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.

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.

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.

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 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.

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???

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?

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.

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.

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.

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.

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.