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.
Wednesday, June 2, 2010
Friday, May 21, 2010
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 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.
Thursday, May 20, 2010
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
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
Friday, April 16, 2010
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.
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.
Saturday, March 13, 2010
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.
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 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.
Sunday, March 7, 2010
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.
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.
Saturday, February 20, 2010
Spying on our children
According to a lawsuit filed in Federal court last week, the Lower Merion school district, in a suburb of Philadelphia, used the Mac laptops it had supplied 2,300 pupils to spy on them at home. The school used a remote control webcam feature on the laptops to take pictures of the students without any form of parental permission. A student was shown a picture taken in this manner by the assistant school principal and told he was behaving in an inappropriate fashion.
It is deeply ironic that this outrage occurred in Philadelphia, home of the Liberty Bell.
The "land of the free" had better watch out; before long there will be no liberties left.
It is deeply ironic that this outrage occurred in Philadelphia, home of the Liberty Bell.
The "land of the free" had better watch out; before long there will be no liberties left.
Feudalism Returns
In the 16th, 17th and 18th centuries individuals left Europe to escape the bonds of feudalism in order to enjoy the prospect of freedom in America. Unhappily for most Americans their lives are now controlled by a new variety of feudalism - one that is Corporate in nature. Their very existence is now controlled by the power of corporations - employee working conditions, health care, pensions and income. All these critical items now depend on corporate good will and we all know that there is no sentiment in business.
The US Supreme Court has now permitted corporations even greater ability to fund election campaigns and, thereby, to control Congress. Corporations can now also increasingly fund judicial campaigns. It looks as if both freedom (legal redress) and democracy is being lost in America today.
Always remember that patritism is the last refuge of the scoudrel.
See my next blog for the latest outrage.
The US Supreme Court has now permitted corporations even greater ability to fund election campaigns and, thereby, to control Congress. Corporations can now also increasingly fund judicial campaigns. It looks as if both freedom (legal redress) and democracy is being lost in America today.
Always remember that patritism is the last refuge of the scoudrel.
See my next blog for the latest outrage.
Monday, February 15, 2010
Derivatives are back
The 2008 financial crash was caused by derivative (insurance) speculation against home mortgage default. There is always a new opportunity for betting against something and this time it is betting against a default by an entire country - in this case Greece. However, the opacity of such trading makes it open to manipulation and, of course, losses. As yet no regulation is in place to prevent another debacle.
Friday, February 12, 2010
Vampire Capitalism
It existence of share ownership permits the operation of Vampire Capitalism via the formation of Private Equity funds and Hedge Funds. The hostile takeover of Cadbury by Kraft was only the latest example of such operations, which always grows after a crisis and cheap money becomes available.
The operation can have many variants but generally proceeds as follows. A public company is targeted by a Private Equity fund as having characteristics that make it suitable for "restructuring". Such restructuring is termed "pruning out the dead wood" and "making the company more efficient". In other words the Private Equity folk are engaging, by their own admission, in helping share-owning capitalism to work better.
Step one - fund insiders put up a little of their own money and invite external participants to put up theirs. Much larger funds are borrowed from investment banks.
Step two - a controlling interest in a company is acquired.
Step three - The acquired company is restructured - assets stripped, staff layoffs, production moved overseas - anything that will reduce costs.
Step four - After several years higher earnings are achieved, as a result of restructuring. The higher priced shares are sold or refloated if the company was totally taken into private hands.
Step five- Divide up the profits, which mostly go to the insiders. Very often the external fund participants get very little in return for the risk incurred.
Step six - The company is left with much higher debt, which it is in a weakened position to pay back. The vampires have left town and on to the next victim.
The anglo-american business model at work.
The operation can have many variants but generally proceeds as follows. A public company is targeted by a Private Equity fund as having characteristics that make it suitable for "restructuring". Such restructuring is termed "pruning out the dead wood" and "making the company more efficient". In other words the Private Equity folk are engaging, by their own admission, in helping share-owning capitalism to work better.
Step one - fund insiders put up a little of their own money and invite external participants to put up theirs. Much larger funds are borrowed from investment banks.
Step two - a controlling interest in a company is acquired.
Step three - The acquired company is restructured - assets stripped, staff layoffs, production moved overseas - anything that will reduce costs.
Step four - After several years higher earnings are achieved, as a result of restructuring. The higher priced shares are sold or refloated if the company was totally taken into private hands.
Step five- Divide up the profits, which mostly go to the insiders. Very often the external fund participants get very little in return for the risk incurred.
Step six - The company is left with much higher debt, which it is in a weakened position to pay back. The vampires have left town and on to the next victim.
The anglo-american business model at work.
Thursday, February 11, 2010
The Tobin Tax
The world's banksters are very worried that the Tobin tax would destroy their standard of living.
It has been estimated that a 0.005% tax on all transactions, as proposed by Tobin, would raise about $160BN annually.
I propose we institute a fund to help out banksters in their hour of need. I am sure the Salvation Army could help.
It has been estimated that a 0.005% tax on all transactions, as proposed by Tobin, would raise about $160BN annually.
I propose we institute a fund to help out banksters in their hour of need. I am sure the Salvation Army could help.
Increasing trade deficits
Higher trade deficits have been reported in both the UK and the USA.
Even in recession the US trade deficit in 2009 was well over $1Billion per day. As reported by the Department of Commerce it was $380.7 bn for all of 2009. This was the lowest for eight years!! However, the December deficit was 10% higher than November. Economists expect the trade deficit to rise in 2010.
The UK too has shown a similar pattern of trade imbalance, even with the decrease in the value of the Sterling. The Office of National Statistics reported that the December deficit was £7.3bn compared with the November deficit of £6.8bn.
Note China has overtaken Germany as the world's largest exporter.
The question remains - how are we all going to pay our way???
Even in recession the US trade deficit in 2009 was well over $1Billion per day. As reported by the Department of Commerce it was $380.7 bn for all of 2009. This was the lowest for eight years!! However, the December deficit was 10% higher than November. Economists expect the trade deficit to rise in 2010.
The UK too has shown a similar pattern of trade imbalance, even with the decrease in the value of the Sterling. The Office of National Statistics reported that the December deficit was £7.3bn compared with the November deficit of £6.8bn.
Note China has overtaken Germany as the world's largest exporter.
The question remains - how are we all going to pay our way???
Wednesday, February 10, 2010
Setting fire to your economic engine
Although promising not to, Kraft is closing down the Cadbury factory in Somerset, at Keynsham near Bristol, and moving it to Poland. Short term hedge funds recently bought up the stock and boosted the number of shareholders over the 50% margin favouring the Kraft takeover.
Laissez-faire economics pays no heed to national interest. The UK has been up for sale for some time. What will they do when there is no industry left to sell?
Laissez-faire economics pays no heed to national interest. The UK has been up for sale for some time. What will they do when there is no industry left to sell?
Tuesday, February 9, 2010
Huge gambling returns
Today's Financial Times revealed that currency speculators and hedge funds have amassed nearly $8 Billion in a short position against the Euro. This is where much of the tax payers bail-out money has gone. In the 1980s one currency after another was attacked in this manner, first the Russian Rouble and then a succession of Asian currencies. The governments of small countries could not withstand such onslaughts and a financial crisis ensued. The US 10b Regulation was put in place to prevent traders crashing economies and individual shares in this manner. Naturally it was repealed in the deregulation fever of the 1990s .
Despite all the political hot air that has been expended no regulations will be put in place to stop the non-productive sector wrecking the productive sector.
Despite all the political hot air that has been expended no regulations will be put in place to stop the non-productive sector wrecking the productive sector.
Monday, February 8, 2010
The Tea Party
The meeting of the Tea Party over last weekend is not really worthy of any comment, but points up a recurring problem in America. This problem is that America seems to have he propensity to choose the wrong leaders at times of need. Reagan was elected in the 1980s just when it was encountering strong international competition and needed to set up a national response to it. Instead America got laissez faire ideology. The US is now in deep crisis and the Tea party advocates laissez-faire, but without having the brains to know its ramifications.
As Andy Vrahimedes said to me in 1956 "America is the land where all the peasants of Europe went and dug up gold". My reply in 2010 is "Andy - unfortunately the gold has run out but the people are still peasants". The Tea Party is proof of this last statement.
As Andy Vrahimedes said to me in 1956 "America is the land where all the peasants of Europe went and dug up gold". My reply in 2010 is "Andy - unfortunately the gold has run out but the people are still peasants". The Tea Party is proof of this last statement.
Sunday, February 7, 2010
Investment bank front running
About a month ago I was listening to a BBC news program that indicated the majority of share trades on both Wall Street and the LSE (London Stock Exchange) in the last year involved front running. A further study revealed that there are two varieties of front running:
Note that investment banks trade both for clients and for themselves
1) Large investment bank can front run their own large clients by knowing that a client has placed an order for a very large share transaction and then trading just ahead of their client for the bank's own account.
2) Investment banks can use very high frequency trading to front run all large block trades. This happens when a large institution, say an insurance giant, starts to trade a large block of shares. It will do so in several increments, so as not to move the market too much. The front runner detects the first increment and trades just ahead of the second.
Apparently, Goldman Sacks has admitted to doing this.
Note that investment banks trade both for clients and for themselves
1) Large investment bank can front run their own large clients by knowing that a client has placed an order for a very large share transaction and then trading just ahead of their client for the bank's own account.
2) Investment banks can use very high frequency trading to front run all large block trades. This happens when a large institution, say an insurance giant, starts to trade a large block of shares. It will do so in several increments, so as not to move the market too much. The front runner detects the first increment and trades just ahead of the second.
Apparently, Goldman Sacks has admitted to doing this.
Role of easy credit
Approximately every eight years since 1980 an asset bubble has caused a severe economic downturn, which had to be cured by the introduction of cheap debt. Cheap debt is then used to finance the next bubble and so on - the 2008 crash was the latest. Worse is to follow in the next one. The interests of Main Street and Wall Street are diametrically opposed - Main Street wants economic stability, Wall Street wants instability. Wall Street money is not made in stable markets; it is made in fluctuating markets and very big money is made in market recessions. Removal of Glass-Steagall regulation (see chapter 4 of Sabotaging America) vastly increased the amount of funds available for speculation and the securitization of assets, such as housing, opened up new avenues for that speculation. Currently, the bank bail funds out have gone into front running institutional stock investing (see next blog) or into commodities. You may have noticed the recent fluctuation in oil prices, which was driven more by speculative demand rather than commercial supply/demand.
Saturday, February 6, 2010
Mutual ownership
As the reader may be aware, I am an advocate of employee owned companies. I am attaching the web address for an interesting BBC program on that topic. It turns out that a surprising number of companies in the UK have adopted this business model. They claim that employee productivity is greatly enhanced with the business arrangement.
Sunday, January 31, 2010
Continuing economic crisis
January 31 2010This blog is for readers of Sabotaging America who wish to communicate with the author or to follow his latest thoughts and ideas as economic events unfold.
My current view is that America is at a critical phase and that President Obama is not on a course that will rebalance the economy. Most Americans are angry at the inattention that has been paid to creating jobs while restoring the banksters to their former profligate ways.
The financial/business model under which the country has been operating, expecially in the last 30 years, is failing and another system - a revised capitalist system - must take its place.
Subscribe to:
Comments (Atom)