have been altered over the recent past, and how they might be altered again in the future.

    In my view, the social engineering that has taken place over the past 30 years has taught the common man that both greed and jealousy are worthy attributes. The entire Western economy is founded on the premise that we should all have more ‘stuff’; that private ownership is virtuous whilst state control is a nannying, ineffectual evil; that desires can and must be satisfied immediately. And for the UK at least, the last government engineered the idea that somehow I should not have more than you, or at least that you be entitled to whatever I have, irrespective of the difference in our respective skills, efforts and talents.

    Human nature includes greed and jealousy. Until scientists or clerics can elimate these, we MUST include these factors in our deliberations. Altruism might be a quality of our target, fairer, civilized society, but baser instincts are much more in evidence at times of societal stress.

    Enjoy the turning of the calendar.

    • Phil December 31, 2011 at 9:42 pm #

      Is Capitalism part of our instincts? How long has capitalism been around? Where does our acquisitiveness end? For millennia things – land, resources etc – were held in common were they not?

      It seems to me that as the power of production has multiplied so we have been able to shut ourselves off from each other and fail to recognize our interdependence.

      I can see no reason to presume that this will always be the case.

      • Phil December 31, 2011 at 9:44 pm #

        But yes you’re right to note the importance of factoring-in our baser drives – which as you correctly point out have been so assiduously promoted over the last three decades.

        • The Happy Hobbit December 31, 2011 at 10:06 pm #

          Hi Phil,

          Capitalism is simply codified acquisitiveness. Since we stumbled out of Africa and formed entities greater than simply small communities, there have always been rich and poor. The rise and fall of empires throughout the ages is a testimony to mankind’s natural instinct for acquisition. Land and resources are never held in common; from the earliest times, these were the root of tribal warfare – for water, for fertile land, for raw materials. The power of production was not a catalyst, merely an accelerant.

          The rise of the middle classes in the BRIC countries also demonstrates the innate desire of those people to improve their lot in life, and that has inevitably meant falling into the capitalist order.

          I’m afraid I can see no reason to presume that this will not always be the case.

          • John Souter December 31, 2011 at 11:11 pm #

            Happy Hobbit – I see no reason at this stage to be worried by the concept of capitalism – only irresponsible capitalism conniving to be free of all restraint and responsibility which is the model we are contending with at present.

            Innovation is the evolutionary trait which has advanced our species but the same ability gives us the capability and responsibility to asses the use, purpose and effect the innovation is creating on society.

            So the core question to the present situation must be – if we allow the financiers to control the world will it be to the benefit of humanity or its degradation?

          • Phil January 2, 2012 at 3:27 am #

            Land and reasons are never held in common? Look to the agreements signed in South America which have prevented the selling-off of huge tracts of the rainforest. The rights of the indigenous peoples have been preserved and no single entity has ownership. It took the violent acquisitiveness of a minority to enclose the land of the UK. Until that point huge swathes of the land had been held in common. The idea of water as a commodity for example seemed absurd – even to the elites of the day. If it hadn’t they would have charged for it. Today we think the air we breath is held in common yet there are those who seriously talk about privatising that in some way (I wish I could find the BBC interview where I saw this).

            Look at the internet phenomenon’s such as wikipedia and free-to- download software. That is a modern commons right there. Why didn’t Tim Berners Lee ensure that he got paid some minimal amount for every time we use the internet? Because he wanted it to be a public good.

            Given the starting point for most people in the BRICS countries it is of course no wonder that they would seek to improve their living standards – the question is at what point do you stop? At what point do you say, ‘I’ve had enough’?

            Of course we want to improve our lives but I reject completely the idea that we are rampantly selfish and solely obsessed with our material wealth. I could do twice as many hours for my current employer and earn twice as much – but i don’t want to. I value my time much more. And there are many many people who feel the same – you even see bankers leaving their jobs saying, ‘there is more to life than this’. Why have millions of people renounced the material world throughout the ages to take religious orders?

            I don’t think the super-wealthy are inherently evil – although they do some evil things – i think they are people caught in an addiction, people who are looking for a satisfaction through acquisitiveness that they will never find.

            The problem is when their extreme acquisitiveness afflicts the rest of us and forces us to live under their sway.

          • Phil January 2, 2012 at 3:44 am #

            If we are all rampantly selfish then look where it has got us:

            (from Charles Wheeler)

            ”Many people I know are beginning to realise that their children will not be willing to take on the debt levels required to attend university – becoming the first children for generations to be denied that opportunity; they realise that their (public and private) pensions are being slashed, they see their parents struggling with social care bills at £15/hour and rising, they see housing being monopolised by a new rentier class, leaving their offspring perpetual rent-slaves, occupying sub-standard accommodation at premium rates with little security of tenure, they see that the NHS is being fed to the private health wolves – with all the implications for eligibility, genetic testing, co-payment, small print exemption, rationing by post-code and bank balance, euthanasia by omission and neglect – with the result that even those who never need to call on the services of a health provider will live in constant fear of injury or illness (80% of medical bill bankrupts in the US have health insurance). They realise that a whole generation are faced with the prospect of low skill, low wage labour, little chance of university or home-ownership, working until they’re 70 to retire on a pittance, or suffer disability and enforced institutionalisation, losing any assets they may have worked for in the process. In short, 100 years of progress being reversed in a single generation.”

          • Phil January 2, 2012 at 7:23 am #

            People forget just how much our culture has changed. I’ll leave my final comment to Margaret Thatcher,

            ”Economics are the method; the object is to change the heart and soul.”

  21. Charles Wheeler December 31, 2011 at 12:59 pm #


    “As well as aggregate UK private debt exceeding America’s, the UK also has a higher debt to GDP ratio for every sector. However as usual, government debt, about which politicians and neoclassical economists obsess, is the smallest component of total debt, and has only started to grow after the crisis began. To emphasise one point on which I emphatically agree with MMT economists, public debt is not the problem, and attempting to reduce public debt now is the wrong policy—from my perspective, because it would add public sector deleveraging to private sector deleveraging, thus exacerbating the underlying problem of deleveraging. Rather than obsessing about public debt now, politicians and economists should have been concerned about rising private debt in the previous two decades.

    The USA and UK both began the post-1987 Stock Market era with roughly comparable levels of finance sector debt—roughly 50% for the UK and 40% for the USA. But two decades later, UK finance sector debt peaked at 261% of GDP, more than twice the US level of 123%
    Steve Keen: http://goo.gl/3IDp0

  22. Roger Lewis December 31, 2011 at 1:58 pm #


    I have just had another read and will also now print out and do some more detailed work following your lead. What you have done is the brave step of Praxis for what will probably darkly be painted as a leap into the great un known by the powers that be.

    I applaud your lead in providing an initial framework for further discussion. John at this point I wish there could almost be a wikipedia type discussion Layer to Golem’s/Davids Blog. On Wikipedia I usually start with a brief skim of the article and look at the discussions over the main points to see the width of discussion that has gone into the Article which is in my eyes merely a summary or Abstract of the real meat and potatoes.

    I am currently doing some reading into the Barings Collapse.


    Tickell A (1996) Making a melodrama out of a crisis: reinterpreting the collapse of Barings Bank Environment and Planning D: Society and Space, 14, 1, 5-33

    It has already begun to re inforce some of my reservations on the Vickers report.

    Heres a letter I write to the property press at the time referring to the Mayor of the city of London at the time Michael Cassidy.

    A cartoon from 96 when I came out ( as the Journo would have it as a Labour Supporter)


    I wonder how they would have re acted to a full on confession to Anarchist tendencies seeing Labour as the lesser of two evils.

    Anyway Happy new year all, I look forward to some real study and proactive collaboration with everyone on the site to get a voice for the externalities which these days includes most of us too.

    Happy New Year


    • Charles Wheeler December 31, 2011 at 2:43 pm #

      “I look forward to some real study and proactive collaboration with everyone on the site”

      Reminds of the old joke about the lost couple asking for directions. The guy leans into the car and opines: “Well, one thing’s for sure – you don’t want to start from here.”

    • John Souter December 31, 2011 at 4:40 pm #

      Roger, Glen and Hobbit – appreciate your replies. It is of course a crude and cursory essay designed to provoke thought and discussion.

      I sort off define myself as a philosophical anarchist – philosophical in the sense that as a species we have yet to evolve, or if you like refine out natural tendencies to the point where an anarchic way of life where we have no need of governance would be practical let alone possible. Hence my use of ‘hurdles’ on the evolutionary path.

      In purely pragmatic terms, while the enemy we are fighting now is the financial dragons the conduit they have used in order to be in the position to fight has been created by their infiltration of the governing systems, whereby they have traduced democracy into tyranny.

      Sorting out Governance and re-establishing democracy is where the real battle lies, otherwise the ‘elites’ will just change their colours and strategies.

      David’s blog and others and the multitude of references indexed by the commentators have shown there are many people out there who haven’t signed up to the ponzi scheme of beggaring your neighbour while your neighbour buggers you.

      The financial shamans and their political toadies have won the past, we must take the now and the future.

    • John Souter December 31, 2011 at 11:18 pm #

      Roger – The Vickers report, merely shuffles the deck chairs on the establishments sun deck.

      Remember the Chilcott inquiry? It seems to have been kicked well into the long grass of obscurity.

  23. Joe Taylor December 31, 2011 at 3:05 pm #

    Reading through the comments to Golem’s Thank You blog post I noticed the links syzgy put up concerning the YouTube Renaissance 2 series and have watched them through a couple of time – thanks syzgy, they really helped me get my head around certain things. I’ve put the first video up on the community activists website – those who are interested can take it from there. There’s also a discussion going on in the Beyond Capitalism group http://nationalcan.ning.com/group/beyond-capitalism asking is there a real alternative to capitalism that some of you guys might like to have your say in?

    Let’s all try to do something about the diabolical situation the banksters have brought about in the New Year – we haven’t got a lot to lose have we?

  24. 24K December 31, 2011 at 5:01 pm #

    Wishing you all a great 2012.

    • StevieFinn December 31, 2011 at 8:05 pm #

      Same to you, with bells on.

      Paid a very quick 2nd visit to the good folk at occupy Belfast today, left them my copy of ” Debt Generation” to add to their library & wished them well for the new year.

      Thanks for a big serving of food for thought.

      May 2012 be the turning of the tide, the start of something progressive & the 1st signs of the creation of a new world where the high table predators are muzzled for the sake of the majority of the human race.

      Have a happy fullfilling new year all you Golemites & of course Golem himself & here’s hoping that this time next year we will all still be this blogs family, with lots of new siblings.

      I think Mr. Chaplin says it best.


      • Pat Flannery December 31, 2011 at 10:40 pm #

        You’re something else Finn. Where do you find these? I would like to see your home library.

      • Joe Taylor December 31, 2011 at 11:16 pm #

        >I think Mr. Chaplin says it best.

        Love it Stevie – thanks

      • John Souter December 31, 2011 at 11:26 pm #

        Ah the Mighty Finn.

        I’m off to massacre some of the few dendrites I have left with a 30 year old Macallum.

        I’ll raise a glass to you and yours.

  25. RapidEddie December 31, 2011 at 6:03 pm #

    Great article. But let’s not forget those other honest assessors of financial horse flesh, the ratings agencies. Similarly, rating agencies are asked by a company to make an assessment of the company and then paid by the company.

    I mean, what could possibly go wrong using that system?

  26. Chris December 31, 2011 at 6:58 pm #

    Long time lurker just expressing thanks to David and the commentariat for making this blog absolutely essential reading throughout 2011.

    If only the forces gathered here could ally themselves with the Positive Money, Zeitgeist and Occupy movements, who knows where it could all lead?

    • Phil December 31, 2011 at 9:29 pm #

      Has anyone thought about meeting up for a conference?

      • Joe Taylor December 31, 2011 at 10:02 pm #

        Hi Phil

        The Community Activists Network is organising a conference 23 February at the University of Central Lancashire in Preston (railway station on the London to Glasgow mainline). Golem is one of the guest speakers. See here for details http://nationalcan.ning.com/events/national-community-activists-conference and if you want to be there, by all means…


        • Phil January 2, 2012 at 1:30 am #

          I told you I’d go to that at the last meeting at the Friends’ 😉

          (it is I, L’eclair)

    • Joe Taylor December 31, 2011 at 9:53 pm #

      How true Chris – you made me think of things I read in Blessed are the Organised by Jeffrey Stout:

      “Holders of high office will always have power at their disposal, but in a healthy democracy that power can be held in check…Ordinary citizens, by relating wisely to one another and to the elites, are able to influence and contest decisions made on high. No society can free itself from domination unless citizens make good use of the power at their disposal.

      Democratic political power derives from being organised. Developers are already well organised. Corporate bosses in general derive power from organisations that use market incentives to induce cooperative behaviour. For there to be a balancing counter power of a sort that would foster democratic accountability, organisations of other kinds…will have to provide it.”

      I guess what he saying is that those on top of the pile are very well organised and we aren’t.

      • Gordon Donald January 1, 2012 at 12:05 am #

        From Adam Rammsay at brightgreenscotland:

        “And if we are to win, then we will need to learn the lessons of Alinsky and of Amnesty, remember the best of the techniques of the political parties, and take advantage of the changes in technology and in learning of the last 40 years. And we need to build from the scraps of what Thatcher trashed and turn them into something new, collective, and unbeatable. Because it’s not 1848, and it’s not the 1930s. It’s 2011. And whilst they may have smashed our organisations, we must remember the one advantage that people’s movements have always had: we are many, they are few.”


      • Charles Wheeler January 1, 2012 at 3:25 pm #

        “I guess what he saying is that those on top of the pile are very well organised and we aren’t.”

        Economic power begets political power

        How to break that cycle?

        • Joe Taylor January 1, 2012 at 5:14 pm #

          Hi Charles

          The bloke who put that Renaissance 2.0 series together had some suggestion in the last video http://www.youtube.com/watch?v=sv3M2gCynLw&feature=related
          What do you think about what he has to say?

          • Charles Wheeler January 1, 2012 at 11:04 pm #


            I think the critique of the status quo is well presented, but I’m not sure who the ‘we’ are. Most of the population don’t have the economic resources or political power to challenge the system – which is why revolutions tend to be articulated by those higher up the food chain but shut out from the real power structures. Most people I talk to a) don’t understand how the monetary system works and b) aren’t interested in finding out c) assume we’re simply going through a common or garden recession as we did in the 70s/80s/90s d) believe that you can restore confidence and growth by paying off debt through slashing back the public sector and cutting real wages. Even those that are motivated to mount a challenge to the current corporatocracy are divided by their attitude to government: gold-bugs who try to pretend that economic crises began in 1913, libertarians who see government as the problem, and social democrats who view ‘free markets’ as tantamount to ‘survival of the fittest’ anarchy. The exhortation to ‘turn off the TV’ is well motivated, it’s not just in America that exposure to mainstream explanations actually hampers understanding of the mechanisms at work, but Eastenders and Made in Chelsea are the modern opiates.

            I suppose the straw I clutch at is that, as the middle classes begin to realise that the pauperisation of society through debt-bondage is sucking them down, there will be a reaction. At the moment, Labour is trying to outflank the Tories on the right by giving the poor and the disabled a good kicking, in the hope of scraping a few votes from the aspiring middle class. This seems misconceived, given that the Daily Mail readership is pretty well sown up. The siren calls of the mainstream media (owned by billionaires, managed by millionaires) will always call for Labour to shift right – and yet, since 1997 every move in that direction has resulted in a haemorrhaging of the vote. After thirteen years of Labour, the Tories were voted for by 1:4 of the electorate (fewer people than voted for Michael Foot’s ‘longest suicide not in political history’ Labour Party) – which doesn’t suggest that, for all the disenchantment with Brown’s neoliberal-lite policies, people were clamouring for a right-wing alternative. But, instead of offering the electorate a genuine choice, Miliband is intent on dancing on the head of a pin to fight for the centre-right vote (if the privatisation of higher education, the NHS and social care, along with the eradication of disability benefits, can be termed ‘centre-right’ – probably only if you regard Attila the Hun as a centrist). Meanwhile millions have simply stopped voting (and not because there aren’t enough right-wing choices on offer).

            Since 2008 the neoliberals have actually strengthened their grip on the economy and the seats of power, as income and wealth have been hosed up (so much for ‘trickle down’). Wall Street/K-Street have complete control of the White House (as complete as in the ‘Gilded Age’), the next US election is predicted to be the first $1bn election, Goldman Sachs hold sway over European politics, every economic policy enacted is designed to preserve the interests of the banking cartel at the expense of the general population, authoritarianism has rendered habeas corpus and equality before the law defunct, Iran is being lined up as the next target.

            It’s all looking pretty grim, but the question is, in this end-game for neoliberalism – the culmination of three decades of ‘Shock Doctrine’ politics, will the frogs remain simmering http://goo.gl/PwCX or have they pushed things too far?

            Many people I know are beginning to realise that their children will not be willing to take on the debt levels required to attend university – becoming the first children for generations to be denied that opportunity; they realise that their (public and private) pensions are being slashed, they see their parents struggling with social care bills at £15/hour and rising, they see housing being monopolised by a new rentier class, leaving their offspring perpetual rent-slaves, occupying sub-standard accommodation at premium rates with little security of tenure, they see that the NHS is being fed to the private health wolves – with all the implications for eligibility, genetic testing, co-payment, small print exemption, rationing by post-code and bank balance, euthanasia by omission and neglect – with the result that even those who never need to call on the services of a health provider will live in constant fear of injury or illness (80% of medical bill bankrupts in the US have health insurance). They realise that a whole generation are faced with the prospect of low skill, low wage labour, little chance of university or home-ownership, working until they’re 70 to retire on a pittance, or suffer disability and enforced institutionalisation, losing any assets they may have worked for in the process. In short, 100 years of progress being reversed in a single generation.

            Maybe the idea of a publicly accountable and managed monetary system will begin to gain more … er … leverage – but how much pain will be suffered in the process?

            Like I say, you wouldn’t really want to start from here.

        • Mike Hall January 1, 2012 at 6:04 pm #

          ‘How to break that cycle?’

          In my view this is where we require the clearest thinking & most radical change.

          As a guiding principle we must recognise the fundamentally different motivation of the two key sectors in society – those whose vocation is about private wealth aquisition vs those whose work purports to have a direct ‘public purpose’ role.

          Those who aspire to personal wealth +must+ be excluded from the realm of public purpose, which must include positions of influence, advice or decision-making in public service, politics & news media all.

          Those who purport to act in the interests of the majority must live within the same financial means of the majority.

          Until we at least accept such a guiding principle, we will never have true democracy or governments which wich properly function to public purpose. Following such a principle, with appropriate rules on wealth aquisition, ownership & career limits, a high level – opposite in nature to today’s situation – of public office integrity is readily attainable.

          Corruption is like the levees that keep out high sea levels. Once breeched anywhere, the game is lost. Corruption, whether direct or indirect, will spread to engulf all, and forces out of contention the few who would stand for honesty & integrity.

          It goes without saying that the economic & financial system must also be fit for purpose & sufficiently flexible to offer attainment of broad policy choices. Like for example (near) full employment, which the current system plainly cannot achieve. (And which MMT & functional finance can.)

          If we want life on Earth to continue past the next few generations of humans we must begin this process immediately & relinquish violence as a tool of geopolitics also.

          Happy new year all 🙂

          (Tho’ I fear 2012 is shaping up to encompass the ‘perfect storm’ in human affairs.)

  27. cynicalHighlander January 1, 2012 at 1:00 am #

    Happy New Year to all.


  28. backwardsevolution January 1, 2012 at 6:51 am #

    Karl Denninger’s annual New Year’s Eve economic forecast with Max Kaiser (On The Edge)


  29. Roger Lewis January 1, 2012 at 2:22 pm #

    On interconnectedness and the wiggley ways of the world.

    Gotta love some Alan Watts on New Years day.


  30. Charles Wheeler January 1, 2012 at 11:12 pm #

    Excellent article by BMJ on ‘Shock Doctrine’ politics here: http://goo.gl/TrX4X

  31. allcoppedout January 2, 2012 at 1:28 am #

    Season’s best wishes everyone. Much as I appreciate the views expressed here (and believe them) – we need something simple none of us seems to be able to come up with for a wider audience. I’m stating the obvious and remain clueless as to what it would be.

    • rich in portugal January 2, 2012 at 11:04 pm #

      allcoppedout i think you may be alluding to the SOMETHING SIMPLE WE HAVE NOT COME UP WITH OURSELVES YET and if/when we do then the telling will be simple
      try MONEYCRIME

  32. Charles Wheeler January 2, 2012 at 1:26 pm #

    Stiglitz, Hudson, Chang, Daly, Keiser, Johnson, Chomsky – quite a roll call

    The elite try to stay in power “not merely by controlling the means of production … but by controlling the cognitive map – the way we think.” Gillian Tett

    “You should not assume that because you don’t have a background in economics or law these issues are somehow too complex for you, they’re not complex at all. It’s very simple, it’s about power and it’s about democracy, and you understand that just as well as I do.” Simon Johnson

    The Four Horsemen: http://youtu.be/wLoB1eCJ93k

  33. Charles Wheeler January 2, 2012 at 3:30 pm #

    BIS = BS

    “But the reality is that the concepts being discussed are often not intuitive and for most they are difficult to grasp. The explication of a different way of thinking about macroeconomics to an audience that has been thoroughly ground in the mainstream – either through formal training in economics or through the relentless output of the financial media – is not an easy task.”
    Bill Mitchell: http://goo.gl/El7bp

  34. Richard Dargan January 2, 2012 at 3:52 pm #

    While reading this piece, the story of ‘The Emperor’s New Clothes’ by Hans Christian Andersen kept running through my mind.

    There is a crying need for a few more people to shout out that it’s all a lie, but the danger with this is that the system’s a bit like a house of cards, and any questioning of what goes on is like a gust of wind that blows the whole thing down. So there is this unspoken compact between the financial and political worlds – don’t tell, don’t ask. I seem to recall that accountants who audited Enron gave it a clean bill of health, even though there was a cancer at its heart. Perhaps the answer is that the auditors of all major financial and commercial companies are appointed by people outside the company, and there is a different one each year.

    Finally, I am somewhat unclear just how all these people with degrees coming out of every orifice of their bodies were so witless as to buy packages of debt without ever checking the value of what they were buying. If a man comes up to you in a pub carrying a large box, and offers to sell you what’s in the box for fifty thousand smackers, most normal people will ask what’s in the box before handing over the cash. The brightest people of their generation appear not to have had the wit to do so, or do they operate by different rules?

  35. Charles Wheeler January 2, 2012 at 4:11 pm #

    “You want to worry about money you can’t see– and don’t know where it is located? Then, worry big-time about some $5.8 trillion of the “shadow banking” system that are in some kind of crazy-quilt daisy chain where they are pledged by some huge unregulated hedge fund or sovereign wealth fund, and then end up as collateral being used by yet another financial dealer. There’s no central collateral clearing desk or depositary– where all of these transactions can be observed. It means long term savings can be turned into short-term transactions that are part of the counter-party web of global financial markets.”

  36. Charles Wheeler January 2, 2012 at 4:25 pm #

    “There are two sustainable ways to make money in finance: find people with risks that need to be carried and match them with people with unused risk-bearing capacity, or find people with such risks and match them with people who are clueless but who have money. Are we sure that most of the growth in finance stems from a rising share of financial professionals who undertake the former rather than the latter?”
    Brad DeLong: http://goo.gl/IuN85

    • StevieFinn January 2, 2012 at 6:11 pm #

      Just that nasty chart again that shows the UK & it’s gigantic debt mountain, but this time put together with some other juicy graphics by Steve Keen.


      • John Souter January 2, 2012 at 8:28 pm #

        Stevie -let’s take the lesser figure of 450% of the debt to total GDP being due by the financial sector.

        That amounts to roundabout £6 trillion, give or take the odd £500 bn.

        This is the industry that was supposed to save the Nation?

        • StevieFinn January 2, 2012 at 9:01 pm #

          In truth, ” The Enemy Within”.

          • John Souter January 2, 2012 at 9:12 pm #

            Nope Stevie – I’m the Enemy Without (in both senses)

          • StevieFinn January 2, 2012 at 9:32 pm #

            I meant our financial friends 🙂 A term used by Thatcher & her media to describe Britains so called home grown enemies. Ironic that she let the fat cat out of the bag that could really destroy the country.

  37. John Souter January 2, 2012 at 8:02 pm #

    allcoppedout – something simple!

    Support Democracy – Sack Westminster.

    (Substitute national government to suit.)

  38. John Souter January 2, 2012 at 9:33 pm #

    Another one liner then I’m off. (Hope I’ve got my arithmetic right)

    For Sale -6.5 billion people -$1,000.00 each.

  39. Charles Wheeler January 2, 2012 at 10:29 pm #

    “Here’s what wows me: all these world-classical economists are accusing each other of contradicting “textbook economics,” and circling through extraordinary contortions in their efforts to reconcile that school of economics with some version of reality.

    There is no consensus. None.”

    • John Souter January 3, 2012 at 9:37 am #

      Charles – here’s my quandary.

      Can any relationship, system or society thrive on a basis of mutual contempt?

      That’s where we seem to be at present.

      • Charles Wheeler January 3, 2012 at 12:56 pm #

        I think there has to be some recognition that the ideology that got us here is more than ‘flawed’ – but is rather a construction specifically designed to serve the interests of a tiny minority with all the economic and political power. I’m not sure that it’s possible to reason with them. Taken to its logical conclusion neoliberalism will destroy society, hence the quote: “Listen, and understand. That terminator is out there. It can’t be bargained with. It can’t be reasoned with. It doesn’t feel pity, or remorse, or fear. And it absolutely will not stop, ever …”

        We see it today in the relentless demonisation of the poor and disabled. As society becomes more unequal, so the ‘sink estates’ grow – and are then used as examples to denigrate. As those who can escape through talent or luck move out, so those left are represented as the cause rather than the effect of economic decline.

        What sort of society is it where the mentally and physically disabled are lined up to take the punishment for reckless financial mismanagement by those still calling the shots?

        There was a time when there was a certain degree of consensus about basic standards and rights in society: the right to healthcare and an education, a certain degree of protection from the vicissitudes of the market for those less fortunate, the right for a disabled person to be able to participate in society and not face enforced institutionalisation, the right to a decent standard of living in old age and basic social care when needed. But that’s all gone. Neoliberalism dictates that the transfers necessary to sustain such a society are immoral. There is no recognition that we all risk periods when we are unable to compete in the marketplace: neoliberals atomise us into competing groups: public v. private; young v. old; employed v. unemployed; disabled v. able-bodied; taxpayers v. claimants; healthy v. sick when, of course, most occupy each one of these groups at certain times in our lives. Rawls’s ‘veil of ignorance’ recognises this, Nozick’s reductionist ‘nightwatchmen state’ doesn’t.

        I would say the contempt is pretty much one-way. It comes from above and is heaped on those below – but rationalised by economic ideology.

        The followers of Ayn Rand are the ones who show contempt for ‘society’.

        • John Souter January 3, 2012 at 3:36 pm #

          Charles -it’s pretty clear we share common ground, but I’d query the ‘one way’ argument on contempt.

          Perhaps initially the contempt (unlike the wealth) did trickle down and was doing so during the time we, the common man -bewildered herd -the sheeple – call us what you will, believed we had a consensus.

          At the time we had a reason to hold that belief. By the voice and words of authority the concerns of our nation and its society were being competently managed for, we were assured, most of the people most of the time.

          Even by the minor revelation under the thirty year rule of Howe’s recommendation on the managed deconstruction of Liverpool indicates the ‘belief’ hung on a shoogly political peg.

          Were it not for this medium we are communicating by and the library of knowledge it has made available, we would in all probability still be chewing the cud of propaganda fed to us as facts by the MSM – and I do appreciate the tardiness of their hubris by sticking to such a flawed formula – but the middle ground the ‘belief’ allowed them to hold has, in my opinion, already been lost.

          Perhaps not entirely as yet – they may still have the redoubt of apathy but that’s a flimsy barrier and fickle ally. So the trickle down contempt is about to meet the tsunami building up unless apathy holds; then there will not be much need for technology or engineering in the creation of androids.

          • Charles Wheeler January 3, 2012 at 7:24 pm #


  40. rich in portugal January 2, 2012 at 10:40 pm #

    ” this crisis was caused by money ” superficially obvious or a far more fundamental point?
    money itself may be the ‘elephant in the room’ !
    all the misplaced morals by which it must be accommodated !
    happy hangovers blogheads. 2012 think outside the box year?

  41. Southern Cross January 3, 2012 at 2:39 am #

    From the Sydney Morning Herald, and pertinent to this post. Note that it is freely admitted by the Australian financial regulator that the hapless public would not continue to support said “institutions” unless kept in the dark. So people will be encouraged to put their trust and their money into essentially unsound banks and super funds with the full knowledge and consent of ARPA – and these parasitic entities suffered to crash the real economy. Australia has always punched above its weight in generating scientific breakthroughs and innovative ideas, but alas our economy can be summed up by the droll nickname used by a financial commentator here – ‘Houses and Holes’.



    Financial institution risk list kept secret Stuart Washington
    December 27, 2011

    THEY are 12 secret documents judged to be so potentially damaging that releasing their contents would endanger the stability of Australia’s whole economic system.

    Australia’s biggest banks, insurers and superannuation funds are named, and some are apparently shamed, in ”risk registers” kept by the federal government’s banking regulator.

    But in a gaping hole in Australia’s defences against the global financial crisis, the Herald can reveal the crucially important registers were only compiled months after the worst of the crisis struck.

    The regulator warns the risks outlined in the registers are so sensitive that releasing the information ”may affect the stability of Australia’s economy”.

    The registers pinpoint the weakest links in Australia’s multibillion-dollar financial services industry, outlining where individual institutions pose systemic risks and the possible remedies by the regulator.

    The Herald sought risk registers drafted by the Australian Prudential Regulation Authority, which is responsible for addressing system-wide risks in Australia’s financial system, under freedom-of-information laws.

    The request sought registers kept during the height of the global financial crisis, which occurred when Lehman Bros collapsed in 2008.

    But in denying the Herald’s request the regulator revealed it had not compiled the crucial documents during the worst of the crisis.

    A schedule released by APRA shows the first register was dated November 2008, suggesting it only drafted the documents after the worst shocks from the crisis in the US.

    APRA’s rejection of the request was based on the assessment of its general counsel, Warren Scott, of the dangers to the economy if the registers were to be released.

    ”In my view the confidence in the economy may be undermined if the potential emerging risks and APRA’s discussions and thoughts were disclosed … this may have a systemic effect in the industry which may affect the stability of Australia’s economy,” he wrote.

    The risk registers gather information from all areas of APRA, including confidential information from banks, insurers and super funds gained by its ”frontline” supervisors, specialist risk officers and statistics teams.

    Officers from APRA meet every six weeks to discuss the ”key risks” facing each of four industry groups – banking, superannuation, general insurance and life insurance.

    Key risks are assigned to an APRA ”risk owner” to recommend and carry out a response.

    Mr Scott said release of the registers could influence investing decisions by Australians and harm individual institutions – a reference to behaviour such as a run on a bank when funds are withdrawn all at once.

    ”The subject matter of the registers is sensitive and remains sensitive at this point in time,” he wrote.

    Mr Scott’s decision was supported by the Freedom of Information Commissioner, James Popple, in a draft ruling shortly before Christmas. The Herald’s application to the Office of the Australian Information Commissioner took more than a year.

    Mr Popple partly based his decision on secret examples that showed banking, insurance and other financial services would suffer a ”substantial adverse effect” if the registers were disclosed.

    Mr Popple found that releasing the registers would be contrary to the public interest because of the damage it could cause by providing businesses with premature knowledge of APRA’s actions.


  42. Jon Cloke January 3, 2012 at 12:40 pm #

    A colleague of mine, Prem Sikka (a Professor of Accountancy at Essex University), once told me this story about when he worked for one of the Big Four (which one shall remain nameless) and took part in a recruitment board with his boss.

    He said that his boss had a favourite trick question, which he liked to tax the hapless applicants with:

    “What does 2 plus 2 equal?”

    Prem said that the boss would only hire the ones who got the answer right, which was:

    “What would you like it to equal?”

  43. Charles Wheeler January 3, 2012 at 3:16 pm #

    “Have no doubt the fiscal conservatives of supposed left and combined right want this chaos. They are choosing it when an alternative is available.”
    Richard Murphy: http://goo.gl/LfsYy

  44. Phil January 3, 2012 at 11:55 pm #

    Hope in common by David Graeber


  45. cynicalHighlander January 4, 2012 at 5:14 pm #

    City banks ‘cheat’ Europe in €600m tax avoidance trading scheme

    Some of the city of London’s biggest banks are behind a huge tax avoidance trade ‘cheating’ European countries of hundreds of millions of euros a year in a development that sheds fresh light on David Cameron’s decision to wield Britain’s EU veto to protect the Square Mile

  46. Charles Wheeler January 4, 2012 at 8:09 pm #

    In depth, thought-provoking interview with Chris Hedges


    • steviefinn January 5, 2012 at 9:04 pm #

      Thanks Charles, fascinating, I feel that I am peeling an onion, through the looking glass, while all my previous assumptions unravel.

    • John Souter January 5, 2012 at 9:30 pm #

      Charles I’ll second stevie, good call – an impressive individual.

      I’ve ordered one of his books.

  47. Charles Wheeler January 5, 2012 at 1:14 pm #

    “Since Thatcher, neoliberal ideology has conditioned almost every area of our society and of the way that individuals see the world and their lives. All of the main political parties, practically all of the mainstream media (some vociferous, some tacit), almost all thinktanks and the vast majority of university economics departments are ideologically wedded or owe their existence to neoliberalism and financial interests. This has spawned a mass financialisation of society, in which our public services are infected with a market ethos before eventually being privatised, and our language has been corrupted by meaningless buzzwords and management jargon.

    Politicians of all parties have chosen to retreat from intervening in the economy other than to ensure that there is an amenable business environment for financial interests and that public assets be opened up to market forces. And at the centre of this system are the banks, allowed to grow into behemoths with the power to crush nation states, to direct economic policy and to bring the world to its knees. This system has failed. It has failed most human beings on earth, as it always had even before the crisis. But now it has failed even on its own terms. It is not free-market capitalism, it is monopoly capitalism. It was not the ‘Great Moderation’ but an almighty bubble. And it didn’t lead to greater prosperity for all; instead it has now destroyed much of the wealth it had ever created (the vast majority of which was always concentrated in the hands of a small minority.)

    But in a sense this doesn’t matter. The only show in town no longer bothers to advertise itself, to say how much everyone will enjoy it; the only argument it is left with is an uncaring shrug and a reductive sneer: “What’s your alternative?” This has been an incredibly effective way to control or eliminate debate, but things are beginning to change.”

  48. Charles Wheeler January 6, 2012 at 12:05 pm #

    “Would abolishing the Fed really create a paradise for entrepreneurial banking start-ups – enabling them to challenge and overthrow the megabanks?

    Or would it just concentrate even more power in the hands of the largest financial players? It is hard to find a moment of greater inequality of power than that of the gilded age of the late 1800s – with the gold standard and the associated credit system firmly working to the advantage of J. P. Morgan and his colleagues.
    Simon Johnson on the return of the goldbugs: http://goo.gl/BnL2I

  49. steviefinn January 6, 2012 at 9:26 pm #

    An interesting article detailing similarities between the US & Rome, & how the former is following in the latter’s decline. 100 yrs as opposed to 500, but perhaps things now move 5 times faster. I would imagine that Greece would be the closest ancient comparison to the UK in terms of it’s relationship to the world power.


    • Charles Wheeler January 7, 2012 at 1:28 pm #

      Reminds me of Paul Kennedy’s tome on the history of imperial overreach

  50. cynicalHighlander January 6, 2012 at 9:48 pm #

    Fraud and folly: The untold story of General Electric’s subprime debacle

    Dave Riedel, a former compliance manager at WMC, says sales reps intent on putting up big numbers used falsified paperwork, bogus income documentation and other tricks to get loans approved and sold off to Wall Street investors.

    • Por in Portugal January 6, 2012 at 11:40 pm #

      Moneycrime all over the place…….
      The penny drops….

  51. cynicalHighlander January 6, 2012 at 11:17 pm #

    The Truth In Eight Minutes

  52. John Souter January 7, 2012 at 5:38 pm #

    Not entirely off topic, but has anyone else noticed the BBC a couple of times in the last week have mentioned the Euro falling against the Dollar without mentioning the position of the Pound?

  53. Charles Wheeler January 7, 2012 at 6:40 pm #

    Nice work if you can get it (pt. 325):

    “Chase CEO Jamie Dimon will earn $41.9m this year — the most among the bank CEOs in Bove’s coverage list — for a bank that saw its stock lose roughly 23% this year … Press reports have suggested that compensation pools at seven of the biggest U.S. banks will total about $156 billion (including salaries, benefits and bonuses) in 2011, which would be 3.7% higher than last year’s record breaking number.”
    wallstreetpit.com: http://goo.gl/EOhDI

    • steviefinn January 7, 2012 at 7:24 pm #

      I wonder if Jamie is stocking up on tinned beans.

  54. John Souter January 7, 2012 at 7:50 pm #

    To them that have -more shall they take.

    It’s a scriptural thing – Wall Street Edition.

  55. Charles Wheeler January 7, 2012 at 8:31 pm #

    An alternative view:

    “All the Government needs to do is remove interest rate distortions, get out of the way and watch the market work.” http://goo.gl/zthw4

  56. Charles Wheeler January 7, 2012 at 11:06 pm #

    Democracy or … bust?

    “We know we are in trouble but we don’t know how much trouble, because we have an underlying suspicion that we will pull back from the edge, if only we could be clear about where the edge is. Democracies often look like they are in a total pickle, but they always get out of the mess in the end. Don’t they?

    We want the system we’ve got, because we know it’s the least bad one on offer. In the past, democracies in crisis have always had to fear being swept away by some plausible ideological alternative. The current argument between the optimists and the pessimists has all the hallmarks of an ideological dispute but without any of the content. We don’t have an alternative. The fear is that the political system we’ve relied on in the past might not be up to the task at hand, but it’s the only one we’ve got. You’d think that would make it easier for us to fix it. My fear is that it’s going to make it harder. It makes it more likely that we will drift along with our fate, and into the unknown.”

    David Runciman: http://goo.gl/I54gt

    • steviefinn January 8, 2012 at 2:13 pm #

      A great piece of work from Ian Fraser attacking a bullshit article from the Economist, seems to have started a twitter storm. Perhaps the barrow boys are getting worried.


      • Phil January 8, 2012 at 5:01 pm #

        Good spot Stevie,

        I’m just finishing Stephen Armstrong’s ‘The Super-rich shall inherit the Earth: The new global oligarchs and how they’re taking over our world’.

        In chapter eight he lists a number of statistics about the City and how ‘vital’ it is to the UK economy. Many readers here will be familar with this trope already but here’s a reminder:

        ”…UK plc needs the City to survive. This, however is not entirely true. In fact, the tax revenues from the finance sector in recent years were offset by the immediate cost of the massive bank bailouts. According to figures from the University of Manchester in the five years up to 2006/07, the finance sector paid and collected £203 billion in taxes, but the upfront costs of the UK bailout were £289 billion, rising potentially to £1,183 billion.

        In terms of job creation, the finance sector directly employs no more than 1 million workers – mainly on the high street – and those numbers don’t increase during boom years. If we add jobs in consultancy, accounting and law that are sustained by finance, the number of those directly and indirectly employed still accounts for no more than 6.5 per cent of the UK work-force.

        …The City only accounts for 8% of the UK’S GDP.”

        It’s a very interesting if depressing read. And if the bits on the finance ‘industry’ are sickening, the chapter on private equity firms will have you tearing your hair out.

        • John Souter January 8, 2012 at 5:28 pm #

          Phil – and 600% of the UKs gross debt.

        • steviefinn January 8, 2012 at 6:17 pm #

          Hair ???

          • Phil January 8, 2012 at 6:30 pm #

            haha! Sorry Stevie, I meant the collective ‘your’.

        • Charles Wheeler January 8, 2012 at 6:23 pm #

          Aside from zero-sum trading where gains by some traders are mirrored by losses elsewhere, which can benefit one economy at the expense of others, banks make their money from:

          Fees/interest charges which would otherwise be taxed as part of business profits. If a bank increases its charges any tax paid goes down as a benefit to the economy from the banking sector. Charging customers exorbitant fees should therefore make us all feel indebted to the banks (excuse the pun) for their contribution to the wealth of the nation. As their bonuses rise against a background of falling national income, so the tax paid by bankers increases as a proportion – with the result that we should show our gratitude for their largesse as we are being screwed. It’s a form of financial S&M.

  57. Charles Wheeler January 8, 2012 at 6:35 pm #

    Europe’s Transition from Social Democracy to Oligarchy

    “It is axiomatic that the solution to any major social problem tends to create even larger problems – not always unintended! From the financial sector’s vantage point, the “solution” to the Eurozone crisis is to reverse the aims of the Progressive Era a century ago – what John Maynard Keynes gently termed “euthanasia of the rentier” in 1936. The idea was to subordinate the banking system to serve the economy rather than the other way around. Instead, finance has become the new mode of warfare – less ostensibly bloody, but with the same objectives as the Viking invasions over a thousand years ago, and Europe’s subsequent colonial conquests: appropriation of land and natural resources, infrastructure and whatever other assets can provide a revenue stream. It was to capitalize and estimate such values, for instance, that William the Conqueror compiled the Domesday Book after 1066, a model of ECB and IMF-style calculations today.

    This appropriation of the economic surplus to pay bankers is turning the traditional values of most Europeans upside down. Imposition of economic austerity, dismantling social spending, sell-offs of public assets, de-unionization of labor, falling wage levels, scaled-back pension plans and health care in countries subject to democratic rules requires convincing voters that there is no alternative. It is claimed that without a profitable banking sector (no matter how predatory) the economy will break down as bank losses on bad loans and gambles pull down the payments system. No regulatory agencies can help, no better tax policy, nothing except to turn over control to lobbyists to save banks from losing the financial claims they have built up.

    What banks want is for the economic surplus to be paid out as interest, not used for rising living standards, public social spending or even for new capital investment. Research and development takes too long. Finance lives in the short run. This short-termism is self-defeating, yet it is presented as science. The alternative, voters are told, is the road to serfdom: interfering with the “free market” by financial regulation and even progressive taxation.

    The kind of warfare now engulfing Europe is thus more than just economic in scope. It threatens to become a historic dividing line between the past half-century’s epoch of hope and technological potential to a new era of polarization as a financial oligarchy replaces democratic governments and reduces populations to debt peonage.

    At least in the most badly indebted countries, European voters are waking up to an oligarchic coup in which taxation and government budgetary planning and control is passing into the hands of executives nominated by the international bankers’ cartel. This result is the opposite of what the past few centuries of free market economics has been all about.”
    Michael Hudson: http://goo.gl/IUFt2

  58. Phil January 8, 2012 at 6:41 pm #

    A juicy little number on Tony Blair’s tax affairs. His accounts are audited by KPMG…


    • John Souter January 8, 2012 at 9:27 pm #

      I’ll bet all his businesses are audited by KPMG and all will have different year ends.

      Blair is fraudulently liquid and morally bankrupt.

    • John Souter January 8, 2012 at 9:23 pm #

      Phil -when the investors are big enough they control the sale and dictate the yield to whatever level suits their strategic purpose.

      Low yields keep their money safe asset cover-wise and under their control by keeping the hungry gambling on the higher paying yields.

      Note it’s the Anglo/American clan and their associates who are benefiting.

    • Charles Wheeler January 8, 2012 at 11:12 pm #

      Also have to remember some of these ‘objective’ pundits wear more than one hat, which may give them a different perspective on what caused the crisis.

      The evidence seems to show that it was not profligate government spending!


  59. Neil (the original one) January 9, 2012 at 12:06 pm #

    I’ve been preoccupied with work and family matters, and am likely to be so for some time, hence my lack of posts in recent weeks (if it doesn’t seem too self-important to say so). I’m glad, though, to see that the blog is burgeoning with responses from others – and that Golem is entering for the Orwell Prize.

    In the meantime, the message does seem to be getting through to pockets of the mainstream media, at least if this morning’s Start the Week on austerity is anything to go by: http://www.bbc.co.uk/programmes/b0194dj7 . The contributions from Fintan O’Toole (on Ireland and democracy) and Anna Coote from the New Economics Foundation (on an alternative future) are particularly notable.

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