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Top 10 at 10: China’s currency push; US/Euro banks still broke; Nouriel Roubini; Nassim Taleb; Party in Buenos Aires; Dilbert
July 3rd, 2009Here’s my top 10 links from around the Internet at 10 am. I welcome your additions in the comments below or send any links to me at bernard.hickey@interest.co.nz for possible inclusion in Monday’s Top 10 at 10. Our website does not have any military applications.
1. The Chinese push for new global reserve currency just won’t go away. Reuters reported China’s Vice Minsiter He Yafei saying the issue could be raised at next week’s G8 summit, although he subsequently said it was not on the agenda.
However, Bloomberg also reported the same minister saying that he hoped the US dollar would remain stable. This is the problem for China. It can’t afford to rush out of the room otherwise it is sure to spark a stampede through the shop. So instead it now has to delicately tip-toe out of the room and leave the porcelain intact.
2. It’s boom time again on Wall St. Seriously. Goldman is likely to pay out US$20 billion in bonuses and average salaries of US$700,000 this year as profits surge back to the investment banks, Heidi Moore at The Big Money says. Felix Salmon summarises the strategy nicely below.
All those bonuses can’t be coming from banking. But it turns out that the banks have been buying up billions of dollars of subprime mortgages, driving up their price. If they carry on doing that a bit longer, the market price will go higher than the price the banks have on their books, and they can then mark their mortgage book to market and report lots of lovely profits. What could possibly go wrong?
3. Michael Lewis, the author of Liar’s Poker, has uncovered the man behind AIG’s demise — Joe Cassano. Lewis wrote an excellent piece on the Icelandic debacle (who can forget the exploding Range Rovers?) and this article in Vanity Fair promises to be a cracker from inside the AIG Financial Products debacle. We only get a taste.
In 2001, Joe Cassano, a scrappy and ambitious longtime A.I.G. F.P. employee who lacked a mathematics background, was promoted to head the division. Under his watch A.I.G. F.P. would become increasingly immersed in credit-default swaps—insurance it sold on packages of corporate and consumer loans, including subprime mortgages, created by Wall Street. By the time the housing bubble burst, A.I.G. F.P. was on the hook for $450 billion in these credit-default swaps—enough to bankrupt A.I.G. many times over if even a fraction of this debt went bad.
4. Felix Salmon at Reuters has the amazing story of Hernan Arbizu, an Argentinian private banker for UBS and then JP Morgan who stole money from clients and went on to reveal to Argentinian authorities the extent UBS’ enabling of tax avoidance. Machine guns are involved. Here’s a gem. UBS comes out of it terribly and now the motivation for various governments attempts to ‘get UBS’ and private bankers in particular becomes clear. It seems private banks are mostly about avoiding tax. Maybe I’m a bit slow…
Arbizu then started going through all manner of legal proceedings in Argentina. At one point he told an Argentine judge about a very commonplace — but technically legal — way in which Argentines managed to avoid paying taxes on the $30 billion of assets which they do declare every year.
It worked like this: in the 1970s, during the junta, the Argentine government was buying a lot of arms from the Austrian government. And somewhere along the way, the military government passed a rule saying that Argentine citizens didn’t need to pay taxes on Austrian bonds. Amazingly, that was pretty much the only law from the days of the military government which survived the transition to democracy. Every year, in December, Argentines would sell everything they had, and put all their money into Austrian bonds for year-end. They paid no taxes. And then, in January, they went back and bought whatever they were invested in in the first place.
JPMorgan, says Arbizu, was even working on something called “the Austrian structure” — a special bond designed to solve the problems of illiquidity in December when lots of Argentines all wanted to buy Austrian bonds at the same time. It would be issued by the Austrian government at JPMorgan’s request, and would have a yield linked to a balanced portfolio, so that the yield on the bond was the yield on the portfolio and the Austrian government itself would pay no interest at all.
5. Nouriel Roubini at RGE Monitor says the poor June jobs report in the United States shows the ‘green shoots’ are mostly yellowing weeds.
The details of the unemployment report are even worse than the headline. Not only are there large job losses right now, but as a way of sharing the pain, firms are inducing workers to reduce hours and hourly wages. Therefore, when we’re looking at the effect of the labor market on labor income, we should consider that the total value of labor income is the product of jobs, hours, and average hourly wages – and that all three elements are falling right now. So the effect on labor income is much more significant than job losses alone.
The details also suggest that other aspects of the labor markets are worsening. If you include discouraged workers and partially-employed workers, the unemployment rate is already above 16 percent. If you consider also that temporary jobs are falling now quite sharply, labor market conditions are becoming worse. And the average duration of unemployment now is at an all-time high. So people not only are losing jobs, but they’re finding it harder to find new jobs. So every element of the labor market is worsening.
Essentially, the results today suggested that there are not as many green shoots. These green shoots, as we’ve argued, are mostly yellow weeds that may even turn into brown manure if a double dip W-shaped recession occurs in 2010-2011. And it’s not just the employment situation. Real consumption and retail sales remain weak. Industrial production remains weak. The housing market, in terms of price adjustment, remains weak, even if the quantities – demand and supply – may be closer to bottoming out. Indeed, the inventory of unsold new homes is so large that you could stop producing new homes for almost a year to get rid of that inventory. Moreover, about 50% of existing home sales are distressed sales (short sales and foreclosed homes).
6. I never thought I’d do this but here is a link to an article in Playboy. It seems that many of the unemployed bankers in New York are going to Buenos Aires for a big party because the hotels, the food, the drugs and the women are so cheap. The story focuses on one failed investment banker named Jason. It is an extraordinary and depressing story if true. These are the Masters of the Universe who drove the world into its deepest economic debacle since the 1930s. And their pay is going up again…
During his time in Buenos Aires Jason met only one local drug dealer. His name is Marcello. “There are more gringos in my city every day,” says Marcello in a brief interview in Palermo Soho. He has a shaved head and a sleeve of tattoos on his left arm. He speaks from the saddle of his motorcycle. “I don’t particularly deal with them every day, but I have told my employees to target them in the clubs. As far as bankers go I have been to many parties where American bankers have been. They all buy coke from me and blow it immediately. That’s the American way—consume, consume. They don’t respect the drug the way Argentines do. We use it when we are tired and want to keep dancing. These guys do a gram in an hour, and it’s not even12 a.m. yet. For me it’s good because I always have more to sell to them.”
7. Jonathan Weill at Bloomberg still thinks US banks are valuing their assets too highly.
Financial stocks in the Standard & Poor’s 500 Index rocketed 35 percent during the second quarter, fueling the index’s biggest quarterly advance since 1998. Yet for hundreds of U.S. banks and insurance companies, a vast credibility gap remains when it comes to their accounts.
As of June 30, there were 336 U.S.-listed financial companies trading for less than 60 percent of their book value, including Citigroup Inc., SunTrust Banks Inc. and Marshall & Ilsley Corp. Together, they had a stock-market value of $233.1 billion, compared with $463.1 billion of book value, or common shareholder equity, according to data compiled by Bloomberg.
Truth is, there’s no way to know if the economy has turned the corner, or if last quarter’s market rally will prove sustainable. Yet when this many banks still have balance sheets that defy belief, it means the industry probably hasn’t re- established trust with the investing public.
Trust, you may recall, is the financial system’s most precious asset. On that score, we still have a long way to go before we can say this banking crisis is over.
8. Nassim “Black Swan” Taleb tells CNBC he believes we’re still in the middle of a crash. There’s a video in the story I can’t embed that’s worth watching.
“You may have green shoots, whatever you want to call them, you may have temporary relief, but you are still in a world that’s breaking,” Taleb said on “Squawk Box.”
Anything that’s fragile like the financial system will eventually crash, he said.
“We’re in the middle of a crash,” Taleb said. “So if I’m going to forecast something, it is that it’s going to get worse, not better.”
The government needs to deleverage debt and not try stimulus packages that will inflate assets, he said.
“What makes me very pessimistic in not seeing any leadership or awareness on parts of government on what has to be done, which is deleverage $40-to-$70 trillion,” Taleb said.
“The monkey on our back is debt,” he added.
9. Moody’s has cut Ireland’s credit rating to Aa1 from AAA, making it the last of the ratings agencies to move, MarketWatch reported. These guys are onto it.
10. Martin Wolf at FT.com also thinks the US and European banks are far from fixed, particularly on the issue of compensation. See points 2 and 6 also. The chart series at the bottom just scares the almighty out of me.
“Never again” might be too much to ask. But “not for a generation” is essential. Governments cannot afford an early repeat, financially, politically, perhaps morally: the lives of so many cannot soon be sacrificed to the whims of a foolish few.
Yet what has emerged after the crisis is, as I argued last week , an even worse financial system than the one with which we began. The survivors are an oligopoly of “too-big-and-interconnected-to-fail” financial behemoths. They are the winners not because they are necessarily the best businesses, but because they are the best supported. It takes no imagination to realise what these institutions might now do, given the incentives for risk-taking.
So what is to be done? The characteristic, but futile, response is to move the regulatory deckchairs on the deck of the Titanic. Recent proposals from the US Treasury fall partly into this category. But the financial system had to be rescued from its own mismanagement of risk. This is not going to be changed by external supervision. It is going to be changed only by fixing incentives.
Tags: Martin Wolf, Nassim Taleb, Nouriel Roubini, Top 10 at 10
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July 3rd, 2009 at 10:41 am
These are the Masters of the Universe who drove the world into its deepest economic debacle since the 1930s.
I disagree vehemently Bernard: that’s the same mentality that wants an inquiry into our own banks. The below article speaks as well as I:
http://www.timesonline.co.uk/tol/comment/columnists/guest_contributors/article6619963.ece
Quote:
“Conventional wisdom contends that the current recession was caused by the free-market zealotry of recent economic policy and by excessively low interest rates. It is an absurd view, given that interest rates are not determined by market forces. Interest rates are manipulated by central banks with a government-mandated monopoly in the issuance of money.
Some of those still defending free markets protest that, contrary to popular opinion, banks were heavily regulated before the financial crisis. So they were. But this is quibbling. The role of central banks means that, at its core, we did not have a free market financial system. We had a command economy.
Command economies do not fail because the central planning agencies lack the powers required to bring about the best outcomes. They fail because, without market prices, nobody has the information required to adapt the allocation of scarce resources to the demand for them. They fail because central planners have an impossible job. The Bank of England should not get tougher or try harder. It should give up.”
July 3rd, 2009 at 10:51 am
Bernard
Sweden’s gone and stuck a pencil in the eye of depositors,repercussions will be interesting.
http://globaleconomicanalysis.blogspot.com/2009/07/sweden-cuts-deposit-rate-to-negative-25.html
July 3rd, 2009 at 10:55 am
Mark
My complaint is not with the free market. My complaint is with the corrupt and stupid people running America’s banks.
I just watched ‘Enron: the smartest guys in the room” for the first time last night. I was astonished that all the same things happened again.
The wild west trading mentality driven more by testosterone than sense is alive and well in New York. These guys cannot be trusted.
cheers
Bernard
July 3rd, 2009 at 11:18 am
Regarding the bankers, well, as I’ve said on this forum, their behaviour was that engendered by the central bank fractional reserve banking system.
Enron is interesting, and I will admit to not having read up enough on it, but weren’t the biggest rorts of that company done by playing the regulatory regimes of the different states off one against the other? From my limited reading, I know that many of the worst abuses fell into this category. That is, they were extracting monopoly rents from playing the game set up by state regulation. Yes, the behaviour of the individuals in that firm was reprehensible, but again, without further facts I contend that Enron could not have been the corrupt company it was in a true laissez-faire market.
On other mattters, Andrewj’s link is stunning. I’m still thinking that must be an Onion type article surely? Taking the mickey. Sweden’s central bank has not actually instituted a negative rate? Has it?
July 3rd, 2009 at 11:51 am
Part of what enabled Enron to happen was the accounting tricks and hidden off-balance sheet activities. This meant that on the face of it the Enron accounts looked OK – but hid underlying massive losses. This is the lesson that hasn’t been learned.
Does anyone believe that Citigroup’s recent reported profits are genuine? The out and out fraud of Enron may not be there but the public fascade presented may hide similar nasties. In many ways its worse now as the lies on company balance sheets are officially sanctioned. By the time you add on all the murky off-balance sheet activities to the opaque on balance sheet activities on Wall Street we now have dozens of potential Enrons.
July 3rd, 2009 at 12:00 pm
@mark…
Hmmm.
“interest rates are not determined by market forces.”
So when the OCR was LAST dropped and is now being kept low and due to stay there for at least a year, my mortgage rates should have fallen? I could have sworn that they were going up (something to do market forces, according to Bernard – guess Mr Hubbard would disagree here too then???)
“Interest rates are manipulated by central banks with a government-mandated monopoly in the issuance of money”
KEY WORD – MANIPULATED…. not controlled….
So the massive leverage of banks internationally over recent years did NOT create huge amounts of virtual wealth in the form of the global housing bubble???
Market forces have pushed house prices up to (probably) unsustainable levels. And now market forces seem set to drag them down again. Banks have already created the money on spreadsheets…. it is unfortunate that now some governments seem determined to print that money, monetise our debts and bring the underlying inflation to life….
July 3rd, 2009 at 12:02 pm
But Bernard “the corrupt and stupid people running America’s banks” are no different to the idiots, morons and crooks running the govts. The stupidity will never go away, not there and not here. The only wise position to take is to expect to be lied to, to expect dumb fathead policies to prevail, to expect corruption and fraud “bluechip” style, not to be surprised that the peasants actually believe the crap humbug and BS they are served up. Not one peasant at any of those property investment get rich quick seminars, would have taken the slightest notice of any warning you might have had the chance to voice to them. You would have been laughed off the stage. Ditto any advice on CDOs or the CDS rubbish. Even now the politicians refuse to take the time to learn why their stupid Keynesian pipe dreams are just more of the same crap useless policies. And so it will go on and on, deeper and deeper into the depression.
July 3rd, 2009 at 12:12 pm
MP, and Heaven forbid, you probably are one, it was the reserve bank fractional banking money printing machine that ‘made’ the asset bubble. Go to the Mises Bailout reader:
http://mises.org/story/3128
And read the articles, particularly on the Housing Bubble, and Inflationary Finance.
July 3rd, 2009 at 12:25 pm
Hi Bernard,
I find it extremely difficult to reconcile the above few articles with the earlier article from Barfoot and Thompson. I seems NZ is a different world and disconnected from the rest.
B&T self congratulation crow seem so extravagant your article gloom and doom seems downright ridiculous….so who is right ?? I really believe New zealanders seems either naivete or extremely lucky…I don’t know which.
But if the world economy continues to implode and finally hitting New Zealand, B&T has a lot to answer for…..or will they ??
July 3rd, 2009 at 12:50 pm
*** Also worth your time if you have a spare 3 hours is “The Corporation” by Joel Bakan. I assume nothing knew to most of you posting. Not your usual liberal trash documentary I found.
However, I still enjoy a cold can of Coca-cola… made with real sugar and not corn-syrup (NZ coke tastes better than US which is funny).
July 3rd, 2009 at 3:09 pm
Bernard you are kidding me, 10+ years as a reporter of banking and you have only just watched Enron: The Smartest Guys In The Room, the documentary backgrounding the whistleblower of one of the greatest financial frauds in history. How many times have I suggested any serious student of international commerce ought to watch it.
Mark – you confuse the hell out of me, your interpretations of ideoligies is all over the shop, but I think I am getting a handle on your thesis, you state that govt regulation allowed the corruption to occur. I concur, but to first get the regulation through the slaveminded corrupt infiltrated govt, or atleast the executives of govt. The outcome was an over issuance of created credit channeled back into the hands of very few, which they then used to monopolise the market. Distorting supply and demand, and removing any concept of what the market can bear. This has created a massive manipulated disparity of wealth that is driving society back the elite rich gated communities and the rest left out in no mans land in a desperate state of raw animal survival. That bit from you I get, but as to your suggestion that a system of law of the jungle without any regulation what so ever is going to come up with anything but the same result, I dont get.
Luke – The Corporation – is a great doco, exposing how the corporate structure was created to allow multiples owners to form an entity to carry out their drty work without being able to be held responsible for its actions. There is another great doco by the very respected John Pilger, right up there with Bill Moyer, called New World Order
http://www.youtube.com/watch?v=ONRc_NrOyyw
Onething is for sure, as the onion begins to peel on all of this, and even Bernard starts to comprehend what is going down, those that control the volume of credit/money should never be allowed to invest directly in any market of any kind. Because all they have done is created credit fueled bubbles, then used creative accountancy to portray debt as profit, then sold off to the pension funds and retirement savers of the world just before it all comes crashing down ensuring a massive transfer of wealth to their trust accounts.
The seperation of power between those administering the credit creation mechanism and those regulating the conditions of credit need to be reinstated. At present those who administer the credit creation mechanism have also, by graft, gained control of the conditions of credit also.
http://www.globalresearch.ca/index.php?context=theme&themeId=2
July 3rd, 2009 at 4:08 pm
Bernhard what about having Iain Parker in your team – a real asset with an edge – I think.
July 3rd, 2009 at 4:23 pm
Iain:
you confuse the hell out of me
I shouldn’t do. I probably have one of the most logical and coherent set of philosophical and economic premises on this forum.
your interpretations of ideologies is all over the shop
I certainly believe that contradictions are significant, and where I make them I must reexamine my premises, however, I don’t think I’ve made any such contradictions on here. So, name them please?
but I think I am getting a handle on your thesis
But how can that be if I’m ‘all over the shop’.
you state that govt regulation allowed the corruption to occur. I concur, but to first get the regulation through the slaveminded corrupt infiltrated govt, or atleast the executives of govt. The outcome was an over issuance of created credit channeled back into the hands of very few, which they then used to monopolise the market. Distorting supply and demand, and removing any concept of what the market can bear.
Yes, we largely agree on causes.
This has created a massive manipulated disparity of wealth that is driving society back the elite rich gated communities and the rest left out in no mans land in a desperate state of raw animal survival. That bit from you I get, but as to your suggestion that a system of law of the jungle without any regulation what so ever is going to come up with anything but the same result, I dont get.
Ah, but then the rub. Whereas I advocate freedom as the answer, you have some type of socialist collectivism as an answer, which will end up with me enslaved, which, as we agree on causes, means your end point is a complete contradiction. You can only be advocating fighting regulation, that caused this recession, with yet more regulation, just a different set of central planners or social creditors, or some damned thing, at the helm. That is just to continue the problem.
My advocacy of laissez-faire – which is not the rule of the jungle – is a logical result of my stated beliefs that this mess is the result of Big Government over regulating our business lives (and every other aspect of our lives), and, of course, the fractional reserve banking system in league with central banking.
July 3rd, 2009 at 5:50 pm
Actually, no, we don’t even agree on causes Iain:
The outcome was an over issuance of created credit channeled back into the hands of very few …
It was partly the expansion of cheap credit, yes, but ‘the few’ stuff just leads to silly conspiracy theories as best, or ‘your’ recommendation to regulate, or whatever, so ‘the few’ have no power, no doubt, at worst. If you’re saying the problem is the Big State, okay, but if a cabal of bankers, then we part company, for it was the Big State and the fractional reserve and central banking system that gave them such power, and thus it is the Big State and that system at the heart of it, and where an attack must be taken to. It is in the first instance a philosophic battle, with the economic one following logically on the philosophic premises.
Is it your belief that ‘the few’ must be regulated in some way? If so, by whom?
(I’m lazily hoping you answering those two questions is a quicker way for me to figure you out without reading all those links you keep posting, which I’ve not had a chance to look out – partly because the layout of which gives me a headache).
July 3rd, 2009 at 6:02 pm
B&T will have nothing to answer for.
They are in the business of selling houses. They are in the business of encouraging people to buy the houses that are on offer.
The vendor pays them the commission. Talking the market down is not in the vendor’s interest. Vendor’s will most likely seek out agents who are positive. Regardless of the state of the economy.
The Real Estate Agents are not responsible for the way the system is structured. They work within it.
Look to the Politicians (inept / snowed by neoclassical economists in Treasury), Treasury, and Banks as the main culprits if things really turn to custard in NZ.
July 3rd, 2009 at 6:03 pm
The great debate
Iain,
I totally hear where you’re coming from and must concur.
Mark, I also understand where you’re coming from but I’m afraid I must concur with Iain.
There does need to be regulation.
Take away “big government” and it’s quickly replaced by big business.
Government you can control (well to some extent) and are meant to work in the best interest of the nation overall. Whereas, with no regulation, big business becomes a law upon itself with it’s only concern being the bottom line, which doesn’t always align with the overall interest of the nation.
With no regulation laissez-faire is law of the jungle, and seeing as we’re not all on a level playing field it would merely allow the well advantaged to exceed their positions. In effect, exacerbating the current problem.
However, as you rightly point out, regulation is a double-edged sword. Regulation can be good or it can become corrupted and be become overbearing.
Therefore, the objective is clear, regulation is necessary. However, it must be balanced (not overbearing) and yet efficient.
This is part of the challenge the recovery relies on.
Let the regulation debate begin.
Speaking of must see movies, the below from Adam Curtis (BBC current affairs) are well worth taking the time to watch. (youtube/google)
The Trap – What Happened to our Dream of Freedom
The Mayfair Set
The Power of Nightmares
The Century of the Self
July 3rd, 2009 at 6:12 pm
Therefore, the objective is clear, regulation is necessary. However, it must be balanced (not overbearing) and yet efficient.
There has never been a group of central planners who have ever, or will ever, be able to figure out that balance. The market is the only mechanism that can efficiently resolve the pricing decisions in an economy, while leaving men free.
But then, I, a freedom lover, a man who believes that a civil society must be based on individual rights, not on majority or minority democratic rule – which is always tyranny – am never going to agree with someone who uses a handle such as ‘The Chairman’ (Mao, Stalin, etc, etc).
July 3rd, 2009 at 6:26 pm
Mark you wrote:
But then, I, a freedom lover, a man who believes that a civil society must be based on individual rights, not on majority or minority democratic rule….
http://www.youtube.com/watch?v=ONRc_NrOyyw
..well – where are democratic rules followed by those companies ? Large companies are here to make profits and not to take care about people/ environment etc.
July 3rd, 2009 at 6:30 pm
The environment! Can you explain to me, W., why the biggest polluters of our planet have been communist countries?
And if you read me right, you would see I said I don’t believe in democracy. Democracy does not hold individual rights as sacrosanct, indeed, the reverse. Democracy is tyranny.
I can choose to trade with any company, however, the government, ‘a’ government, has always got a legislative gun held to my head, and I have no choices when dealing with them. Any company that does pollute my environment, is initiating force against me, and should rightly be sued, and pay for same. That would be quite proper in a free, Libertarian society.
This is not about profit (though profit is good).
July 3rd, 2009 at 6:36 pm
Oh, also explain to me why the biggest mass murders of ‘people’ have always been in planned, forced economies?
July 3rd, 2009 at 7:31 pm
With no regulation the market is ineffective.
“There has never been a group of central planners who have ever, or will ever, be able to figure out that balance.”
Hence lies the problem. Finding the balance is really the key to market success.
Perhaps taking the money out of politics would be a good place to start. Do we have a revolving door policy?
The more efficient the regulation the more efficient the market will function. Consequently, so to will the larger economy.
Failure to set in place efficient regulation will only lead to more market failure.
Individual rights often clash, i.e. I have the right to blast my stereo but as my neighbour you have the right to silence, hence why balanced regulation is needed. Regulation that is fair on both parties rights.
July 3rd, 2009 at 9:43 pm
“At the heart of economics is a scientific mystery: How is it that the pricing system accomplishes the world’s work without anyone being in charge? Like language, on one invented it. None of us could have invented it, and its operation depends in no way on anyone’s comprehension or understanding of it. Somehow, it is a product of culture; yet in important ways, the pricing system is what makes culture possible. Smash it in the command economy and it rises as a Phoenix with a thousand heads, as the command system becomes shot through with bribery, favors, barter and underground exchange. Indeed, these latter elements may prevent the command system from collapsing. No law and no police force can stop it, for the police may become as large a part of the problem as of the solution. The pricing system–How is order produced from freedom of choice?–is a scientific mystery as deep, fundamental, and inspiring as that of the expanding universe or the forces that bind matter. For to understand it is to understand something about how the human species got from hunting-gathering through the agricultural and industrial revolutions to a state of affluence that allows us to ask questions about the expanding universe, the weak and strong forces that bind particles and the nature of the pricing system, itself.”
Vernon L. Smith, “Microeconomic Systems as an Experimental Science,” American Economic Review, Dec. 1982
With no regulation the market is ineffective.
Utterly wrong. Per my quotation above. It is regulation that kills markets, and takes with it our freedoms, and quality of life.
The more efficient the regulation the more efficient the market will function. Consequently, so to will the larger economy.
Failure to set in place efficient regulation will only lead to more market failure.
Efficient regulation. My god. Please explain this to me in detail – given by it’s very nature regulation involves an army of bureaucrats to sit parasitically on top of an economy, mucking up and distorting the natural pricing mechanism of the market (hence this recession), tell me, Mr Chairman, how do we efficiently regulate? How do we find this magical balance, given no central planners have ever achieved it (and have killed hundreds of millions of people trying to do so? Why are central planners, regulators, better equipped to make planning decisions than me concerning my own money?
Regarding this, and how governments get it so wrong, a second quotation from John Meadowcroft:
“Advocates of privatisation have often paid insufficient attention to one of the most important reasons why scholars like Friedman and Hayek argued in favour of privatisation: that people are the best judges of how to spend their own money and, moreover, that they have a right to spend their own money as they wish. Privatisation must not be separated from the broader libertarian project of making government smaller and giving people control of their own lives – which includes their own money.
[...]
Those who believe in freedom should therefore not uncritically praise privatisation. It should be supported solely as a means to the end of increasing individual freedom by giving people back more of their own money to spend. Where privatisation becomes a backdoor way of expanding the role of the state and thereby reducing people’s freedom this should be exposed and criticised.”
[Quoted from the Anti-Dismal Blog]
Individual rights often clash, i.e. I have the right to blast my stereo but as my neighbour you have the right to silence, hence why balanced regulation is needed.
It constantly amazes me how keen Kiwis are to jump headlong into the big State Gulag.
A free society is predicated on the non-initiation of force. If my neighbour plays his music loud like this, a) I may be able to negotiate a resolution, given I can always retaliate within the bounds of the law, and b) this is an initiation of force on me, so in the last instance, so long as my individual rights are protected in law, I have the right to sue him, and use the weight of the law to enforce such a suit.
Regulation is the worst way to deal with this .
July 3rd, 2009 at 10:32 pm
New Evidence on the Foreclosure Crisis. Zero money down, not subprime loans, led to the mortgage meltdown.
http://online.wsj.com/article/SB124657539489189043.html
July 3rd, 2009 at 11:17 pm
Mark – fair go my friend, you are more confused and contradictory than ex WTO chairperson Mike Moore.
I said – you confuse the hell out of me, your interpretations of ideologies is all over the shop, but I think I am getting a handle on your thesis, you state that govt regulation allowed the corruption to occur. I concur, but to first get the regulation through the slaveminded corrupt infiltrated govt, or atleast the executives of govt. The outcome was an over issuance of created credit channeled back into the hands of very few, which they then used to monopolise the market. Distorting supply and demand, and removing any concept of what the market can bear. This has created a massive manipulated disparity of wealth that is driving society back the elite rich gated communities and the rest left out in no mans land in a desperate state of raw animal survival. That bit from you I get, but as to your suggestion that a system of law of the jungle without any regulation what so ever is going to come up with anything but the same result, I dont get. -
you said –
Actually, no, we don’t even agree on causes Iain:
The outcome was an over issuance of created credit channeled back into the hands of very few …
It was partly the expansion of cheap credit, yes, but ‘the few’ stuff just leads to silly conspiracy theories as best, or ‘your’ recommendation to regulate, or whatever, so ‘the few’ have no power, no doubt, at worst. If you’re saying the problem is the Big State, okay, but if a cabal of bankers, then we part company, for it was the Big State and the fractional reserve and central banking system that gave them such power, and thus it is the Big State and that system at the heart of it, and where an attack must be taken to. It is in the first instance a philosophic battle, with the economic one following logically on the philosophic premises.
Is it your belief that ‘the few’ must be regulated in some way? If so, by whom?
(I’m lazily hoping you answering those two questions is a quicker way for me to figure you out without reading all those links you keep posting, which I’ve not had a chance to look out – partly because the layout of which gives me a headache).
Mark there is more similar in those two paragraphs than dissimilar.
Humans do not respond to crisis until it is physically hurting them, until then they bury their heads. The central banking empire have preyed upon the human frailty of impulsive wants. No greater example perhaps exists than the fact not that long ago you had to prove your financial stability by providing a 30% deposit for loans, this also provided the reserve ratio of the time, today their is virtually no reserve ratio and you can get hire purchase 3 yrs interest free, no deposit, no repayments for 12 months, virtually no questions asked as everyone involved is receiving commission for creating the transaction. All of the above points to failure for anyone with half an ounce of common sense and needs revising
Who will regulate a better, more stable system you ask, I say that when this manipulated crisis reaches a head and the masses comprehend what took place and it physically effects them, I believe they will realise that pork barrelling governments acting on the back room advise from the international banking network manipulating strategic deficits are not in their longterm interests and turn to a leadership of decency that presents itself offering more stability and less bling.
I offer this for further consideration, the means of exchange is the fuel, without the means of exchange we are back to cumbersome barter. On a motor fuel is fed into the carburettor where it is mixed with the natural resource of air, when tuned right it mixes the fuel and natural resource in just the right conditions that allow the engine to run in tune. If the carburettor is out of tune, is not mixing the natural resource with the fuel in the right conditions the engine will run like crap. If the carburettor is out of tune you can fiddle all you like with any other component past that point it will not stop the engine from running like crap.
If the carburettor(monetary system) does not deliver the fuel(means of exchange) mixed in the right conditions with air(natural resources) the societal motor will run like crap, thus it is the monetary system(carburettor) that needs to be re-tuned to deliver the means of exchange(fuel) mixed in the right conditions with natural resources(air) to improve upon how the societal motor currently runs.
You can do all you like with law and regulation downstream of the monetary system, if the monetary system does not deliver the means of exchange in the right conditions society is doomed to suffer the upheavals of boom, bust, bankruptcy, chitty, chitty, bang, bang.
It is not the concept of money as a means of exchange that is broken, but the conditions under which it enters circulation.
What you are suggesting is not a re-tune of the carburettor but taking the main-jet mixer right out and anyone with any commonsense knows that that would make the motor run crappiest of all, if at all.
As for your statement – Oh, also explain to me why the biggest mass murders of ‘people’ have always been in planned, forced economies? -
Most violent revolution and confused upheaval has occurred as enraged reactions at the end of long periods of huge disparities in wealth. I presume you still think of China as a communist country. Their has only been one centralist power in international commerce for the last 300 yrs and that is that of the international banking network. Every solution, good or otherwise, has never been fairly tested because thus far they have been all subservient to their financial backers who hold at the time the power of access to the the most trusted currency for trade across borders, the reserve currency.
Would not be a post from me without a couple of great links from great sources to support my post, that I would hope you will not be so lazy as not to have a look Mark;
http://www.globalresearch.ca/index.php?context=va&aid=14063
http://online.wsj.com/public/article/SB116639648334652910-t4BzVrA4dek81g56tK2nXHzJU4c_20070423.html
Its a changing world we live in, it takes a little effort to keep up with it.
July 3rd, 2009 at 11:33 pm
Hell Mark, I wish I had not of bothered with my last post if I had read what you had just put up, because its official for me, you are a walking talking contradiction. You claim to want a system based on nothing but no harm to your fellow man, no regulation needed, yet you say -
” A free society is predicated on the non-initiation of force. If my neighbour plays his music loud like this, a) I may be able to negotiate a resolution, given I can always retaliate within the bounds of the law, and b) this is an initiation of force on me, so in the last instance, so long as my individual rights are protected in law, I have the right to sue him, and use the weight of the law to enforce such a suit.”
I ask you Mark what is law if it is not regulation?
You might be surprised to find your man Freidman giving his sympathy to credit reform here,
http://www.themoneymasters.com/
July 3rd, 2009 at 11:43 pm
Actually Mark I have not been to that site for a while, noticed this updated addition,
I will leave it up to men immensely more respected than myself to explain it to you;
http://www.themoneymasters.com/quotations.htm
July 3rd, 2009 at 11:59 pm
Mark I give you this from Rob Muldoon, much maligned, I say the man was visionary(especially pg 153 at bottom) ahead of his time made a scapegoat by those who feared him most;
The New Zealand Economy, A Personal view, by Rob Muldoon 1985
page 71;
The first meeting of the Committee of twenty was held in Washington at the time of the IMF meeting of September 1972. We had high hope that it would bring together some new rules that would take the place of the former Bretton woods system. These hopes were not realised and some two years later, after the first oil shock, the committee changed its name Interim Committee enlarged it membership to 22 to admit Saudi Arabia and later China and continued as a policy making body which in the first decade of its existence did little that warranted its continuing operation In particular, it made no progress on the establishment of a new set of rules for the worlds monetary system, although it considered and discarded several worthwhile initiatives mainly because of objections to each by the United States. One was the proposal that the SDR should be established as the major international currency by substituting it for externally held currencies, principally US dollars. This tripped over the requirement that the United States should give some kind of guarantee in respect of the dollars that were substituted, which they were not prepared to do. Another proposal which was not acceptable was ’symmetrical surveillance’ that is to say, that the IMF should exercise surveillance over surplus countries as well as deficit countries, given that each dollar of surplus creates a dollar of deficit – atleast in theory, because the statistics do not add up by something of the order of $100 billion. It was held to be unreasonable that the whole burden of adjustment should fall on the deficit countries. The proposal was eminently fair and is an issue that I believe must be addressed again for it is inevitable that it form part of any stable system for world monetary relationships……….
New Zealand has a record that is second to none in its support of international institutions of which we have been members, and our willingness to obey the rules, both in letter and in spirit. We have been constantly disappointed however, by the fact that so many countries – and among them some of the most affluent – have for domestic political reasons been prepared to bend or even ignore the rules when it suited their purpose. The history of the IMF and its sister organisations since the break down of the Bretton Woods system has unfortunately been one were short term self interest has overridden long term wisdom. That this has now apparently been recognised can not alter the unfortunate history of the years since 1971.
page 109;
Following the second oil shock in 1979 the volume of petro-dollars increased but the position of the non oil developing countries began to look less attractive, particularly as some of the new industries that were being developed found that when they came on stream their products, and steel was an example, were facing, protectionist barriers in their natural markets in the wealthy industrialised countries, in some cases the very countries that had provided the loans to build the plants.
page 153;
The international institutions must be reformed with a mandate that fits the needs of the 1980s and into the 21st century. The immediate debt crisis must be dealt with, not as a bale out of either the heavily indebted countries or commercial banks but as a means of averting the collapse of the worlds financial system with a resulting world wide depression such as we have not had since the 1930s, a depression from which no countries economy would be immune.
July 4th, 2009 at 12:39 am
As Iain wrote: “Its a changing world we live in, it takes a little effort to keep up with it.”
For some people it is a big effort to keep up.
Mark to answer your questions: It is 2009, your 2 questions don’t make much sense in connection with my statements. By the way until recently USA was the biggest polluter.
July 4th, 2009 at 7:32 am
“Given I can always retaliate within the bounds of the law”
But Mark, that’s just it; with no regulation there is no law to fall back on.
Expecting the system to magically cleanse itself is akin to thinking we don’t need the police. If you are being ripped off in the market but no rules are being broken because there are no rules to break, then apart from yourself, who else is going to care?
The magical invisible hand of the market that will ensue the market functions effectively is a myth.
Whether it is in the private sector or government, excessive greed and power corrupts, hence the need for regulation.
The cleaner the system the more effective the system becomes overall.
Corrupt systems (whether by corrupt regulation or lack of regulation) lead us all down the same dead end road.
Look around, the world is full of imbalance, hence the mess.
Balance is key and striking it really isn’t that difficult. It’s a matter of applying a totally open common sense approach. I think you’ll find by and large it’s more about a lack of will and conflicting self-interest as opposed to being too difficult.
Moreover, markets not only need regulating but the regulations need to be well policed, which is another challenge we face.
Bureaucracy is merely the price we paid for democracy. Nonetheless, that’s not to say it can’t be efficient and crazy to think it isn’t needed. The same goes for the bureaucracy needed to enforce regulation in the market or the law when it comes to the justice system.
Efficiency all comes down to management and what actual structures and incentives are set in place. With the right management and structures set in place there is no reason the public sector can’t outperform the private sector.
A thief could easily argue that the police slowed their productivity and restricted their rights but would you like to see that regulation gone?
Basically, that’s the argument being put forward.
Just to add to what Iain said: Disparities in wealth and unjust laws/regulation lead to imbalances which only lead to trouble, hence the need for balanced regulation.
July 4th, 2009 at 10:41 am
Iain and Chairman Mao have contended above that I have contradicted myself thusly:
I ask you Mark what is law if it is not regulation?
But Mark, that’s just it; with no regulation there is no law to fall back on.
I, as a Libertarian, am a miniarchist, however, you have mistaken me for an anarchist, which I certainly am not.
A Libertarian society, a free society, is founded on individual rights, contained in a written constitution enshrining same, plus the non initiation of force and thus the rule of law. (NOte the non initiation of force certainly does not preclude self defence when force is initiated – I am also NO pacifist).
Thus, such a society still needs the following components of the small state as a servant for the individual (as opposed to the Big Clobbering State that rules always by force). And that is the Libertarian’s credo, if you like: the state is a servant of the free individual, not the individual is the servant of the State on the bloodied altar of the Common Good). Sorry, straying: obviously a free state needs the following:
An army, to protect citizens from the outside initiation of force.
A police force to protect individuals from the initiation of force by individuals or groups within the society.
A criminal justice system delivering objective law – as opposed to emotive law, as it devolves under the non classical liberal Left – to ensure those who initiate force are punished.
A civil law system where contract, etc, can be enforced, for without the ability to enforce contract, a laissez-faire economy cannot operate.
That’s it. No Government Departments at all.
This is the skeleton necessary for a free society under the rule of law, which is not a regulated society, and as opposed to our over-regulated, rule bound, Western slave societies in which individuals have to sacrifice themselves and be lead by the nose according the tyranny of the majority. The differences are obvious.
As between my Objectivist philosophical beliefs, and the laissaz-faire capitalist economics that flows from it, I contend I have stated nothing on this forum that contradicts anything else I have said.
You have both given this one example of a ’supposed’ contradiction, which I have explained. Next please …
Oh, Iain said: turn to a leadership of decency …
That’s straight out of Orwell, I want no part of that. (Also sounds similar to what those head honcho Theocrats in Iran call themselves, and the Taliban had the ‘Ministry of Virtue’ or some damned thing). A ‘leadership of decency’ – yep, you could justify the killing of people under such a lethal umbrella as that, or at least the utter stripping of individual rights and freedoms. A society under a leadership of decency would be a State of Barbarism.
July 4th, 2009 at 11:06 am
And to get this thread back on track, regarding Andrewj’s link to Sweden, and the first central bank to adopt a negative cash rate, I would love to see a follow up on the effect that has had on deposits in that country in due course.
I still think the story on that link is wrong, however. Via Google I can find no other supporting story, and every story points to the central bank rate in Sweden being positive .25%?
In fact that’s definite, here: http://www.marketwatch.com/story/swedish-central-bank-cuts-repo-rate-to-025
As of July 2, the central bank rate reduced by a quarter to positive 0.25%.
The Mish article must be some type of satirical site.
July 4th, 2009 at 2:23 pm
Karl Denninger at The Market Ticker made a number of economic forecasts for 2009 and provides a predictions progress report here
He also makes some valid comments about the way excess leverage in the housing market is being ignored by policy makers (even though a disproportionate number of foreclosures are a result of negative equity). This is probably because the consequences of confronting this problem are seen as too scary. However, as he points out, if the bubble had been deflated years earlier, it would still have been a bumpy ride but the US (and world) economy would have absorbed the pain by now.