Wall Street v. Wall Street

Here we are again, on the eve of massive asset bubbles purges. And as always (see for instance "Mondialisation : du "free market" au "fair market" - 20070726, "This is not a financial crisis" - 20080711*):

• This is not a financial crisis, but a crisis of finance. 
• This is not an economic crisis, but a crisis of economics. 
• This is not a political crisis, but a crisis of politics. 

Which means, as always, that:

• we will not solve anything by rejecting finance, economy, and politics - that's exactly what brought us the rise of extremism and populism, Brexit, or of course Trump.
• we must to the contrary embrace finance, economy, and politics - at their core, starting from  their definitions, exposing smokescreens and impostures, demanding transparency and accountability.

So what happened after Lehman? Further desertion by people with basic notions of economics, or at least traces of common sense (I won't even mention 'moral compasses'). If it weren't for the A.I. algorythms and high-frequency trading that amplify and perpetuate the illusion, the most blatant bubbles would have probably alreaday burst years ago.

DJI chart (2nd biggest component after Boeing, Goldman Sachs weighs 11.6 times more than GE)

Nasdaq - better real/virtual ratio than before the dotcom crisis, but Apple (14.6% of the index, 4.9% of the DJI) and co will eventually meet reality.

Politicians? They totally surrendered. Back in 2009, they still had the power to change things by injecting tens of billions of dollars, and by passing a few legal safeguards - but now governments are weaker than ever, and they let their agenda be set by the very firms they bailed out without actually purging the system. 

Exhibit A: Goldman Sachs, who were instrumental in frauds leading to major crises (e.g. betting against toxic assets they helped create, or forging figures with the Greek government), are now stronger than ever, and still runnig the show (Steven Mnuchin, Gary Cohn, Mario Draghi, Robert Zoellick, Jose Manuel Barroso...). They aim at becoming the alpha and omega, or rather the Alphabet of finance since, like google, they're investing massively in A.I. to comfort their leadership.

Beyond this caricature, our financial systems rejected finance as an enabler for the economy. Not just Wall Street against Main Street, but ultimately Wall Street against Wall Street*. Emboldened by impunity (except maybe in Iceland, that lone country where The People put corrupt politicians and banksters in jail), these guys prolonged the bailouts with a wonderful invention, Quantitative Easings: after emptying governmental chests, they simply decided to print money for themselves - officially to fuel the economy, but actually to improve already indecent balance sheets, and to widen wealth (and reality) gaps in abyssal proportions. They brought back derivatives, fantasy league ratings, or gambling, and they're gutting Dodd-Frank like they gutted Glass-Stiegel.

What happened after Lehman was Lehman on steroids.

What happens next is for history books. 

And if by 'miracle' these guys manage to prevent the fall until after the Mid-term elections, all bets are off.

blogules 2017
Since 2003, nonsensical posts about noncritical issues in nonenglish (get your blogules transfusion in French)
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* also 'the ultimate stage of free market is the negation of the market' ("Le stade ultime du libéralisme, c'est la négation du marché (le déni d'économie continue") - 20110302) 

"We almost didn't get off the ground", Mitt?

"So we started a new business called Bain Capital (…). We almost didn't get off the ground." - Mitt ROMNEY 2012 RNC

"We almost didn't get off the ground"?!? It's your "2 guys in a garage" start-up fable that doesn't fly, Mitt.

In the above picture: Raiders of the Lost Tax Returns

blogules 2012
Since 2003, nonsensical posts about noncritical issues in nonenglish (get your blogules transfusion in French)
NEW: join blogules on Facebook!!! and Twitter (@stephanemot, @blogules)

North Korea's lost Won

This is not Pyongyang's first reevaluation, but it's the first time the regime acts so recklessly in that matter.

The population was granted one week to replace their old wons with the new and improved currency. Failure to do so would leave them with almost worthless notes (1 new NK won = 100 old NK won).

Officially, the aim of the game is to crack down abuses from people perverted by capitalism, or at least the little of it which made its way into what was left of the local economy. No one will come with a lot of money without good explanations.

But the actual profiteers of NK's corrupt system (in particular the nomenklatura) already changed their cash into US dollars or Chinese yuans, well ahead of the announcement. The only victims will be those who will opt for transparency.

This measure follows closings of parallel markets, safety valves for populations every day more left to their own devices... or rather lack of.

According to South Korean medias, the country would be on the verge of revolt, and streets littered with old bank notes deliberately torn in the middle of Kim Jong-il's portraits. Military forces received the order to shoot at sight anyone who tries to escape the last Stalinian paradise.

If Pyongyang authorities really want to accelerate takeover from China*, that's a smart move...

blogules 2009 - also on blogules V.F. ("La Coree du Nord evalue mal les effets de sa reevaluation") and on Seoul Village ("North Korea's lost Won")

* see "KIM Jong-il's bridge to nowhere"

As if

The Dow Jones Industrial hit the 10k mark, again.

This is not the same index : General Motors or Citigroup Incorporated have gone after September 2008 (AIG left the DJI a little bit earlier). And this is not the same Bank Of America either...
So basically a makeshift index passes a symbolic mark. So what ? This new bubble is simply not sustainable. And Mr Jones cannot make much dough out of industries which often have yet to evolve.

Asia is booming, again.

And real estate bubbles keep inflating in South Korea, Hong Kong, or China. Hu Jintao wants to secure positions for his friends before the 2012 regime reshuffle, and Beijing decided to sacrifice long term economic soundness for short term growth. Seoul also refuses to deflate the housing bubble for fear of accelerating the second dip. LEE Myung-bak knows the demand will grow during the construction of all programs launched before 2008, but hopes that the hard landing will not happen under his "sit and watch".

Financial institutions are racking up profits, again.

Part of their garbage has been collected, but they keep doing business as usual : destroying value in the long term to maximize short term gains, focusing innovation on ways of bending laws, sucking money from places where investments are really needed. Total crap.

...

Three years after the downturn, one year after The Crisis, we are somehow still in denial (see "This is not a financial crisis"), and the same diagnosis applies.

There's still a lot of greedy money out there : unable to find exciting guaranteed returns (closer to 5% than to the 15-20% they were used to - not enough to hedge inflation which is bound to come back with a vengence), investors keep fueling bubbles in stocks, commodities, gold, currencies, private equities, and even real estate.

Regulation remains a dirty word and everything is done to undermine collective and comprehensive efforts to reform the system.

The question is not if but when the next wake up call comes. Before the end of the year ? H1 2010 ? Will the illusion even last until 2011 ? Will everything collapse big time in 2012 ?

Yet I'm still confident : in the long term, we are to evolve from free market to fair market.

blogules 2009

American Banks Post TARP, Stress, Disorder : I.O.U. Holdings

Signs of the times :

* Taliban consultants from the Boston SWOT Valley cling to their regressive vision of economy : "we don't understand what's happening, we are the ones who planted IEDs and we are the ones treated for PTSD"

* A.I.G. is still hesitating for its new name : "A.I.U. Holdings sounds nice, but I.O.U. Holdings would make more sense".

* Barack Obama is looking for a Swine Flu czar : "how about John McCain ? Somehow, it's about fighting pork. John would just need some training to search nosemarks beyond earmarks".

* The GOP wants Arlen Specter back : "we'll do whatever it takes, even hiring Sarah to build this ultimate bridge to nowhere".

* Chrysler and GM shall survive, but Nardelli remains a little bit nervous : "I feel comfortable with Italian backers and stronger trade unions, and I love the designer shoes they offered me. I get the idea behind the material used (steel), but I'd rather have them branded 'Jimmy Choo' than 'Jimmy Hoffa'".

Madoff with his head(ge funds)

A $50 bn scam (Bernard Madoff's Ponzi scheme)
A $913 m scan (the SEC budget for 2009)
A $138 bn scandal (see "How the Fed Reached Out to Lehman" NYT 20081215)


It looks a little bit like computers and the race against hackers : the more open the networks, the more likely bad guys will outsmart the system, and anything can happen.

Well. Not quite right.

Entering NYC's financial market ain't that easy. Plus everybody knows everybody... Actually, thieves pal around with cops all the time. Furthermore, post-9/11 America is not post-Hoxha Albania, where no-one knew anything about capitalism and Ponzi schemes could flourish as quickly as culprits could vanish.

Madoff didn't vanish.

The man is smart enough to know he was bound to crash, and the more he postponed his escape, the bigger the final ka-boom. Come on. Even Woody Allen would take the money and run.

But Bernie kept parading in lavish mansions. Bernie kept deceivingly spreading the wealth around. Bernie kept smiling his best dummy smile.

Because somehow, Bernie kept existing.

Bernard Madoff fell because his Second Life Avatar Bernie didn't follow The Woody Law.

Morale of the story : when dummies outdumb dummies, anything can happen.

Big 3's Slim Fast solution

US automotive industry is dead because, in spite of decades of decay, it decided to stick to "US automotive industry" instead of switching to "global mobility services".

Ford being Ford, only GM and Chrysler are openly talking about bankruptcy* in what looks like a slim-fast solution before a merger of equals (obese couch potato dummies lacking a vision for the future) : "just give us some cash, we'll deliver green cars as soon as we can and oh... if you don't mind we'll deliver a few pink slips even sooner".

Flint survivor Michael Moore wants**, like most Americans, the US to put money in sustainable transportation infrastructures, and to pull the plug for dumb, dumber and dumberer, to which I answer "which plug, Mike ? Isn't it time to install one ?"


* see for instance "GM, Chrysler Said to Consider Bankruptcy to Get U.S. Bailout" (Bloomberg 20081204)
** see my e-mail box, in the spam section : "Saving the Big 3 for You and Me ...a message from Michael Moore" (20081203), somewhere between an ad for blue chips (take a blue pill and recover your lost highs on Wall Street) and a message from a desperate whitehousewife ("take my advice, O Great Bama, and please pardon my sins for I don't want to go to jail. Yours Truly, Karl Rove").

Paulson, Sarkozy to Socialist Heaven : "show me the money !"

Europe hastily awarded some jailed Chinese dissident with some prestigious human rights prize before embarking on a plane for Beijing.

There, Jose Manuel Barroso, Nicolas Sarkozy et al went down on their knees and begged the Great Socialist Empire to let some of its wealthy reserves trickle down over the bankrupt Capitalist rest of the World.

From DC, Hank Paulson also asked the IIIrd Millenium's Hyperpower to consider some kind of a Marshall plan ("could you please bail out the US of A ? you know, we don't hate socialists that badly, after all - according to John McCain we're even about to elect one as our President").

In other words, capitalism defies socialist China : "Show me the money".

Wen Jiabao is all ears. And smiles*. "Yes, we can".

Yes, Wen can provide some kind of relief to his new admirers, but he has some fish to fry at home as well. Will he chose to secure China's business model and one fifth of the World's population, to help the richest fifth, or to give a hand to the forgotten rest ? Probably a little bit of each : China will durably strengthen its positions in Asia, Africa, Europe and America, but the trickiest part will be China itself (see "Pervasive China's CIA (Central Investment Agency)").

New series of models will emerge. Not this week-end. Nor November the 15th, when the World Egghead Forum takes place. Nor even during the couple of years to come. But timely (at a geologic time scale at least).

They will differ from XXth century socialism or capitalism (see "This is not a financial crisis"), and China is no exception.

* Actually, I'm wondering how badly Wen's jaws hurt - he was already jubilating during his interview with Zakaria a couple of weeks ago (GPS @ CNN / Newsweek). But not as much as I did, listening to Alan Greenspan swallow just a tiny little bit of his titanic pride.

Next stop - destroy Unidentified Financial Objects

This financial meltdown doesn't come as a surprise. Everybody knew something had to be done before it was too late. The surprise was to see how deep in the hole the people in charge would remain in denial and inaction*.

Sure, the US Presidential campaign didn't help. Sure, no one in charge wanted to be blamed for crying "fire" first, and igniting the panic movement. But this farcically suicidal ballet of leaders pretending to control the situation was a disgrace for democracy worldwide.

The first quick fixes are being applied to prevent the bleeding from overflowing too much, but the said bleeding has yet to stop.

The first "global" plays of the day are being broadcast - mere tactical moves with equally insignificant impact.

Megamergers in the financial sector are under way... with not so glamour bargain shopping tags all over.

Some national institutions are crying uncle, and I don't think minor league stock exchanges and currencies will make sense in the medium term.

Some crisis are like onions. They make you cry and they stink, but furthermore they have layers. This is one of those moments when you should try peeling off a few of them.

I don't mean "deregulate", to the contrary, but "keep it smart and simple", make oversight easier by removing black boxes, blowing up smokescreens, and destroying Unidentified Financial Objects.


* see "This is not a financial crisis"

Is Iceland really melting ?

Strange. 

The first ally Iceland turns to turns to be Russia.

Not Europe, not the IMF. Russia. Without any warming.

Medvedev-Putin happily oblige.

Maybe Iceland's financial system is melting. But Russia seems to be building a stronger front around the North Pole. 

Keep your eye on the ball, Europe. Not Georgia, not Ukraine. The ball at the top of the Kremlin.

This is not a financial crisis

This is not a financial crisis but a crisis of finance.
This is not an economic crisis but a crisis of economics.
This is not a strategic crisis but a crisis of strategy.


Listening to Henry Paulson or Ben Bernanke is quite depressing. Not because of the news they carry but because of their absolute lack of vision. Along with the crowd, they postponed the realization of the crisis* in a comical state of denial : look back at the past year and tell me what's been said and done. A total waste of time and money, which will make reforms even costlier. And we are far from having seen it all (ie masses of small stock exchange gamblers in China, real estate bubble in Korea, global wake-up call for "real economy"...).

I haven't heard of any strategic measure for years and key decision makers are only talking about tactics. Yes, there are rumors of a reform in the monitoring and the regulation, but I'm not certain this casting is up to the task. Especially since such rumors started years ago.

A consensus will eventually emerge from a free market to a fair market**, but no one is actually tackling the issue. The world leaders have other fishes to fry... starting with our planet : the G8 members unanimously decided to start curbing their CO2 dogs circa 2050, when Dubai have the same chances of hosting the Winter Olympic Games as Sapporo.

Think tanks ? They are basically lobbying groups. And right now, conservative think tanks are focusing on how to ignite a war in Iran**... while left now, liberal think tanks are focusing on how to impeach Rove / Cheney / Dubya (too little, 4 years too late).

Analysts ? Even the few independent ones are struggling for relevance.

The thing is capitalism died when the Soviet Union collapsed : deprived of the last supervillain, Superman grew lazier and fatter, forgot how to fly and used his X-ray vision only for despisable reasons. Meanwhile, John and Jane Smith became the new superheroes. Because all of a sudden, superpowers became mainstream : the web abruptly shrunk all time-, distance-, and information-gaps, putting them on par with the best financial gurus*. Overwhelmingly, "commoners" have swarmed all the "expert"'s favorite spots. There are no more safe havens, nor profitable niche markets, even off market (stock exchanges have lost their status of key indicators, bubbles also struck the private equity arenas...). There is no speed limit, only a succession of bubbles in an ocean of microbubbles.

Posting 10-20% yields makes a living, not a life. And finance as the aim of the game is over.

Winning against misery, that's a life. Not to be confused with winning against poverty : what is the point in making hundreds of million people pass a certain revenue threshold if you confront them with new unbearable challenges ?

Winning against underdevelopment, that's a life. Not to be confused with posting high GNP growth. Think supranational, smart infrastructures, pooling limited ressources and sharing world class education and health care experts.

Winning against desertification, that's a life. But the sound, microcultural, African way... not to be confused with the suicidal, Dubai way (earning big on desert lands in the short term, losing bigger in the long term).

Luxury is about doing whatever you want whenever you want with whomever you want. Not about purchasing when you can what everybody wants.

---
* and the reality of the ineluctable recession (see "The end of financial safe havens" - 20070303)

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* see "Mondialisation : du "free market" au "fair market" (20070726) and the utterly awful self-translation below :

"Globalization is first about incredible shrinking gaps that used to be key in economics : gaps in time, space, level of information... the sector which used to benefit the most from those gaps logically dominated the last few years. But finance is meeting a crisis. Not a financial crisis, but a crisis of finance as the aim of the game.

Speculation thrives upon gaps in time, space and knowledge, and speculators are among the first to embrace innovations in transports or communications, but such tools have become commodities and the number of speculators exploded. Nowadays, the bulk of speculators are non-experts, like those Chinese pensioners sipping tea and chit chatting in now countless shareholders parlors. In this new Far East like everywhere across the World, speculative niches pop up and pop out one by one, and experts can't find any safe spot to plant their tents. The loss of influence of traditional stock exchanges and the Gold Rush for private equities illustrate as much the aversion for irrationality and the need to de-virtualize economics. But even at that level, frontiers are melting and bubbles are inflating.

An "elite" of experts kind of manages to survive : I call "instant players" these creatures fitted for life in unstable environments which roam more frequently on the Thames than the Yellow river. They are very good at burning : money, bridges between friends and reality, cocaine on spoons, and ultimately their own wings.

It's become obvious for a couple of years now : there is too much greedy money in too many hands for the suicidal rush to last much longer.

This young millenium is looking for clues at the root, browsing through pages written by great economists from past centuries. The answer won't come from Adam Smith or Karl Marx but somehow, for economics to restore its own dignity, it needs to review its fundamentals (capital, value, means and aims...) and go much further.

Many signs let us envision the emergence of a consensus on the diagnostic, similar to the one reached about global warming. Economics are about the impacts of human activity anyway, and theoretically they should take into account all environments, all ecosystems... not to mention the fact that there again, diversity and evolutivity are key to survival.

In economics like in environmental studies, major improvements are more likely to come from recent converts, those who resisted to evidences in order to maintain priviledges instead of embracing the future and its opportunities.

Most movements denouncing globalization are "against" and don't offer solutions. Alter-globalization activists often recommand the end of economics and thus the end of mankind, that global parasite which will kill the planet before it finds a new spot to colonize.

A consensus will emerge on more pragmatic basis : a market economy that would be open but regulated and based on mutual respect. A "fair market" rather than a "free market". A global market because globalization requires a global approach of our ecosystem as a whole, but we are far from there. And in this transitional period where free trade fanatics are pointed out, protectionism is back. Far beyond what is needed and sometimes a rather subtle way.

For instance, the Bush Administration are supposedly promoting free trade across the globe but their politics are basically multi-bilateral and self-centered, systematically blocking all multi-lateral attempts : after "less UN, more Coalition of the Willing", after "less Geneva, more Abu Ghraib", after "less Kyoto, more Alaska drilling", they delivered "less WTO, more FTAs". The said "Free Trade Agreements" being as "free trade" as the Patriot Act was "patriotic" : asymetrical, full of exceptions, and by nature protectionist, these FTAs can sound profitable for the States but only in the short term, and only for Dubya's base of "haves and have-mores".

Paradoxically, this strategy illustrates the negation of globalization because it means the refusal of a global approach to globalization. Drawing a parallel with today's crisis within each of the great monotheist religions (see "Universal Declaration of Independence from fundamentalism"), the wise thing to do is not to fuel extremists of all sides by accepting their fake "war of civilizations", but to respectfully reach beyond the frontiers and collaborate on what brings us together, and to be ready to make concessions in order to eradicate collectively the most fundamental injustices."

---

** see "Iran : who wants war and why" - 20070925

Red blogule to Wolfie's Personal World Bank

Annus horribilis for neocons (continued) : Paul Wolfowitz, whose World Bank is supposed to give governance lessons, abused his power to raise above the level of decency the pay of his own girlfriend. Alberto Gonzales and Karl Rove may be the next members of the crude crew to fall, the Dems only have a few months to restore America and impeach both Lord Dubya, King of the Banana Republic of the Divided States of Amerika, and his puppeteer Lobby Dick Cheney.
Anyway, History will give its verdict sooner or later, and the Bush years will be forever remembered as years of immorality and disgrace.

The end of financial safe havens - Red blogule to speculation

Shanghai sneezed, Tokyo coughed, the whole world panicked... but avian flu had nothing to do with it. According to Ben Bernanke, Chief Futurologist Officer at the Fed, this week's small bump on the eternal path of glory of the World's greatest stock exchanges doesn't mean the big naughty R will strike anytime soon.
Yet it shows how nervous investors are, globally. There is a lot of greedy money everywhere and not only from your usual suspects (the so called developped countries) : everybody is well informed and almost free to invest almost anywhere anytime. Speculation remains good business but demands better nerves than ever. Hedge funds were the first to collapse under their own weight and now, even traditional players struggle. The money is there, growth is there too, but the place is so crowded with both experts and beginners that nothing is guaranteed.
There is no such thing as a financial safe haven anymore, and this greedy money will somehow have to focus on tasks more useful for a larger community. No wonder some people have been rediscovering The Capital lately. But with a fresher look.
I like to compare Karl Marx with Louis Pasteur : both were great observers and could deliver pertinent diagnosis, but Carlito couldn't go all the way of experimentation and would often wander too far along the path of interpretation, coming back with irrelevant prescriptions and leaving to other doctors the honor of delivering counterproductive treatments.
I know this is the kind of excuses used in the past by the Supreme Soviet or the CPC (Communist Party of China), but I do think the time has come for the cast of pure speculators to feel the heat and join the Hall of Shame : you have a right to sell weapons, tobacco, alcohol, casino chips, and to make a lot of dough with it, but don't expect to be respected for that.