Following the Mad-Hatter’s Tea Party in Washington, the world’s financial markets quivered and on Monday August 8 took a leap downward. A lot of money and paper exchanged hands, and some won and some lost. It is said 8 trillion dollars in value evaporated. The Dow-Jones plummeted 600+ points. Elsewhere markets did a similar swoon.
The next day, mimicking a yo-yo, the markets jumped up: DJ up 400+ points. More money and paper changed hands, more was won and lost, and presumably 6 or so trillion of evaporated dollar value rematerialized. It seems something akin to advanced quantum physics. I await with baited breath the next contortion to which these trillions are subjected. [On Wednesday the DJ index dropped 519, cancelling out the gains of the previous day and adding to the losses – another trillion vanished !]
Meanwhile, in the UK, where the not-quite-new regime of Cameron and Clegg imposed “austerity” conditions on the country following their election victory, the bill is coming in:
London riots, August 2011
Scurrying back to London belatedly from his Tuscan villa August vacation, David Cameron, PM, deplored the violence and ordered 10,000 more police onto the streets. In the last months cuts had been ordered which would eliminate 9,000 police jobs. The social media so lauded for the uprisings in Tunisia, Egypt, Libya and Syria suddenly came into play in London, with flash-mobs materializing here and there, and when bobbies were imported from elsewhere, the mid-lands joined the fray. While Mr Cameron and Clegg may only recognize it when a crowd of football yobs riot, the UK is in fact still very much a class-riven culture, and it is full of un or under-employed people, of all colors, including Anglo-white, who clearly boil over with resentment at the harsh economic lines between them and the public face of Britain, its monarchy, The City, and the veneer of class suggested by the cultural dressing on this very ill society. The tensions between economic classes is palpable, and as evidenced in these riots, very real.
Arriving in Paris the other night, at Orly, one sensed the same tension here in France: entering the RER train into Gare du Nord, the tone shifted to grim graffiti covered cars, a dominant population of empire come home to roost, and a sense of imminent violence pervading the air.
Riot, Paris banlieu, May 2011
According to the wizards of the financial world, the present tribulations of the mystical markets has now to do with European banks, private and “sovereign”, and their debts. This makes it different from 2008 when it had mostly to do with American banks and their debts, say the sages. Of course extracting actual information from these people is somewhat impossible. To boil it all down to basics, it seems the European banks – mostly French and German – invested heavily in Greek and Irish and Portuguese and Spanish and Italian debt (along with many other things in those realms). And now it seems they won’t be getting their money back, which leaves them holding the bag (empty) as it were. Hence the current air of panic as the debt problem shifts from shifty places like Greece, to staid supposedly upright places like France and Germany (or, ho ho, the USA).
Financial institutions in the United States have one-third more capital than they did in 2007, and they are better positioned to weather the current storm. And they have reduced their risk-taking. Instead of lending $25 for every $1 dollar worth of capital they hold, they are now lending a more reasonable $16…
This process of lending what you do not have (see above) predicated on the hypothetical income to be derived from the loan (see underwater mortgages for example), is called “leveraging”. Once upon a time it was “normal”, and legally required, for a bank to leverage itself by a ratio of 3 to 5 to 1: i.e., I have a buck in reality, and I loan 3 to 5. Banking was boring. Then, along came the 80’s and the regulations were loosened at the behest of those on Wall Street. And in a short time leveraging zoomed to this:
2009 bank leveraging
On September 30, 2009, Lewis announced his retirement from Bank of America effective as of December 31, 2009. Lewis released the statement “The Merrill Lynch and Countrywide integrations are on track and returning value already. Our board of directors and our senior management include more talent, and more diversity of talent, than at any time in this company’s history. We are in position to begin to repay the federal government’s TARP investments. For these reasons, I decided now is the time to begin to transition to the next generation of leadership at Bank of America.”[6] It was reported that this move was his own decision and that he did not receive pressure from the bank’s Board of Directors.[7] Based on the company’s most recent proxy statement, his full pension benefits total $53 million. Critics of the financial sector’s salary scale have cited this sum as indicative of poor oversight by the board of directors and as an example of inflated executive compensation. As his plan dates back more than seven years, he is still entitled to full benefits. Bank of America has since revised their compensation plan for retiring executives.[8] In October, 2009, at the suggestion of Kenneth Feinberg, the U.S. Treasury’s special master for compensation, Lewis decided to forgo salary or bonus in 2009. His 2008 salary was about $1.5 million. “He has taken home $148.8 million from cash and stock sales since taking over the bank in 2001, according to Equilar, a compensation research firm. He is also leaving with more than $135 million in retirement benefits, including the pension and $10 million in life insurance benefits, according to an analysis of corporate filings by James F. Reda & Associates, an independent consulting firm.”[9] (wikipedia)
Greek riots, earlier this year
Having drawn the great public into the capitalist consumer Valhalla of buying on credit, and having done so itself, the governmental systems of the West (don’t worry, the East is soon to follow), are suddenly confronted with old Marx’s observation that inside of capitalism is a fat contradiction. And indeed there is.
Old Karl
What Marx saw was that capitalism as a system was structured in a manner that those who are successful in it are in effect blinded by their own greed: give a capitalist enough rope and he will hang on it. And, as the headlines today repeatedly confirm, so it is. Within their bubble of wealth and power, those at the pinnacle of a capitalist system are so far removed from the everyday realities of the world, that they are indeed blind. Hence the stumbling moves of those in Europe, in America, in China (nominally “communist” but these days more a roaring cowboy capitalist place), who are so surrounded with wealth and those who share it, that they cannot imagine the brute lives of those who have almost nothing. Nor can they imagine the nothing-to-lose psychology which those at the bottom of the pyramid feel. They feel only the crushing weight of everything above them. And so, in these days, the contradictions are bubbling upward, seen in cold statistical data, and seen in hot riots. It doesn’t really require any kind of brilliance to see all this, in fact it seems rather obvious. Today many things have been globalized: the neo-liberal system of economics which places the private sector on an altar and imagines raw capitalism to the the fount of solutions for everything; at the same time the schism of wealth vs poverty is to be seen in the urban graffiti which now graces almost every city around the world – the voice of the dispossessed scrawled across the urban landscape. To imagine that this voice will remain only “artistic” is to imagine a world in which the vast gulf between a tiny elite and the great masses doesn’t exist.
Central Paris – once confined to the outskirts, graffiti now is to be found everywhere
Under the present system it is only a matter of time before the contradictions erupt, as they have in England, and France and Greece in recent months, in a more fundamental conflict. It really isn’t a matter of whether it will happen, but only how it will unfold. Will the powers that be unleash their full police and military powers or not – to be like Assad in Syria, or to fold as did Mubarak in Egypt.
Walking yesterday in the neighborhood I lived in here in Paris, 1998-99, Belleville, there seemed a marked change. I’d read that it had become more fashionable, with cafes and boutiques. But the street I walked along was, for blocks, 99.5% north African – Moroccan, Tunisian – with a dense open market along Blvd. de Belleville. The other .5% was myself, and a group of 4 tough looking policemen. Here in France they seem always to be in a group of 4, sometimes more, never less. Armed with truncheons and guns. While they appear solid, it is clear they could be readily overwhelmed if those they are policing changed the tune.
When I lived here earlier it was more like 50/50, with half being North African, and the other half a mix of French and Asian, and similarly, the Gare du Nord, which was a rough area then, but mixed, now seems almost entirely black African. There too, the same policing is evident.
France, May 2011
Of course Marx erred in failing to see that, like any kind of system, his own “socialist/communist” one also had its own internal contradiction, which, exactly as capitalism, is rooted in a fundamental failure in reading the executor of the system – we humans. Marx imagined a withering of the State, and failed to understand that certain humans desire power, and will do whatever their historical circumstances provide to secure that power. Communism, like capitalism, is a belief system that has quasi-religious psychological qualities: one believes, and hence neither logic nor concrete evidence serves to dissuade. Lenin, Trotsky, Stalin and then the pallid pre-embalmed leaders who followed them all felt empowered by their beliefs to do whatever was necessary to “build communism” which in their minds was inseparable from themselves. The result was murderous.
Capitalism is slightly more clever, though equally as murderous: it places an abstract distance between the murderer and the murder. One buys stocks, invests; the purpose is to maximize profit. The ideology of capitalism claims that this process will winnow out the good from bad, make production most efficient and separates the stock owner from the behaviors involved, and as long as the underlying purpose is accomplished, it doesn’t matter how fatal to others the process is. The actual process is normally masked – the stockholder does not see the despoilation of the world, the exploitation of labor – he sees only the stock dividends and is happy; he does not want to see the process in any other way that as “profit.” And so he willfully does not see. The holy grail of capitalism is profit, and what happens in its pursuit is “holy.” Pure greed is licensed as moral behavior, just as in communism certain kinds of pure “power” was. The results are essentially the same: millions dead.
As a religion, Christianity has been remarkably successful, I think in part because it appeals to the individual ego: god is personally looking after you it claims. And hence one of its fundamental tenets circles around the self: “Do unto others as you would have them do unto you.” At first glance this seems a reasonable Golden Rule, but in truth it is toxic, for like capitalism, and like communism, it fails to account for the nature of human beings. In centering ethics upon the self, the Golden Rule licenses the worst of human behavior and elevates it to the highest moral status. Just as capitalism elevates profit and communism elevates some hypothetical wave of history. There are some who desire material wealth so much that they do not think about or care what the real cost is; there are others who desire power and control over others so much that they will do whatever is needed to secure it, and if a quasi-religion such as Communism seems to authorize it, so much the better. And there are some whose psyches desire punishment and torture, and the Golden Rule and its religion seems to authorize those wishes. The history of Christianity is steeped in bloodshed, all in the name of doing unto others what one would have done to oneself.
A proper “golden rule” would be: do unto others what they would have done unto them.
Just prior to posting this the New York Times headlines:
Another Sharp Swing, This Time Up, for U.S. Markets
The market is “just a yo-yo,” said Myles Zyblock, chief institutional strategist and managing director for capital markets research at RBC Capital Markets. “I think the primary structure is still in place, and that is a structure of concern.”
“People are trying to bottom-pick today, and it might be the bottom,” said Mr. Zyblock. “I would like to see the collective message start to stabilize to give me confidence there is a hardened floor underneath this market.”
Eric Thorne, an investment advisor at Bryn Mawr Trust, called it a “shoot first, ask questions later” market.
[July 12, the DJ index swung up another 400+ points, though for the week and month it is cumulatively down]
All that glitters is not gold.
[As was predictable on the yo-yo logic, on Friday Aug 12, the DJ index did indeed pop back up, 400+ points. However over the week it was down 2%, though clearly some traders are cleaning up – they get money on each sale, whichever way it goes – in some are pocketing a lot in these daily swings. Another way to look at it, for those who ever had and understand cars, when your metal horse starts vibrating with wild oscillations usually you throw a rod shortly after. For systems in which a steady up or down or even keel is the norm, usually wild oscillations are indicative of impending trouble. ]
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