Saturday, 21 June 2008

The Self-Moving Life Of What Is Dead

"The Self-Moving Life Of What Is Dead" - was Hegel's characterisation of money.

Jean Baudrillard: "This fetish money, around which global speculation revolves - far above and beyond the reproduction of capital - has nothing to do with wealth or the production of wealth. It expresses the breakdown of meaning, the impossibility of exchanging the world for its meaning, and at the same time the need to transfigure that impossibility into a sign of some kind".

What is a free market?

Milton Friedman would have had us believe that such a market is one in which the prices of goods and services are arranged by mutual consent. The authenticity of this system is, in a neocon's view, dependent on one key proviso. Namely, in a free market economy, buyers and sellers do not mislead each other, and nor are they coerced by a third party.
The pure theoretical form of free market economics is hence translated into a pseudo-meritocratic environment.
This theoretical model is however, of course, thoroughly demeritocratised by the income inequalities already prevalent within the financial system.
The foundations are dodgy.

Unfortunately, this is only the start of it.

Theory does not convert to practice. Even the pseudo-meritocratic incentive is largely replaced by a significantly more psychopathic entity that flies in the face of the original self-justification of the free marketeers.

The prices of consumer items and services are not mutually set. The branding process, when dovetailed with the advertising paradigm, establishes invalid market prices for goods/ services, as the determination of "value" becomes a complex issue based on many parameters. This leads on to the second reason why the free market is structurally unsound - there is evidently a disinformational aspect to the marketing process. Worse still for the purists, third party non-benign influences are the norm in a world governed by monopolies, duopolies, cartels and other fiercely anti-democratic mafiosi structures.

When such invalidities are added to the more obvious real-time occurrences of illegal insider trading, illegal private markets, illegal cornering of markets, active disinformational campaigns, the psychopathic control of data, the consequences of "caveat emptor", and the tilted economic, financial and legal environments that allow such illicit contortions to be regarded as skills of the trade, one might think that there is already more than enough of an abstraction of the free market concept in place to undermine any claims to systemic validity.

The free market system is supposed to work.
It doesn't for all the reasons outlined above.
Additionally, the system is non-sustainable as it pushes against the Malthusian limits of environmental stability. The short-termism of all business strategies merely exacerbates such problems.

And whatever it was that these neocon's released, they are now returning to roost. Climate change, the credit crisis, the food crisis, the oil crisis, the housing crisis, the commodities bubble, the absence of any further levers of influence for central bankers as they juggle the twin hyperrealities of inflation and recession. Governments are having to support the financial system as lenders of the last resort in order to rescue the speculators from their self-generated moral hazards.

Just how illusory are these free markets?

Markets are functions of two primary mechanisms - the economic and the psychological. Fundamentalists incorrectly perceive the former to be the more important input. They are wrong. By some distance, it is the latter.
Behaviouralism drives the markets.

Cash is the fuel of the consumerist addiction.
Very few individuals on the planet are able to correctly determine a price.
It is little wonder.
Why should we take this cash seriously?
Remember 1929?
These notes and these coins are illusory signs, a cheque is a piece of paper with a signature. For these systemic signs to have any validity, we must believe in them.
This is where psychology makes its entrance.

Pricing an I-Pod is tricky, but pricing a stock is trickier still. As the cumulative performances of stocks and shares are the benchmarks of the overall financial system, these are very important data for the justification of the shareholder capitalist free market model.
The psychological aspect of trading creates many structural patterns that are imposed on the "economic" performance of the individual stocks and shares. Mass behavioural flaws extend bull runs, before overreacting to the depth of the resultant recession, for example. Mass psychology deals poorly with uncertainty, and market participants gravitate towards good/bad, optimistic/pessimistic, positive/negative templates to attempt to explain their perceived realities.

When we are teetering on the edge of a global recession, it is a critical factor to control the bear market from a psychological perspective. Governments, bankers, companies and institutions are able to defer bad news until later quarters, but they cannot eradicate the eventual impact of such data altogether. They can, however, create the illusions of non-recession via a tight control of the mainstream media together with the development of market inputs that distort the system of pricing.

And this is the stage that we have now reached.
The snake-oil salesmen are producing their final tricks.

At the completion of trading yesterday, the FSA introduced new rules regarding short-selling in the shares of companies undertaking rights issue in Britain. Short-selling, for the uninitiated, is the selling of a share that one does not own, in the hope of buying it back again at a later date at a cheaper price. Effectively, it represents a negative stance regarding the well-being of the stock (or the group of stocks). For example, after 9/11, once the exchanges reopened, having allowed the free markets to adjust to new hyperrealities without the inconvenience of external and speculative input, short-selling airlines, insurance companies and the tourist sector were profitable strategies.
Short-selling improves price efficiency and undermines bubbles. Short-selling is also the most vital aspect of any two-way market - if traders are limited solely to buying, then the stock market prices are going to contain a built-in inflation of value as traders with contrarian positions may only demonstrate such contrariness by avoiding a purchase of the stock altogether.
Short-selling is already a privileged activity. Hedge funds allow individuals with certain massive levels of wealth to get involved and, in recent years, the spread firms allow the smaller players to short a price. But the infrastructure is already heavily tilted towards the inflation of a share price prior to any detailed analysis and input being undertaken.

But this imbalance is not enough for the FSA.
Recession is now. And any device that is able to disguise the crisis is regarded as a valid tool of the trade.
The new FSA rules for sellers are far more stringent than the obligations that buyers are faced with - these rules will develop an upward dynamic on share price entirely unrelated to free market hyperrealities.
It is a regulated tilt of the marketplace.

After 9/11, some US congressmen tried to get short-selling banned for being "unpatriotic". These lawmakers wished for an illusory price to persuade Americans that nothing had changed. The system is solid - the prices are robust.
The FSA are aiming likewise with their little ruse.

You know what?
Financial markets are mimicked by the global football betting markets.
The parallels between the two market infrastructures are evident, although the football sector has several dimensions that delegitimise the betting markets to an even greater extent.

The traditional bookmaking industry always had an issue with short-sellers. The solution was simple. Establish a market structure unable to accommodate them. Hence were created the standard horserace betting markets, where a punter can back ie buy a horse to do well, but not lay ie sell a horse to underperform. As the whole of the horseracing industry is based on the development of creative modes of underachievement for the horses, this was a nice little earner for the bookies in a cartelised marketplace.
Along came the spread betting firms and the betting exchanges to offer dichotomous trading possibilities. Now, when a punter is aware that Paul Nicholls has a non-trier running at Haydock, he/she can oppose the poor beast in the market.

Other factors such as the omnipresence of inflated transaction costs, the buying of information from insiders, creative arbitrage and hedging strategies, the introduction of hidden and coordinated trading agendas, the existence of dark pools of trading in private markets not regulated by the system etc are also common across sectoral boundaries.

The manners in which the football betting markets differ from the international financial markets are key in any understanding of this particular market sector. We highlight just a few here:
* Winning accounts are only welcome if they represent inside information. Gaming the system, playing the probabilities, improving market efficiency and quantitative analysis are not welcome. And don't even think of arbitrage! Very few global firms accept liquid winning accounts.
Gambling is simply voluntary taxation. Unless you are a professional, with an even more professional broker.
* Stakes are frequently limited at the execution price as a form of reduction in returns.
* The private markets are much more dominant in football than in the wider financial sectors. The main pools of liquidity are in Asia and are both totally illegal and, consequently, totally non-regulated. Consequently, gambling winnings are not enforceable under law. They are also not enforceable in any other manner as the brokers repeatedly disappear into the triad underground, only to resurface in an adjacent country with a slightly different business entity.
* Football markets are truncated. We know when the Kick Off will occur and when the match will end. All inside money must appear in this window. This results in a football season existing as a multitude of different options windows of market activity.
* Maximum bet limits, the closing of winning accounts, the lack of any informational provision from brokers (although firms like Ladbrokes utilise clients to promote their disinformation via advertisements and the media talking heads) etc etc etc.
One could go on.

There is, however, one feature that cuts across every allegedly free market.
The desire for psychopathic and absolute control of the market outcome.
Whether you are Hank Paulson and Goldman Sachs gaming the US subprime market or you are an England international and a bookmaker gaming an English Premiership match, the result is the same.
Total profit to the psychopaths.
Total losses to the uninitiated.

Market efficiency has a problem dealing with such absolutes.
This is the fundamental reason why some market favourites in the Russian Premier Liga, as an instance, open up at 1.80 (4/5) before shortening to 1.01 (1/100) by the off. It is also why trading in shares has to be frequently suspended due to suspicious insider dealing or other illegitimate trading practices.

Obviously, all forms of social living are preferable to the free market, but even a truly free market would be markedly better than the boiler room scams that we now have across the board.

"...[money] functions as a universal substitute of finality, just as the fetish serves as a substitute sex object" - Baudrillard.

© Football Is Fixed/Dietrological