No change possible

18 months ago the US population voted for change. A month ago the UK population voted for a hung Parliament wanting a change from New Labour. However, no such change is possible - when all major political parties in both countries are dedicated to maintaining the failed business/financial model.

We are returning, slowly, to business as usual - financial manipulation on a colossal scale where vast sums are involved in speculation that drive stock, commodity and currency markets up and down. In the last month, the price of oil was driven up and then down again as witnessed by the prices at the pumps. The attack on the Euro was orchestrated with by the same manipulators. In fact, the US economy continues to be in far, far worse shape than that of the Euro zone. The attack was kicked off by the US rating agencies downgrading the Greek debt just as Germany and the IMF were announcing a rescue package.

The writing is on the wall, however, for the Wall Street/City of London manipulators. The financial weight of the West is now in continental Europe, which will not put up with this Anglo-Saxon destruction very much longer. The real economy will then no longer be held hostage to the whims of the disreputable banksters.

Casino Banking

I have long argued that we need the financial service industry to act as just that - to serve the needs of the community in which they operate. This means that they should adequately fund the operations of the productive sector of the economy. However, the majority of their profits come from casino operations where customers deposits and savings primarily fund their gambling operations. This activity has the effect of hoarding funds, which Keynes decried as the main reason for the failure of Say's law. As you know (if you have read Sabotaging America) Say's Law states that supply always equals demand and recessions are self correcting.

The German ban on "naked short selling" is really a ban on a form of derivative trading. It involves a bet that a particular financial instrument (e.g. a stock) will decline in value without actually taking any financial position in that instrument. When such huge bets become known herd psychology ensures that the "Market" starts to sell the particular instrument and the bet becomes a self-fulfilling prophesy. Perhaps it would be too much to suggest that the betting bank might also persuade some of its own customers to sell the particular instrument and help matters along - the mechanisms of "trash and cash" have many variants.

I have proposed the totally separation of commercial banking from casino banks to reduce the funds available for destructive betting operations and the winding down, at no taxpayer expense, of the latter when they fail.

The Market

The myopic fixed attention on "the Market" in Western countries betrays the fundamental underlying falsehood with the current socio-economic model. The falsehood is that a given Market index is a true indicator of the state of a country's economy. It follows, therefore, that the market must be propped up to save the country. This is a case of the tail waging the dog.

There are several truths to be understood. The first is that there is no relationship between the health of the economy and the so called "Market". The first chapter of "Sabotaging America" shows how economic bubbles cause the "Market" to go ecstatic, while the real economy is being destroyed. Similarly, layoffs and outsourcing cause the "Market" to rise. The second truth is that the "Market" is constantly being manipulated by speculative activity. The lunacy of the "Market" was exposed when one lone trader managed, in under an hour on May 6, 2010, to wipe 10% off the value of America as indicated by the "Market". In such obvious market malfunctions, only those possessing an ideological, faith based perception of the "Market" could continue to believe in such a farrago.

My next blog will indicate what should be done about the monstrosity

Wall Street/City of London manipulations

As stated in the Foreword to Sabotaging America ".... the market had become one that was free to be manipulated on a colossal scale ..." The SEC have now charged Goldman Sacks with defrauding investors . Goldman has denied all wrongdoing. The charge is that Goldman permitted John Paulson to hand pick which mortages to package up to sell to its investors. Paulson knew that the sub-prime bubble was about to burst (see page 5 of Sabotaging America). Note that John Paulson is not related to Hanry Paulson who was Treasury Secretary at the time. Paulson made about $1 Billion in these transactions for his Abacus hedge funds.

London based Goldman employee Fabrice Tourre was instrumental in setting up the Abacus hedge fund. SEC charged that Goldman did not tell the mortage investors that Paulson had bet against them . In the event, the investors lost approximately what Paulson made, that is about $1 Billion.

It is high time that some of the banksters went ot jail.

Mutual ownership in action

The John Lewis group, which owns the department stores and the Waitrose food supermarkets, had an excellent 2009 trading year with a 10% rise in profits. In consequence, every one of the workforce, even someone who joined only last week, will receive a 15% bonus, which is equivalent to eight weeks pay.

Note that the John Lewis group faces stiff competition on the high street, especially from food supermarket chains such as Tesco, Asda and Morrisons. John Lewis, the UK's favourite stores proves that mutual ownership beats the very best competition at its own game. The key ingredient is the company loyalty and dedication that mutual ownership confers. Something that the Wall-Mart owned Asda will never be able to offer, given its style of authoritarian management.

Arthur Andersen reprise

So, the demise of auditor Arthur Andersen almost 10 years ago, amid the Enron scandal, has not taught the audit profession anything. Thanks to the 2200 page report by bankruptcy examiner Anton Valukas, we now have a definitive account of the accounting tricks the led up to the collapse of Lehman Brothers in 2008. Lehman's collapse led, in turn, to the general collapse of the world's financial system.

The Anglo connection in this mess is quite clear. No law company in the US would certify the off-books financial manipulation employed by Lehman. Lehman then turned to its London based office to find a compliant lawyer in the "light touch" regulatory environment created by New Labour. Linklaters was the London law firm that provided the legal certification for the off-books transactions. Ernst and Young then relied on this legal opinion in auditing Lehman's books. In the process Ernst earned $100 million in fees over the four year period heading up to Lehman's collapse.

The role of Lehman's board of directors in this mess provides an interesting facet into the working of corporate America. The directors have a duty of care in overseeing the financial affairs of any corporation ( see Chapter 7 in Sabotaging America). However, the crucial point here is that the duty of care is to the corporation and not to the shareholders, who actually own the company.

The net result of this artificiality is that we have a self interested accountant providing advice to a mythical person (the US corporation), which is accountable to no one but itself. It is a world of cynical liars who have yet to be brought to justice for the evil they have wrought. I expect they never will be.

My next blog will give some good UK news about how things should be - but America is not interested.

The sabotage continues

As every day passes it becomes increasingly clear that the Washington centered project for sabotaging America continues apace. Most thinking citizens now despair for the future of their country. Narrow financial and ideological interests dominate all political debate. For example, Democrat abortion opponents hold hostage even the pathetic attempt at health care reform. The Republicans are determined to stop any legislation from passing however beneficial it might be to the country. Reform of the utterly corrupt financial system is now only a dream.

As usual, the media has been more concerned with distractions than with public duty to hold to account the politicians we pay for. The groveling apology that Tiger Woods felt obliged to make was totally in keeping with the warped values of the news media. In general, the public at large has been kept in woeful ignorance of the true state of the US position in the world.

The Press and Congress continue to let America down. One cannot be hopeful that anything will change for the better. Good luck one and all.