Week-end Wrap – Political Economy – January 5, 2020
by Tony Wikrent
Economics Action Group, North Carolina Democratic Party Progressive Caucus
Strategic Political Economy
Why US Leadership Stinks and Drone Assassination Doesn’t Matter (Leadership in Organizations People Believe In)
[Ian Welsh, 4 January 2020]
Leadership isn’t as big a deal as people make it out to be–IF you have a vibrant organization in which people believe. New people step up, and they’re competent enough. Genius leadership is very rare, and a good organization doesn’t need it, though it’s welcome when it exists. As long as the organization knows what it’s supposed to do (kick Americans out of Afghanistan), and everyone’s motivated to do that, leadership doesn’t need to be especially great, but it will be generally competent, because the people in the organization will make it so.
American leaders are obsessed with leadership because they lead organizations in whose goals no one believes. Or rather, they lead organizations for whom everyone knows the leadership doesn’t believe in its ostensible goals. Schools are led by people who hate teachers and want to privatize schools to make profit. The US is led by men who don’t believe in the Constitution or the Bill of Rights. Police are led by men who think their jobs are to protect the few and beat down the many, not to protect and serve.
Corporations make fancy mission statements and talk about valuing employees and customers, but they just want to make a buck and will fuck anyone, employee or customer, below the C-suite. They don’t have a “mission” (making money is not a mission, it’s a hunger if it’s all you want to do); they are parasites and they know it.
Making organizations work if they’re filled with people who don’t believe in the organization, or who believe that the “leadership” is only out for themselves and has no mission beyond helping themselves, not even enriching the employees or shareholders, is actually hard. People don’t get inspired by making the C-suite rich. Bureaucrats, knowing they are despised and distrusted by their political counterparts, and knowing that they aren’t allowed to do their ostensible jobs, as with the EPA generally not being allowed to protect the environment, the DOJ not being allowed to prosecute powerful monied crooks, and the FDA being the slave of drug companies and the whims of politically-connected appointees, are hard to move, hard to motivate, making it hard to get to anyone to do anything but the minimum.
So American leaders, and indeed the leaders of most developed nations, think they’re something special…. American leaders, in specific, and Westerners, in general, think that organizations will fall apart if the very small number of people who can actually lead, stop leading. But that’s because they think that leading the Taliban, say, is like leading an American company or the American government. They think it requires a soulless prevaricator who takes advantage of and abuses virtually everyone and is still able to get people to, reluctantly, do their jobs.
Functioning organizations aren’t like that. They suck leadership upwards. Virtually everyone is being groomed for leadership and is ready for leadership. They believe in the cause, they know what to do, they’re involved.
Science Under Attack: How Trump Is Sidelining Researchers and Their Work
[New York Times 12-28-19]
Political appointees have shut down government studies, reduced the influence of scientists over regulatory decisions and in some cases pressured researchers not to speak publicly. The administration has particularly challenged scientific findings related to the environment and public health opposed by industries such as oil drilling and coal mining. It has also impeded research around human-caused climate change, which President Trump has dismissed despite a global scientific consensus.
But the erosion of science reaches well beyond the environment and climate: In San Francisco, a study of the effects of chemicals on pregnant women has stalled after federal funding abruptly ended. In Washington, D.C., a scientific committee that provided expertise in defending against invasive insects has been disbanded. In Kansas City, Mo., the hasty relocation of two agricultural agencies that fund crop science and study the economics of farming has led to an exodus of employees and delayed hundreds of millions of dollars in research.
“The disregard for expertise in the federal government is worse than it’s ever been,” said Michael Gerrard, director of the Sabin Center for Climate Change Law at Columbia University, which has tracked more than 200 reports of Trump administration efforts to restrict or misuse science since 2017. “It’s pervasive.”
The Carnage of Establishment Neoliberal Economics
From the 1980s, the theory of growth among policymakers in US President Ronald Reagan’s administration and elsewhere was that lowering the rate of taxation on capital – and on high incomes more generally – would lead to more investment and faster adoption of new technology. This, in turn, would boost wages and incomes across the board. After 40 years of such policies in the United States, pursued to varying degrees by Republicans and Democrats alike, the overall outcome can be summed up in one word: disappointing….
The disappointment becomes even more acute when we consider who has benefited from what growth has occurred. Specifically, there is no evidence of the “trickle down” effect that Reagan’s acolytes were so confident would be unleashed by cutting taxes for those at the top.
….But the major disappointment is even more profound. As rich people accumulated more wealth, both in personal terms and through the companies they controlled, they plowed some of this money into boosting their own political influence, with a view to increasing their wealth still further. The picture is clearest in this regard in the financial sector….
It was a disaster long in the making. The deep structural changes wrought by the Reagan Revolution had created the basis for systematic manipulation of rules governing the US economy, with outcomes ranging from looting (in finance) to the suppression of competition (in the tech sector) and massive costs for households and small business (in health care)….
[Front Running, via Mike Norman Economics 1-4-20]
STEVE KEEN: ….part of what I discovered from the mathematical modeling idea was that there’s a simple relationship between an increase in level of private debt and a fall in the amount of money going to workers. As you had a rising level of debt, which is what led to a crisis, that rising level of debt meant a rising amount of money going to the bankers. And rather than the capitalists being the ones who paid for it, in fact, it was the workers. There was a falling income going to the workers…..
MAX: How come this issue is so misunderstood by the Democrats? They seem to be financially illiterate, and this idea, do we need billionaires should be really rephrased as, “Where do billionaires come from?” ….
STEVE KEEN: One way billionaires come from is getting too much private debt, through private debt bubble that shouldn’t have been allowed to happen in the first place. That’s the sort of billionaire I want to get rid of. And I agree with Bernie, completely on that front. The billionaires you’re talking about, we have economists, mainstream economists who run central banks who didn’t see the crisis coming, still can’t understand why it happened and the way of rescuing it has been to pump up asset values in the belief that they will get what they call the ‘wealth effect,’ which will lead to more consumption.
And the idea is make billionaires even wealthier by making shares more expensive and they’ll spend that money and stimulate the economy. Now, there’s a very good research paper by the strange little organization called the Federal Reserve, which shows there is no wealth effect from shares. You get very little benefit at all out of that. That’s been artificially created well, so those two I’d like to get rid of, but the entrepreneurial billionaires, I have a different feeling….
DR MICHAEL HUDSON: …And that means wiping out this $4.9 trillion of money that is just held in cash, all this cash is somebody else’s debt and all of this debt is strangling the economy. And Steve and I are in agreement that the problem of wiping out the debt is, there’s all this wealth on the other side of the balance sheet. The good thing is that by canceling the debts you cancel out this huge amount of billionaires’ power to take over the government, to replace it and ultimately to become the government. And that’s what you call an ‘oligarchy,’ that you cannot have a democracy and at the same time have so many billionaires holding the rest of the economy in debt.
STEVE KEEN: If there’s money, money should circulate. Circulating money generates economic activity and if you have this money just locked in people’s bank accounts not being spent, that’s a major part of why the economy is in a relative slump….
MAX: Right, they say money is like manure. It should be spread around for it to work effectively….
MAX: How could it be so difficult for the Democrats to make the observation that when the monopolists and the monarchs, the neo-financial monarchs, are strangling an economy, a company or a country, let’s say in the case of Greece. They strangled Greece, they choked it out. As a result, they rewarded the financiers with a bailout, with more hundreds of billions.
Every time they strangle a company or a country to death, they get more capital, they don’t circulate the capital. Why can’t the Democrats, why can’t the opposition make that observation? Why can’t those who are leading the Democratic Party say, “Look, these guys are choking out these economies, these companies, this economy. Here’s how they do it, it’s a crime wave.” How come they don’t take them to court? Why do they pretend that it’s something other than that?
MICHAEL HUDSON: Because the Democratic Party is Wall Street. The Democratic Party is basically the neo-liberal Wall Street party that believes that if you give more money to the billionaires, they’ll spend it into the economy instead of doing what Steve Keen describes them as doing, spending it back into the financial market to keep inflating asset prices. Wealth today isn’t made by saving money, it’s not made by investing in factories, it’s made by buying stocks and bonds that the Federal Reserve inflates in price by this huge 4.6 trillion of quantitative easing that is all spent into the stocks and bonds, not into the real economy.
The World’s 500 Richest People Increased Their Wealth by $1.2 Trillion in 2019
Manufacturing Employment, New Orders & Production Fall Fastest Since Apr-Aug 2009
Wolf Richter, January 4, 2020 Wolf Street, via Naked Capitalism 1-4-20]
“The outplacement firm Challenger, Gray & Christmas Inc. said Thursday that employers announced plans to eliminate 592,556 jobs last year, a 10% rise from 2018 levels. That was the largest annual total since 598,510 were announced in 2015. Over the past decade, job cut announcements were only higher in 2009 and 2011… Companies said bankruptcy or restructuring were most often behind the changes, according to the report.”
Robert Reich: Here are 5 ways to stop corporations from ruining the future of work
[Alternet, via Naked Capitalism 12-30-19]
Economics in the real world
[Wall Street Journal, via Naked Capitalism 1-2-20]
“The relentless decline in North American rail volumes over the past year is bringing pain to financial institutions. [Banks] own hundreds of thousands of railcars, and… a business they once viewed as a dependable source of revenue has turned into a headache” . “Tepid railroad demand and changes in commodity markets have turned railcar ownership into an example of how the freight rail downturn is echoing across the U.S. economy.”
The Dec. 16 report confirms what senior military and transportation officials have been saying for years now: that the sealift fleet is in urgent need of recapitalization if it is to be relied upon to support a large-scale operation overseas. In a crisis, nearly 90 percent of all Army and Marine Corps equipment would be carried by ship. The Navy is on the hook to pay for recapitalization, but it has so far failed to land on a strategy to do so.
Overall, 40.7 percent of the 61 ships operated by Military Sealift Command and the Maritime Administration were fully ready to support a major sealift operation.
[Seattle Times, via Naked Capitalism 12-30-19]
“The housing crisis facing the Defense Department dates back over 20 years. Congress enacted the Military Housing Privatization Initiative in 1996 to address Pentagon concerns over inadequate and poor quality housing for service members. Today, private companies control roughly 99 percent of housing units on U.S. military installations and are responsible for overall conditions, according to the GAO report.
[Nikkei Asian Review, via Naked Capitalism 12-31-19]
… [China is] consolidating domestic production of the resources that go into everything from smartphones to electric vehicles to the most modern jetliners. In 2015, the government began integrating the country’s many rare earths producers into six dominant state-owned enterprises. “The integration has almost been completed this year,” Watanabe said, “which means it has become much easier for the government to weaponize the natural resource.”
Trump noted the implied threat and turned to Australia, the second largest rare earths supplier. The two countries this year agreed to work together to finance projects related to critical minerals like rare earths.
Predatory Finance
According to the latest derivatives report from the Office of the Comptroller of the Currency (OCC), Citibank, the federally-insured, taxpayer-backstopped bank owned by Citigroup, has sold protection to other banks, hedge funds, insurance companies or corporations on a staggering $858 billion of Credit Default Swaps. When a federally-insured bank sells protection to others on Credit Default Swaps, it is effectively taking on the risk of a default event. At a time of unprecedented levels of debt in the system and growing warnings about leveraged loans, that seems like a very unwise move by Citigroup.
The OCC notes that Citibank has bought protection via a larger amount of Credit Default Swaps – a total of $898.8 billion. (See Table 12 in the Appendix of the report.) There is no guarantee, however, that these bets are properly aligned and will not, once again, blow up this bank along with a chunk of Wall Street firms or insurance companies that may be its counterparties.
Credit Default Swaps played a central role in the 2008 financial collapse on Wall Street, as did Citigroup. It is an indictment of every federal banking regulator in the United States, as well as Congress, that Citigroup has been allowed to return as a major player in this market while using its federally-insured Citibank once again as a pawn in this game.
Adding to the outrage, it was Citigroup that was responsible for overturning the portion of the Dodd-Frank financial reform legislation of 2010 that would have pushed these derivatives out of federally-insured banks.
Why Is Wall Street the Only Industry in America With Access to the Fed’s Endless Money Machine?
Pam Martens and Russ Martens: January 2, 2020 [Wall Street on Parade]
….Wall Street wealth advisors who are already looting two-thirds of the average 401(K) over a worker’s career through fees…. Under long-established legislation, when an IRA account owner died, he or she would typically have named their spouse as the beneficiary of the IRA. That meant that the spouse could simply roll over the decedent’s IRA and continue taking the Required Minimum Distribution (RMD) based on their own life expectancy and the new dollar amount of the account. When the final spouse died, the adult children were typically named as the heirs to the IRA.
[Under the new law] children who could previously inherit their parent’s IRA and take the Required Minimum Distribution based on their own age – effectively giving them the ability to compound that inherited IRA over their own lifetime on a tax-sheltered basis – will now be required to reduce the account to zero (yes, ZERO!) over a period of ten years…. In addition to wiping out one of the best chances that debt-strapped Millennials ever had to obtain a decent standard of living, the Secure Act will also involuntarily push that Millennial into a higher tax bracket in the years he is forced to take outsized distributions from a large, inherited IRA….
And if you’re looking for villains to blame, you can start with the AARP which had the unmitigated gall to take the heat off of Congress and endorse the passage of this assault on the little guy’s wealth. The real brainchild pulling the levers behind a dark, grimy curtain is the Insured Retirement Institute (IRI), a trade organization of Wall Street investment banks and insurance companies …. On the Board of the IRI are executives from AIG, the giant insurer that went belly up during the crisis and had to be temporarily taken over by the federal government; the investment bank Morgan Stanley which secretly received more than $2 trillion in revolving loans from the New York Fed; Merrill Lynch which also got bailed out to the tune of $1.9 trillion by the New York Fed; and Goldman Sachs,
Health Care Crisis
In the U.S., an Angioplasty Costs $32,000. Elsewhere? Maybe $6,400.
Hospital Group Mum As Members Pursue Patients With Lawsuits And Debt Collectors
Americans rarely switch to new health plans when the annual insurance-shopping season comes around, even if they could have gotten a better deal. The bottom line: People loathe shopping for health plans, and many are bad at it, for one major reason: “It’s just too hard,” Tricia Neuman, a Medicare expert at the Kaiser Family Foundation, told me last year.”
“Researchers say there’s a simple way to reduce suicides: Increase the minimum wage:
Since 2000, the suicide rate in the United States has risen 35 percent, primarily because of the significant increase in such deaths among the white population. There are hints that these deaths are the result of worsening prospects among less-educated people, but there are few immediate answers. But maybe the solution is simple: pursue policies that improve the prospects of working-class Americans. Researchers have found that when the minimum wage in a state increased, or when states boosted a tax credit for working families, the suicide rate decreased.”
Climate and environmental crises
“More than one-third of Earth’s landmass is drained by rivers that seasonally freeze over. Ice transforms the hydrologic1,2, ecologic3,4, climatic5 and socio-economic6,7,8 functions of river corridors. Although river ice extent has been shown to be declining in many regions of the world1, the seasonality, historical change and predicted future changes in river ice extent and duration have not yet been quantified globally. Previous studies of river ice, which suggested that declines in extent and duration could be attributed to warming temperatures9,10, were based on data from sparse locations…. Our results show that, globally, river ice is measurably declining and will continue to decline linearly with projected increases in surface air temperature towards the end of this century.”
Information Age Dystopia
Inside Documents Show How Amazon Chose Speed Over Safety in Building Its Delivery Network
Amazon and Ring Hit With Lawsuit After Camera Hacks Confirm Worst Fears of Privacy Advocates
“A US government study confirms most face recognition systems are racist”
[Technology Review, via Naked Capitalism 1-3-20]
“Almost 200 face recognition algorithms—a majority in the industry—had worse performance on nonwhite faces, according to a landmark study…. Why this matters: The use of face recognition systems is growing rapidly in law enforcement, border control, and other applications throughout society. While several academic studies have previously shown popular commercial systems to be biased on race and gender, NIST’s study is the most comprehensive evaluation to date and confirms these earlier results. The findings call into question whether these systems should continue to be so widely used.”
Creating new economic potential – science and technology
China opens world’s first automated high-speed line
[Railway Age 1-2-20]
China National Railway (CR) opened the 174km Beijing North – Zhangjiakou line on December 30, the world’s first automated high-speed railway, together with the 53km Chongli line serving venues for the 2022 Beijing Winter Olympics. Full Article
Beijing Metro tops 699km making it world’s largest network
[Railway Age 1-2-20]
The start of trial operation on two extensions to the Beijing Metro on December 28 has extended the network to 699.3km with 405 stations, making it the world’s largest metro network and pushing Shanghai metro into second place. Full Article
“Kansas City, Missouri, Approves Free Public Transit for All”
Mass transit measure is championed as ‘visionary way to reduce inequality and better serve everyone in the community. ‘Let’s do this everywhere.’
Lawmakers in Kansas City, Missouri took a “visionary step” on Thursday by unanimously voting to make public transportation in the city free of charge, setting the stage for it to be the first major U.S. city to have free public transit.
The Kansas City Council voted to direct the city manager to set aside $8 million to eliminate the $1.50 per ride fare that currently applies to the city’s bus system. Some frequent riders could save about $1,000 per year under the new plan, according to KCUR, the city’s public radio station.
Aesthetics in the Human Built Environment
Curl has several goals in this scholarly, well-documented book:
- Demonstrate that contemporary architectural culture, with ideological origins in the 1920s, has created a dystopian environment for users.
- Explain how a tiny group was able to impose on the world an architecture of abstraction that is, as Curl sees it, devoid of sense.
- Show that three key figures—Le Corbusier, Walter Gropius, and Ludwig Mies van der Rohe—insisted upon the global homogenization of architecture and ignored local conditions of climate, culture, and evolved traditions.
- Document how biological aspects of architecture necessary for healing environments, such as ornamentation, the human scale, a sense of enclosure, positive tactile qualities, and complex color harmonies, were expunged.
- Examine the historical, political, and psychological reasons why people have accepted shaping our environment in this manner.
Curl does not view such changes as progress, but as an assault on the human senses. Elements of traditional architecture that the modernist movement eliminates arose from much deeper sources than artistic taste. They correspond to evolutionary factors that shaped human bodies for survival. This is evident from emotional responses to natural and traditional architectural forms. Recent scientific advances have also provided support for the notion that architectural environments influence wellbeing.
Why would architects in the 1920s turn their backs on vital mechanisms for connecting humans to the world, necessary to ensure long-term mental and physical health? It is certainly true that the neurological mechanisms for relating to our environment were unknown back then….
THE SINGLE UNDOUBTED success of the modernist movement was to spread through clever propaganda: first by co-opting the term “modern,” then by covering up a long string of practical failures. Buildings in the modernist canon weather poorly, and post-occupancy evaluations are largely negative. To promote such viscerally unattractive architecture, modernism’s supporters had to deprecate the neurological and physiological responses of its users….
For decades, students wishing to learn design techniques that adapt to human biology have had to do it entirely on their own and covertly so. They have used out-of-print books on composition and patterns, searched the scientific literature, and found practitioners who transmit the oral history of more biologically adapted architecture.
Democratic Party leadership insists on suicide
National Democrats Have Endorsed Three Former Republicans In Key Senate Races
….the Democratic Senatorial Campaign Committee put its weight behind M.J. Hegar, who voted in the 2016 Republican primary, in the race to replace Sen. John Cornyn, R-Texas. The other former Republicans backed by the DSCC are Mark Kelly, who voted as a Republican as recently as 2012 and is now running for an Arizona Senate seat, and Barbara Bollier, who became a Democrat last year and is running in Kansas.
Enemy Actions
“NC voter ID law written with ‘discriminatory intent,’ says judge who just blocked it”
“Racial discrimination was at least part of the motivation for a new voter ID law in North Carolina, a federal judge wrote Tuesday, striking the law down for now. In a 60-page ruling evoking decades of racism in North Carolina, the judge wrote that parts of the new voter ID law ‘were impermissibly motivated, at least in part, by discriminatory intent.’ ‘North Carolina has a sordid history of racial discrimination and voter suppression stretching back to the time of slavery, through the era of Jim Crow, and, crucially, continuing up to the present day,’ she wrote. The last time North Carolina’s Republican-led General Assembly passed a voter ID law, in 2013, it was also struck down for racial discrimination. However, GOP leaders have repeatedly said they believed this newer version of the law, which was passed a year ago, avoided the racial issues the previous law ran into.”
What Happened When Trump Reshaped a Powerful Court
In 2019, the conservative majority went on a rampage. In December, the court ruled that Obamacare’s individual mandate had become unconstitutional in an overtly partisan decision, and suggested that the rest of the law may have to fall, as well. Another appalling December ruling provides a good example of the 5th Circuit’s cruelty. The court granted immunity from civil suit to prison guards who locked an inmate in two filthy cells for six days. These cells, including the floor and the faucet, were covered in “massive amounts” of feces. The inmate, who was completely naked, was forced to sleep in feces and could not eat or drink because excrement contaminated everything. He sued the guards, who laughed and taunted him as he suffered, for subjecting him to cruel and unusual punishment in violation of the Eighth Amendment.
The 5th Circuit granted the guards immunity. In Smith’s opinion, the court held that an inmate’s right not to be locked in a feces-covered cell for six days was not “clearly established,” so the guards could not have known they were violating the Constitution. Smith added that, while future guards must avoid this precise form of torture, “we do not suggest” that “prison officials cannot require inmates to sleep naked on the floor. There can be any number of perfectly valid reasons for doing so.”
….James Ho, a Trump judge whose opinions resemble Rush Limbaugh’s most incoherent rants, accused the majority of enabling mass shootings when it withheld qualified immunity from cops who apparently shot an innocent man to death. (Three bomb-throwing colleagues joined his opinion.) The facts were horrific: Officers shot the victim from 100 yards away because he was holding a toy cap gun and allegedly looked like a suspect in pursuit (probably because they were both black.) When the victim didn’t die immediately, the officers electrocuted him with a stun gun until he expired. According to Ho, the victim’s family should not be allowed to sue the officers. In fact, Ho has suggested—joined by two colleagues—that no one should be able to sue officers for constitutional violations when they engage in illegal violence.
anon y'mouse
thank you for that link on the architecture book review.
falls in line with a lot of what J.H. Kunstler has written about for so many years.
KT Chong
Well, the IRAQI parliament has just voted to expel ALL American troops from Iraq, and to submit a foreign complaint to the UN Council that the US had violated its sovereignty.
I’ve been reading that Soleimani might have been invited by Iraq to Baghdad — on US behalf — to start a peace talk. Then the US turned around and assassinated Soleimani when he arrived on what was technically a US invitation. Can’t even begin to say how many international conventions and protocols the US had broken. That just made America look like the villains in Braveheart and Red Wedding. Yikes.
Hugh
You have got to love the sheer disingenuousness of the language. Reagonomics was never a disappointment. It was always a con, always a betrayal, always an excuse to siphon trillions to the rich. Everytime whatever incarnation of it passes its sell-by date it just gets run again under a different name. Most recently it showed up in the invocation of “job creators” used to sell/justify the Trump tax cut for the rich and corporations.
Or there’s the “quiet failure” of the two thousand tens. Again some of us have been writing about this for years, since before the housing bubble went splat in August 2007. No failure, not a bug but a feature. And the silence has only been from the mainstream media and political Establishments. If you were part of the lower 80%, you didn’t need to be told, you were one of the suckers living the slow motion disaster of the teens.
American banks are criminal enterprises and the Martens continue to do brilliant reporting on them and the Fed’s ongoing enabling of them. The Fed is supposed to be the ultimate regulator of the banking system. Instead it’s like a gas station selling gasoline to known arsonists in a neighborhood filled with old folks homes. Also in providing vast $120 billion a day liquidity to markets, the Fed has essentially taken on the role of/become the shadow banking system, once dominated by Money Market Funds.
Maybe somebody can correct me, but if you are selling “protection” on CDS, you are selling CDS on CDS, or CDS squared. As always, netting is just an accounting trick for financial reports that has zero correspondence to real world risk and liability.
The Establishment is and has always been totally dishonest about Medicare for All. They say it would be too expensive and wouldn’t work, despite the fact that almost every other industrial country has such a system (so it works), covers everyone, with better health outcomes, and only costs them about 2/3 of the slice of GDP it costs us (so cheaper). They say most Americans want to keep their current health insurance even though everyone I know has no insurance, crap insurance, increasingly crappier insurance and/or is driven crazy when they have to deal with their insurance companies. As Michael Moore pointed out even those workers who still have relatively good insurance have it only as long as their employer wants them to. Go on strike, no health insurance. Then they say you wouldn’t be able to choose your private doctor. But I know of nobody outside the rich for whom choosing their own doctor is even an option. For most people, you are lucky if you find a group where the doctors are not too big of assholes and are minimally competent.
Stirling S Newberry
https://xkcd.com/2251/
The Lawful Evil is worth the price of admission.
As far as the economy is concerned, old people vote for it because they get money from young people. Free life is not the best deal, but it is better than nothing. As long as that is the case, enough voters will be convinced to take the evil that they know.
It goes nowhere good, but at least enough of the voters enjoy the ride. This will be true until it isn’t cf the prisoner’s dilemma.
Hugh
KT Chong, should be interesting to see how this plays out. Iraq’s Prime Minister resigned in the face of the country’s anti-corruption protests and is only serving as a caretaker. The parliament as usual is useless and can’t agree on a new government to protect the system of corruption they profit from. So this caretaker Prime Minister proffered a non-binding resolution which the parliament passed. Does it mean anything? We’ll see. As I said in a previous post, I have no problem with the Irai political classes cutting their own throats. We should make clear that this time when we leave we are not coming back no matter how much danger Iraq finds itself in or by whom.
In the absence of American involvement and despite Iranian aid, ISIS would still be in Mosul and Raqqa. The Russians probably could have kept a rump state in Syria with parts of Damascus as its capital and Assad as its leader. In Iraq, ISIS probably could have at the least put heavy pressure on Baghdad and partially occupied it.
Meanwhile Iran has taken the limits off its nuclear program. For the moment this is mostly rhetorical, but it increases the odds of an Israeli strike against Iran’s nuclear program. Because such strikes would take place beyond Israel’s operational ranges, it could take the form of ballistic and cruise missile attacks. Attacks could be made with tacit permission of the KSA. It could even have a nuclear component.
Z
The derivatives market has been charitably called a house of cards. It’s worse than that. It’s a house of cards built blindfolded because there’s no limit to the hedging so there can be orders of hedging downstream (layers of insurance bought in the form of if my bet goes this way I can only lose so much because I’ve bought insurance from some other party to cover the downside of it) that the original derivative bet is tied to so nobody really knows the financial position of the weakest counter party to the whole bet and should it turn a certain direction, nobody knows how rickety the house of cards really is.
This is probably what the Fed is papering over: some big bets went a certain way and the underlying counter parties who sold insurance for the original bets can’t pay because they’ve lost too many bets of too large a magnitude so the people upstream can’t be covered on their insurance policies on their bets. So, who do they turn to of course: their pals with the printing presses who are ultimately backstopping it all.
The moral rot of the whole matter comes down to not only is the Fed papering over this market that is so much larger than the banking system itself can withstand the weight of, nothing is being down to reign it in or stop it. Instead it continues to go on with the Fed backstopping it with their printing presses just like they do the stock market itself. And Wall Street continues with their recklessness because they know they are holding the entire financial system as its hostage.
Z
Ten Bears
Re. Weaponizing rare earths, there’s an interesting front page dissection of the interconnectivity of Chinese corporations at Angry Bear, with a bit of a historical bend. Seems maybe the shadow bankers may have stirred up enough trouble to attract the the attention of the authorities.
Z
I’m not an expert on derivatives. Wall Street also often purposely complicates things so the public can’t understand them (or else they’d realize they are being robbed by Wall Street’s schemes), but the way I understand derivatives is that they can work as simply as this:
1. Party A buys a security
2. Party A wants to limit their downside on the security they now own so they buy insurance from Party B with the terms being that if the security goes below a certain price, Party B will buy it from them for that price. The insurance is also bought to cover a certain time period, as short as a month or less.
3. Party B in turns gets paid a fee (the insurance premium) by Party A for carrying that liability. (One of the better cases for them is if the security doesn’t go below the price the security is insured for during the time termed because then they don’t have to pay off on it and they just walk away with the profit from the insurance premium they got paid by Party A for.)
3. Now in order to limit their liability on the downside of owing the security, if they are forced by the terms of the contract to buy the security from Party A, Party B can now turn around and hedge their bet by buying insurance from Party C that Party C will buy the security off them if it falls below a certain price to cover the risk of Party B holding it.
4. Party C can now do that as well and buy insurance for themselves and so on down the line.
5. Of course, Wall Street accounting is going to assume that all their insurance policies on the securities they own are 100% insured to get paid off and that the counter parties to their insurance policies have the capital to back the terms of their policies which allows Wall Street to get super leveraged up in these markets.
6. But there is little regulation in these derivative markets and no one knows for sure where the instabilities of the system are, where the tipping points are, and since it is so leveraged up it threatens the stability of whole financial system if there is an avalanche of defaults on these pay-offs on the security insurance policies.
7. Because if the market takes a significant tumble and Party C can’t pay off on their insurance policy to Party B and buy that security, and because of that Party B, which was basing their risk models on not having to hold onto that security at that price level, can’t honor the terms of the insurance risk policy they had sold to Party A, now Party A is holding onto this security at a price that their hyper-leveraged risk models had not been accounting for because the ability of the counter parties to pay off on their insurance policies was seen as a 100% sure thing and a bedrock to the stability of their risk models. They may have even borrowed money to buy that security.
8. And now they’re f’ed, and things could spin out of control and you could have financial institutions cascading into financial ruin, their stability all hinged upon the stability of counter parties, which was ultimately resting upon the foundations of an unregulated, hyper-leveraged derivatives market which hit a tipping point.
9. Theoretically that is, because they’re not really f’ed, because instead there’s the Fed and they know that the Fed can’t afford NOT to bail them out. And they know the Fed can because the Fed can create the money to backstop them with keystrokes on a computer.
10. Many people write about how the market is steered to serve the rich, myself included, but it may very well be that a more accurate description of it is that it is being hijacked by Wall Street because what has evolved is that they basically have a locked and loaded derivative market hyper-leveraged and pointed right straight at the head of the Fed thereby forcing them to be the ultimate insurance policy or have the financial system fall apart in a flurry of electronic digits.
10. The safest way to maintain the stability of the financial markets is to guide them upward. Just a nice and gentle march upward and forward, what a gangster might say to someone who they had their gun in the back, nudging them along and leading them up a flight of stairs. Like they’ve been doing since after the housing crisis. They sure got the new guys in the NY Fed marching to their beat pretty quick, didn’t they?
Of course we all know though that the ones being “forced” in the Fed into bailing out Wall Street have either came straight from there or will soon be joining them to cash in on the backdoor payoff.
Z
Hugh
Trump has now threatened Iranian cultural sites twice now. This would be a war crime. Moreover, anyone obeying such an order to attack such sites would be executing an illegal order and would be liable for doing so. This is important to get out there so no one can claim that they “reasonably” didn’t know such an order was illegal.