"Monopoly structures (and any state is a monopoly, since it claims a monopoly in the political and social spheres) cannot but secrete a para-political society, a mafia of some sort, to control this form of generalised corruption. It is pure hypocrisy on behalf of the political authorities to fight this mafia, since it is an emanation of those authorities themselves." - Jean Baudrillard.
"Effectively, truth is trumped by the best possible input-output equation." - Jean-François Lyotard.
"The only suspense that remains is that of knowing how far the world can derealise itself before succumbing to the reality deficit, or, conversely, how far it can hyperrealise itself before succumbing to an excess of reality (the point when, having become perfectly real, truer than true, it will fall into the clutches of total simulation)." - Jean Baudrillard.
This is not a valid system.
And, despite the desperate provision of trillions of dollars worth of liquidity into the banking system, together with a concerted media attempt to bury away the bad news and promote the illusory recovery, the markets remain in deep deep trouble.
Yesterday, we quoted John Authers of the Financial Times regarding the relevance and market information that might be gleaned from the bounce that follows a Market Crash.
In 1929, Wall Street gained 18.8% in the two days following the Crash.
The Crash still became the deepest recession of the century - the Depression.
In 1987, the Dow bounced by 16.6% in the two-day rally following Black Monday.
As the bell rang this evening on Wall Street, the rally hadn't even lasted two days, and the cumulative rebound of the market was just 9.6%.
And this is despite the banning on short-selling of over 900 financial stocks.
And 1929 didn't appear against the backdrop of systemic and super-systemic risk regarding externalities eg climate change.
Lets put some scale into the figures first.
The Iraq war costs the US taxpayer $600 billion per year.
The bailout of the financial system has already provided the US government with gross liabilities of twice this amount - $1,250 billion.
The Bank of International Settlements (BIS) in their most recent report stated that: "the notional value of all outstanding global derivatives contracts is $600 trillion".
$600,000,000,000,000 - one thousand times greater than the annual cost of bombing wedding parties and securing the oil pipelines in Iraq.
This figure is 11 times the annual global output!
We repeat the point that universal healthcare for all US citizens would cost $50 billion per annum.
Last year, over three hundred of the largest 500 companies in Britain paid no tax whatsoever.
At current projections, the British bailout of the banking sector is set to cost every taxpayer £13,000.
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This is not a valid system.
There are two areas that we wish to address today - the Reality of the Depression and the Hyperreality of Psychopathic Capitalism. Rather than separating these two functions out, we'll allow them to intertwine as we take you on a random walk around the fallout from the first phase of the largest recession since Wall Street was founded by those lovable robber barons 112 years ago.
In its current issue, the Economist produces a special supplement - 'When Fortune Frowned'. We would prefer the slant taken by Joseph Stiglitz - 'Reversal Of Fortune'.
In their pullout, the free market ideologues attempt to justify their system against the charges laid against it.
They totally fail to refute the charges.
The verdict has to be guilty.
This is not a valid system.
Last week, China's vice-premier, Wong Qishan, told Dick Cheney that "the teachers now have become the problem". Presumably, Mr Dark Side muttered "go fuck yourself" as his wont when faced with a contrary opinion.
Paul Volcker, former chairperson of the Federal Reserve, states: "... for all its talented participants, for all its rich rewards, the bright new financial system has failed the test of the marketplace."
While accepting a minor role in the Depression, the free marketeers prefer to blame other parties, both peripheral and more central to the deconstruction of a system.
So the financial system is blaming the governments, the central banks, the regulators, short-sellers, hedge funds in general (their punishment was their 2nd worse monthly performance ever in September), Chinese economic policy as well as the all too few limitations that still exist on the freedom of movement of capital.
Each of these bodies, sectors and/or institutions have played their part in the Crash, but it is the fundamental template of a free market system that has defined the rules of engagement.
The system is non-sustainable, repeated crises are an inevitability, implosion is nailed on.
Each sub-sector behaves voraciously in its own self-interest, ignoring the counterparty risks of their ever-more-risky behaviour, the feedback loops from such attitudes and the external risks and the systemic ones too.
So the free marketeers blame the US government for planting biofuels instead of food crops, but the government had to take action, however misguided, as the neo-liberals would never voluntarily take on board systemic costs like those addressing climate change.
So, not only is the state based economic system effectively a deep state mafia, but the structure of the entity is also entirely self-destructive.
Co-operation is a weakness, hence crisis will always follow crisis.
Furthermore, government intervention is loopholed so that any regulation might be gamed for the optimum performativity of the financial system.
Sharing the blame around different centres of the same authoritarian system is not going to work - all loci of the financial sector are guilty as charged.
As Baudrillard's first statement above clearly states, the separation of these bodies in times of crisis is a false construct.
These bodies are the financial mafia - these people game the financial system from a position of power.
We have a state-based economic system - the state and the financial system are one and the same thing.
Otherwise perhaps we might have been offered a referendum on the colossal cost of the socialisation of the privateers costs.
This is not a valid system.
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The BIS have warned for years about excess global liquidity and have urged central bankers to worry about asset bubbles and to address the financial system holistically and strategically rather than in an atomised and short-term manner.
Today's calamity, according to the BIS, stems from one fundamental source: a world where credit-driven excesses went on for too long.
"The unsustainable has run its course" stated the BIS in its latest annual report.
Financial bubbles suit insiders, speculators and those that drive the market dynamics via policy. Far greater sums are able to be amassed by these systemic insiders via a boom-and-bust cycle.
Just consider the maths - if you are aware of the market turning points in a boom-and-bust cyclical market, you will be able to establish far greater profits at the expense of the uninitiated and the gullible, compared to a stable market structure that advanced by a steady average percentage annually and offered equal rewards to all (with a meritocratic input for true analytical overperformance).
This is not a valid system.
The chief reason why capitalism is doomed to die an ignominious death is to be found in its very nature.
For decades after the Depression, the latter day robber barons had to make do with a stakeholder version of their system. And, if you are going to be arguing a capitalist perspective, it worked as well as the current shareholder system if one assesses success by growth - economic growth in the 50's and 60's has matched the free market growth of recent decades.
But there is a difference between the stakeholder and shareholder versions of capitalism. In the latter, income inequality is the defining structural formation - the rich get markedly richer, the rest of us virtually stand still.
The final stage of capitalism's development is the psychopathic.
The only argument left to the neo-liberals is this one - this Depression would not have occurred if they had just been allowed to get on with it without regulation, government and central banks.
And, they are correct on this one.
The Depression would not have happened as a window of economic hyperreality, we would be in a state of Permanent Depression in an Orwellian nightmare of some magnitude.
If we allowed these operators full freedom, we would be guaranteed a fascistic financial framework controlled by a psychopathic elite.
They use the example of hedge funds to support their argument that a lack of regulation produces free market nirvana.
Yet Paulson had to demolish the hedge funds' business model via his ban on short-selling for the very reason that the speculative behaviour of the funds was demolishing the efficacy of the market.
Psychopathic behaviour takes short-termism to extremes, the only way to rein in these operators is via extensive and binding global regulation.
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This is not a valid system.
The very core of the argument of the Economist is made clear by their rather rosy view of the integrity of speculators.
"If speculators were distorting commodity prices rather than improving price discovery, there may be good reason to shift the balance between government and market" they gush.
This is the central point.
In a leader in the summer, the Economist stated that: "... since no oil is ever held back from the market, these [speculative] bets do not affect the price of oil any more than bets on a football match affect the result."
Whether by design or otherwise, they selected the wrong analogy - their QED, in effect, is a speculative own goal.
As any Asian market maker would be able to inform them, the betting markets influence the results in all sports. But, particularly in football.
It is all a matter of incentives.
On leading Premiership matches, the Asian underground markets are liquid up to £1 billion ($2 billion). Moreover, the leading market makers have, by a combination of bribery and coercion, established networks of inside agents who are able to create the outcomes required by the betting industry. My Asian broker, for example, calculates that over 90% of matches in the Premiership (by far the worst of the main leagues for corruption) are governed entirely by dark pools of liquidity.
The direct parallel with the financial markets is evident.
Speculation distorts the integrity of markets.
This is not a valid system.
So, where do the markets go from here.
As the Economist reluctantly concedes: "... private sector debts are much higher than in the 30's, so a Depression will be even nastier."
And this is without factoring in the impact of climate change.
America Inc and Britain PLC are entirely dependent on China - I bet the Strange Idiot Child from Texas is now regretting letting a Sudanese refugee carry the US flag at the Beijing Olympics Opening Ceremony!
US/UK are desperate for China to loosen fiscal policy and to allow its currency, the yuan, to strengthen.
But, why would they do this?
Via its huge reserves of US dollars, China is currently keeping America afloat anyway.
And, the Chinese are very confident of their market prowess, as, indeed, they are in football betting markets. While Paulson was banning short-selling and targeting bailouts, China extended their acceptance of short-sellers, regarding such a strategy as proof of the stability and validity of their market.
It isn't proof, but its a lot more convincing than the US/UK reactions.
Because the dollar is the world's reserve currency, it is a major advantage to the US. But the current crisis is severely testing many of the foundations on which foreigners faith in the dollar is based eg stable free markets.
The Economist states: "If foreigners ever flee the dollar, America will have the twin nightmares that haunt emerging economies in financial collapse - simultaneous banking and currency crises."
China can instigate this strategy at any time of their choosing.
In the short-term, while China allows America to keep its corporate head above water, the US will be dependent on some very unsavoury characters to bolster their deflated financial egos. For, sovereign wealth funds from Singapore, China, Thailand, Saudi Arabia and Russia will have to be tapped, and there are those who question the validity of supporting the economic system utilising the input from autocratic and authoritarian governments.
There is no logic to this fear, for these countries too are merely state-based economic systems.
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This Crisis is only being partially addressed at the moment.
As the Economist states: "Central bankers - however creative - cannot solve this mess with injections of liquidity alone. It is a crisis of solvency as well as liquidity."
Ah, that would be a Depression, then...
150 years ago, so you might think that his arguments might have been taken on board by now, Hyman Minsky argued that economic stability encouraged ever greater leverage and ambitious debt structures. He correctly claimed that: "Stable finance is an illusion."
In desperation, towards the conclusion of their poorly argued case for a non-sustainable system, the Economist pleads with us to believe them when they claim that "... provided markets are competitive and well regulated, it doesn't make much difference who owns the firms concerned."
Three points.
i) If it doesn't make a difference who owns the firms, why should owners and chief executives be rewarded so handsomely? Indeed, surely a better gaming of the incentives would be for the regulators to be paid wages one hundred times greater than the bosses, so that talent might prevent serial abuses rather than being the cause of them.
ii) Mature markets are not competitive. Non-competitive structures abound in psychopathic mature markets - cartels, monopolies, duopolies, oligarchies, consortia of shared interests etc etc. This is a systemic issue without resolution, accept by the dismantling of the entire system.
iii) The markets are not well regulated. They are either self-regulated, regulated by acquiescent bodies or not regulated at all. It is simply not feasible to reconstruct this psychopathic system at an earlier phase of maturity. And, if it were feasible, the system would instantly create the dynamic to return to its current psychopathic equilibrium state.
What about a system where rewards, in that they exist, are heavily tilted towards sustainability, strategic planning, nurturing, developing meritocratic social structures for the benefit of all participants, rather than one where the only people willing to take on the degree of antisocial required to sack tens of thousands of human beings, while operating a slave-trade workhouse in some lightly regulated Third World country, are the psychopaths that we now have in control.
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© Football Is Fixed/Dietrological
