Polychrysos - The Illusory Game of Exchange (A Flashback)

Of course, we predicted the oncoming Recession/Depression and the causes in 2007 but this post was originally posted on January 13th 2009 and was written as a state of play at the time.
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The Illusory Game of Exchange, the Giant Poker Table where our Realities are determined...

In the previous post in our seasonal triptych, by focusing on the gathering Depression from the perspective of hedge-funds, Dark Pools, Behaviouralism, Darwinism and climate change, we outlined some of the reasons why a Deep Depression is our future.

Only time and space prevented us from venturing further into this systemic murkiness, and in the week since the post, there have been numerous further disturbing pieces of news that, under normal circumstances, would be headline-grabbing.
For example, the Bank of England reducing interest rates (and thereby eliminating its monetary options) to 1.5% - the lowest rate since the central bank was established 315 years ago. This is a statement of extreme historical weakness.
Or, the US economy losing more jobs (2.6 million) in 2008 than in any year since the 2nd World War.
Or the relentless conveyor belt of major job losses and fraud exposures on a daily basis (Alcoa, Satyam etc).

To begin this article, we intend looking at some of the other areas of non-sustainability that will guarantee the Deep Depression.

The Hyperreality (continued)

* Price-earnings (p/e) ratios - Bottom feeders are claiming that longer term investors are able to find value in the current market climate by taking advantage of the low p/e ratios in the marketplace. As stock prices have plummeted, earnings have, until recently, not fallen so far, as companies employ various accounting shenanigans to hide the true carnage from the balance sheets.
But earnings are about to go through the floorboards as the feedback loops and economic contagion poison the entire global economy.
Prices will follow.
The whole efficacy of p/e ratios as a potential measure of value in the marketplace is based on historical analyses and data.
Economists always look to the past for solutions, yet no economic hyperreality is replicable, which renders such research as quite pointless.
In a Depression, p/e ratios become an outmoded yardstick - systemic and super-systemic risk sees to that.
For this reason, there is not one global asset that might be thought of as offering sustainable value - any rebound is nothing more than an example of a dead cat bouncing...

Spokesperson for the Bank of England: "The world economy appears to be undergoing an unusually sharp and synchronised downturn."

* Ratings Agencies - All investors rely on the ratings bodies for a measurement of the level of risk within an organisation or a sector. These ratings are always inflated as any journey through the companies who either went into liquidation or were saved by governmental handouts in 2008 would demonstrate.
This is a systemic enigma built into the fake structure.
As the Economist states: "Although ratings are relied on by investors and regulators as impartial measures, the Rating Agencies are paid by those they rate for their judgments."
Think advertising - no newspaper contains negative editorial against its advertisers.
Think ratings - no Ratings Agency will downgrade an entity that is, in effect, paying the wages.
Some of the AAA/Aaa nonsenses standing proud at Standard and Poors and Moody's today, will seem just a trifle optimistic in less than twelve months time.

Jean Baudrillard: "... all current strategies boil down to this: passing around the debt, the credit, the unreal, the unnameable thing that you cannot get rid of."

* Private Equity - All the focus has been on the plight of the banks and the insurance companies, on the credit crunch and on the toxic assets, on targeting hedge-funds and on the state of the currency markets.
As attention has shifted to the 'real' economy (NB: it is our assessment that the ONLY Real economy is the informal one), the fake finance of private equity operations will come under increased scrutiny.
All firms under the yoke of private equity have been stripped of their assets and saddled with debt. With the current very real concerns about deflation this is very very bad news indeed.
When the Bank of England produced their Inflation Report on November 12th, the future spread of likely inflation rates projected negative values for the first time ever ie deflation.
Under a climate of deflation, indebted businesses (and households) will be more anxious to pay off loans and debts as soon as feasible.
How they are going to be able to achieve this is another problem entirely.

Jean Baudrillard: "The illusion of the economic sphere lies in its having aspired to ground the principle of reality and rationality on the forgetting of this ultimate reality of impossible exchange."

* Deflation - With the indebted desperately trying to pay off their financial millstones, a deflationary world is trouble as there will not be enough cash-rich entities to offset the activities of the indebted. This produces a deadly mix of falling prices and high leverage, leading to a debt deflation of the type first postulated by Irving Fisher in the 1930s.
And don't even get us started on the fine balance between deflation/stagflation tipping over into hyperinflation...

Jean Baudrillard: "Here and now, the whole edifice of value is exchangeable for Nothing."

* Moral Hazard - Moral hazard got us into this mess, and moral hazard is the template of choice to cement the Depression.
Excessive leverage, fake mathematics and accounting, all neatly wrapped in a regulatory-lite environment with no downside to the taking positions of excessive risk. Plus ça change...
Last week in the Financial Times, the war criminal called Blair admits to mistakes in his stewardship of the economy, but pleads for any reactive regulation to be as feeble as possible so that the innovation might be allowed to continue.
What innovation?
Credit default swaps? Derivatives generally? Ponzi schemes at hedge-funds? All very fucking innovative but of absolutely no value to anybody other than the psychos with their fingers in the till.
If such innovation had been put into Real research in medicine, science, rather than the myopic minutiae of available knowledges that are allowed to be marketed in this shareholder capitalist poker game, we would not be in this situation.
Still, its great to hear that the war criminal called Blair has earned £12 million from after-dinner speeches since he gave up his full-time post in applied genocide.

Friedrich Nietzsche: "One must push what is already collapsing."

* Emerging Economies - The new paradigmists, a particularly stupid breed of capitalist, reckoned that the emerging economies would rescue the US, the EU and Japan once the Recession began to bite. Yet all economies are declining in lock-step.
Furthermore, the shareholder capitalist model that has been foisted onto numerous gullible territories has been shown to be invalid.
So, for example, China needs to undertake some financial restructuring and recapitalisation. As the Economist states: "It would once have been easy to argue that a market-driven system served up by big western banks could do a better job of this than government. When virtually every such institution has been given state support to stay in business, that case is much harder to make."

George Soros: "If you need systemic change, you might as well go for something that is vastly superior."

* Credit Crisis - Although the record amounts of public money that has simply been handed over to the greed architects of this Depression has succeeded in freeing up some of lack of confidence in the financial system, the Real solidity so created is mainly an illusion. The Real economy will continue to suffer (British retailers experienced their worst xmas ever in 2008 and banks are refusing to pass on the interest rate cuts to businesses and customers) and banks will create a cycle of contagion whereby the businesses that they do support will be undermined by the complete collapse of the rest of the economy, with associated bad debts and further risk of toxicity. we should expect more hedge-funds and banks to go under this year.

Mark Twain: "Don’t part with your illusions. When they are gone, you may still exist, but you have ceased to live."

* Governmental, Regulatory and Central Bank Errors - It is now generally accepted that allowing Lehman Brothers to go bust was a mistake.
It is now generally accepted that the ban on the short-selling of financial stocks was a short-sighted mistake.
It is now generally accepted that solely targeting the toxicity in the financial system was a mistake.
It is now generally accepted that the excessive financial support provided to insurance giant AIG was a mistake.
It is now generally accepted that the highly leveraged private equity model was a mistake.
It is now generally accepted that the lack of regulation in the free market was a mistake.
It is now generally accepted that the targeting of hedge-funds was a mistake.
It is now generally accepted that giving the Bank of England control over the setting of interest rates was a mistake.
It is not yet regarded as a mistake that interest rates have been slashed to historical lows.
It is not yet regarded as a mistake that the financial industry is rushing to create secretive Dark Pools.
There are more mistakes to come from a financial elite (sic) who see the financial world solely through the prism of their own self-interest.

Satyajit Das: "Markets placed great faith in the volume of money available to support asset prices and assist in alleviating shortages of liquidity. The perceived abundance of liquidity was, in reality, merely an illusion created by high levels of debt and leverage as well as the structure of global capital flows. As the financial system deleverages, it is becoming clear, unsurprisingly, that available capital is more limited than previously estimated."

Trust, Psychology, Psychopathy

* Trust is one key component in the current crisis - nobody trusts the banks any longer no matter what their government-sponsored advertising campaigns may claim.
All analysts must judge the security of their investments, savings and cash, and correctly apportion their monies accordingly.
Taking sports brokerage as an example, we set a limit on the degree of trust that we place in our routes to market. Once a threshold has been set, we maintain our cash levels with the said institution below these levels AND we build into our financial projections the probabilities of brokers reneging on our agreements.
We are now at the point where we place banks at the same level of risk as our second tier brokers ie below the level of trust that we have in our primary level Asian brokers.
This breakdown in trust will not be easily repaired.
We don't know them and we don't trust them.
And we don't trust their system either.
As the Depression begins to bite in earnest, many more individuals are going to be reaching this same conclusion.

As Sigmund Freud once observed: "Illusions commend themselves to us because they save us pain and allow us to enjoy pleasure instead. We must therefore accept it without complaint when they sometimes collide with a bit of reality against which they are dashed to pieces."

* The Trickledown Effect - One of the great fallacies of shareholder capitalism is the trickledown effect, an illusory piece of fake mathematics that is solely dependent on the imaginary hyperreality of purchasing power parity (PPP). There is no trickledown other than in misery and psychopathy.
In a Depression, this Real trickledown effect is a downward spiral in the fake pyramid selling scheme that is our system.
The greed, the psychopathy and the mistakes were made at the top.
Our representatives bailed them out with huge handouts.
Moral hazard determines that the same greed, the same psychopathy and the same mistakes will be made at the top.
Psychopaths are unemotional and irrational - these two factors must go together as research by Antonio Damasio, professor of neuroscience at the University of Southern California, has shown.
There is a sufficiency of psychopathy among financial folk.

Yevgeny Yevtushenko: "When the truth is replaced by silence, the silence is a lie."

* Conclusion - As the fallacious system runs on in its empty sameness, the illusion must be replaced by truth, otherwise there will not be eco-system in which to continue to peddle the propaganda and lies.

Satyajit Das: "In this current financial crisis, the quantum of available capital, the munificent resources of central banks and sovereign wealth funds, and the globalization of capital flows may be some of the accepted "facts" that are revealed to be grand illusions."

Michel Foucault: "There is a battle 'for truth'... It is necessary to think of the political problems of intellectuals not in terms of 'science' and 'ideology', but in terms of 'truth' and 'power'... 'Truth' is linked in a circular relation with systems of power which produce and sustain it, and to effects of power which it induces and which extend it. A 'regime' of truth... The problem is not changing people's consciousnesses - or what's in their heads - but the political, economic, institutional regime of the production of truth."

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