In case you have forgot what is causing the “financial crisis” gripping the world in static non-investment, read this NY Times article by Alan Blinder – Six Errors on the Path to the Financial Crisis.

When considered retrospectively, it certainly seems like another one of those things “they should have warned us about”. The role of Government is oversight; but the role of the monetarist post third-way committee of inspired insanity we have been calling Government has been to submit us to ten years of extreme capitalism to prepare the world for some utopia. Trouble is the electorate became greedy as their mortgages became insignificant and their property values escalated things seemed dandy.

Trouble (for Gordon Brown) is that the electorate is swinging away from Tony Blair and his pretense at being a Labour Government in the UK. Gordon Brown’s supreme act of socialism will be to nationalise the banking system? He could. He is not the only Government weighing that option. Is that a financial utopia?

The world just turned a great big corner and we could finally now realise that constant speculation about OWG (One World Government) and being branded with bar codes – the age of fear – the age of conspiracy – it’s over. American culture celebrated this and it celebrated vampires. The walking dead. You gotta wonder why.

It is not the twists and turns of our culture that have caused the financial disaster they are calling “the meltdown”. Read the linked article above for a full description of what caused it (or read Disturbing Trends historically, but that would take far longer).

The way back is to cancel the CDOs that are dragging the system down. Make instruments non-insurable except by the actual current owner and then only allow one payout on insurance hedge bets. Do it retrospectively and wind back some of the nonsense.

It is never going to be a fair recovery when already execs expect to walk away with 30 million dollars in a golden handshake after cash injections by the tax payer. It is not business as usual. Those taking money from the tax payer however legit should consider surrendering a goodly portion of what anyone would recognise as ill gotten gains.

If that is impossible – well it is not impossible, but payment of 61 trillion when no capital is changing hands is impossible. It is either that or allow the economy of the world inflate to enable that additional capital to exist – like an international scale Zimbabwe. Is that where the economies of the world are headed?

Probably not. But the warning signs are there and they are far worse than we ever considered likely. At least it will be a Northern Hemisphere summer as the effects of layoffs start to really bite.

Afterword: also, check this article in the NY Times, especially the last three paragraphs. One guesses that I can quote it – as I have argued the same that Mr Geithner has been arguing (much to my surprise).

Failure is an option. To eject those who now exhibit signs of financial dementia with a safe but realistic exit option is reasonable – but to not effectively insist they are taken out of the future map of investment decisions is futile. If 61 trillion dollars of new capital is added to American and UK pool – both economies will suffer devaluation of what portion that is to current total capital to fund those contracts.

It is an option. It will affect the world economy. But these “bonuses” are based on laws that were being used creatively to squeeze funds for personal retirement funds of executives who did not in fact bring any value beyond actual growth to their own portfolio. It is as though perhaps the world has become so obsessed by gambling which is not surprising considering the nature of the human soul.

There are those who worked for genuine reward and there are those who have not. They know who they are – in the end it does not matter. A country depends upon the intelligence of rich economic manipulators (like insurance giants) to legally exercise choice with money, ultimately led to a plethora of greedy decisions. To fix the problem Western Governments are prepared to continue to inflate their economies, just enough so that leverage takes over and grinds these fruitless contracts out at a huge discount to counter capital gains tax?

In a world with all this additional capital, it has the potential to be extremely inflationary. It may seem like the start of a depression because the banks do not know what liabilities they will suddenly face. It looks like one because all these companies are being driven by a belief that they have to layoff staff like mad. It is utterly silly, decisions being made to make the numbers look good.

Why do we not recognise this for what it obviously is?

Next article to explore that…

Disturbing trends predicted that Bush would need more bail out funds and it looks like we sort of got it right. Though he has left the White House, he is still technically President – and the Bank of America and Citibank are moping up the bail out cash like blotting paper. It is not the end yet. But it may be the end of the beginning of this crisis, although I have seen that prediction before.

Sorry, we were right. Them pesky derivatives.

Independent.co.uk

The Credit Crunch has been in the news for over a year and many have not noticed anything except the news being reported. But for some it has been horrible and life changing. Houses bought on zero or little equity have turned into negative equity and being forced to sell in those conditions is locking that loss into reality.

Credit card debt has been the silent bane of many lives removing any hope of wealth, usually when it could do the most good. There are about five stages of any life, and after young families with their expanding social needs are very likely to quickly create a mountain of debt without realizing just how difficult it will be to reduce it. Years later, the seething remains still extract a portion of their pay-cheque and a greater portion of their youthful promise has been absorbed into a life of debt. Stages 3 and 4 of many lives are spent undoing what they enjoyed in Stage 2.

“Generation Y” seems the most adept at accumulating debt. The student loan culture experiment that “funds education” is nothing but an extended form of slavery. It is an intergenerational con. We will teach you kids if you sign your life away here, here and here. Now you work and pay it back! Political pressure keeps the interest on such loans minimalised until the student decides to strike out on their own, and then it is pretty similar to a mortgage.

Mobile phones are in the same league. How many 18 – 25 year olds spend more than they earn? How many run up huge bills on their mobiles?

But now, we have a whole new problem. The wild enthusiasm getting into debt now has to find a way of going the other way. We have had a credit crunch. Next we have a huge consequence. Will the debt not get repaid?

Defaulting on a huge scale leaves lives undone. Not just the lives of the defaulters. Their families and the people they do business with. Not to mention their bankers.

2009 could be a very rocky ride. Economic extinctions are the real threat. When sections of the economy cease to exist. These bail outs mean that the extinction is now a shared thing. It will affect a larger number by letting the economic cancer spread.

Economic Responsibility

The elephant in the room was ignored way past its fat carcass rotting in the corner. The consumption of average American is unmatched in history. The output of the average Chinese is unmatched in history. To compete in the big world, the Chinese made their products less expensive and held their currency very low and the Americans had ridiculous wealth. Over generations this leveraged American citizens into debt, at first by the liquidity arising from short term debt (credit cards) which returns lots of value as payment demands mount, so does liability ramp up. In other words, debtors are given reasons to pay them back (to US banks). So the secondary mortgage market and being able to work the system. By arbitrage on property sales, investors were being given a free and rapid rise. This lead to an increase in property investment vehicles and these in turn would lend on their “assets”, thus becoming, in effect, banks. The additional capital availability was then leveraged into bonds and futures and then derivatives. As the money served more and more future up now based upon this internal explosion of capitalisation. The consumers vs producer equation went seriously out of whack. Why do we consume so much? Maybe it is just risks taken are more when there is an excess of capital. The US excells at bigger and better, but sheer quantity is another type of strength.

The trick is to leverage both together. To understand how our different economies have evolved to serve our society and live with a relativity to one another. Competition is for rats. We humans can enjoy our path of life without having to win. Losing is now also quite a lot of fun.

Does this mean American consumption has been making China economically successful? What happens next as Americans can no longer afford to buy buy buy.

It seems almost fashionable to be fatalistic, and there seems a slight gasp when economic conditions are mentioned. Nobody seems to have a definite plan, but having a definite plan is the key to success when things are good. Why should it be any different now?

Normal things are not that easy, either. You always have to try hard, to make a go of things. Orderly thinking is good. Planning is good. Dusting off a few of those management skills that they used to talk about. But the question is, what is the world going to want as everything else, including imported goods descend in value. There may be a time when a car costs five hundred dollars and nobody can buy one.

Unlike Zimbabwe. As the rest of the world edges with depreciation, this land is being throttled with extraordinary inflation. It is being ruined by a leader ten times more dumb than W. He knows what to do. And by George they had better do what he says or he will have them shot. There simply are not that many humans, historically, who could cause so much misery as Mugabe has. Zimbabwe would be better off if a pile of shit ran it than the power mad imbecile, Robert Mugabe. It is time he gave it up.

George Bush is trying to do something similar to the world economy.

The path that GW Bush has set the United States upon is inverse socialism. It is regression. It has produced an incipient depression in the world economy by creating a inverse bubble. A huge cash vacuum has removed 2 trillion from the American federal reserve.

To reduce the treasury into a funding agency for the seriously wealthy, bankers and those who take a cut from everyone, is grand scale theft.

It is a brutal feudal solution to the problem of the masses. The enormous populations of the world are increasingly applying economic pressure to the social competition between “races”. It is interesting that in English at least we choose the same word “race” to depict each strain of humanity, each wild attempt by God or Nature at maxiumising survival odds; and, the mad dash for the finish line of runners, horses or companies in the stock market. The implication is that in our frenzied dash toward death we are in competition. The leemings that do not fall off the cliff live to try again another day.

Social evolution could see human communities feeding each other due to their cooperative understanding and mutual wealth and living within its means. Trade was the connective tissue of the late twentieth century.

Consider a mad bear, thrashing about on the ice floe bent on the destruction of the reflection of that “other” bear mirrored in the sunlight – isolationism can lead to war. Destruction to remove elements of the economic equation as in the image of Nero and a burning Rome or Nakasaki or the WTC – flatten the old order to bring in a new order – this is the product of the Bush world. Like that game where you hit moles. Keep paying the banker like this, and ten more will arrive needing “bail out”.

Now it is the automotive industry asking for tax payers funding. The great American Auto Industry is so symbolic and such a huge employer that the new Government may prop it up until it starts to produce a product that people want and does not corrupt the environment by burning hydrocarbons, then it will no longer need support.

But just giving them dosh to support their largesse is simply bad management. The oil corporations and the consumers of their product rely on the social cost their product exacts. If we, the tax paying inhabitants of the world were to charge the oil/vehicle industry what they cost, it would cost more than the bail out.

One expects Barack Obama’s administration to do something smarter than paying for supplication. Like attach new non-polluting technology to the loans to the auto makers. It is a first step away from the antediluvian end game that GW Bush is playing out.

Roger Cohen in a NYTimes opinion piece suggests that America is built upon the survival of the fittest and that has to involve the death of the unfittest as in the case of Pan Am. Recent times has seen an unnatural injection of capital into an engine that does not want to start. Why is the response to 0% interest so slow? Because of fear?

Fear of death drives us to do something about survival. As the indulgent soon learn – cash will simply run out. That is because it is merely a reflection of effective productivity. The great failing of the Bush years was that America effectively stopped being productive. Completely indulged in the wild fantasies of a meglomaniac who could not protect America because the facts did not line up with his thinking.

To solve the financial crisis, connect productivity to wealth. Tax capital accumulation and reward work. The Bush way was to allow rampant accumulation, which in turn leads to excessive speculation as has occurred with the property market distortion. People do not see this rush on capital as growing pains, but when you expand the effective capital base of the community without any actual exchangable accumulating, the sound of the bubble popping is inevitable.

A social correction is about to occur. If governments raise taxes from consumption and capital, but returns it for productivity and we find a way to stabilise our population, we have a chance of living in a real nice, if somewhat degraded world. Carry on like we are, it will be far less wonderful for our grandchildren.

Tax transactions, especially speculation. The “free market” seems to be a very unfair mechanism when the bankers carry no risk as well as no cash. Taxing income vs expenditure stifles progress and ultimately provides cause for speculation. Ecomonic systems work due to exchange. Encourage profitability, reduce consumption. Invest in education.

Reducing world population would then be possible without the mad house of cards falling over.

NZ Herald reports on New Zealand’s fresh prime minister John Key who just won an election and has formed a progressive doubled valved powerhouse with Right Wing and Maori support – a clever prank or a progressive miracle?

It could be an opportunity for Maori to find new identity as a treaty partner (the Treaty of Waitangi was unlike other British colonial constitutions – it was a power sharing agreement, and maybe, just maybe, that is what is evolving now); or, it could become an impossible machine that just consumes energy instead of providing it. It is new ground, politically, but with the highly intelligent Dr Pita Sharples as Minister of Maori Affairs there is hope that genunine political traction in his hands will help transform Aotearoa, New Zealand.

In true business leader fashion, Key’s first act once forming this unusual government is to leave them to it while he meets at APEC with the rest of the worlds’ leaders. And he instantly is trying to get his view heard on centre stage – his voice is on the same side as GW Bush (who wants to meet with Key) – that the world markets need to be stabilized. Alan Garcia – the leader of Peru – and host to the conference has descibed the world market glitch as “growing pains”. Key seeks to increase regulation around times of economic growth. Good idea? We think so.

Meantime, American business leaders have warned that if the 60 trillion dollars worth of derivatives are not “deleveraged” from the market, we are facing “absolute carnage” on the market.

This APEC meeting is the last chance for the world’s leaders to:

a) override the legality of multiple insurance bets on assets not owned by the owner of the contract. By override, I mean cancel, burn, reduce to no value.

b) get honest about world trade, make it an even playing field with unbiased referees.

c) undertake a rewrite of the financial system to reduce the additiction to “growth” as the sole goal of economics. Stop labelling those, who oppose the logic of continual growth, communists.

Downside economics are not like upside. It is the opportunity for Governments to fix the broken veins and arteries so that productivity does has its rewards.

The 60 trillion dollars worth of speculative derivatives are simply of no real value. They do not represent growth of anything but the bank accounts of the henchmen. And the draining of all blood from the unwitting mortgage holders.