A Waiting Game

Governments, so they tell us, want the banks to lend into the real economy to get people working, earning, buying and paying both their taxes and their debts. Problem is, I do not think the financial industry shares this desire. They say they do. They say they are doing their bit. But they are not. The abject failure of the UK’s 2011 ‘Project Merlin’ is a good example. Project Merlin was the voluntary agreement between UK banks and government to set and meet targets for lending to small and medium businesses.  The big five UK banks all agreed to lend. The data showed, however, that they all lent less in every quarter. I talked to the CEO of a UK bank which specializes in raising capital for medium sized businesses and he told me there was less and less funding around. He said the big banks and the big funds simply didn’t want to know. They had other plans.

Of course if the banks had no money to lend then the mystery would evaporate. The story would be they’re not lending because they can’t, because they have no money. But the banks do have money. Lots of it. We are so mesmerized by those banks which are close to the edge – like the Spain’s moribund Bankia and the rest of Spain’s Cajas that we forget others have lots of cash. I’m not saying the headlines aren’t correct.  They are. Spain’s banks are now totally dependant on massive loans from the ECB. The amount they have to borrow from the ECB has gone up every month for the last ten. Last month they borrowed €402.19 Billion. Nearly half a trillion. The rest of Europe’s fine banking system borrows another €600 billion or so.

BUT at the same time as Europe’s banks are sitting on and dependant for their survival on over a trillion euros borrowed from the ECB they also deposited about €860 billion of that money back at the ECB. Until recently the ECB (read tax payers) actually paid the banks interest on this money. Which means we, Europe’s tax payers,  have been forced to give the banks money. The banks have then refused to lend any of it back. Instead they put it in the ECB where they claim interest which we have to pay. We pay twice and get nothing.

Recently the ECB tried to ‘encourage’ the banks to move this money out and lend it by lowering the interest it pays to zero. So the banks could leave the cash in the ECB and get nothing. Or they could lend it out and earn something.  The banks, all of them, chose the former. They simply shifted the money from where it was no longer welcome and put it instead in another part of the ECB which was still accommodating.

Remember not a single one of those euros was earned by any of Europe’s banks. The entire amount is tax payers money. It is bail out money. It is the money the banks were ‘given’ in order to ‘save’ them, restore their finances and allow them to once again lend in to the real economy so that ther rest of us could also get a little help. That has been the only policy allowed anywhere in America, Japan and Europe for the last 4 years and it has failed. The banks are not healed, they  are not lending and the rest of us are now told we must accept a decade of austerity to off-set the levels of debt, that the bank bail outs have massively inflated.

But angry as that makes me it’s not the point. The point is to ask why all the banks are hoarding cash? Why are they willing to accept zero return rather than put it to work?

The standard answer is that the banks know they have many more bad loans and rotten ‘assets’ whose value could suddenly plunge if they are ever forced into the open and valued. So it is prudent to have cash around to cover any sudden forcible recognition of losses. Hidden losses are fine. A bit like illegal libor rates or money laundering. All in a bankers day and fine as long as it never comes to light. It is only getting caught which is frowned upon.  Mea culpas are so irritating after all and some of the fines are actually large enough to nip a little out of the bonus pot!

All of the above has certainly been the case over the last 4 years and to some extent still is. The German banks in particular are still sitting on a mountain of assets they have still not marked to anything like market value. Those ‘assets’ and loans are presently sitting in off-balance sheet vehicles registered in Ireland.

How can I say this? A long conversation with a former Landesbank CEO that’s how. All banks are guilty of hiding losses by refusing to mark their ‘assets’ to market. But the person I talked to said the German Landesbanks in particular are still hiding rather large unrecognized losses in their Irish registered, off-balance sheet vehicles. Safely hidden away from the prying eyes of regulators and citizens.  The joys of regulatory arbitrage!  But should any of these dirty secrets be exposed to the harsh light of market pricing then the banks in question must have either cash hoarded away or feel they can cry to friends in government and the ECB will bail them out.

That is the traditional answer for why banks might hoard cash and it seems it is still partly correct. I should also say it’s not just in Europe that the big banks are hoarding cash. Recent figures from the FED estimate that US banks are hoarding about $1.6 Trillion in cash. Most of it earning interest.

But I have felt over the last few weeks that something about this on-going debacle and attack on our democracy and sovereignty has changed. I do not believe the banks and other financial entities are hoarding cash just as a safety measure.

Let’s look at where we are. According to ECB board member Benoit Coeure, speaking officially in July,

Europe may be sliding back into its second recession since 2009 and growth is also slowing in the United States and China.

“I don’t think we are moving toward a global recession; we are moving toward very low growth or no growth at all,” he said.

A masterful, mouthful of understatement. Rates have been held at close to zero for a couple of years now. The so called extra-ordinary measures have become fixtures, without which the chances of  the big, debt-riddled banks surviving, is zero. The problem is, while essential for their survival, such low to zero rates are also killing them. Long periods of very low rates mean the banks can’t find a return on their money through any sort of regular lending.  Thus the very measures which keep the banks alive, so they can ‘start lending again’, guarantee they won’t.

On top of which this lack of lending and general crippling of the real economy has meant real growth – as opposed to accounting ‘growth’ by means of moving numbers from one column to another column, has not only not recovered but has decreased.  Having opened the public vein for on-going transfusions into the banks, the self same banks have insisted the poor slobs who are being bled for them, must also go on an austerity diet.  And thus nations already crippled by private debt made public liability, are now also being starved.  The Greek and Spanish people have no chance of ‘recovering’. All that awaits them is a boot stamped into their faces over and over and over.

Not that the financial class cares. What they do care about is the lack of ‘yield’ available to them on their money. No ‘yield’ means no profits.  And many banks and funds are not profiting the way they would like. For example this Zerohedge article reports how 68% of Growth Funds which invest $278 billion are underperforming. For ‘underperform’ read not making a profit for their investors who will therefore soon chose to leave.

So what do you do if you can’t get no yield satisfaction? Yes, you reach for the bottle marked ‘Yield’ and ignore  the warning which reads, “Caution: Use sparingly. Contains high levels of risk.”

Here is how an article in International Financing Review put it earlier this month,

The downward pressure on yields has continued, intensified by the ECB’s slashing of interest rates…. Real-money managers are returning to exotic derivatives strategies not seen since the start of the 2008 financial crisis in an effort to boost yields in an increasingly low-returning environment.

What could go wrong? The article continues,

Real-money managers in the eurozone core have all but exhausted conservative means of boosting returns and – faced with negative yields in sovereign markets – they are now ploughing money into riskier assets, often using exotic derivatives to increase value.

“Low yields have really become a big problem over the past eight months and it’s gone from bad to worse,” said Adrian Bracher, head of rates structuring for Europe at Credit Suisse. “These big investors are now opening up for more risk tolerance.”

“Over the past six months we’ve seen the return of relatively exotic structures, and we’re not talking small-fry bets. We’ve seen a number of Northern European managers taking significant views on inter-currency spreads – things we saw a lot three to four years ago but haven’t seen a lot since,” he added.

Exotic derivatives. Big bets. Sounds great.

Then let’s add in this headline from The New York Times (15.August.12),

Risk Builds as Junk Bonds Boom

The market for junk bonds, risky corporate debt that pays high interest rates, is red hot….Fueling this frenzy are investors of all stripes — including individuals, mutual funds and state pensions — who are desperate for returns in their bond portfolios and willing to take more risk to get them. Demand is insatiable, even as analysts warn that the market has become overheated and is ripe for a fall.

Exotic derivatives, big bets and junk bonds. Booyah!

Now it might seem that hoarding cash is the opposite of all this and that the renewed growth in risky investments, argues against the idea that banks are hoarding. Surely searching for return somewhere, even if not by not lending in to the real economy, is still the opposite of hoarding. Actually I don’t think it is.

I think banks and other financial institutions are, as the above quoted articles say, desperate for return. They all need cash flow to stay alive and profit to keep clients. Bank bail outs have largely taken care of cash flow for the last few years. That, and not what we were told, is what the bail outs were for.  And with the cash pile they have hoarded they could continue to use this public money-mountain to pay off their debts for years to come. But that will not bring growth.

So there is a search for yield and a growing belief that risk is back on the menu. The hoarding is, I believe, part of this strategy. The hoarding is not just for safety. As this article from Bloomberg reports,

Hedge funds and private-equity firms have amassed an unprecedented 60 billion euros ($74 billion) to invest in distressed debt in anticipation that Europe’s sovereign-debt crisis will push banks into the biggest fire sale in history. The problem is few are selling.

I don’t think it is just Hedge funds and Private Equity firms that are looking forward to profiting from vast fire sales from bankruptcies and sovereign defaults. I think the big banks are waiting too.

The banks aren’t using their bail out money to help the real economy because they think there is a real chance the real economy isn’t going to recover the way our idiot politicians tell us it is going to. At least not before a wave of corporate bankruptcies and one or two huge sovereign defaults.

Look at it this way. Strategy A) the bank plays nice like the government says and lends at a pathetically low rate to a viable but cash starved business. The business gasps with relief, wins orders for more widgets and pays back the loan. This strategy provides employment and therefore a success story for the politician. The banks gets a pitiful return over the life of the loan. Strategy B) the bank quietly refuses to loan to the widget maker or any other business in the real economy. It might agree to short term funding via high yield bonds. With bonds the bank gets a higher return, can agree to a short duration bond only and can sell the  bond on if necessary. All round better than ‘lending’ the money to the business. But generally strategy B) says, ‘Don’t loan. Wait.’

Wait for the struggling business to collapse and then lend the money to a buy-out fund who will buy up the bankrupt business for a fraction of what it was worth as a going concern, be able to shrug off many of the old debts in bankruptcy protection, renegotiate terms and conditions with the workforce who will be desperate and worried and sell on the ‘restructured’ company for a quick and large profit.

Which strategy would a banker chose – help the economy or help themselves? The same Bloomberg article reports,

Apollo Global Management LLC (APO), Oaktree Capital Group LLC (OAK), Avenue Capital Group LLC and Davidson Kempner Capital Management LLC are among U.S. firms that have flocked to Europe, setting up offices and raising funds to benefit from the most severe period of distress in the region. The money raised for distressed-debt funds gives the firms about 100 billion euros to spend on deals including leverage, according to PricewaterhouseCoopers LLP.

But as the article says, while the vultures are gathering the problem is that no one has yet died. The European banks and their sovereigns who hold so many of the potentially juicy bad loans and ‘assets’ that could end up in a fire-sale, have so far been propped up with endless ECB money. The article quotes Elliot Management which is significant since Elliot Management are part of Elliot Associates who are one of the world’s largest and most aggressive vulture funds.

“The troubles in Europe have not yet created the volume and types of bankruptcy and restructuring opportunities that might be expected from difficulties of such monumental proportions, most likely because the governments and banks are essentially holding each other up and keeping the private sector afloat — for now — with lots of freshly minted paper money,” Elliott Management wrote in a letter to investors in April.

And so we have a strange situation where the big banks are sitting on piles of bad assets. Should they have to sell, or should a whole sovereign be forced to sell at knock down prices in a disorderly collapse – or even in an orderly looting organized by former bankers who are now running in to the ground every austerity-wracked nation they have been given - then there will be epic fire-sales. Those with cash on hand could make the killing of a generation. Possibly by killing a generation, but why lower the tone by mentioning those who don’t really matter?

So I think the big banks are hoarding and waiting. Each hopes not to fall first. Those who do fall will be pciked clean by those still standing. This is what the bail out money is being used for.

I don’t think the banks will lend in to the real economy because they calculate that such a socially useful strategy gives low returns to them. Should they ‘defect’ from this generous strategy and chose instead the selfish strategy of ‘hoard and wait’ then they could make not just a large return but an epic one. They could emerge as owners of everything people will need in order to rebuild their lives. Water, power, rail, hospitals, you name it.

This is what the banks are waiting for. And our politicians are giving them our money so they can.

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74 Responses to A Waiting Game

  1. Syzygy August 16, 2012 at 8:51 pm #

    I think that that sounds exactly what the banks would do. Great article.

    • Golem XIV August 16, 2012 at 9:02 pm #

      Thank you. And thanks for sticking with me.

  2. Charles Wheeler August 16, 2012 at 9:22 pm #

    “Wait for the struggling business to collapse and then lend the money to a buy-out fund who will buy up the bankrupt business for a fraction of what it was worth as a going concern, be able to shrug off many of the old debts in bankruptcy protection, renegotiate terms and conditions with the workforce who will be desperate and worried and sell on the ‘restructured’ company for a quick and large profit.”
    —————————————————————–

    That’s certainly been the MO in the LDCs – using economic crises as a tool for economic hegemony (see: http://goo.gl/CHWqo). Meanwhile, govt. can use the pressure on public finances to squeeze health, education & welfare, using the inevitable collapse as the rationale for outsourcing to the private sector. Thus market fundamentalism fulfils the role of both disease and cure.

    And all in the name of ‘economic liberalism’ in a way that would have Adam Smith turning in his grave:

    “The term “neoliberalism” kidnaps the classical liberal idea of free markets that sought to erect defenses against special privilege and unearned income. To classical economists a free market meant one free of unearned income, defined as land rent, natural resource rent, monopoly rent and rent-extracting privilege. Neoliberals invert this idea. In their usage a free market is one free from taxes or regulation of such rentier income, giving such revenue (and capital gains) tax favoritism over wages and profits. Finance thus is free to operate unchecked as governments are treated as enemy, not protectors of the common weal.

    By freeing markets from public regulation and taxation – that is, by dismantling checks and balances against exploitation and free lunches – neoliberalism becomes a doctrine of central planning. Control simply is shifted from governments to financial centers. The effect is to replace public power to protect the people with an oligarchic power to oppress them, disabling public authority to regulate and tax finance and its rent-extracting customers. To call this “freedom,” “free choice” or “free markets” is an exercise in Orwellian doublethink.

    In these respects neoliberalism is a doctrine of power and autocracy, a weaponization of economic theory in today’s financial war against the economy at large. Its fiscal program is to un-tax banks and insurance companies, real estate and monopolies. The result is a financial war not only against labor but also – indeed, most of all – against industry and government, because that is where the money is. Gaining the power to indebt economies at increasing velocity, the banking and financial sector is siphoning resources away from the real economy. Its business plan is not to employ labor and expand output, but to transfer as much of the existing flow of revenue as possible into its own hands, by capitalizing it into interest payments.”
    Michael Hudson: http://goo.gl/G0lk3

    “‘It comes from an order of men, whose interest is never exactly the same with that of the public, who have generally an interest to deceive and even to oppress the public, and who have accordingly have, upon many occasions, both deceived and oppressed it.’

    “To restrain private people, it may be said, from receiving in payment the promissory notes of a banker, for any sum whether great or small, when they themselves are willing to receive them, or to restrain a banker from issuing such notes, when all his neighbours are willing to accept of them, is a manifest violation of that natural liberty which it is the proper business of law not to infringe, but to support. Such regulations may, no doubt, be considered as in some respects a violation of natural liberty. But those exertions of the natural liberty of a few individuals, which might endanger the security of the whole society, are, and ought to be, restrained by the laws of all governments, of the most free as well as of the most despotical. The obligation of building party walls, in order to prevent the communication of fire, is a violation of natural liberty exactly of the same kind with the regulations of the banking trade which are here proposed.”
    Adam Smith, Wealth of Nations

  3. Michael Stanwick August 16, 2012 at 9:28 pm #

    I shall be rereading your article to fully digest your argument.

    Is there an antidote to this poisonous behaviour of the banks in question?

  4. johnm33 August 16, 2012 at 9:59 pm #

    Nice to see you back David, and on the money as usual, what else could we expect them to do? aargh
    I think my first comment on [any] your blog was that we needed new local banks of all sizes to do old fashioned banking in every village, town, city and region, now more than ever.

  5. Dillon August 17, 2012 at 12:43 am #

    Another factor of the bailouts is not that just that they are returning to the use of derivatives because of their high returns. But also because they know that should these riskier investments fail, their governments will be there to prop them up again

  6. Daniel August 17, 2012 at 7:35 am #

    For the UK, this information is 30 years too late. Thanks to Thatchers neo-liberal philosophy, the family silver of Gas, Electricity, Water, Rail & Bus, Telecoms has been sold off to the rentier class of Finance long ago. The remaining NHS and education system is under siege.
    A financial coup d’etat has occurred in the UK, without much awareness of the citizen. We are now peons of finance and entrapped for posterity.
    Politicians of all parties have been complicit in this take-over, either by economic ignorance or by complicity.
    We can expect no support from our politicians for change.
    This will be effected from a grass roots movement of citizenry,educated and informed of the fraud that has been perpetrated and continues on them. Support of our local credit unions and Co-op bank is a starting point, to strike at the hydraheaded monster of the corrupt ,dysfunctional banking cabal.

    • Ian Cropper August 17, 2012 at 3:52 pm #

      I think you have missed out the media whose failure to present alternative perspectives has been a major contributor to the lack of response by the public.

  7. daveTshave August 17, 2012 at 8:08 am #

    Thanks for a great post David. The numbers are mind-boggling.

  8. Bearbonez August 17, 2012 at 12:58 pm #

    Glad you’ve had time to post :)
    From the Guardian eurozone-crisis-live
    “”Fear index”
    Sleepy summer markets could be deceptive. While the low VIX – known as the fear index – is reflecting calmness on stock markets, futures on the VIX indicate this could change soon.

    The VIX, which measures volatility in financial markets, is at a pre-financial crisis level of 14.40, and the VIX futures curve is the steepest since before the start of the financial crisis. Longer-term volatility is trading at a much higher premium than short-term volatility.

    The VIX is based on a weighted average of the implied volatility of options on the S&P 500 that trade on the Chicago Board of Options Exchange.

    Daniel Deming, managing director and VIX trader at Stutland Equities told CNBC:

    It’s basically telling you over the next six months, the market could have some form of volatility spike.”

    Looks like something dark this way comes!

  9. Raintonite August 17, 2012 at 4:58 pm #

    Great article. Your thesis, supported through various sources, seems to go along way towards explaining the mystery of bailed out banks hoarding our money.

    • Golem XIV August 17, 2012 at 5:06 pm #

      Thank you. And welcome.
      I think its a thesis at least worth condsidering.

  10. Tam August 17, 2012 at 5:47 pm #

    All sounds extremely plausible. Now that the current situation has been going on for a few years, it’s depressingly inevitable that the usual suspects would start trying to ‘game’ the new situation.

    I’m not sure it’s purely a financial issue though or that the banks are necessarily defying their governments’ wishes on this. I suspect that politicians might well be colluding with it for geopolitical reasons. For example presumably every leader from Cameron to Putin has been considering how their respective nations might stand to benefit from, for example, a fire sale of Greek assets…

  11. Charles Wheeler August 17, 2012 at 6:13 pm #

    “One will have to ask whether it could conceivably make sense to think of deliberately provoking a crisis so as to remove the political logjam to reform.”
    http://goo.gl/r8Bgq

    • sheepshagger August 17, 2012 at 10:02 pm #

      It does make sense to create good carpet bagging conditións if you have a wedge to invest. Why was there no second series of Rubicon?

      The (puppet) masters of the uniiverse think of themselves as lab technicians
      A lab designed by Heathcoat Williams.

  12. Pat Flannery August 17, 2012 at 6:52 pm #

    If you are right then what we are witnessing is the big banks playing group Russian roulette.

  13. Yakima Canutt August 17, 2012 at 8:16 pm #

    I would hope that the very best of the best bankers could understand the big picture. I certainly imagine that all these pinstripe drones haven’t the foggiest notion about the consequences. They assume they can just steal everything without fear.

    Problem is, there comes a breaking point; the point at which people just say, this is too unreasonable to accept, stuff the law, and stuff the consequences.
    Whether this takes the form of anarchists, trotskyists, fascists, or religious fanatics, don’t be surprised to find in a few years, that this green and pleasant land, with no public services, no pensions, rolling power cuts, no diesel, and everyone running little allotments to feed themselves, just goes completely and irreversibly bonkers.

  14. Yakima Canutt August 17, 2012 at 8:18 pm #

    Golem, well worth the wait.

    • Golem XIV August 17, 2012 at 9:43 pm #

      Thak you for saying so. But I’m sorry you had to wait. It was a bad time. I’m hoping times will be easier, or if not then happier. Out for a couiple day filming then back again – and writing.

      • Wirplit August 22, 2012 at 12:21 am #

        Great to see you back. On form as ever

  15. Daniel August 18, 2012 at 3:43 am #

    A source in Germanys’ Deutsche Bank claims that in 2008 our financial and monetary system completely collapsed and since that time the banking cartels have been “propping up the system” to make it appear as if everything was fine. In reality our stock market and monetary systems are fake; meaning that there is nothing holding them in place except the illusion that they have stabilized since the Stock Market Crash nearly 5 years ago.
    Since this time, the US Department of Homeland Security (DHS) in conjunction with FEMA and other US federal agencies have been quickly working to set in place their directives of control under a silent martial law.
    The Deutsche Bank informant says that the cause for the bailout of the banks was a large sum of cash needed quickly to repay China who had purchased large quantities of mortgage-backed securities that went belly-up when the global scam was realized. When China realized that they had been duped into buying worthless securitized loans which would never be repaid, they demanded the actual property instead. The Chinese were prepared to send their “people” to American shores to seize property as allocated to them through the securitized loan contracts.
    To stave this off, the American taxpayers were coerced by former President Bush and former US Treasury Secretary Hank Paulson. During that incident, the US Senate was told emphatically that they had to approve a $700 billion bailout or else martial law would be implemented immediately. That money was funneled through the Federal Reserve Bank and wired to China, as well as other countries that were demanding repayment for the fraudulent securitizations.

    • Wirplit August 22, 2012 at 12:20 am #

      Daniel
      this is an intriguing and possibly plausible scenario but it needs proper sources to actually stand up…and other backing evidence if possible…not just a claimed “source in Deutsche Bank”

      But the idea of Chinese accountants coming over to seize large real estate assets in the United States is somehow delicious. Using the American legal system to take over. Doing it the Capitalist way…

      “- Sherriff, we have a Mr Ling here apparently he has the legal papers for half of California so we want you go over to serve the repossession notices for him…”

  16. Samuel Conner August 18, 2012 at 3:44 am #

    In the US, there is not a lot of demand for bank financing from businesses, which already have a great deal of cash, have underutilized capacity and are facing weak demand. Faced with a shortage of borrowing demand in the real economy, it might be a rational thing for banks whose business models have expanded to include speculative trading to weight their assets in that direction. Not that I approve of this, but I think this does describe the situation.

    I’m less familiar with the state of the economies of Europe, but I would be surprised if they are, in aggregate, in better shape than the US is. What Europe needs (as does the US) is fiscal stimulus to raise aggregate demand. Businesses faced with rising orders will want to build inventories or even expand capacity, and would seek bank financing for that. I can’t believe that banks would decline to fund creditworthy borrowers. It’s low risk income to them after they have done the creditworthiness analysis. They lend by creating deposits out of nothing. Reserves are used to clear payments, not to make loans per se (contra the loanable funds fallacy).

    • Golem XIV August 18, 2012 at 9:47 am #

      Hello Samuel Conner,

      Welcome and thankyou for commenting.

      I agree that the banks in Europe are very unlikely to be in better shape than US banks. I also agree that lending to small and medium sized businesses could be low risk investments. BUT it is also low return and I think the banks are in too deep a hole to be much interested in low return.

      I think the smaller ones who have less chance of making a killing in any big fire sales are lending a bit more. In the US teh small deposit insitutions have lent more in the last quarter or so. Worryingly that increase didn’t seem to tally with any great increase in car or durable goods sales. Most of those figures where inventory build up. WHich makes me think the increase in lending , most of which was in revolving credit I think, was being used to buy food and pay rent/mortgage. If so then its not a great sign.

      Lastly, as you say banks don’t lend from deopists they merely create a new deposit from nothing. BUT the new loan does require an increase in capital holding and that is what they are not keen on. Banks are deleveraging and doing it by cutting their loan book/assets.

      None of them want to have to raise more capital. New loans, no matter how ‘safe’ still require capiital holdings increases. European and US banks are deleveraging, albeit slowly. Interesting ly they are not doing it by selling the risky stuff. Because to do so would require them making a large loss. As long as they hold those risky assets they can do so at mark to model prices. If they sell they sell at market value and POW there’s a hole in their acounts. So they are holding on to them – which is why no fire sales have happened.

      Deleveraging is happening but is being done by cutting existing credit lines to anyone struggling (think of the big swiss company that went down earlier this year) – and by not extending new loans.

      At least that is how I see it.

  17. Scrofulous August 18, 2012 at 4:33 am #

    Hey man, very fine to find you home again, but next time you do a flit leave your address top dead centre. I chased about with that first title for an age before going back and finding the updated version.

    Great show, keeping it on desk top to pass about.

  18. Glenn Condell August 18, 2012 at 10:30 am #

    Wonderful piece Golem.
    The banks are like the Easter Islanders, chopping down the forest that sustains them, eating their own future, with ours as entrée. For surely the Promised Land you describe, of a select few vultures owning everything is not sustainable long term, with the spoils unable to generate sufficient ‘yield’ from an impoverished subject population of debt peons.
    The effort is conscious and organised, there is intent, but while the result points toward global domination the rationale is more likely local. Each player or bloc of players must act in particular ways, given the regulation (and more to the point lack of regulation) in the financial ecologies they inhabit, in order to generate yield, to remain competitive and therefore alive. Lucrative precedents are therefore set which while they increase the wealth of insider participants tend to destabilise and then cannibalise the system as a whole. This is the Greshams’s dynamic Michael Hudson speaks so eloquently about in relation to accounting ‘control fraud’, a related variant of the same corruption you describe. If you don’t cheat, you die.
    Everybody cheats and the smarties end up with silos full of paper attesting to their fortune, but around them there is no forest left. Or trust, or anything much else.
    What looks like a pre-planned 1 %er putsch is more probably simply the predictable convulsions of late stage capitalism, where ultimate responsibility lies not so much the evil genius tycoon class themselves as the historically favourable ground that they find themselves occupying. Sure, they weren’t idle in the exploitation of this, but they could only take what we were prepared to give up, or perhaps more accurately, what we were prepared to notice was being stolen. Each step of this trail can be understood more by what parties stood to gain or lose in the short-to–medium term than with any sinister long term agenda. It is a collective failure, exploited by the class best equipped to do so.
    It is all to do with incentives. People will obey instincts which tell them to choose one path or the other. Instincts are driven by desires and it is incentives which, via personal volition and action, permit those desires to become realities. Most of our base desires are corralled behind societal norms which are defended by convention and ultimately by laws, and a preparedness to uphold them. Absences and omissions often make for the best incentives to action. The fact that vast profits can be made without genuine fear of capture let alone censure, whether with control fraud, mortgage and foreclosure fraud, asset price inflation, HFT, interest rate rigging, off the books SIVs, even out and out theft a al MF Global, means that those profits will be made. If there is no fence and no sign of the shepherd the wolves roam freely and eat what they want. Wolves will do what wolves do, just like the lambs will do as they always do.
    There is already so much to eat for the wolves, even before the Great Fire Sale, that they have had to set up offshore tax havens to provide for a million years’ worth of rainy days, even in the style to which they have become accustomed. $32 trillion would go a long way to repairing not just the banks of Europe but the benighted peoples as well, with lots left for other victims of the financial class. There it sits, just out of reach, the creamed off wealth that belongs to us all and which if reclaimed could be used not just to staunch the flow, not just to cure but to prevent. A few more fences would be a good start.
    I hope everything is OK with you Golem. Good to see you back.

    • Charles Wheeler August 18, 2012 at 12:37 pm #

      @ Glenn Condell

      ‘The banks are like the Easter Islanders, chopping down the forest that sustains them’

      Brilliant analogy.

      As you say: ‘The effort is conscious and organised, there is intent, but while the result points toward global domination the rationale is more likely local. Each player or bloc of players must act in particular ways, given the regulation (and more to the point lack of regulation)’

      This echoes L.T. Hobhouse when commenting on the laissez-faire doctrines of the late 19th century: ‘What is permissible becomes necessary’. If your competitor is doubling up to increase yield, you find the rationale for following suit – or perish.

      It’s not that there was/is some grand conspiracy amongst bankers to bring about their own destruction. But the lack of regulation ensured that they had to take on ever more risk to stay in the game or, as Chuck Prince had it: ‘As long as the music’s playing, you have to keep dancing.’

      The fallacy of composition seems to ensure that bankers will continue to view lack of regulation as giving their individual firms an advantage, even as it brings the sector as a whole to a state of collapse.

      ‘Alpert doesn’t believe there was a capitalist conspiracy; his point is that had there been a conspiracy, the outcome wouldn’t look much different.’
      http://weareliterate.blogspot.co.uk/2011/09/wall-street-income-inequality.html

      • Mike Hall August 21, 2012 at 8:54 pm #

        @ Glenn & Charles

        As mentioned/implied, if one wants to understand the ‘big’ picture, Michael Hudson is a very concise & comprehensive place to start. But when talking about Gresham’s Dynamic & the criminogenic nature of virtually the entire ‘FIRE’ sector, or ‘Financialised Economy’, one should give credit to Michael’s UMKC colleague, former regulator William K Black. Black’s analysis just continues to be ever more empirically validated by such recent scandals as Libor & the US Muni bonds deposit rip off (etc.).

        But let’s continue with the big picture & try to get a bit more clarity.

        The Financialised economy now has very little interest in the Real economy beyond an extractive relationship. It is now thouroughly criminal & fraudulent in operation, characterised by short term interests, often more related to returns to executives rather than any long term returns to their institutuions or their shareholders. The modus operandi is all about profit from ‘rent’ or flipping artificially inflated assets which typically have little or no productive use, most certainly not at their inflated valuations.

        Fundamentally, & the basis of people like Hudson’s analysis, is Marx’s battle between Capital & Labour, but now with Capital recast in the role of Financialised economy. Entrepreneurs largely supplanted by the mony men – to an extent now joining the ranks of subordinate useful idiots like politicians, & mainstream media & economists.

        And this is where I must diverge from the otherwise useful Easter Island analogy.

        One could argue that ultimately ecoloigical destruction will lead to an irreversible wipe out of near all Homo Sapiens & certainly any environment that would support more than a handful in a manner that would make the stone age appear technologically advanced.

        But I think the arrogance & blindness of the elites is such that they believe in their own omnipotence (validated handsomely thus far). Moreover, there is a very long way to go yet before the 1% achieve the level of enslavement of the 99% they consider viable. I think India offers a view as to what level they might see as just as viable in due course for our so-called ‘developed’ countries.

        At any rate this is the logical conclusion of the ‘financial coup’ & ‘neo-liberalism’ that Hudson & others talk about. The financialised economy will own & ‘rent’ just about everything – including most human beings.

        The final point I want to make is that it is important to identify the various ‘levels’ & roles that members of the top few percent occupy. Even within the financialised economy, lesser players are set against each other – but always within the same paradigm where wealth, control & ownership always flows +up+, not down, in ever increasing amounts.

        It’s hard not to look at the influence & tightly controlled personnel of such things as the Bilderberger steering committeee, & the length of time such influence has appeared in the shadows of world events, and not conclude that it fits the evidence of ultimate control.

        But, regardless, there is certainly a very consistent & all consuming ideology that has been at work over decades. Demonstrating again its dominating resilience over the last 5 years of economic turmoil, unparalled (& actually very similar in nature) since the great depression of 80 years ago. I wouldn’t call it ‘capitalism, rather a particular kind of capitalism that excludes any effective balance from democracy.

        Meanwhile, another major world conflagration is being brewed, beginning in the oil rich middle east, to ensure any nascent rebellion is thoroughly brushed aside by greater (war) events, should such emerge?

        @ Golem

        You seem to imply in the article that the ECB is drawing on ‘taxpayers’ money? This is only true in the sense that it has imposed taxpayer funded bailouts of sovereign bondholders as a condition of ‘support’. Otherwise, it is an issuer of the currency, & such largesse to their banking chums as LTRO etc. merely required computer keystrokes, not ‘funding’ from anywhere.

        And…sorry to be the party pooper, but worthy as your further examination of the cess pit is, you still do not not appear to be engaging much with the people and their analysis who are offering the solutions & paradigm change we need. Yes – MMT.

        • Nemo August 22, 2012 at 11:31 am #

          MMT changes nothing. It is just an academic relabelling of certain real mechanisms to turn them into (purportedly) harmless ones. In other words, it’s a spin doctrine.

          • Golem XIV August 22, 2012 at 12:49 pm #

            Ooops. Now you’ve done it. And cue Mike in 4,3,2,1…

        • Golem XIV August 22, 2012 at 5:02 pm #

          It’s not that I’m not engaging. I have read some MMT and can see sense in it. What do you think I should be saying? They don;t need me to expalin it they are more than able to do it themselves.

          Do I think MMT is the perfect answer? No. Do I think they have good insights and many good policy ideas? Yes. Would I like to see MMT in the mainstream and teh current authodoxy with a stake through it’s rotten heart? Yes.

          The MMT’ers are doing a great job. What is there for me to add?

          • Mike Hall August 23, 2012 at 5:58 pm #

            Golem,

            With the exception of the Job Guarantee aspect which can be argued as +partially+ a policy prescription (otherwise a neccesary means of price/economic stability), the rest is merely a description of how a macro economy actually functions under a fiat, free floating currency.

            Essentially, it is saying to policymakers, don’t use a false understanding of that to try & justify what are in reality ideological choices. Crap like ‘there is no money’, or ‘we will go bankrupt’ (as regards monetarily sovereign countries).

            It’s clear from your piece that you haven’t grasped what MMT is really about & that your understanding of macro & the monetary system is patchy – this automatically places you back inside the dominant neo-liberal paradigm. Albeit, with quite opposite intentions to the peddlers of this rubbish.

            The point is to get to a situation where twats like Osborne cannot stand up & issue massive cuts to government spending in the teeth of a massive recession, driven by private sector deleveraging, & pretend that economic stagnation (at best), contraction & job losses (more likely) won’t be the result according to macro economics based on reality. And get away with it.

            MMT does +not+ stipulate any particular size of public sector. All it says is let policymakers (democratic politics) decide. But if the private sector cannot create the jobs (near full employment) then the government must fill the gap with a Job Guarantee (with the specified non-competing conditions).

            But, generally, what I see you doing is not really progressing toward solutions.

            Of course, it’s interesting to continue digging up more evidence of financialised economy crookery, malpractice & greed. Doutbtless it’s good ‘Sherlock’ fun stuff cultivating your ‘inside’ contacts. But, assuming there are insiders who are sympathetic to change & prepared to talk, how far are they willing to go, & how good is their wider knowledge (or interest) in wider macro issues?

            However, is this now still a priority for your limited time, when we already know ad nauseam from various other sources & years of investigation (Black, Matt Taibbi & many others) that the systems & institutions are rotten to the core?

            For myself, no, it isn’t. Millions of people are out of work & the trend is rising. Millions more are seeing their wages cut & taxes rise. Sweet nothing is being done about climate change (& time is running out, cf James Hansen’s latest report). IMO the greater responsibility for this is the continuance of the false neo-liberal macro economic narrative. Most people now know the banks etc. are conmen & fraudsters, even if they don’t know all the details. They don’t know that the neo-liberal economics orthodoxy of the last 3 decades is equally fraudulent – they need to, or we’re going nowhere fast.

            And btw, I’m not going to respond to some f&^%ing ignorant twat of a troll who can’t be arsed to write more than 3 lines ;)

          • Golem XIV August 23, 2012 at 6:34 pm #

            I am sure you’re right, Mike, that my understanding of the macro and monetary system is patchy. But which part of my original post “makes it clear” I haven’t grasped what MMT is about?

            As for being inside the dominant neo-liberal paradigm, we’ll just have to agree to disagree on that one.

            If you find this blog passe and what I have to say not to the point of your liking – what can I say? Perhaps you shouldn’t waste your time here?

            You feel I am “not progressing towards solutions.” Perhops you mean not progressing toward your solution. I have clear goals in mind. I do not advocate them as relentlessly as you do yours.

            I see the same disasters looming as you do. I think I see them as clearly. Perhaps it is that we have different ideas of how to spread unrest and dissent, and how to convince people that change, real change, is both necessary and possible.

            Perhaps we bring different strengths to the task. I have my strengths and you have yours. Why do feel it necesssary to tell me that what I do is a waste of effort?

            It feels a little like the zealot who says “Are you saved? Have you accepted Jesus/MMT in to your heart?”

            I should add that as soon as people feel this blog is no longer relevant, ot that I have ceased to say things of use or interest, then I would hope people will tellme – perhaps break it to me gently – and I will stop. My horror is to become the blow hard in the corner who does not know he is past his sell by date.

          • Mike Hall August 24, 2012 at 5:43 pm #

            Golem

            I know you see the same diasaters looming as I do. Which is why I’m trying to get you to see a different perspective.

            You’ve come this far from your disgust & outrage at what the banking sector (largely) has done – thru’ fraud & greed, a debt bubble & massive bust. These last years you’ve done a great job exposing, particularly, the European side of things.

            What I’m trying to convey tho’ is that the real story now has moved on. The banks have done their damage, horse bolted, arguably 4 or 5 years ago. (Sure, without reform, it will revisit, but likely not for some time – decades not years.)

            What is happening now is the opportunistic wanton destruction of economies & peoples’ welfare by essentially the authorities (political leaders, economists in financial sector & mainstream academe) doing exactly the opposite of what they should be doing to bring about economic recovery.

            Punished once by the debt bust, we are now being punished again by equally fraudulent macro economic policy.

            Regardless of whether we get any banking reform anytime soon or not, the general population are in little doubt of the financial sector’s fraudulent behaviour. But they are not aware of the fraudulent macro economics thinking being used (deliberately at some levels) to impoverish & enslave them (& by extension also let ecological degradation wipe them out in its logical conclusion).

            The more correct analogy is that MMT are trying to point out that the real world data shows that Earth revolves around the Sun, not the other way round. In using such techniques as the sectoral balances – an accounting identity – they are applying the laws of physics, not some mumbo jumbo.

            This is the story that needs telling. Once you understand it, it’s not that hard to see the truth of it.

            You are a skilled communicator, with experience & resources in video media production.

            Really want to help the world? Use those skills to help tell this story. Sure, I have no right whatever to tell you what to do. But I believe I understand where you are coming from in your heart & can’t help feeling that if you understood what I now do in terms of macro economics & the fiat monetary system, you would at least give what I’m suggesting far deeper consideration.

            (Hopefully at least not waste your time in politics. I’ve been there, got the T-shirt. From a recent article by Irish Green Eamon Ryan at journal.ie, neither his group nor the Euro Greens are even close to getting the plot on economics. Even if you do nothing else, on a personal level save yourself the heartache of trying push water uphill with a straw. The political structures will +not+ initiate radical change.)

            I’m not at all saying what have you done thus far has been a waste of effort – it’s entirely the opposite. But the game of neo-feudalism has firmly moved on to a different & more sinister phase.

            Anyhow….on a related subject there’s also been a quite interesting development recently in the US. Drawing on a recent paper by two IMF economists:

            The Chicago Plan Revisited

            http://www.monetary.org/wp-content/uploads/2012/08/ChicagoPlanRevisited.pdf

            Dennis Kucinich is putting a bill before Congress – HR 2990 – proposing the introduction of such a system.

            Whilst I tend to side with (some?) MMT proponents that a full reserve banking system is not neccesary, the important aspect of this plan is the pure MMT – consolidation of Fed & Treasury & divorcing taxation from the myth that it is required in order for the government to spend. (Rather taxation has a purely regulating & distributive function.)

            In this full reserve system, +all+ new money enters the economy via debt free government spending, not as debt to bankers. It’s pretty much what Irving Fisher proposed in the 1930s to Roosevelt, but updated & refined.

            There’s a conference at which this proposal will be discussed at the AMI (American Monetary Institute – where Kucinich’s initiative comes from), coming up soon. Michael Hudson & Steve Keen will also be speakers. As will Professor Yamaguchi, who did some modelling on such a system:

            http://www.monetary.org/yamaguchipaper.pdf

            MMT itself is agnostic on the difference between a full reserve & fractional reserve system. However, Bill Mitchell (& possibly others) have offered a personal view to the effect that +some+ new money creation by banks in a tightly regulated & reformed financial sector offers useful inherent flexibility & would therefore work a little better. (Mitchell also points to the practical difficulties & dangers of insufficient money supply in what is essentially an attempt to make the money supply exogenous, not endogenous – merely an outcome of economic activity.)

            But the important thing from this development is that the correct understanding of the monetary system is being used along with the macro tools associated with it. (Which places the democratic discussion & determination of the ‘public purpose’ of government onto the correct foundation, as opposed to the bullshit & lies of neo-liberal faux ‘constraints’.)

            It also serves to expose further the Eurozone system for the fraud that it is.

        • Charles Wheeler August 23, 2012 at 1:45 pm #

          On Bill Black:

          The case against plutocracy
          http://goo.gl/xwnSt

  19. Aaron Layman August 18, 2012 at 12:20 pm #

    This is a fabulous, well-written article. Probably the best explanation I have seen to date of our modern banking system. As you state, government officials have given the banks our money to play at the casino rather than lending out into the real economy. Jamie Dimon and the JPM London Whale saga are a perfect example.

    It’s time we start treating the banks like the utilities they are, before they take down the entire global economy again with their greed and hubris.

  20. Pat Flannery August 18, 2012 at 12:54 pm #

    It’s good that you are setting the juices flowing again. It shows how important it is to keep the conversation going on this site. It is one of the few that is not dedicated to the glory of its sponsor.

    I hadn’t heard of Daniel’s theory that “The Chinese were prepared to send their “people” to American shores to seize property as allocated to them through the securitized loan contracts.” Maybe I just got out of California in time. If that had happened most Californians would now have Chinese landlords. It raises an interesting point though regarding an investor’s access to a “secured” asset.

    It suggests that trans-national investing is only as good as the investing nation’s ability to enforce a “security” against the borrowing nation by physical force. If that is the case the entire investing world is already subject to a U.S. dictatorship.

    Were the Chinese going to duke it out with the American carriers in the middle of the Pacific? Like the Japanese at Midway? I doubt it. The British Empire was built on “gunboat diplomacy”. We are now in an era of “aircraft carrier diplomacy”. Nobody knows that better than the Chinese, which is why they will probably lead the world out of this financial mess – for the sake of peace!

    Good to have you back Golem. The juices are flowing.

  21. Sir Harry August 20, 2012 at 1:27 pm #

    Merlin was an attempt by the big UK banks to throw the government some bones so that the government would either abandon the Vickers commission on banking or water down any recommendations. The commissioners threatened to resign, which would have caused a political problem.

    As it happens, the Treasury white paper has increased the limit on leverage from 4% / 25 x capital base to 3% / 33 x capital base, which is what Basel 3 recommended, and allows derivatives to be sold to SMEs in the ring fence.

  22. financial matters August 20, 2012 at 3:56 pm #

    The waiting game from the standpoint of private equity is nicely discussed here..

    Vanity Fair Feb 2009 http://www.vanityfair.com/politics/features/2009/02/wolff200902

    The Ultimate Bubble?

    by Michael Wolff

  23. Mike August 20, 2012 at 8:51 pm #

    Golem,

    Glad to have you back. Do you think this is part of the thinking for the BoE’s endless QE? If you devalue cash, the banks will feel they have to do something with it. Merv King did mention the ‘search for yield’ a while back, so its definitely on his mind. It might just be a case of who blinks first. As QE is essentially a tax, i’m guessing the government wont blink anytime soon….

  24. steviefinn August 21, 2012 at 6:05 pm #

    Monti gets the ball rolling :

    http://peoplesworld.org/italy-s-heritage-for-sale/

  25. patma2003 August 22, 2012 at 2:03 am #

    thanks golem… you must know that i have missed this form of enlightenment…

  26. Wirplit August 22, 2012 at 1:32 pm #

    David
    Put this post link on Reddit / economics last night with the strapline “The Waiting Game : the true reasons Banks are hoarding cash and not lending to the real economy”

    and saw just now that it has 73 upvotes already. ps this is good for economics subreddit…

    • Golem XIV August 22, 2012 at 4:54 pm #

      Your posting has led to over 1500 extra readers today. THANKYOU.

      It had also been picked up by the online part of the WSJ.

      Together they brought in a lots of the big banks, law firms, the DoD, US Navy, SEC, US Attonrney General’s office, the Dallas Fed, varous Canadian authorities and the British Bankers Assoc. among many others.

      • Glenn Condell August 23, 2012 at 5:27 am #

        Oh dear, now you’ve done it!

        You will now be on a web watch list and you can expect the sort of disturbance John Ward the owner of The Slog site has recently experienced:

        ‘For information only, I copied a Sloglink to a senior contact in Goldman Sachs two weeks ago. He emailed back to say that Goldman wouldn’t allow him access to the site. In China, you can’t receive The Slog. All EU addresses in Brussels and Washington Government offices ban it. It is banned from commenting at The Guardian, and Huffington Post. If you leave a Sloglink at Huffpost, it will be automatically erased. The Financial Times will not allow anyone to say ‘bollocks’, even though virtually nobody today would be offended by the word in a well-argued context. No Newscorp title allows any leaving of live links to other sites (The Times itself is, like the FT, behind a paywall).

        If, using my own pc with its clear relationship to The Slog’s identity, I Google even well-known political sites in Germany, I get redirected to an Austrian site for gays. While this suggests that even spooks have a sense of humour, it does make the flesh creep to discover that using someone else’s pc allows me to get through straight away.

        No member of UNITE the Union can follow Slog links in the office. Nor can anyone working for at least two big UK banks…’

        So once an elite-unfriendly site hits a certain critical mass or runs a piece a tad too close to the bone, the black arts of the net are employed to sideline it.

        Ward recommends the list of classic troll signs at Washington’s Blog: http://www.washingtonsblog.com/2012/08/the-15-rules-of-internet-disinformation.html

        This place appears blissfully free of these pests; let’s hope it stays that way.

        • Golem XIV August 23, 2012 at 8:46 am #

          I Knew none of this. Thank you for alerting me.
          I’ll let you know if anything untoward begins to happen. So far so calm.

  27. financial matters August 22, 2012 at 4:32 pm #

    It was sad to see the oligarchs gain so much power in Russia after the collapse of the Soviet Union. I was also surprised to hear about the elite class in China which reminded me of Saudi Arabia. ( ‘In China roughly twenty-nine hundred of these party scions -known as the “princelings” – control $260 billion. ‘ — Shock Doctrine)

    I think the challenge is for this reform to take place in open societies rather than lead to repressive regimes. Europe seems to be the current testing ground for this as their austerity measures start to take hold. I liked the above comment re Michael Hudson and MMT. Would like to see him and Ellen Brown and Nicholas Shaxson have some serious policy control.

  28. johnm33 August 23, 2012 at 2:01 pm #

    F.M. The oligarchs take over was an extremely well executed coup, arrangements were made for a number of back to back deals swapping dollars [which arrived in suitcases full of large denomination bills] for roubles [specially printed] which were immediately handed over in exchange for approaching 90% of the USSR’s economic base. That portion of the economy ended up in the hands of 19 oligarchs, faith in the rouble collapsed, too many roubles chasing 10% of the economy, and the $ became the preferred currency. [This was covered in one of the big sundays some time after the event and rather more recently, maybe 7+/- years ago, in the new scientist]. The collapse followed.
    Who has access to that kind of cash?

    • financial matters August 23, 2012 at 3:22 pm #

      “”The corruption of many of the oligarchs is still spoken of as an alien force that infected otherwise worthy free-market plans. But corruption wasn’t an intruder to Russia’s free-market reforms: quick and dirty deals were actively encouraged by Western powers at every stage as the fastest way to kick-start the economy. National salvation through the harnessing of greed was the closest thing Russia’s Chicago Boys and their advisers had to a plan for what they were going to do after they finished destroying Russia’s institutions.”‘ (Shock Doctrine)

      • johnm33 August 24, 2012 at 8:57 am #

        f.m. I suppose it’s possible that the ‘western powers’ had benign intent, if only i could think of another instance anywhere.

  29. John Souter August 23, 2012 at 3:12 pm #

    Banks have never lent to the real economy – merely enticed it by the acquiring of assets then exploited their right to cash them in.

    A real economy by definition must serve and give purpose to humanity.

    For at least a millennium bankers have manoeuvred to hold the fulcrum of world power – they reached their ambition in the 20th century – In the 21st we are experiencing the price.

    It is as simple as that; and the politicians and statesmen of the world have neither the courage, wisdom or wit to do anything radical about it. Other than to sit on the fence until it collapses in the hope they will fall on the most comfortable side.

    They are bleeding us dry and it’s the politicians that are inserting the stents.

  30. Phil August 23, 2012 at 10:53 pm #

    Thanks for another great article.

  31. Bill Casso August 25, 2012 at 12:05 am #

    Governments should force the Banks to mark to market and when they are forced to admit they are bankrupt the banks should be taken over by the taxpayers. I call this the “first strike option” Why should we let the banks hold our money thereby destroying our businesses? Beat the banks to the punch! Take them over before they destroy the middle class.

    • BobRocket August 25, 2012 at 9:00 pm #

      Bill,

      the people who own the banks also own the Government, they see the middle class as a jumped up working class with delusions of grandeur.

      The middle classes still have some worthwhile assets though and relieving them of these and pushing them back to where they came from will take some time.

      It will be easy picking though, the middle classes have too much to lose in a revolutionary scenario and they have no solidarity to help each other in adversity.

      Assets will be picked off one by one, housing equity will be appropriated to pay for care and pension entitlements will be rolled back with barely a murmur.

      Any dissent will be derided with comments like ‘some people have never have had the luxury of owning their own home’, ‘large numbers of people could never afford to save for their pension, why should they pay for yours’ and ‘you boomers had it all and then spent it’, messages which resonate with the poorer class.

      How much sympathy will a person who lives in a depressed area, worked on and off for 45 years in hard manual labor only to retire on the basic state pension have for a mid ranking civil servant on a 35hr week for 30 years when they complain their index linked pension is not worth what was promised ?

      After that there will only be two classes remaining, the tiny elite who own everything and the rest who rent it off them.

      It is only when they push the rents too high (and they will because that is their nature) that a violent and bloody uprising will occur.

      • Southern Cross August 26, 2012 at 2:49 am #

        Bob, you have absolutely nailed it.

        I had always rather vaguely thought that most ‘developed’ societies would tend to steer (at least domestically) a middle path that ruled out both the worst forms of exploitation and a wider social fairness. Mostly because history created a great bulge of fed and educated ‘middle-class’ people whose self interest was served by decent government services, reasonable laws etc, so it was unavoidable that everyone, including those at the bottom be dragged along by that social consensus in a slow upward ratchet of improvement. So we have unequal but half-decent societies based on a structural pragmatism rather than social ideals. Not the stuff of inspiration, but the more likely outcome than either Socialism or Barbarism.

        Well I was wrong. That consensus is unravelling with breathtaking speed. Any day now we can expect to hear arguments in favour of slavery.

        As the ‘middle class’ are slowly assett-stripped and those with few assetts forced to the wall, horizontal fear and loathing grows. (Note that the very success of the Trade Union movement swelled that ‘middle-class’ who could then indulge in property speculation, shares etc just like their betters and to the detriment of those not so placed).

        So what do we do to combat this poisonous state of affairs? Tirelessly argue against rent-seeking, financialisation, unearned increment, tax evasion; combat the cynicism that admires the shyster and the bully; argue in short for intelligent Socialism which beats Barbarism any day and which must include all members of society. :-)

        My money is on high-tech neo feudalism for what it’s worth, but we can only try.

        Welcome back David!

        • steviefinn August 26, 2012 at 10:40 am #

          Nail on the head fellas. Golem’s scenario makes sense because the rentiers know of no other way, coming clean & accepting responsibility just isn’t an option, especially as they seemingly can’t lose whatever happens as they consider they hold all the best cards. I think they will push it too far though, then chaos as the never ending battle between positive & negative reaches breaking point.

          “In 1982 the IMF lent Mexico $4 billion, which went straight back out of the country to pay western banks – a perfect mirror of what is happening with so-called bail-outs to Greece and other Eurozone countries today. At the same time, the IMF insisted Mexico introduce radical austerity and liberalisation. There were cuts in every area of government spending.

          The economy collapsed and stagnated, many industries shut down, with the loss of at least 800,000 workers altogether. By 1989, the Mexican economy was still 11% smaller than 1981. Meanwhile, the debt doubled from 30% of GDP in 1982 to 60% by 1987.”

          http://www.newstatesman.com/blogs/voices/2012/08/thirty-years-mexico%E2%80%99s-default-greece-must-break-sadistic-debt-spiral

          It seems as though ignoring what has taken place in poorer parts of the world has caught up with us. As it’s pretty obvious that the modern day plunderers have been fine tuning their campaigns of pillage for some time, a bit like modern day Vikings ? perhaps that’s why descendants of Vikings had the sense to tell them to go f*^k themselves.

  32. johnm33 August 26, 2012 at 8:53 am #

    SC couldn’t agree more, probably be bonded servitude for debtors that gets the ball rolling. Still with financial meltdown [oct16?] war with iran, and meltout, well almost, in the arctic[ http://neven1.typepad.com/blog/2012/08/asi-2012-update-10-at-a-loss.html ] it makes life interesting.

    • Southern Cross September 4, 2012 at 6:06 am #

      They are ahead of us as usual John.

      http://www.guardian.co.uk/society/2012/sep/03/disabled-benefits-claimants-fines-work

      Quote:
      “The plan to increase the penalty for the sick and disabled follows earlier revelations that the government wants to bring in unpaid and unlimited work experience placements for those in ESA Wrag group”.

      “Unpaid and unlimited…”. The comments lack the usual trolling; most people are beyond disgust and rage helplessly at a completely ossified political process.

  33. Mike Hall August 28, 2012 at 12:25 am #

    An extraordinary piece by William K Black (UMKC) drawing on the events of the Irish Famine exposing the similarities in the elites’ attitudes & ‘economics’ (‘free market’) rhetoric between then & the GFC of the present. (Doubtless one could find parallel psychopathic/sociopathic elites at work in the historical records of the Great Depression.)

    This is a +must+ read.

    “Why is Paul Ryan, an Irish Catholic, praising the dogmas that drove the Great Hunger?”

    http://neweconomicperspectives.org/2012/08/why-is-paul-ryan-an-irish-catholic-praising-the-dogmas-that-drove-the-great-hunger.html#more-3031

    • John Souter August 28, 2012 at 11:04 am #

      Well posted Mike – modernise the words, substitute blight for casino debt and it’s not so different from the spin we are presently suffering.

    • steviefinn August 28, 2012 at 7:55 pm #

      Brilliant post Mike. It beggars belief the attitude of the elites from the past, it is a salutary lesson showing what the present bunch of bastards would be capable of if they are allowed to rewind what Michael Hudson referred to as ” The Progressive Era”. I was familiar with Trevelyan`s extreme free market policies, but nowhere near to the depth as described in the article.

      As you probably well know there is still plenty of evidence of the famine to be seen & felt on Ireland’s West coast. The drive from Louisberg to Delphi through Connemara got under my skin, as except telegraph poles, tarmac etc, it couldn’t have changed much since that terrible march of starving men, women & children for promised food, only to then be disappointed, & then to march back again with many of them dying by the roadside. An incredibly beautiful place, but sombre, like it’s dark lakes which I think are the English translation for their name ” Lough Doo “.

      There were good people around too, notably Quakers & even some good landlords, like the then Marquis of Sligo, Grandfather of Countess Markievicz.

      http://multitext.ucc.ie/d/Private_Responses_to_the_Famine3344361812

      The Genocide was also happening in India, with much the same reaction from the British :

      British response

      A contemporary print of the Madras famine of 1877 showing the distribution of relief in Bellary, Madras Presidency. From the Illustrated London News, (1877)
      The first major famine that took place under British rule was the Bengal Famine of 1770. About a quarter to a third of the population of Bengal starved to death in about a ten-month period. East India Company’s raising of taxes disastrously coincided with this famine[68] and exacerbated it, even if the famine was not caused by the British regime.[69] Following this famine, “Successive British governments were anxious not to add to the burden of taxation.”[70] The rains failed again in Bengal and Orissa in 1866. Policies of laissez faire were employed, which resulted in partial alleviation of the famine in Bengal. However, the southwest Monsoon made the harbor in Orissa inaccessible. As a result, food could not be imported into Orissa as easily as Bengal.[71] In 1865–66, severe drought struck Orissa and was met by British official inaction. The British Secretary of State for India, Lord Salisbury, did nothing for two months, by which time a million people had died. The lack of attention to the problem caused Salisbury to never feel free from blame.[fn 9] Some British citizens such as William Digby agitated for policy reforms and famine relief, but Lord Lytton, the governing British viceroy in India, opposed such changes in the belief that they would stimulate shirking by Indian workers. Reacting against calls for relief during the 1877–79 famine, Lytton replied, “Let the British public foot the bill for its ‘cheap sentiment,’ if it wished to save life at a cost that would bankrupt India,” substantively ordering “there is to be no interference of any kind on the part of Government with the object of reducing the price of food,” and instructing district officers to “discourage relief works in every possible way…. Mere distress is not a sufficient reason for opening a relief work.”[73]
      In 1874 the response from the British authorities was better and famine was completely averted. Then in 1876 a huge famine broke out in Madras. Lord Lytton’s administration believed that ‘market forces alone would suffice to feed the starving Indians.’[68][fn 10] The results of such thinking proved fatal (some 5.5 million starved),[75] so this policy was abandoned. Lord Lytton established the Famine Insurance Grant, a system in which, in times of financial surplus, INR 1,500,000 would be applied to famine relief works. The result was that the British prematurely assumed that the problem of famine had been solved forever. Future British viceroys became complacent, and this proved disastrous in 1896.[76] About 4.5 million people were on famine relief at the peak of the famine.
      Curzon stated that such philanthropy would be criticized, but not doing so would be a crime.[fn 11] He also cut back rations that he characterized as “dangerously high,” and stiffened relief eligibility by reinstating the Temple tests.[78] Between 1.25 to 10 million people died in the famine.[79][80] The famine during World War II lead to the development of the Bengal Famine Mixture (based on rice with sugar). This would later save tens of thousands of lives at liberated concentration camps such as Belsen.[81]
      [edit]Policy influences
      British famine policy in India was influenced by the arguments of Adam Smith, as seen by the non-interference of the government with the grain market even in times of famines.[66][65] Keeping the famine relief as cheap as possible, with minimum cost to the colonial exchequer, was another important factor in determining famine policy.[53][65] According to Brian Murton, a professor of geography at the University of Hawaii, another possible impact on British policy on famine in India was the influence of the English Poor Laws of 1834,[65] with the difference being that the English were willing to “maintain” the poor in England in normal times, whereas Indians would receive subsistence only when entire populations were endangered.[82] Similarities between the Irish famine of 1846–49 and the later Indian famines of the last part of the 19th century were seen. In both countries, there were no impediments to the export of food during times of famines.[82] Lessons learnt from the Irish famine were not seen in the correspondence on policy-making during the 1870s in India

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

      • steviefinn August 28, 2012 at 10:26 pm #

        A definition of Neoliberalism that fits with & kind of explains the above.

        “There is a lack of critical assessment of the past. But you have to understand that the current ruling elite is actually the old ruling elite. So they are incapable of a self-critical approach to the past.”

        Ryszard Kapuscinski

        http://jessescrossroadscafe.blogspot.co.uk/2012/08/neoliberalism-rise-of-machine-and.html

        • Mike Hall August 29, 2012 at 10:27 pm #

          Yes indeed, good quote stevie.

          I must say that what was in my mind when I read Bill’s piece was what is being done to Greece just now.

          It’s clear to everyone that Greece cannot possibly recover with the punitive & callous policies insisted upon by the Troika. So their choice is to leave the Euro now or continue in worsening poverty & slavery whilst the elites (incl Greece’s own) loot whatever they can & whilst they can.

          Ireland, Portugal & Spain should take note because their turn is coming.

          And as Climate Change diminishes the world’s ability to produce food over the next decade or two, the global elites’ response is clear & entirely comparable with the British elites’ response to colonial Ireland. Whilst the media & general public sleep…..

  34. Paul Anthony August 29, 2012 at 1:26 am #

    I’m no expert in finance but it seems to me that it is not in the interest of banks to lend money to small business. In the UK we have a large number of small businesses doing very well and they could grow and be successful given access to loans. They make real things wanted by real people. They are innovative, well managed and have full order books. If they get funding, there is a real risk that they could drag us back into growth and eventually out of debt. Their contribution to the public purse could dwarf that of the financial sector.

    There will be a reckoning one day, a post mortem on this debacle.

    If people realized that the real wealth creators are those with grease on their hands, that the finance sector got us into the mess and the engineers got us out, then there would be no more pussy footing around the banks. They would be severely regulated, only allowing finacial instruments that are beneficial to us. Bonuses could be capped and any threat to move overseas would be gladly accepted.

    The finance sector is top dog why would it help a potential challenger?

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