In the coming hours, the largest ever transfer of money from labour to capital will become a Hyperreality.
Capitalism is dead.
Long live capitalism.
George Soros: "Paulson cannot be given a blank cheque."
Naomi Klein: "... nobody should believe the overblown claims that the market crisis signals the death of 'free market' ideology."
These two statements, and we love to use quotation-based evidence to supplement our arguments, are the key factors relating to the future of the financial system.
Paulson's pillage of this system is one of the reasons that we are in this mess, and it would seem an act of the utmost folly to trust that the architect of the oncoming Depression is somehow, miraculously, the very same person that we need to call upon now in order to save ourselves.
Even more importantly, while capitalism pleads for our rescue from their greed, the neo-financiers are already planning the next great disaster, with the formation of numerous Dark Pools, where the anonymous trading of colossal blocks of shares and other financial assets may take place away from regulator's eyes.
As ever, while begging with one hand, the capitalists are stealing with the other...
Soros: "The bill submitted to Congress... would exempt the [Treasury] secretary's decisions from review by any court or administrative agency - the ultimate fulfillment of the Bush administration's dream of a unitary executive... Mr Paulson's record does not inspire the confidence necessary to give him discretion over $700 billion... Mr Paulson’s proposal to purchase distressed mortgage-related securities poses a classic problem of asymmetric information. The securities are hard to value but the sellers know more about them than the buyer: in any auction process the Treasury would end up with the dregs."
For each of these reasons, this bailout is invalid.
Dean Baker is the co-director of the Centre for Economic and Policy Research (CEPR) and he has drawn up some progressive conditions for a bailout. These are split into the conditions for the bailout itself and for reforms to the financial system and are listed below:
Principles to Guide the Bailout
1) Financial institutions should be forced to endure the bulk of the losses with taxpayer funds only used where absolutely necessary to sustain the orderly operation of the financial system.
2) The bailout must be designed to minimise the opportunity for gaming.
3) The bailout should be designed to minimise moral hazard.
4) In the case of delinquent mortgages that come into the government's possession, there should be an effort to work out an arrangement that allows the homeowner to remain in her house as owner. If this proves impossible, then former homeowners should be allowed to remain in their homes as renters paying the market rent. This should be done even if it leads to losses to the government.
5) There should be serious efforts to severely restrict executive compensation at any companies that directly benefit from the bailout.
Principles for Restructuring the Financial System
1) Combating asset bubbles must be one of the Fed's key responsibilities.
2) The government should impose a modest financial transactions tax, comparable to the one in the United Kingdom. This can both restrain excessive trading and raise more than $100 billion a year in revenue.
3) Regulatory agencies should require that potentially tradable assets (e.g. credit default swaps) actually be traded on exchanges.
4) There should be strict limits on leverage for all regulated financial institutions.
5) Fannie and Freddie should remain fully public institutions, returning them to a status comparable to Fannie's prior to its privatization in 1968.
6) The Fed should be restructured so that all the key decision makers (e.g. the open market committee) are appointed by democratically elected officials. Its responsibility is to manage the economy in the interest of the general public, not the financial sector.
But there are many more weighty factors against continuing with this nonsense and these are detailed below together with some extra input to the views of Soros and Baker above.
Firstly, Paulson must not be allowed to continue #############################
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Secondly, all of the proposals on the table talk about the need for national regulation. This is misguided and, more importantly, virtually irrelevant.
Capital is global.
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Of course, a Utopian view would be for the complete destruction of the shareholder capitalist economy and its replacement with a bottom-up democracy, featuring negative growth and focusing on the informal economy.
But this is not going to happen, so we need to make it as difficult as possible for the psychopaths to game the system once again for proprietary advantage in the future.
Thirdly, and of massive importance, is that we prevent the opportunity for the next speculative destabilisation, the one that will be caused by Dark Pools - vast lakes of liquidity that prevent any external oversight and the opportunity for rampant insider trading and the gaming of markets for proprietary advantage.
This really will be a global poker table, but one at which the bidding will define all of our existences, as well as that of the future of the planet in its current equilibrium state.
Lehman Brothers was working with the London Stock Exchange to set up a Dark Pool called Baikal (the name of the world's biggest lake), prior to Paulson demolishing the investment bank earlier in the month.
And, even the industry has concerns about this new Hyperreality.
For example, Deutsche Bank are setting up a proprietary Dark Pool for institutional share trading, but they are worried about the lack of transparency.
You should expect to hear a lot more about shady entities like #############
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And, it is a scam, which brings us on to the fourth reason why any bailout is invalid, moral hazard.
If the captains of finance are able to fly their personal jets between their mansions and yachts, while the masses are being turfed out of their homes, this societal hierarchy will not encourage the said captains to be more risk averse the next time speculative bubbles come calling.
Moral hazard defines excessive risk if there is no need of rebound upon oneself.
Rebound elsewhere is irrelevant, of course.
The fifth reason that Tebbit-On-Coke should not be given $2300 for every human being (and republican) in the US, is that the man's focus is not on the correct loci.
Although the bailout is now being sold as something to save the common man/woman from the initial aspects of the Depression, Paulson's original proposal made no mention of normal human beings, focusing exclusively on bankers and wankers instead.
Unless Paulson's hands are straight-jacketed to his sides, the vast majority of this aid will go to his friends and enemies in the murky world of global finance.
We're even thinking of setting up a private market on ####################
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Sixthly, when we are dealing with systemic crises, some unsavoury characters and some even more unsavoury organisations require bailing out, unless our preference, as stated above, for a complete dismantling of the entire system is to come into effect.
But are some of the worst perpetrators the ones who should be primarily aided in any recovery package?
The FBI is looking into 26 cases of potential fraud with regard to the collapse of the US mortgage industry, including at Lehman Brothers, Fannie Mae, Freddie Mac and AIG.
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These people would have been taking bets on the minutes to submergence if they had been on the deck of the Titanic.
The seventh reason that the bailout is merely an abusive redistribution of wealth to the bullies is that these bastards are taking no account of the systemic impacts of climate change.
Finding money so that the same bunch of psychopaths are able to distort the system to their own ends once again, when the cash is needed for slightly more important things, like the survival of our species, for instance, is extreme misallocation of capital.
The eighth reason that Congress should bin the bailout is demonstrated quite clearly by Warren Buffet's purchase of $5 billion worth of Goldman Sachs this week.
Berkshire Hathaway are renowned bottom buyers in the financial markets but this purchase is a double-whammy of profit for the astute Mr Buffet.
On the one hand, he's buying into a market leader at a low price, just prior to an inevitable fiscal stimulus which will lead ####################################
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On the other, he is buying into #######################################
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The final reason for this bailout being an invalid piece of hyperhighway robbery is probably the most important in the short term - the depth of the Depression.
By saving the financial system from collapse now, Paulson/Bernanke are merely ensuring that the impact of the Depression will be greater in the medium term.
Free markets do not function without intense global regulation.
This needs sorting out now, not when we stand on the cusps of the next crisis.
In Manchester the other day, I saw some children playing hopscotch on fallen gravestones.
Even the kids in Manchester mimic Mammon.
Excellent.
* We were originally going to publish this post towards the end of last week but we are trading many markets associated with this systemic uproar and we were not willing to jeopardise our market positions.
Indeed, we have had to withhold much content from this version of the post for the very same reason.
Unfortunately, the blocked out parts of the posts and all posts labelled # are available in full to subscribers only.
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