Jamie Dimon, the man who put the turd in your turducken

"Wall Street’s biggest banks squeezed out a victory this week when the House narrowly approved a spending bill with provisions that would weaken a section of the Dodd-Frank financial regulations," says The Washington Post.

Then it tries to sweeten the bitter pill by saying, "But the win came at a high cost for the banks -- in spending down their political capital and inflaming public opinion."

As though the demigods playing carelessly with your money give a damn what you think. What bothers them is the possibility of having their train set taken away by the impact of falling oil prices on the unbelievably inflated derivatives market, as Ellen Brown explains.

Derivatives are the fourth horseman in Michael Panzner's apocalyptic vision of a destroyed world economy. Sat behind him, like the lethally oversized crowd in "Widecombe Fair", are the financial establishment and all those they have bought and bullied, and by George they want cushions and helmets for everybody who matters.

Democracy is a sick joke. On both sides of the Atlantic, a professional class of political gamesters have worked out how to get what they want for themselves while appearing to be answerable to you. In the case of last week's "CRomnibus", it was the blackmail of not approving the US Government's budget bill unless it had a deadly rider strapped into the saddle: banks that gamble with your deposits insisted on having the latter insured so that the bets could be bigger and more reckless. My bet wins, I win; my bet loses, you pay.

Matt Taibbi is close to despair at the complicity of the Democrats: "... they're not a real party. They're a marketing phenomenon, a big chunk of oligarchical Blob cleverly sold to voters as the more reasonable and less nakedly corrupt wing of a two-headed political establishment."

Are they wrong, these cynical psychopaths who are masters of our universe; or are we wrong, for expecting any other result?

There is an episode in Henry Miller's "Tropic of Cancer" where a foreign student in Paris is directed to the toilet but in his ignorance uses the bidet instead. Miller extrapolates this (p.158) into a vision of a heavenly feast in which you are brought a silver platter, which has on it only two stinking "number twos".

Do you imagine that the silver platter-owners can't guess your opinion? It's part of the treat for them.


READER: PLEASE CLICK THE REACTION BELOW - THANKS!

All original material is copyright of its author. Fair use permitted. Contact via comment. Unless indicated otherwise, all internet links accessed at time of writing. Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog; or for unintentional error and inaccuracy. The blog author may have, or intend to change, a personal position in any stock or other kind of investment mentioned.

Bringing down the Temple of Dagon

I listend to Radio 4's Any Questions? last Saturday and a question about bankers' bonuses reared its lovely head. And then the pundits fell down, one after another.

I can't answer the conundrum about the sound of one hand clapping, but I sure heard the sound of punches being pulled. Perhaps some of the speakers have banker friends; perhaps some are hoping not to alienate the Masters of the Universe in the weary stagger up to a General Election. But here's what I'd like to have said, and it proceeds from a simple question:

Did the bankers know the likely consequences of their actions?

If they didn't, they are incompetent and instead of dithering about the threat of the RBS' board to resign, the government should sack them and all like them. Doctors who are that bad at their jobs would be sued and/or worse.

If they did, they should be jailed. In my view, Max Keiser is not exaggerating when he calls them terrorists. They have wrought destruction on our economies and though the human cost may be hard to assess accurately, it is and will continue to be terrible.

So, why isn't it happening? A number of reasons occur to me:

1. It is convenient for politicians to have a few people earn (sorry, be given, legally steal) vast sums of money. The lucky recipients of this largesse can be taxed at 40% (or even 50% as under today's draft Budget proposals) and still have more than they can possibly eat, drink, wear or stick up their noses. "Tax doesn't have to be taxing", as that wretched radio advert chirrups.

2. Clapped-out politicians may one day be looking for a well-overpaid sinecure, like T--- B----. Best not to be too hard on your potential future employer.

3. Embarrassingly, the roots of the credit crunch are not (not merely) in socialist profligacy, but date back to the early 1980s. It was a so-called Conservative government, supposedly a convert to monetarism, that opened the floodgates of credit and tsunamied the economic "boom". Not a genuine boom, and now a very real bust. Criticising the present hapless bunch too sharply would beg a loud, sustained argument of "tu quoque" ("thou also didst so").

4. Just as an addict is partly responsible for the sins of the dealer, the consumer is implicated in the phoney house price rises and the spending spree. But I say that the Devil has the lowest place in Hell, because his knowledge was greater.

5. Nevertheless, if push came to shove, the bankers could point out that effectively, they were acting as the agents of a government determined to win re-election.

Very well, then. Let us have our punishment - we shall, anyway, and the next generation after us. But they must have theirs - the bankers, the politicians and the Fourth Estate that got too close and too cosy for too long.

Go for it.

News: North Korea steals from savers

See Denninger.

Alabamageddon

"People want to kill somebody, but they don't know who to shoot at" ...

Send the office cleaners into the City

Cleaning up the trading rooms physically could be the way to amend the traders' behaviour (htp: Overcoming Bias)

People are unconsciously fairer and more generous when they are in clean-smelling environments, according to a soon-to-be published study...

... The first experiment evaluated fairness. As a test of whether clean scents would enhance reciprocity, participants played a classic "trust game." Subjects received $12 of real money (allegedly sent by an anonymous partner in another room). They had to decide how much of it to either keep or return to their partners who had trusted them to divide it fairly. Subjects in clean-scented rooms were less likely to exploit the trust of their partners, returning a significantly higher share of the money...

Are the markets being manipulated?

I'm partway through a 1990s American TV programme (htp: Jesse) about the lead-up to, and aftermath of the Great Crash of 1929. At that time, share price manipulation was legal, everyone knew it went on and even the losers came back for more, hoping they would get out in time the next time round. And in the 1920s, buying on margin became possible, so that provided a fatal extra impetus.

You know all this, of course.

My question (and pardon my ignorance) is about the interaction of derivatives and stock trading today. A takes a huge bet with B that the share price of Widgetco will go down - what stops B from borrowing more cash, purchasing Widgetco in time to boost the price before the date of the bet, collects the cash from A and then sells his firm's holding in Widgetco? Even if now illegal (and I'm not sure of that), are there not ways and means?

And are there other tricks to catch the operator who goes long on a share, instead?

Crony capitalism is our Vietnam War

Jesse passes on this CNBC tidbit, which explains how ex-Goldman Sachs operatives embedded in the US regulatory systems gave GS $70 billion just when nobody else had cash, so GS could buy up assets at fire sale prices and make monstrous profits at the taxpayers' expense. Truly, it's us against them, but all we can do is wave our placards as their limos cruise by.

Visit msnbc.com for Breaking News, World News, and News about the Economy

The wrecking crew

Jesse explains succinctly how the financiers are deliberately wrecking and looting what's left of the economy.

The money the government gave them isn't being loaned out, but instead is shoved into the stockmarket to create yet another illusory boom - so that more fees and bonuses can be earned. These are taken out of the system (where do they put their own stash?).

When the share-pumping stops, the market collapses again, less the plunder - so it's lower than before and there's even less cash to act as lifeblood for the real economy.

Meanwhile, the rich are, relatively speaking, richer than ever - even than their counterparts in 1929:

This threatens to destabilize society.

Squaring the circle, packing your bags

In Britain, there are 28.89 million employed - 72.5% of the "people of working age"; median earnings approach £25,000.

In China, the average urban wage in 2006 was 1750 yuan per month, or (at today's exchange rate) slightly less than £2,000 per year.

_______

In Britain, there are 3 million homes where no-one works, with an average household benefit payment level of over £4,000 p.a. This doesn't factor in the cost of other benefits provided by the State, such as health and education. For example, State schooling costs something like £6,000 yearly per child.

In China, the official urban unemployment rate at the end of 2008 was 4.2%, or nearly 9 million people. This statistic does not include unemployed not eligible for benefits, or migrant workers - about 20 million out of 130 million migrants have no job. In industrialized Guangdong Province, for those who qualify, unemployment benefit for the first 24 months is 688 yuan per month, or £757 per year.

_____________

In Britain, the 27.5% of the "people of working age" that might be employed but are not, number approximately 10.96 million.

In China, estimates Eric Janszen of iTulip, there are 20 million officially unemployed and the real tally should be 40 - 50 million.

_______________

China has over 1 billion people and is desperate for land, and natural resources such as wood, water and arable soil. Despite restrictions on family size, her population continues to increase, largely because her people are getting to live longer (and will one day incur the high additional costs of growing old). She has industrialized at high speed and has built a massive skill base. She is continuing to acquire technological and scientific know-how, and is sucking in the world's steel and a panoply of key African and Australian minerals and rare earths. She sits on vast reserves of coal. The ruling Communist elite have not spent a long lifetime climbing the exceptionally dangerous slippery pole in their country, to see their beloved nation sink into chaos and their equalitarian beliefs defeated.

You are a British (or American) politician. You know all the above - or your handlers will tell you just before you go on "Question Time" or some other grill-the-pol show. (1) What will you say to your voters? (2) What private plans will you make for yourself, your family and your friends?

... and the money trickles up

... Americans will thus pay for the TARP and low interest rate subsidies to their financial rulers with erosion in the purchasing power of the dollar. What we are experiencing is a massive redistribution of income from the American public to the financial sector.

- Paul Craig Roberts (htp: Jesse)

A simple question

All these bankers and investment houses jumping up and down on the bed until (inevitably it seems, one day) the springs break... where do they invest their own personal money? How do they hope not to share in the debacle, when it comes? Or is the strategy to become so obscenely rich that they can afford to lose 90% and still be rich?

Locking the doors

The dethroning of the US dollar as the international trading currency is under way. New bonds issued by the International Monetary Fund in the form of "Special Drawing Rights" are related to a basket of currencies, thus diluting the dollar element and reducing America's opportunity to cheat the world by devaluation.

The same article describes a Chinese proposal to start issuing bonds denominated in renminbi, so that if the dollar does drop against the Chinese currency, all that will happen is that the dollar cost of the capital debt will increase.

It occurs to me that such extra security for lenders may help interest rates to remain lower than they otherwise would be. So the threat to borrowers is not that interest rates will increase, but that debt outstanding will continue to feel heavy, since inflation won't lighten the burden. In fact, the burden of foreign debt could get worse, if the dollar weakens in this new foreign-currency-mortgage era.

Another factor, which may be a deliberate strategy with an eye to the above, is China's own expansion of credit. If monetary inflation goes global - including in the East - then there's less hope that Western businesses could use relative currency devaluation to increase the demand for their goods and services. Manufacturers here will still be unable to compete and debt will grow. Our creditors will own us - we'll "owe our soul to the company store".

It's time to grasp the nettle - bust the banks who got us into this, have a tremendous clearout of debt from the system, reset wages and prices at lower (more internationally competitive) levels, get the people back to work and shrink the dead weight of government and its dependants.

That, or see what's left of our wealth leak away, and then suffer all the above as well - at even lower levels of per capita assets and income.

Doubtless the politically-favoured option is the latter - "Let it all happen on someone else's watch, after we've made ourselves into the New European Aristocracy and gone to our country estates." This would be a mistake. The palace of Versailles didn't protect Louis XVI, nor Waldsiedlung the East German communist elite.

Signs and portents

Over at Financial Sense University, Jim Willie paints a frightening picture. He claims that the US Federal Reserve has been secretly giving dollars to foreigners to buy US Treasury Certificates, so (temporarily) supporting US bonds and the dollar. Meanwhile, big banks are waiting for smaller banks to suffers losses on commercial loans, at which point they will gobble up their smaller competitors. But the big banks are insolvent, so rather than a healing juncture, it'll be a vampire puncture.

Studying the US Dollar Index, Willie uses a measure that Karl Denninger has previously cited, namely, a comparison of two trends: the 20-week moving average with the 50-week moving average. When the first crosses the second, the second will eventually follow - in this case, downwards.

In my previous post, I referred to signs and portents. This is because when big things are happening, the fog of lies thickens, so we have to look for betraying details and use our intuitions. Art is often the canary in the mine - you hear the coming conflict in the discords of Stravinsky's 1910 "the Rite of Spring". The disturbed children that I teach have recently been exploring zombies. Some also play computer games at home, that involve stabbing opponents in the eyes or genitals. One child's graffiti tag is JABZ.

Doodling, they draw pistols, rifles, knives, swords; but still read Postman Pat and Spongebob Squarepants. Gossiping, they talk of their mother's vibrator, their father's merkin, but (at age 11) don't quite understand and are looking forward to learning the facts about sex next week, which our curriculum now requires me to deliver. They come in shadow-eyed from gaming, but also from (in one case) accompanying their father late at night as he hunts down and savagely beats people who tied up and soaked with petrol an uncle suspected of stealing a motorbike. Where are the police? you may ask; the father is an ex-policeman. The Monarch's writ does not run where our underclass have to live; to have normal social inhibitions would be dangerous in such an environment.

Some may accuse me of moral panic; but I didn't grow up with the currently prevailing sense of moral ambiguity, despair and social collapse. Are we breeding a nation of future child guerrilla-band soldiers? And how tragic, how culpable, that the entertainment industry is playing its part in this; and that the Government hopes to shore up its vote by perpetuating the financial dependence of its claimants.

But it won't happen to us, will it? "Wat geht dat mik an?" as the mediaeval Germans would say: "What's it got to do with me?" Years ago, my Prussian grandmother described Der Flucht, the flight from the Red Army in 1945. They would come to a farm and be very grudgingly permitted to sleep in the haybarn; two days later, the owners would be on the road themselves.

We are in this together; but I cannot see how the present political arrangement can tackle the challenges. There are too many ways for our leadership to be distracted, to be suborned and to escape consequences personally.

Masters of the Universe vs. the Lord's Elect

A bright gleam has caught the helmets of our bankers. Goldman Sachs is set to pay an average £500,000 bonus to its London traders. This modest lagniappe is the equivalent of merely 20 years' median annual remuneration for NHS nurses. It is heartening to see that amid the gloom of an economy wrecked by... well, anyway, I'm sure we all agree that they deserve it. Indeed, more; but we must hope they may reasonably expect further such emoluments in the years to come. Nothing is too good for our money-boys, or for the politicians whom they will accommodate when put out to grass.

On an unrelated note, I've suddenly recalled the episode in Evelyn Waugh's "Decline and Fall" where Paul Pennyfeather meets a madman in prison:

"Well, one day I was just sweeping out the shop before shutting up when the angel of the Lord came in. I didn't know who it was at first. "Just in time," I said. "What can I do for you?" Then I noticed that all about him there was a red flame and a circle of flame over his head, same as I've been telling you. Then he told me how the Lord had numbered His elect and the day of tribulation was at hand. "Kill and spare not," he says."

Fortunately, the nutter's victim is a Modern Churchman, not a vitally important, wealth-creating banker.

Many market "shorts" are due to expire on Friday, I understand. Perhaps the market - a free and unmanipulated market, you may be sure - will change its mood next week.

PS

The S&P 500 closed above 900 points yesterday. "Mish" has said that it could easily fall below 500 points, or stall for years. He is against "buy and hold." So who profits if the poor layman is persuaded to stay in the market?

Regardless of what strategy one uses, it is a horrible idea to hold stocks throughout recessions.

Why Is Bad Advice So Common?

Clearly, stay the course is bad advice. So why is it so common? A personal anecdote might help explain things: In January of this year, an investment advisor from Wachovia Securities called me up and stated "Mish, I am sitting on millions because I see nothing I like". I told the person I did not like much either and that Sitka Pacific was heavily in cash and or hedged. His response was "Well, I do not get paid anything if my clients are sitting in cash".

I called up a rep at Merrill Lynch and he said the same thing, that reps for Merrill Lynch do not get paid if their clients are sitting in cash.

Massive Conflict of Interest

Notice the massive conflict of interest possibilities. Reps for various broker dealers have a vested interest in keeping clients 100% invested 100% of the time, even if they know it is wrong. And so it is every recession, bad advice permeates the airwaves and internet "Stay The Course".

The Revolution is beginning

This Parliament has now lost all moral and political authority and ought, by rights, to dissolve itself.

It is now not only the Government that has ceased to deserve our trust. So many members of the House of Commons have disgraced themselves so completely that their right to make laws for the rest of us has evaporated.

Read the rest of this extraordinary attack on our corrupted Parliament and broken democracy, in the Mail on Sunday here. The blogger-whingeing has now gone mainstream.

That sinking feeling

(Big figure )
(Little figure)

Where is Paul Moore's bonus?

Paul Moore, former head of risk management at HBOS (which, by the way, has just cratered its new owner, Lloyds Bank), was sacked in 2005 by Sir James Crosby, allegedly for warning about the bank's excessive lending.

Whistleblowers generally suffer for speaking out. Under the Public Interest Disclosure Act 1998, there is no limit for compensation paid by industrial tribunals in whistleblower cases; but I should very much like to know what is the average paid out under such circumstances, and the most that has ever been paid.

Mr Moore has received "substantial damages" but was also gagged, so I regard whatever he was paid, as merely a recompense for his silence. I doubt whether the damages come anywhere close to the "compensation" paid to some greedy, corrupt and incompetent senior executives at top banking and financial firms; and I think it should.

The OFT has introduced a scheme to award up to £100k for cartel-breaking snitches. Big, fat, hairy deal: five bankers spent £44,000 on wine alone on a single evening in 2001.

Maybe demobureaucracy doesn't work; maybe we should go back to old-fashioned kingship. In Shakespeare's Henry V, the King goes about his camp in disguise before the crucial battle:

KING HENRY V: I myself heard the king say he would not be ransomed.

WILLIAMS: Ay, he said so, to make us fight cheerfully: but when our throats are cut, he may be ransomed, and we ne'er the wiser.

KING HENRY V: If I live to see it, I will never trust his word after.

WILLIAMS: You pay him then. That's a perilous shot out of an elder-gun, that a poor and private displeasure can do against a monarch! you may as well go about to turn the sun to ice with fanning in his face with a peacock's feather.

After the battle, the King calls a trembling Williams out of the ranks and reveals himself as the anonymous interlocutor of the night before; but instead of dealing with his frankly-spoken subject as one might expect of a ruthless Plantagenet monarch, he returns Williams' challenge-glove, filled with gold coin from the royal treasury.

And how might King Solomon have adjudicated a dispute between a CEO and his erstwhile employee? Is it not possible that, in some cases, he would have taken years of earnings from one and passed it directly to the other? Where are the mega-bonuses for those who risk their careers to defend their firm, its shareholders and the general public?

Press release from September:

Transparency International’s global Corruption Perceptions Index (CPI) 2008, launched today, shows a significant worsening of the way the UK’s attitude to corruption is seen in the world. The UK’s score has dropped from 8.4 last year to only 7.7 today: the first time it has ever fallen from the high rating of more than 8 (10 is the highest a country can score on the Index).

The UK's engrained complacency over its failure to take international corruption seriously is now further exposed to public scrutiny. The UK has a wretched foreign bribery prosecution record compared to most of its G7 peers. It was strongly criticised this summer by the OECD body responsible for ensuring that members comply with the 1997 OECD Anti-Bribery Convention and may now face tougher measures by the OECD if it continues to fail.

The top 20:

(htp: Hatfield Girl)

BTW: Zimbabwe is not even in the bottom 10 of the list.

Corruption Competition

Jeremy Clarke's dragoman introduces a brilliant new system of classification:

The Egyptian government is 100 per cent corrupt. In other countries the government is 10 per cent corrupt or maybe 20 or 50 per cent. Here in Egypt it is 100 per cent corrupt. I am telling you.

You are invited to argue the case for one or more "other countries" to be considered as runners-up in this competition.

(Please have regard for libel law.)

A lesson from 1721

The South Sea Bubble ended in the imprisonment of the Chancellor of the Exchequer, John Aislabie:

The South Sea Company had been built on high expectations which it could never fulfil, and it collapsed in August 1720. An investigation by Parliament found that Aislabie had been given £20,000 of company stock in exchange for his promotion of the scheme. He resigned the Exchequer in January 1721, and in March was found guilty by the Commons of the "most notorious, dangerous and infamous corruption". He was expelled from the House, removed from the Privy Council, and imprisoned in the Tower of London.

Aislabie was replaced by Robert Walpole, who became in effect Britain's first modern-style Prime Minister - who earlier had spent six months in the Tower in 1712, as a result of unjust impeachment by his political enemies.

Now, who will be properly prosecuted and properly punished for a man-made disaster that has undermined the world's banking system?