Michel Foucault: "I mean to speak of the great warm and tender Freemasonry of useless erudition."
I do like a provocative opening line :)
Capitalism requires for the people to trust the banks, and for the banks to trust the government, and the primary factor that sustains this system is confidence in credit.
Two of these three pillars of necessity have been splintered by the onset of the Depression, as only the hyperreality of living under a global selection of state-based economic systems of a variety of capitalist hues still stands firm.
Governments will always support the financial system in preference to any other arena of concern.
Masonic bankers are of greater value than unionised car-workers.
This post is the final one of our seasonal triumvirate of articles about the state of the global financial system (the others may be located at: http://footballisfixed.blogspot.com/2008/12/rebellion-of-words.html and http://footballisfixed.blogspot.com/2008/12/obamaworld_30.html).
And, with the unexpectedness of an Arab folk-tale, this post is a bit of a beast.
We intend to check out the past, live in the present and project a future and, as such, this post will be broken down into the following sections:
1. Some Inadequacies of this System.
2. Why a Depression is Nailed On.
3. The State of Play.
4. Why Hedge Funds are the Key to Everything.
5. The Psychology of the Depression.
6. Dark Pools - the Foundation Stones of the Next Market Bubble.
7. Super-Systemic Risk - Climate Change.
Additionally, our Conclusion to this post, which will be posted in the next day or two, will contain our Freebie Xmas Bet - even though workloads have resulted in it becoming an Epiphanistic Orthodox Freebie Xmas Bet instead.
Last year we gave you Manchester United to win the English Premiership and the world to enter recession in 2008.
And, in the previous year, we told you to short-sell selected shares and we informed you that the FA Cup Final would be between Chelsea and Manchester United before the Third Round had even been played.
Cool...
Some Inadequacies of this System
Boris Fyodorov: "... without a moral basis, capitalism would just become the means by which the powerful would concentrate their wealth."
Shareholder capitalism has no moral basis - it is dependent on a permanent pool of the unemployed and on a hierarchical division of assets that leaves huge numbers of people at the bottom of the pyramid scheme in a state of starvation and desperation.
The whole infrastructure of shareholder capitalism is a colossal Ponzi scheme - a pyramid selling scheme that guarantees a permanent pool of pernicious poverty.
Bernard Madoff was merely implementing a matrix...
Capital and poverty are inextricably linked, they both procreate and accumulate within a system designed for this very dynamic.
In practice, Milton Friedman's free market ideology has been entirely discredited by the onset of this Depression.
Iceland, for example, entirely based their financial system on Friedmans' personal designs - he regarded the country as a poster child of the validity of his psychopathic form of capitalism.
The system has a built-in obsolescence.
By ignoring the longer term and the externalities, shareholder capitalism is able to construct invalid and illicit mechanisms and markets that are simply not sustainable, either on a systemic or a super-systemic level.
The fact is that free market 'solutions' are being applied in an attempt to rectify the problems created by the free markets themselves.
The very term 'free market' is a complete misnomer.
For, as Noam Chomsky states, "the leaders of the business world are dedicated Marxists."
The financial sector and business as a whole is given free rein to behave in any manner that they might desire to achieve profits, without any regulatory checks or balances getting in the way - more of a cockroach race than a rat race.
When highly leveraged greed and moral hazard kick in, and the evident non-sustainability became obvious to the blinkered and the bewildered, who was there to pick up the pieces? Governments and Central Banks. Shareholder capitalism is no different to the systems employed in North Korea, Russia or China - a state-based economic system.
Quoting the Economist: "Writing about one of the great swindles of the 1930s, J.K. Galbraith pointed to three traits of any financial community that he believed put it at risk of fraud. There was the tendency, he wrote in 1961, to confuse good manners and good tailoring with integrity and intelligence. There was the sometimes "disastrous interdependence" between the honest man and the crook. And there was the "dangerous cliché that in the financial world everything depends on confidence. One could better argue the importance on unremitting suspicion.""
Snake-oil salespeople serially robbing the gullible while the media serially inform us that this is the only system on the table, so to speak.
And what is cash anyway?
Historically, the fiction of paper money was backed by the fact of gold - the Gold Standard. All pounds could be exchanged for a gold sovereign. Guaranteed.
In order to pay for the Great War and the Great Depression [note: why are wars and depressions and swindles always promoted as 'great'?], the Gold Standard was scrapped, and it wasn't reintroduced in the light of the hyperinflation in Germany during that 'Great' Depression.
Since then, we have been brainwashed to accept cash as Real, when, obviously, it is hyperreal.
It has no intrinsic value - paper, metal...
Money is just a symbol.
And its validity as the fuel of this system is based on a trust that, in Reality, has no basis to it.
By the end of this post (or posts if I continue to witter on like this), I hope to have convinced you of the inevitability of the Really 'Great' Depression (1997-?).
It is inevitable that deflation and/or hyperinflation will rear their heads at various points of what may well be the longest Depression in history, the Reality of cash will be exposed by either of these spirals.
Cash is fake.
The system is fake.
If we all wanted our money back at the same time, we couldn't have it because it isn't there.
Smoke and mirrors of production...
As friend and fellow trader Tim Bailey stated: "I'm going to sell all my shares, withdraw all my cash and savings, put it all under the mattress, and then burn it!"
Behaviouralism and Darwinism also discredit the non-sustainability of the shareholder capitalist model. We'll deal with former later in the post.
The Economist: "Since status is a moving target, there is no such thing as enough money. The relative nature of status explains the paradox... that, while rich people are happier than poor people within a country, average happiness does not increase as that country gets richer... it means the free-market argument - that because economic growth makes everybody better off (note: not true), it does not matter that some are more better off than others - does not stand up, at least if "better off" is measured in terms of happiness. What actually matters, Darwinism suggests, is that a free society allows people to rise through the hierarchy by their own efforts."
Darwinism also supports the Reality that poverty is relative.
The Economist (again): "... once economic growth has lifted a country out of penury, its inhabitants are likely to live longer, healthier lives if there are not huge differences between their incomes. This means that poorer countries with low income-variation can outscore richer ones with higher variation."
The system is psychopathic. QED.
In order to exert their power over the rest of us, the psychopaths undermine their own existences - their lack of rationality even extends to their own individual lives.
Why A Depression is Nailed On
Foucault: "The historical raison d'être of political power is to be found in the economy."
Firstly, there are some aspects of this section of the post that are for my colleagues only, as they impact on our present and future trading strategies. Apologies if that makes this part any more disjointed than would otherwise be the case. Although disjointed would have to be counted as a core competency...
What is a Depression?
A Depression, in neoclassical economics, requires a decline of more than 10% in GDP, or a decline in GDP that lasts more than three years.
Before the 1930s, all downturns were termed Depressions - Recession is a hyperreal word that was introduced to avoid people linking any future Depression with the 'Great' One.
Depressions are caused by a contraction in credit, a decline in the general price level or the bursting of an asset or a credit bubble.
Or all of these at the same time.
Think about it.
This Depression has been caused by the largest asset price and credit bubble in history.
In the final quarter of 2008, the heavily doctored official US figures still showed that GDP fell by an annualised rate of 6%.
And the feedback loops are about to take full effect. For, although the huge quantities of public money that has been handed over to the banks seems likely, in the immediate term, to uncrunch the credit, the impact is now being felt in every other sector of the economy in every territory worldwide.
The Crisis of Credit is morphing into the Crisis of Capitalist Contagion.
As firms go bust, other firms are made weaker, trust is non-existent, no credit is offered, the unemployed stop spending, more firms go bust, other firms are made weaker and, before long, the impacts will feedback into the global financial system in some menacing form as the next monster from the deep lurks looking for murky mammon.
Of course, the Depression commenced in 1997 and these occurrences happen three times a century. The average length of these Secular Bear Markets is 20 years. Although the Davos brigade are able to impose boom-and-busts onto what should, in Reality, be a stagnant market moving virtually in a straight line (the US and British stockmarkets are at the same levels as in 1997), we are in the middle of a slump.
And that is if we are lucky.
The double whammy of the biggest bubble in history and super-systemic risk represented by climate change makes it increasingly more likely that this Depression will last considerably longer - perhaps even The Permanent Depression.
The State Of Play
Stephen Stanley of RBS Greenwich Capital: "Policymakers seem to have concluded that leverage got us into this mess and leverage can get us out."
Seventeen trillion dollars...
That is the total amount of value that has disappeared from global stock markets over 2008.
This system was worth $34 trillion on January 1st 2008 - today it is worth exactly half that amount.
50% of this free market fallacy has gone.
And people claim that the markets are efficient!!!
Of course, it does not help that the dismal science that defines all of our Realities is, in fact, a pseudo-science.
Every market price is fallacious in that externalities are denied their deserved impact.
No market condition is replicable, we simply have the white noise of interacting feedback loops of the criminalised insiders.
All of the tools that Friedmanism is throwing at the current Depression, are based on a hindsight evaluation of the situation in 1929 - Ben Bernanke is an expert on the 'Great' Depression.
This is simplistic and not holistic.
It is also the reason why Bernanke and Hank Paulson keep changing their minds on a strategy (ignoring the latter's hidden agendas, of course).
Both the financial system and the eco-system in which it operates are entirely different entities than was the case in 1929.
Bernanke/Paulson's 'strategy' is a little like using Newtonian Physics to find the Higgs Boson.
The Economist: "American consumers, unable to borrow and fearful for their jobs are cutting spending; so are firms, short of cash and worried about sales. German business confidence is at a 15-year low. Japan's exports to both rich countries and emerging ones are falling. Emerging economies are suffering too, as commodity prices fall and capital flees faster than in those countries' own crises of a decade ago. In some countries - notably the United States - a vicious deflationary spiral of banks withdrawing credit and demand contracting is no longer unimaginable."
Fancy a few other worrying economic signs?
* US manufacturing is at worst levels in over 60 years.
* The British housing market declined by 16.2% in 2008, the worst annual fall on record.
* John Authers of the Financial Times: "Equities are priced for a Recession, not a Depression."
* The Standard and Poor 500 fell fully 41% in 2008. The worst decline in the 'Great' Depression was 47.1%.
* The FTSE 100 fell 32%, also its worst year ever.
* Deflation is a real risk.
* Hedging, and the reduction of risk, is not feasible in volatile markets.
* We are now entering a crisis of default, a massive slowdown in the global economy.
* Slashing interest rates is a short-termist 'strategy'. Not only does it send out the wrong psychological signal to the masses, but it also severely limits the future ammunition available to fight the Depression.
Britain, like Iceland, is based on Friedmanist fallacies and, also like Iceland, has a financial sector disproportionately large in comparison with the overall national economy. The pound is already falling rapidly. Meanwhile, Slack Jaw and his spooky sidekick reckon that a recovery is on the way this year. Ho ho ho...
Slack Jaw is dependent on the economic illiteracy of the British people in order to sell his current fable that he is, in no way, one of the architects of the Permanent Depression.
Slack Jaw has always been economic with the truth.
His whole ruse is based on creating the illusion of a false bottom to the Depression.
And, just to place matters in perspective, Goldman Sachs paid out $11.4 billion of bonuses in the first nine months of last year...
Why Hedge-Funds Are The Key To Everything
Richard Sylla, Professor at New York University Stern School of Business, states: "We've come through half a century of recessions being sort of mild. But never have the problems with the financial sector been as great as they are now."
In 2005, hedge-funder Harry Markopolos sent the Securities and Exchange Commission (SEC) a report titled "The World's Largest Hedge-Fund is a Fraud". In this report, he flagged 29 reasons why this judgment was valid.
His report was ignored.
Three years later, Bernard Madoff became the largest financial fraud in history with a cool $50 billion being written off.
And the man still walks free.
Do a little bit of dole fraud, and its a month or two in Strangeways; undertake systemic fraud...
Must be because he used to be the Nasdaq chairman, I guess.
Just as some financial institutions are too big to fail, some capitalists are too big to finger.
Hedge-funds have just had their worst year ever, both due to the general financial climate and to the specific targeting of the sector by Paulson.
All of the largest funds (Tudor Investment, Fortress, D.E. Shaw, Farallon Capital Management and Citadel) were restricting withdrawals by their clients in the period leading up to xmas - this is the equivalent of all the high street banks preventing you from accessing your cash. And it is yours, remember...
Despite this tactic, money has still flowed out of hedge-funds at record rates.
So much so that, to avoid a systemic implosion, Paulson performed another pirouette and released $200 billion of the US government handout to the sector. To further aid the sector, the FSA has decided to withdraw the ban on short-selling implemented at the height of the credit crisis.
But the whole hedge-fund sector is an unsustainable myth of a market - a true neohyperreal entity.
Quoting Buttonwood from the Economist: "The breakneck growth of the hedge-fund industry from $39 billion of assets at the end of 1990 to $1.9 trillion at the end of last year indicates that the industry overreached itself. The amount of money under management exceeded the number of managers with genuine skill and the range of market anomalies that could be profitably exploited."
And, not only is this sector largely non-regulated, there isn't even a robust legal definition of what a hedge-fund is!
The Psychology Of The Depression
Charles Mackay: "Extraordinary Popular Delusions and the Madness of Crowds".
The key agenda currently has nothing to do with the economic fundamentals, nor with the systemic uproar.
The key agenda is currently this - how do we prevent psychological contagion?
Just as the BBC News still refers to Britain being "on the verge of recession", there will be an awful lot of trees destroyed to plug the fallacious message that the worst is over, and everything will soon be as hunky dory as it ever has been.
The mis-selling of this psychological sleight of hand depends on three inputs - a compliant media, an economic illiteracy at large and the creation of fake psychological feedback loops.
All markets are primarily psychological mechanisms as the fundamentals of classical economics get nowhere near explaining our current hyperrealities. Consequently, markets may be driven by playing with people's psychologies.
A prime example of this tactic is the rebranding of Slack Jaw as some wizard of macroeconomics when, in Reality, he is simply a twisted fire starter.
Indeed, it will be these psychological ploys that will drive the cycles that will be imposed on the 'Permanent' Depression. We should expect numerous fringe meetings at Davos this year on Behavioural Economics...
As some old-Etonian chairman of the now defunct Midland Bank stated in 1964: "There is a very real need for us to build up, in the eyes of the public, confidence."
Dark Pools - the Foundation Stones of the Next Market Bubble
While Paulson, on behalf of the deep state, was ripping off the American public in a more direct manner than had historically been the case, his cohorts were already planning the next phase of the poker game.
There is one thing on which everyone is agreed - the current crisis has resulted from a lack of regulation of the financial sector - think Madoff, for example.
One might rationally suppose that future strategies would be based on a greater openness and more restrictive regulation.
Get real...
In the past, industry insiders had to disclose their market positions in the monthly US Commitment of Traders Report - this was to prevent the cornering of markets, the negative impacts of moral hazard, the illegalities of insider trading and all the other shenanigans that pass for professionalism in the marketplace.
Dark Pools move beyond this.
Dark Pools allow the institutional trading of colossal blocks of shares anonymously.
Dark Pools are the financial markets equivalent of the private markets that are destroying football.
The two market leaders in Europe, Turquoise and Nomura, now clear nearly 20% of the FTSE100 trades, and this percentage is bound to increase rapidly as the benefits of anonymous trading become more widely perceived.
Dark Pools are effectively a financial system within the financial system - no external observer will be able to assess and address the various agendas and conflicts of interest and insider trading and the like.
And, as for the regulators, if they missed Madoff...
The creation of these Dark Pools will further bind the financial elite (sic) together in an alternative universe of neohyperreality - they are merely a further example of the fragmented cartel becoming more monopolistic.
As Eli Lederman says: "Everyone is limited by the fact that they have only their own dark pool."
Collaboration in Corruption!
That is what is needed!!
Super-Systemic Risk - Climate Change
Martin Rees, the Astronomer Royal, reckons that we have a 50/50 chance of making it through the current century as a species intact. He not only focuses on the super-systemic risk of climate change when making this assessment, but also includes the possibility of nuclear devastation and other man-made horrors.
As he stated on al-Jazeera: "This is the first century where the fate of the entire planet lies in the hands of one species."
Climate change is not included in any market hyperreality.
For sure, greenwash and green industry abounds.
The psychopaths are even trading armageddon on the nascent carbon markets.
But, the externalities of super-systemic risk are entirely omitted from the shareholder capitalist model.
How fake do you wish for this system to be?
The Economist used to be in denial about climate change as it provided an obstacle to their support for the untrammelled rape of the planet.
They even lauded hyperidiots like Bjorn Lomberg and Niall Ferguson in their selective scepticism.
Times change.
In the current issue of the free-market weekly, there is a disturbing report on the state of the world's oceans: "Yet the mass extinction, however remote, that should be concentrating minds is that of mankind. It is not wise to dismiss it where CO2 emissions, that other great curse of the oceans, are concerned... So far, the rising sea levels, dying corals and spreading algal blooms are only minor distractions for most people. A few more hurricances like Katrina, a few dramatic floods in the coastal cities of the rich world, perhaps even the shutting down of a part of the world's great conveyor belt of ocean currents, especially if it were the one that warms up western Europe: any of these would catch the attention of policymakers. The trouble is by then it may be too late."
And this is from the Economist newspaper...
... not the New Internationalist or Z magazine or al-Jazeera or some anarcho-green newsletter, but the Economist.
© Football Is Fixed/Dietrological
