club paradise: schiavi nel Tavoliere delle Puglie

Nel deserto che sarà tra pochi decenni l’infuocato Tavoliere, rifletteranno il sole le ossa bianche degli schiavi che vi  avevano lavorato le ultime terre fertili.

L’economia (neo-) marxista contemporanea ha sviluppato un importante teorema, di grande portata storica e capacità interpretativa della intima natura del modo di produzione e distribuzione capitalistico (macchina di innovazione-ingiustizia):

la estrazione di plusvalore relativo (da progresso tecnico-organizzativo: oggi ICT, bio-nanotech, carbon-saving energy ed organizzazioni fluide) e’ TENDENZIALENTE proporzionale a, ed accompagnata da (o in qualche altro nodo della stessa rete-filiera che innova, o in altre reti e settori c.d. “arretrati” ossia a più lenta adesione, di volta in volta, ai paradigmi tecnologici pervasivi) una eguale  crescita (per meccanismi di trasmissione via istituzioni e lotte sociali; moneta, valori e mercati) del plusvalore assoluto da sfruttamento brutale, disumano ed estremo, senza nemmeno i falsi, ipocriti e miserabili “diritti” liberal-borghesi di lorsignori:

a) indurimento delle condizioni di erogazone di forza lavoro: l’allungamento della settimana lavorativa, ed il perseguimento della produttività a base di assassinio, comando,  costrizione psichica, distruzione militare delle organizzazioni dei lavoratori, soprusi, terrore  e violenza fisica;

b) fascismo anti-salariale (dall’operazione condotta da Mussolini negli anni ’20, poi dal Reaganismo negli anni ’80): la confisca e rapina salariale (e di altri redditi da lavoro), per abbassamento della paga al di sotto del livello minimo di riproduzione e sussistenza della forza lavoro, inteso in senso storico-geografico (non il solo pugno di riso, di cui vivono 1,5 miliardi di esseri sub-umani, pari a quasi la metà della forza lavoro);

c) le para-schiavitù contemporanee (area grigia tra lavoro nero e lavoro schiavo), che sono state promosse su larga scala: dalla filosofia politica del Liberismo di Miltie Friedman,  dalle (opposte: tra il dire e il fare …) politiche interventiste e  statalistiche unilateralmente pro-Capitale e\o pro-Finanza di rapina del Reaganismo, e dalla globalizzazione selvaggia della New Economy Clintoniana (ossia, dagli stessi uomini e donne che oggi fanno parte della Amministrazione Obama, e stessi consiglieri);

d) la schiavitù strictu sensu come definita scientificamente – il lavoro non libero (classe di  casi estremi sub a) ergo non salariato (casi estremi sub b, sino alla remunerazione nulla). Poiche’, nell’analisi DEFINITIVA di Marx su questo punto, il lavoro salariato pre-suppone la “liberazione” delle classi umili dalla propria associazione con i mezzi di sussistenza e di produzione: che esse siano distaccate da artigianato urbano, vita contadina rurale  e condizioni servili o di schiavitù, per essere obbligate a vendere la propria forza lavoro sui mercati del lavoro.  Per contro-tendenza, la schiavitù (come le Comunità) e’ una delle varie forme di persistenza sistemica di forme pre-capitalistiche, analizzata da Marx nel famoso brano dei Grundgrisse.

Quest’ultima, la vera e popria schiavitù impiega oggi grosso modo il 10% della forza lavoro mondiale; potrei essere più preciso consultando Valter Zanini, sociologo unipd, le cui definizioni e quindi stime quantitative differiscono in parte da quelle “ufficiali” dell’ILO di Ginervra; ma ricordo che quello e’ l’ordine di grandezza). Se dovessimo verificare empiricamente la validità o meno del TEOREMA NEO- MARXIANO, dovremmo attenderci che IN MEDIA un 50% della forza lavoro sia erogata in condizioni di applicazione del progresso tecnico (in primis il capitale ICT, in Occidente sempre più combinato con lavoro autonomo cognitivo e creativo, e meno a L salariato – come analizzato da Sergio Bologna), l’altro 50% nelle condizioni a+b+c+d sopra (in % variabili tra paesi e settori).

Facendo i conti, il teorema marxiano risulta  peccare di ottimismo: oggi, grazie a 25 anni di Reagan-Clintonismo di destra e sinistra, si estrae plusvalore assoluto da ben oltre il 50% della forza lavoro globale.

Di fatto, per vari motivi concomitanti e  processi cumulativi, mutualmente rafforzati, gli ultimi 25 anni della “New Gilded Age (Nuova Era Corporativa)” hanno applicato ed  inasprito la LEGGE DELLA PROPORZIONALITA’, s-bilanciandone e s-proporzionandone però gli effetti a favore di schiavismo in senso stretto e lato, e l’associato PLUSVALORE ASSOLUTO, DA TALLONE DEL COMANDO E DEL RICATTO.
Contro tutte  le legittime, ma anche falsificabili  teorie Schumpeteriane, che qui crollano in capacità previsiva (rispetto a Ricardo-Sraffa-Pasinetti, Marx, Kalecki-Keynes-Minsky e gli stessi costrutti neoclassici), rivelando una debolezza teorica complessiva, una estrema fragilità e parzialità. Ancor peggio se la cava, e la realtà spazza via senza  pietà tutta la  sciocca vulgata Schumpeteriana nei guru, media e sociologi di punta: l’era digitale (Castells), le classi creative (Florida) e tutte quelle Grandi Narrazioni tardo-Moderne per prenderci in giro. In questi 25 anni:
1) POCO PV RELATIVO.  L’aborto deflazionistico (Aglietta e Berrebi 2007) della Onda Lunga ICT, ha compresso il PV relativo molto al di sotto della sua  crescita potenziale.
2) TANTO PV ASSOLUTO,  autentiche “bolle specuative” di PV ASSOLUTO ESTORTO, DI TRASFERIMENTO (da ceti produttivi a Rentiers) E DI RAPINA, come meglio di tutti ha intuito  David Harvey. Infatti contemporaneamente, nello stesso processo politico-economico e suoi cicli brevi, la insostenibile tassa Reaganiana sul  Terzo Mondo ha dato il via ad una serie di processi economico-creditizi e finanziari  sempre più insostenibili, con sbocco inevitabile, QUASI-PROGRAMMATO in  una deflazione globale tendenziale (che oggi esplode in forma acuta).

Ciò ha generato una esplosione e fioritura di “100 fiori” di PV assoluto, ad esempio nelle 2 grandi potenze ex-comuniste: le donne russe, dalle donne sinora più liberate della storia umana, alla prostituzione (si vedano le inchieste di Loretta Napoleoni, su “L’internazionale” e nel suo ultimo libro-inchiesta); i contadini affamati e senza Welfare, cinesi ed indiani, inseriti nella catena dei mercati del lavoro regionali ed  inter-regionali.

Come mi diceva ieri  un amico, dandomi una LEZIONE DI BIO-ECONOMIA: “io  non so cosa sia questa crisi; io la vivo da 8 anni, da quando cambiando vari lavori, mentre l’€ raddoppiava molti prezzi,  il mio stipendio e’ sceso da 2500 a 1500 €”. Quindi il suo salario reale e potere d’acquisto si e’ più che dimezzato.
PER EFFETTO DI UNA POMPA DI PV ASSOLUTO, IL CUI POTENZIALE E’ GENERATO DAL MECCANISMO DI SQUILIBRIO GLOBALE 2\1 tra OFFERTA E DOMANDA DI FORZA LAVORO. Un potenziale che non si riassorbirà per decenni, rendendo i Capitalismi distributivamente-ecologicamente-finanziariamente-generazionalmente insostenibili (Giorgio Ruffolo), e facendo proseguire indefinitamente questa Onda Anomala di PV assoluto, che comprime il progresso tecnico, e  smentisce i Capitalismi nel loro ossimoro definitorio ed ideologico: sono SOLO INGIUSTI; E TUTT’ALTRO CHE INNOVATIVI, semmai il contrario. Oggi come oggi, si direbbe che questa Super-Bolla di PV assoluto debba durare sino alla metà di questo secolo. A questo punto, pare difficile credere che il Modo di Produzione-Distribuzione stesso possa reggere in tali condizioni di grave incoerenza sistemica, assenza di regimi di regulation:
i capitalismi hanno i secoli contati come dice Ruffolo, o i decenni?

2 CASI STUDIO DI SCHIAVI.

1 — Nikola Chesnais (figlio dell’economista François) ha da poco realizzato un premiato ed eccezionale documentario nel NE Brasiliano, sulla schiavitù rurale.

2 — Stanno trasmettendo a radio3 (percorsi@rai.it) un servizio sull’Inferno dei vivi IN ITALIA (il Bel Paese di cacca non sfugge alla citata legge del plusvalore):

–  alcune decine  di polacchi sono scomparsi nel nulla nel Tavoliere: molti  saranno stati già ammazzati, altri sono morti stremati di lavoro schiavo; altri ancora vivono (per modo di dire) ancora, schiavi del lavoro forzato nei campi; venivano a guadagnare pochi € per il matrimonio della sorella, o per la vecchiaia dei genitori.

La prima denuncia della schiavitù in Puglia, l’hanno fatta 3 studenti polacchi nell’estate 2005: uno di loro ora vuol tornare in Polonia per studiare Ingegneria. Si chiama Iakub “Kuba” Celski ed adesso si fa  chiamare Iacopo. Sente ancora i morsi della fame di 3 anni fa. Se uno cadeva, lavorando 14-16 ore al giorno nei campi senza mangiare e senza bere, veniva lasciato li. Il lavoro continuava. Come in tutti i racconti di schiavitù e post-schiavitù:  mi ricorda infatti le storie  dei neri “liberati” dai campi di cotone, che costruivano ferrovie negli Stati del profondo Sud, e cantavano (singolarmente, non in collettivo) i primi blues della disperazione, eccheggiando una ritmica e musicalità di antichi canti pastorali del Sahel, dei loro avi.

I tre amici leggono un annunzio su un giornale polacco ed arrivano di notte ad Ortanova, dove vengono sequestrati dai caporali de “il cane”, un Kapò polacco tatuato con precedenti oscuri, facente funzione di luogotenente nella fattoria “Club Paradise” di Ortanova, basata sul lavoro schiavo. Il giornale prometteva 3  € all’ora, invece la paga e’  a cottimo, ma la ditta la versa ai caporali che di rado lasciano sfuggire qualcosa agli schiavi. Questi lavorano gratis a ritmi che pure nell’incivile Mezzogiorno non si usavano più da generazioni.

I tre riescono a scappare, hanno ancora i cellulari e chiamano in Polonia, vengono salvati prima che i capò-caporali li riprendano; si arriverà alla denuncia ai CC di Foggia Centrale e quindi  all’arresto di alcuni criminali. Seguiranno altre 700 denunce. Oggi nel Tavoliere e’ crollato nel nulla com’e’ giusto accadesse  il distretto dei divani e del mobile, basato solo sulla price competition, e  di lavoro proprio non ce n’e’.

Il capitalismo e’ cosi: se c’e’ sviluppo, i padroni  trattano  uomini e donne come bestie appena sia loro possibile, e consumano, distruggono interi  ecosistemi delicati (per carenza d’acqua, e prossima desertificazione) e di pregio come il Tavoliere; se non c’e’ sviluppo, si crepa di fame in modo più dolce, senza lavorare.

All’inizio della trasmissione hanno ricordato un bel libro di Tommaso Fiore “il cafone all’inferno”; dopo un pò che e’ arrivato li, il cafone pensa “tutto sommato si sta meglio qui che a lavorare la terra, anche se i diavoli ti violentano l’anima”. Ad un certo punto, Lucifero decide di de-localizzarsi nel Tavoliere.

E li sta attualmente: per un polacco liberato ed uno scannatoio chiuso, se se ne saranno aperti altri 10 specializzati  in bestie dalla pelle abronzata.

Nel deserto che sarà tra pochi decenni l’infuocato Tavoliere, rifletteranno il sole le ossa bianche degli schiavi che vi  avevano lavorato le ultime terre fertili.

US bank runs: who told a systemic meltdown is over? IT IS NOT

CAN YOU HEAR SITTING BULL’S WAR-CRY? WELL, THE LITTLE BIG HORN OF SHADOW FINANCE IS ON. After that, in Autumn non-financial co. will start going bankrupt.

Hard 2 read and 2 believe: but this is REALLY the NYT front page, day after Little Big Horn!!! Thanks the sublime NYT serivce: On this Day  (Copyright 2007 the NYT Company). 25 June 1876. Col. George A. Custer and his 7th Cavalry were wiped out by Sitting Bull’s Sioux and Cheyenne Indians in the Battle of Little Big Horn, Montana. 

FACTS, NOT FAIRY TALES!

June 18 update. Alphaville: HOT AUTUMN, banks’ bears warnings 

Deeprecession has a 1 day lead on the RBS mail, 2 days on Alphaville

Bearish analysts are out in force. Bob Janjuah [credit strategist] of RBS, in an email on Tuesday, warns of a global stock and credit crash in the next few months; with the S&P 500 likely to lose up to a quarter of its value. In credit, Janjuah sees the iTraxx soaring to 130/150 and the iTraxx Crossover to 650/700. (…) Wall Street should rally through early July before succumbing to the twin pressures of high oil and high inflation – the first painful spasms of a recession. The RBS team also point specifically to the limited range of options open to central banks. The point is taken up by analysts at Morgan Stanley. A note from last week – “1992 redux” – by the bank’s European banking team – warns of potential for a “catastrophic event” on the horizon to match the European monetary crisis of the early nineties.

MS: We find striking similarities between the transatlantic macro tensions that built up in the early 1990s and those that are accumulating again today. In both cases, monetary authorities took opposite options on both sides of the Atlantic: stabilising output in the US, and stabilising prices in Europe. Macro tensions caused a major currency crisis in Europe in 1992. Will history repeat itself? 1992 Redux - MS note

Just after this entry, posted by Sam Jones on June 18th, 2008 at 11:07,

another contemporary Alphaville post, by Robert Cookson at 13:24 adds:

Mr Janjuah’s peers at other European banks agreed it was inevitable that credit markets would deteriorate later in the year, potentially quite dramatically, when large companies started to default on their debt. However, most said that RBS was a touch aggressive in forecasting that turmoil would strike as soon as August. (According to one strategist)  many struggling companies would be able to limp along into 2009 before falling apart.

The discussion is only about time frame: dead bodies might keep walking to 2009.

Original post

FACTS, not a propaganda trying to delay the redde rationem, an always imminent RUN on US FINANCIAL BANKS  (spada di Damocle).

1) we are still, and only, in the beginning (since end 2007) of a global “subcrime” recession, rooted in historical and structural processes in the creation and appropriation of economic value:

1a) the peculiar way a Reagan-microelectronics Kondratiev Long Wave (KLW) went burst (see Carlota Perez – for full references: goto  subcrimebiosocialscience1.pdf). We mean, not just one bubble or another went burst, but a unique, entire, historical chance of sustainable progress (late capitalisms could not grasp) was missed by humanity and the Earth. For enriching the pockets of a few hundred billionaires. A Donald Duck world.

 

1b) How did such a quantum technological jump go wrong and lost? It was killed on the altar of such Medieval rites as: b1) enrich a handful of global rentiers and rape an obsolete Middle Class (no democracy to be socially enveloped any more); b2) fuck the Russian mil.-ind. complex and “ally”, more exactly link up with China; b3) tell people there is laissez faire and democracy, while MONOPOLIES RULE in thanato-political liberal régimes or tyrannies (Adam Smith and Loretta Napoleoni, Michel Foucault and Roberto Esposito). c) We live for decades to come, a generation or two, in a new (post-Reagan and MPUs) Deflationary Long Wave: a  byproduct of the Greenspan-Clinton irresponsible, witchcraft manipulations of the declining US economy in the 1990s (Aglietta-Berrebi, Chesnais). Hopefully, Bill will not come back as first lady!

2) Last episode of such a deep, structural process in value production and circulation (Marx, Capital, Book 2): the subcrime-based shadow finance, was meant to enlarge the circuits of over-accumulation in search of an outlet. The target was scientifically selected: afro-american bobos and regular Latino workers (at least $4000 of family earnings, in order to steal them 3000-3500 per month !!! see case studies in the quoted subcrime … .pdf). Systemic scope, only way to create a “growth” illusion, in a CRAZY RENTIERS WORLD sunk into deflation and depression:

2A) RAPE the first (quasi-affluent blacks) and second tier (latinos) of people still wiling to enter, via patriotic-sacre housing property, the middle class.

 

2B) From stealing their homes, hopes, lives and wages: create a fixed material point, that the fantasy of the casino economy will multiply some thousand times in  “assets” (in fact, property rights on a chain leading at the end to the real asset: Chesnais; this is why someone had to be RAPED at chain end), to be bought by the Rentiers èlite savings, out of the surplus value they expropriated from productive value chains.

 

3) 3 months ago, in March 2008 the US Bush Adm. and the Fed JOINTLY delayed a meltdown of the 5 US pure financial banks, likely spreading quickly into a global meltdown, by bailing out Bear Stearns. Now it’s Lehman last bell, death time. Third to be soldout will be Merill Lynch soon (the FT tells BofA wants it), and fourth Morgan Stanley, likely to be historically reunited in the (JP) Morgan mother house. Only Goldman Sachs will survive this Little Big Horn. We do not invent such an order: it is written in their books, leverage ratios and the premium rates they pay (see graph). Rentiers carry on telling (not believing, they are smart), and THEIR MEDIA keep echoing every day as a litany: a systemic meltdown is over. You always find this proposition in newspapers, with redundancy. Ask Roubini: he knows and tells you the answer.  

 

4) Rev. Jessie Jackson, one of the greatest living personalities, as far as we know invented “subcrime” for subprime. In a March 20 timely speech in Chicago (quoted in our .pdf, Section 4), where he accused the Govt. of moral hazard financing bankrupt banks, while ignoring foreclosures and people. As we have already discussed in this blog, in synchrony with the economic blogs community (namely: perplexity towards a NYT  op-ed by  Robert J. Shiller, on May 18), this is a delicate issue of policies; since a bailout of foreclosures (with the excuse of the poor rape victims) will always close the gap of Subcriminals. It’s the easy credit for sacred property TABOO that must be challenged, overcome, identified as a Middle Class narrative belonging to the past, while manipulation belongs to the present (see Joriot). But the US left is always in a mess, lost in between Blair-Clintonian Late  Reaganism, and a-scientific, ideological Populism. Even Obama – basically a postClintonian, on that line of evolution of neoDemocrats, but somehow divided, as it often happens to us, between his rational mind and heart. This is physiological in a country that, after Tocqueville (no democracy without religion), is so much ideological and radical, but has not declined a variety of complex ideologies (like Eurasia). They stand by the American Myth, Father of a constellation of Myths – e.g., housing, financed by the Fed. State via Freddie Mac and Fannie Mae (Joriot)- a bit like Greece before the Ionians and the Athenians. They hardly get (perhaps The Nation?) to such a Myths deconstruction (Derrida), that would engender a Real Socialist left. This is a priority area of political work, in networks of international coop – helping US progressives to make a step further. This is what we mean by “Robin Hood policies”. More on this another time. 

 

The DIAGNOSIS, from p. 5 of  subcrimebiosocialscience1.pdf

 

1. the global economy is locked in a longrun demand deficit hysteresis (requiring a drastic redistribution), and liquidity trap (making monetary and credit policies totally ineffective)

2. fiscal and income policy implication: the world badly needs an epoch-making, giant income and wealth redistribution, from the élites to impoverished masses. A Keynes-Kalecki and Ricardo-Pasinetti models classic case, calling to rebalance 25 years of counter-distribution

 

3. in fact, the “1987-2007 Rentiers’ glorious years” increased:

– both the rate of Absolute and Relative Surplus Value extraction: in each OECD country, 9% GNP shifted from wages, to gross profits and self-employment incomes; – and of its appropriation by Rentiers – see Fig. 2 of the pdf: showing that the US finance margins jumped from 35% to 50% in the “20 Glorious” 

4. such a counter-distribution dropped the global economy into a deflationary régime

 

5. a drastic improvement of world welfare, an intrinsic ICTs potential, went bust by Lewis-effects (unlimited labour supply discouraging technical change, i.e. substituting Absolute for Relative Surplus Value)

 

6. a complication: political systems do not allow such a global Keynesian-Obama New Deal

7. morale: a political hysteresis (Blair-Clinton-socialdem. PostReaganism, a follow up of “doc” Reaganism) in leading OECD countries, is blocking the road out of the economic hysteresis.

goto subcrime social science

On Palms’ Sunday, the Fed said: back to the 1930s

More in our special report pdf (May 3 updated v.)subcrimesocialscience080503

Palms’ Sunday, we finally realised that a domino effect, potentially self-destroying for most banks and capitalisms was there, at hand and sight (had perhaps Keynes understood something even Marx had missed?). Well, but, if the ‘30s are back, the two greatest John (Steinbeck and Ford) are back as well: we’ll collect and tell the story of every single proletarian, of all the Joad and Ortiz families. Nikola Chesnais will help us to turn the films, since John Ford is his paradigm, and Ford filmed Grapes of Wrath immediately after the book (1939-40).This film was the most popular left-leaning, socialistic-themed film of pre-World War II Hollywood“. At Washington Post, BRIGIDA SCHULTE already started telling us about Gloria Ortiz and her husband: we love them now: they don’t American Dream any more; we dream to encourage and help them. The Joads, the Ortiz, and new gold rush prospectors. FT March 29, p.1: Soaring prices spark fresh rush to find Ca.’s forgotten gold.

subcrime social science is an art

subcrimesocialscience was a 20 pp. (now 30) w-in-p survey, adopting the de(e)pre(ce)ssion Political Economy paradigm (Ricardo- Marx, Keynes- Kalecki, Schumpeter- Minsky- Perez, Aglietta and Chesnais). It briefly reviews, in its early pages, what economic sciences know on ongoing:

KONDRATIEV LONG WAVE (197os +)

Minsky Magic Moments, since Summer 2007

Minsky Financial Meltdown, we are on the border of

2008+ deep&long recession, endowed with a depression potential

FAQ. Might Capitalisms succeed where Socialisms failed: to help us coping with them, undermining and overthrowing them? Then it deals with policies and recession chronicle highlights. Here is a summary on economic policies.

” De(e)pre(ce)ssion 7 capital virtues: remedies for the Minsky Meltdown.

1. Minsky won the bet versus Chicago. The latter did not survive to the great Milton Friedman for longer, and finally died at dawn, Friday March 14, 2008 (on Bear Stearns’ day: p.15 here).
2. States will massively intervene, after decades of anti-State mind washing: how effectively?
3. After March 14, oil into firing debates on credit&fiscal policies: moral hazard of rewarding – again – those fucking rentiers, vampires that already gained 6-0 the early sets of the subprime match.
4. Leaders’ war. March 29 FT (Not yet time for a bail-out of banks) versus March 22 The Economist (Wall street’s crisis): both are over-Bullish, but policies clash. FT delays a bail-out fiscal policy, conditional upon sacking the rentiers (“it should do so only over the dead bodies of shareholders and management” – falling in love with FT). The Eco. advocates hyper-fiscal policies, erecting floors “either in housing, or in asset-backed securities”. FT objects housing prices must stop to a floor before, otherwise you can’t price securities. At 19th C The Eco., they found a Hegelian synthesis: neo-Leviathans will buy the open and the foreclosed apt.s: almost everything. Socialist times.
5. All this policy makers (hyper-)activism is and will be part of the process (Roudini’s blog, Feb. 8), in a self-referential crisis system (Niklas Luhman), where no one is sitting outside the system. As in an ancient Myth, financial accelerators ate Bernanke himself: their father.
6. Minsky’s call for an institutions-specific and even a capitalisms-specific analysis (note 10) might be the compass exploiting the fixed point of an endogenous institutions axiom.
7. The latter fits with self-referential systems theory, and this couple is full of well known (in their proper cognitive, policy theoretical domains), important consequences.”

On Minsky’s suggestions,

see monetary policies in:

Wray 2007; Galbraith,

Giovannoni and Russo 2007.

Please note – from the 7 points above – that we converge much with Roubini, although we get there by different arguments and ways. Knowing already, by him, the most likely end of the story (script of Grapes of Wrath 2: by H. P. Minsky).

Bear Stearns, Bear markets domino effects

080319 

posted by efa 080319, 10.00 am GMT.  Breakfast time letter, 6.00 am GMT by info@rgemonitor.com Good morning! What a difference a few days make.  Starting with the rescue of Bear Stearns over the weekend to the creation of a new discount window-like lending facility for primary dealers, the Federal Reserve has been engaged in a historical effort to fend off every real fear of a financial system meltdown.  Better than expected Q1 earnings reports by peer banks, Lehman Brothers and Goldman Sachs on Tuesday took a lot of the pressure off the markets for the day, while the 75bps Fed fund rate cut to 2.25% (2.50% discount rate) was fully priced in.  See our related coverage: “JPMorgan Agrees To Buy Bear Stearns: The Beginning of a Japan-Style ‘Convoy’ System?” and “Overview of Fed’s New Lending Facilities: Needs More to Be Done?” (…) At this point, the distinction between liquidity and solvency is important.  While nearly unlimited access to central bank liquidity helps roll over existing liabilities and pay off existing debt, it does nothing to prevent house prices from declining further, borrowers from defaulting on their mortgages and leveraged loans, and it cannot prevent the asset quality deterioration within the collateral pools of CDOs, CLOs, and credit card debt.  Eventually, looming writedowns will have to be marked against equity capital.  If the equity cushion is insufficient then the financial institution is insolvent. In order to get a sense of the magnitudes: in Q3 the top 5 broker dealers combined equity capital was $144bn, whereas the ratio of illiquid Level 3 financial assets over equity ranged 0.7x – 2.5x. Roudini & C site keeps the lead across the decades, and challenges the Schumpeterian hypothesis on innovation as a temporary window of opportunity.  If economics on the web is a Tour de France, Prof. Roudini is Lance Armstrong. When this longrun crisis, more or less the same as today (you know by now we have an Aglietta- Chesnais- Marx- Perez paradigm here at deeprecession), was located in Asia, Paul Krugman recommended rgemonitor.com father site at stern.nyu.edu,  with this nice wording:  Nouriel Roubini maintains this amazing site. Follow not just the events but the big intellectual debates more or less in real time.  Opposite to Roudini  and  to yesterday, today’s sentiment in the media and Wall Street (a messy coupling), not in Main Street,  is that we had luck and escaped the much feared Bear Stearns domino effect. With no evident candidate to play JP Morgan Chase role next time. Although the latter has won a super deal, even bought separately and unconditionally the nicer HQs, Madison Avenue building for $1.1 bn (see March 15 here). We cannot imagine anything more fragile than today’s sentiment.

FT today: paper

p.1: Fed cuts rates to 2,25%. Goldman Sachs ad Lehman lift gloom.  “I think we feel better about our liquidity than we ever have” said Erin Callan, Lehman’s CFO. She added that the banks had not seen any erosion in confidence on the part of  lenders or trading counterparties. “The past two days gave us a great chance to test those relationships”, she said. Apple considers iTunes shake-up to deliver music access for free. Apple talks with record groups, for a radical change in the business model. p.9, Cracked foundations? A financial crisis spreads slowly into the real economy (Chris Giles).  The page focus (Gillian Tett, Krishna Guha) is academic Ben Bernanke’s financial accelerator notion. Two uncertainties: 1) fresh equity filling banks capital holes (Comment: it happened, M. Eastern and Asian SF came to rescue, but this just accelerates the US decline, geopolitical trends laying behind the crisis: it is part of the same over-accumulation → shifting unbalances → bubbles-and-crises  process; not a solution); 2) which borrowers will be hit harder: it will not end up only within the financial world, Main Street real-economy borrowers will pay too, as Bernanke’s accelerator takes off.  OUR FAQs: “If est. subprime losses of $200bn (Goldman Sachs minimalism) would give rise to a $2,300bn overall credit crunch, will then a still moderate est. of $1,000bn losses (Roudini’s realism) reduce lending by $11,500bn? Or even more, once a downward spiral is engendered (Ken Rogoff, Harvard: from credit crunch to credit collapse)?  The bottom line?” p.11, Martin Wolf  (reading too much Roudini, but even other Bearish academics): Why today’s hedge fund industry may not survive. OUR ABSTRACT and comments. Dean Foster (Wharton) and Peyton Young (Oxford)  model an unregulated financial system: Hedge Fund Wizard and  The Hedge Fund Game. Incentive systems fail to align managers and investors aims. The lemons theorem says that such markets with asymmetrical  information, attracting the unscrupulous and the unskilled, are likely to disappear (our academic comment – not exactly so; see among others: Kreps, Microeconomics, for a good introduction to lemons. But Wolf’s implicit conclusion holds: you need an agency, a certification, a third party: that is a regulated financial system). Managerial herds behaviour generates cumulative disequilibria, when a low prob. disaster occurs – such as Northern Rock and Bear Stearns (Comment. This argument is really good; it introduces and needs another brand of economic, Santa Fe or econophysics modeling, developed in Italy at Sant’Anna-Normale di Pisa by Giovanni Dosi & C: herd behaviour simulation in financial markets. Their most likely policy implications are again pro-regulation, but with a completely different set of arguments and suggested policies, compared to information asymmetry models. The focus shifts, here, from a simple market failure that can be easily repaired by an “agency”, to a complex financial systems dynamics, far away from both equilibrium and social optimum. With no straightaway agency solution: you have to change, redesign the entire system, together with contracts and incentive schemes. Until now we just spoke microeconomics. Add the macro: along Keynes- Kalecki – Minsky lines, e.g., you approach systematically the issue of the health of the financial system that greases the wheels of capitalism – a quote from NYT yesterday, reporting from Wall St.: even operators and rentiers know and feel it on their skin: the time is out of joint, to quote Shakespeare, and Derrida on Marx).

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Ups and downs in financial global markets: Bernanke’s hyper-activism adds chaos to turmoil. Paul Krugman said a few days ago: Greenspan is the one teaching ex cathedra how to close the door, when stables are already empty, and the flock is gone. Bernanke makes the difference:  he got Speedy Gonzales and  succeeded – in a couple of months – to convince 75% Americans that Roudini as well as radical pessimists have sound bases. Lehman Brothers opened yesterday  at -15%, and closed only at -19%. See Slate‘s syntheses of US newspapers, and sing: “You just better start sniffin’ your own  rank subjugation jack ’cause it’s just you  against your tattered libido, the bank and the mortician, forever man and it wouldn’t be luck if you could get out of life alive”

 Knock-knock-knockin’ on heaven’s door (4 times)

TODAY’S PAPERS

Knocking on Lehman’s Door

 By Daniel Politi Posted Tuesday, March 18, 2008, at 6:12 AM ET  Financial news continues to get top billing as all the papers try to digest the latest news from the Federal Reserve and the markets to figure out how far the current crisis will spread. The New York Times‘ lead story notes that although the stock market didn’t plunge as was widely expected, there were several ups and downs as uncertainty ruled the day on Wall Street. By the end of the day, the Dow Jones Industrial Average closed the day with a 0.2 percent increase, largely due to the strength of J.P. Morgan, which rose due to the widely held belief that it was able to acquire Bear Stearns at a veritable bargain. The Washington Post leads locally, but off-leads news that shares of many of the largest banks and investment firms plummeted yesterday.The Los Angeles Times leads with a look at how many are wondering whether the Fed is taking on too much risk and for how long it can keep pumping money into the economy in its attempt to save the country from a deep recession without hurting the nation’s overall finances. Over the past few days, many economists have said that the key question now is not whether the country will enter into a recession, but rather how long it will last. Ordinary Americans seem to agree. USA Today leads with a poll that shows 76 percent of Americans think the country is in a recession. In addition, 79 percent said they’re worried about the possibility of a depression that could last several years.  [our red&bold]De(e)pre(ce)ssion  so popular, so soon? we didn’t  hope so much!

 

WASHINGTON — More than three in four Americans think the country is in a recession, a USA TODAY/Gallup Poll over the weekend shows, reflecting a crisis of confidence that economists say could make the economy worse.(…)

 Seventy-six percent of those polled said the economy is in recession, compared with 22% who said it’s not. Not since September 1992, two months before President George H.W. Bush lost re-election, have so many said the economy was in such bad shape. (…)

Asked whether the nation could slip into a depression lasting several years, 59% said it was likely, and 79% said they were worried about it. A recession is an economic downturn that usually lasts at least six months; a depression is longer, deeper and more broadly dispersed. (…)

Democratic presidential candidates Barack Obama and Hillary Rodham Clinton urged greater action. Obama, campaigning in Pennsylvania, said the economy “is heading toward recession. We probably already are in one.” He said, “We must focus on what we can do to restore the public’s confidence in the market.”

Clinton was more cautious. Calling it a time of “stress and uncertainty,” she said there was “urgency” to continue monetary policies like those taken Sunday. “We are in the soup, and we better get ourselves out of it before the consequences get drastic,” Clinton said in Washington.

Presumptive Republican presidential nominee John McCain was in Iraq Monday. His top economic adviser, Douglas Holtz-Eakin, said McCain has confidence in the Federal Reserve’s action to shore up the nation’s financial system. Although that action may have been necessary, he said, it’s imperative to “ensure that Main Street America does not bail out financial speculators.” 

The Fed Goes Deep

By Daniel Politi

Posted Monday, March 17, 2008, at 7:06 AM ET

The New York Times, Washington Post, Los Angeles Times, and USA Today all lead with, while the Wall Street Journal devotes much of its Page One to, the Federal Reserve announcing a series of moves to try to bring some stability to the increasingly shaky financial markets. Lest these be confused as just one more of the series of measures the Fed has taken in recent months, the papers make clear that this latest action is “dramatic” (WP), “extraordinary” (LAT), and “apparently unprecedented” (NYT). The Fed opened up its lending practices to make more money available to the biggest investment firms on Wall Street, and cut a key interest rate (the so-called discount window) for financial institutions by a quarter of a percentage point. The central bank also announced it would extend a $30 billion credit line to help J.P. Morgan Chase complete the purchase of Bear Stearns for what the WSJ calls “the fire-sale price” of $2 a share.

The NYT catches Wall Street sentiments:

Specialists say their biggest worry now is not whether the economy is already or will soon be in a recession. Far more fundamental and troubling is the health of the financial system that greases the wheels of capitalism.

“Recessions come and go — that is something investors can deal with,” said Marc D. Stern, chief investment officer at Bessemer Trust, an investment firm in New York. “The bigger issue is, Can our financial system be restored to a sense of normalcy? In recent weeks we have been moving away from that, which is potentially very serious.” 

Lex: Queasy Street

(Investors’  calm)…  is unlikely to last long. After all, at a price of about $2 a share, the deal has wiped out Bear shareholders almost completely.

And the Federal Reserve, which initially supported Bear on Friday, is having to pledge $30bn to fund Bear’

s less liquid assets to allow the deal to happen at all.If another broker loses the confidence of investors and counterparties, the Fed will be on the hook again. But, if there is a next time, it is not obvious which of the big banks would ride to the rescue. Their balance sheets are already seriously constrained, and Bear was the smallest of the leading Wall Street firms. MY NOTE: “20bn of exposure are covered through (Fed’s) non-recourse, and only 13bn remained as net exposure to JP Morgan” (JP Morgan)posted by efa, 080818 at 11 pm GMT 

March 17, 2008

How the Fed avoided the Northern Rock trap

The case against the Fed doing so was put by Gretchen Morgenson in the Sunday New York Times:

Regulators must do whatever they can to keep the markets open and operating, and much of that relies upon the confidence of investors. But by offering to backstop firms like Bear, who were the very architects of their own — and the market’s —

current problems, overseers like the Fed undermine a little bit more of that confidence.

Meanwhile, my fellow FT blogger Willem Buiter put it thus:

While the bail-out of Bear Stearns is still a very young, thus far at any rate I have heard not a single convincing argument for why this financial business should be assisted by the Fed, rather than the ball bearings company in Cleveland, Ohio.

The economists, including Prof Buiter and Nouriel Roubini, generally favour the view that the Fed ought not to have intervened to prop up a non-bank institution and, if it was not able to hold back, should have proceeded straight to nationalisation. Prof Roubini argued this last month and restated it on Friday:

First fully wipe out those shareholders, then fire all the senior management and have the government take over such a bankrupt institution before a penny of public money is wasted in bailing it out.

But I think the different outcomes in the cases of Northern Rock and Bear Stearns at least help to justify the Fed action.  

posted by efa, 080318, 11.00 pm GMT 

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Acting quickly to prevent a bank run on major global financial firms, the Federal Reserve cut its discount rate by a quarter percentage point to 3.25% and offered to lend money to a longer list of firms than ever before. 

The extraordinary weekend moves came as J.P. Morgan Chase (JPM) sealed a deal to buy Bear Stearns Cos. (BSCfor just $2 a share backed by up to $30 billion borrowed from the Fed. The Fed board gave its approval to that unique funding arrangement, which guarantees JP Morgan against losses from buying Bear.

Posted efa March 16, 11:30 pm GT

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 PAY ATTENTION! Very important “old news” here.

Not only  finance experts-managers subscribing to Finch: any RGE (no. 1 macroeconomics site) cautious reader already knew, by end of July 2007, that 2 of the big 5 US investment banks were virtually bankrupt: their toxical “residual balances” from securitisation equalled more than half their tangible equity. According to our analysis of Finch-through-RGE data (see  our “Banks go bankrupt” page and enclosed data pdf for details)  this abnormal ratio toxic interests = 1/2 tangible equity:a)  holds  for Bear Stearns at least as early as 2004;b) Lehman Brothers joined the risky league in 2006. Bearn Stearns is dead,  now is it Lehman Brothers’ turn?  Today’s breaking alert opening of rge-monitor main page (red bold added):

WSJ: Lehman’s liqudity position stronger than BS was but weaker than other peers. Lehman learned lesson from 1998 liquidity crunch: less reliance on short-term funding.

Cumberland: Main difference to BS: Lehman generated over 60% of their revenues outside the U.S. in Q4 2007.

Bloomberg: March 14: Lehman Brothers, largest mortgage underwriter in U.S., obtained a $2 billion, unsecured, three-year credit line from 40 banks. “The unsecured facility replaces an existing credit line”; JPMorgan and Citigroup led the effort.

Reuters: CDS spreads spiked to 465bp after Bear announcement, most among investment banks.

Fitch (via RGE): At the beginning of the turmoil Bear Stearns had the highest toxic waste (“residual balance”) exposure as percent of adjusted equity on balance sheet: BSC = 54.5%; LEH = 53.3%; GS = 21%; MER = 17.8%; MS = 8.3%.

Fahey (Fitch): Lehman Brothers reported Level 3 assets-to-equity of 1.68x in 3Q07 (BSC 1.56; GS 1.84; MER 0.70; MS 2.74: gross notional Level 3 asset value, not netted with derivatives hedges in Level 1 or 2 as reported by other banks)

Hedges on Level 3 assets (i.e. “short their own instruments”) produced book gains of $750m at Lehman (largest amount among 5 brokers) but Fitch decided that gains from credit spread widening will not be considered in evaluating operating performanceLehman Brothers Obtains $2 Billion Bank Credit Line (Update2)

By Andrew Frye

March 14 (Bloomberg) — Lehman Brothers Holdings Inc. obtained a $2 billion credit line as the investment bank tried to blunt the stock’s worst drop in almost eight years and assure investors the firm isn’t short on cash.

The unsecured, three-year facility from 40 banks replaces an existing credit line, New York-based Lehman said today in a statement. JPMorgan Chase & Co. and Citigroup Inc., also based in New York, led the effort, the firm said. (…)

Last Updated: March 14, 2008 16:50 EDT

Before the turmoil (RGE from Finch, July 31, 2007)

Finch on “residual balances”, i.e. toxical waste from securitization, on subprime crisis verge, in the magnificent 5: Bear Stearns (BSC), Goldman Sachs (GS), Lehman Brothers (LEH), Merrill Lynch (MER), Morgan Stanley (MS).

The investment banks retain interests in select senior, subordinated, and/or residual tranches of securities issued by Variable Interest Entities (VIEs) which they have underwritten. All of the investment banks reported higher residual interests at 1H07 versus fiscal year end 2006 (see table)

As a percent of adjusted equity, these residual balances are as follows: BSC = 54.5%; LEH = 53.3%; GS = 21%; MER = 17.8%; MS = 8.3%. (…) Not surprisingly, the percentages are most significant for Bear Stearns and Lehman Brothers.

Bear Stearns Saturday Update

Charlie Gasparino at CNBC reports: Bear Stearns Weekend Talks Reveal 2 Key Contenders (hat tip risk capital)

 

… potential bidders for Bear have been narrowed to … J.C. Flowers and JPMorgan Chase

 

… bankers have now come to the conclusion that a deal must be done by Monday …

 

If there’s no deal Bear Stearns will have to file for bankruptcy, executives said.

 

Posted by CalculatedRisk at 6:13 PM

 

It’s fun for the weekend, a bit like looking at an ancient Rome, or Verona Arena show:

This is how CNBC continues, on CapitalisMafia Cannibalism

… it is not clear what JPMorgan CEO Jamie Dimon will do if his company JPMorgan Chase & Co buys Bear; he hates the bank and doesn’t need traders. The likely scenario, sources say, it that he gets rid of most everything except prime brokerage and clearing operations. He also apparently likes the Bear building which is around the corner from the less elegant Chase headquarters.

One big problem is that whoever buys Bear will want to retain some of the talent. However, they are already being offered jobs elsewhere.

In the meantime, the Bear debacle is a huge blow to New York City and its Metro-area economy where most of Bear’s workforce lives. Many will be out of work. Bankers and other execs have lost fortunes since many were paid in Bear stearns stock.

Voyeurist? Watch Wall Street through keyholes! U might find the two highest US and world economic policy authorities, where u wouldn’t have imagined …

Wall Street Journal’s spying eye, captured by Calculated Risk’s monitoring eye: The story discusses how Bear Stearns, JPMorgan and the Fed regulators worked around the clock Thursday night to put together the bailout.

At about 5 a.m. Friday, regulators including New York Fed Chief Timothy Geithner, Federal Reserve Chairman Ben Bernanke, Treasury Secretary Henry Paulson and the Treasury under secretary domestic finance, Robert Steel, convened by conference call. At the end of the call at 7 a.m., the Fed had decided it would offer the loan.

 

A fascinating story.

 

And a bitter, sharp comment by (competing? cooperating?) FT-Alphaville blog: at Calculated Risk they missed to anticipate the bankruptcy, so now they try hard to struggle against the irreversibility of the time arrow .., and give you any hints ex post.

Such a nasty, really nasty comment, suggests to me a Methodological Note on economic blogs webs.

Even economic blogs are economic agents, or (better) agencies, of a new sort; therefore they compose, make and unmake beautiful, complex, efficient, redundant and Pandora’s box social webs of cooperation-and-competition across them:

– not just a mere replica of social webs amongst the agents behind such agencies; this too, but even more. E.g., Prof. Roudini’s scenarios are diffusing in early 2008, not without resistance, counter-arguments and replies, across blogs.

– I would not be surprised if sometimes cannibalism had to re-emerge, by the law that if you keep watching Wall street tribal cannibalists at work, unwillingly you absorb something.

They’re so complex and multi-faced, the cross-blog flow components of Web2 social networking, that no econophysics’ web rough graph (so nice to look at) can capture their true, full-senses flavours, and crossed regards of the 2nd, 3rd .. Nth order. Much more sophisticated econometric and sociometrics tools, human and social in-depth analysis are required.

You are now watching me, watching C Risk, watching WSJ, watching Bernanke and Paulson (!!!) at unusual early morning job, watching Bear Stearns empty safe: it makes a 5th order – that is, a much longer chain, compared to what Experimental Economics evidence tells us about 2nd-3rd order expectations widely adopted as conventions in financial markets !!! Students and scholars know well that reinforced Nash equilibrium notions, often assume very high-order expectations on other people’s expectations, but in reality we rarely base our strategies going beyond the 4th or 5th order. As common in the current state-of-the-art, cognitivism, experimental economics and psychology come here to help, by correcting unrealistic assumptions emebedded into Games Theory maths.

But are perhaps social networking practices violating these “natural” limits of our social behaviour?

In just one step I cross the 6 or 12 steps separating me from another mind at work? Or do I just complicate simple systems: by reading WSJ in paper I would have avoided unnecessary, redundant steps?

And what about serendipity? it happens on Fondamenta della Misericordia, Cannaregio (today to me, Dario and François Chesnais), or in virtual Misericordiae as well. In such a case, random & redundant walks are creative & productive, namely if one meets Adamo and ends up at La Rivetta.

Posted efa. March 16, 12:00 GMT. 

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A lovely chart, from Alea, catches Bear shares in agony: it’s pure art, à la Kandinsky. Just two days: and Fed’s over   $200 bn injection in overnight evaporates. Now, at last!, all commentators agree: the underlying problem IS NOT ILLIQUIDITY – IT’S INSOLVENCY. The “cure”, if there is any, should follow from this dialectics.

Prof. Roudini has made this point clear the first, widely influencing macroeconomists’ views of the crisis. At the bullish extreme of the spectrum, WSJ keeps trying hard to put the head under the sand.

De(e)pre(ce)ssion view

There are many prospective insolvencies, that will shift and spread over 2008: Bear Sterns is no.1 of a series. A huge amount of losses are hidden on purpose and strategically, in the global finance system including banking, finance, and the “shadow financial system” (as defined in the Roudini’s quotation to follow).

And there is highly asymmetric uncertainty about how such a trillion $ loss is allocated, with unavoidable, necessary and systemic consequences on trust, inter-bank relations, and the M&C available to the whole economy.

This is how and why, due to their hedge fund clients, Bear’s liquidity evaporated all of a sudden, yesterday.

As financial global markets sink in a deflationary turmoil, instability is now spreading everywhere, from currencies to commodities first, with obvious inflationary effects making part of the recession-deepening process itself:

There are other significant shoes that are in the process of dropping on us, and that’s why I think you’re going to see further increases in the commodities across the board, because it’s the safe haven, it’s the inflation haven, the safe haven, the hard asset haven that investors are just running to right now just because they’re scared.”

John Kilduff, MF Global Energy Analyst

Finally, at the end of the money K chain, i.e., in the commodity K circulation and value creation domains: a M&C and financial impact is accelerating now (and presumably along all the year 2008, at least) the current global recession – which

(a) started in november-december 2007: as output, trade and bulk transport prices show (see updates in our static page: deep recession\depression data “telonio”

); and:

(b) is deeply rooted in the 1987-2007 “Minsky’s age” (versus the over-optimist, ever-forgetting theory of just a short run “Minsky’s momentum” or window) of over-accumulation and continuous financial turmoil – see Chesnais 2008, Fin d’un cycle. Carrè rouge- La brèche, no.1; and the recent Aglietta’s works commented and quoted there.

A deep “real economy” recession would in any case roll-on and spread by now, by tracing back I-O, cross-market and cross-country commercial relations and systemic links – even without this acute M&C crisis, but in that case much less deeply and more slowly.

(c) We will go deeper, as far as we can, in understanding the deep recession unravelling, by supplying all the best analytical references and tools we know, in an imminent new static page of this blog: perhaps to be called A DIARY OF THE 2007+ WORLD CRISIS.

Bear Sterns

Bear Stearns brokers (lenders to hedge funds and 5th largest Wall Street investment bank) shares go down today -53%, as soon as it is known that hedge funds and financial clients flew out, JP Morgan tried hard to save them last night until 7am, and the Fed is backing JP Morgan (more than this: Fed is outsourcing JP Morgan). Bear Stearns liquidation is imminent. Most share markets decline (particularly in the credit industry). See our static page “BBC Global 30” today: BBC Global 30 -1.26%, Dow Jones – 1.63, Nasdaq – 2.26, London FTSE – 1.05, Tokyo Nikkei -1.54, Hong Kong – 0.29, Johannesburg + 1.13, Bovespa-SP + 0.17.

BBC: “Bear Stearns has been severely affected by the loss of confidence in credit markets. The company had invested heavily in sub-prime mortgage instruments and other securities which are now seen as highly risky, and which have fallen sharply in value. And it had less capital than its rivals, such as Citigroup and Merrill Lynch, who were also heavily exposed, to plug the gap.”

Paul Murhpy provides a practical, useful overview of selected blogs on Bear’s crisis.

Roudini comments, with good reasons reported below: I told you 40 days ago (it is an answer to Bulls saying he is Bearish, e.g. Yves Smith, Naked Capitalism: Martin Wolf Reads Too Much Roubini).

 

Step 9 of the Financial Meltdown: “one or two large and systemically important broker dealers” will “go belly up”

Nouriel Roubini | Mar 14, 2008

In my February 5th piece on 12 Steps to a Financial Disaster I predicted – as Step 9 of the meltdown – that “one or two large and systemically important broker dealers” will “go belly up” and that other members of the “shadow financial system” – i.e. non-bank financial institutions that look like banks in terms of liquidity/rollover risk – will also go bankrupt. As I put it then:

Ninth, the “shadow banking system” (as defined by the PIMCO folks) or more precisely the “shadow financial system” (as it is composed by non-bank financial institutions) will soon get into serious trouble. This shadow financial system is composed of financial institutions that – like banks – borrow short and in liquid forms and lend or invest long in more illiquid assets. This system includes: SIVs, conduits, money market funds, monolines, investment banks, hedge funds and other non-bank financial institutions. All these institutions are subject to market risk, credit risk (given their risky investments) and especially liquidity/rollover risk as their short term liquid liabilities can be rolled off easily while their assets are more long term and illiquid. Unlike banks these non-bank financial institutions don’t have direct or indirect access to the central bank’s lender of last resort support as they are not depository institutions. Thus, in the case of financial distress and/or illiquidity they may go bankrupt because of both insolvency and/or lack of liquidity and inability to roll over or refinance their short term liabilities. Deepening problems in the economy and in the financial markets and poor risk managements will lead some of these institutions to go belly up: a few large hedge funds, a few money market funds, the entire SIV system and, possibly, one or two large and systemically important broker dealers. Dealing with the distress of this shadow financial system will be very problematic as this system – stressed by credit and liquidity problems – cannot be directly rescued by the central banks in the way that banks can. [bold added]

And today the first one of these large broker dealers – Bear Stearns – in on the verge of bankruptcy. Let us be clear: given its massive exposure to toxic MBS and ABS product Bear Stearns is insolvent; the decision by the NY Fed to try to bail out Bear Stearns would make sense if this firm was only illiquid; the trouble that it is insolvent and thus such attempted bailout is altogether inappropriate. It is true that Bear is a large broker dealer; but its systemic importance is much smaller than that of much larger institutions. The world and financial market can survive if Bear disappears.

NY Fed avoided the obstacle underlined by Prof. Roudini, by triangularizing on JP Morgan: it doesn’t change much, exc. that JP Morgan has now insiders info allowing them to make perhaps the best offer for Bear assets. On Prof. Roudini’s close, we at de(e)pre(ce)ssion are even a bit bearer than he is, if possible: on the liquidation of Bear Stearn’s assets, markets deflation will carry on, etc. We will see.

PS. Hedge funds themselves take their time to read Roudini; financiacapital.com, advisor and a California’s fund general partner, suggests to his clients:

Nouriel Roubini’s Blog – Nouriel Roubini is a professor of economics at the Stern School of Business (NY University), and though sometimes too bearish in our opinion, his views on the various economic data are always worth the time to read.

Empirical and theoretical consequence: the shadow financial system has by now become what is called a critical, self-representing complex system, in system theory: they observe us observing them observing us  observing them… .

We formulate expectations upon them, expecting that we … expect them to …  because they expect that we … by supposing they expect that … (a long, but finite chain). Suggested reading: Niklas Luhman.

 

Posted by enzo fabio arcangeli March 15, 7:45 am GMT

SUBPRIME SURPRISES. Today, even Paul Krugman has changed his prediction

Northern Rock branch Digg!  The world cycle has  entered a recession phase  generated in the US last summer, deeply entrenched with the highly unstable nature of current growth and institutions, money and markets (for historical reasons, plus theoretical ones Political Economy illustrated since long: the roots are in Malthus and Marx, Keynes and Kalecki).   Credit and financial markets were obviously the first ones shocked by the subprime crisis, a necessary consequence and dead end of Greenspan’s Fed easy money policy in the 1990s, again since 2003, and a “free market” social engineering experiment in enlarging financial K circulation to a new expropriation domain: stealing wealth from fresh new victims, the poor (first) and the rich all over the world, from Latin ghetto home buyers to Northern Rock clients (see 2007, Oct. 26 Krugman’s blog post A Catastrophe Foretold and my comment upon his revelations, the same day on my blog). But this was only the beginning of the Financial K “conspiracy” (K for Capital).  In October-November 2007, hyper-sensible Baltic Dry index of maritime freights (indexes do have senses, sentiments and even a soul: did you know?) got the blues, reached a cyclical peak and started to decline – you can see the weekly updated graph also by clicking here – meaning that world commodity markets and manufacturing were already affected, not just global finance.When a US report told the services sectors were also declining, Wall Street (- 3% on Tuesday Feb. 4) got also the blues, started panicking and detecting the recession, a quarter after experienced Baltic freight traders. I am not sure this might be tagged text book “globalization” and “rational expectations” alike behaviour, I suggest irrational stupidity. Mr Bernanke never thought to rebuke such irrationalities: on the contrary, he hurried up ensuring he will carry on doing the dirty-hiding dirty job for WS boyz-and-banks, everything is under control, interest rates will go further down (so what ?), after the exhibition of a mix of power-willing and sheer impotence in the base rebate 4.25 to 3. We know things are very different, no one is in control of the recession: see 2 base papers, in January 5 and 8 Prof. Nouriel Roubini’s fundamental blog, (1) and – in French – the contribution by François Chesnais in Carré Rouge – La brèche no.1, 2008, pp. 17-31. Their 3 titles carry the message:

  1. The Rising Risk of a Systemic Financial Meltdown: The Twelve Steps to Financial Disaster.
  2. Can the Fed and Policy Makers Avoid a Systemic Financial Meltdown? Most Likely Not.
  3. Fin d’un cycle. Sur la portée et le cheminement de la crise financière (End of a cycle. On the dimension and path of the financial crisis).

 Today, even Paul Krugman is changing his prediction. Still resisting the idea, because he knows very well how devastating for the US the crisis might and perhaps will be, he admits a denti stretti that  “the double-bubble nature of the underlying problem — a housing bubble and a credit bubble combined” will be tougher than the 1980 and 1991 recessions. He even talks of a new President getting to the White House (Jan. 2009) in the middle of the storm: if you follow his NYT op-eds and blog (a must), you know that his adamantine intellectual honesty is at work. Being optimistic, I counter-argue that Ms. Clinton\Obama (or Mac Cain) will have to tackle either a long recession in her\his first term, or a full depression in both. My friend and colleague Carlota Perez started the epilogue of a very useful, almost prophetic post- Schumpeterian book by saying: “In June 2002, as this book is going to press, the world is at the turning point. The decisions being taken at this crossroads will determine how long, how deep and how widespread the current recession will be and whether what lies ahead is a depression, a gilded age or a true golden age”. We are back to that point, but the total lack of political-institutional decisions and longterm management (called for by Carlota), in such a crazy world, that it is hard to believe it is still Capitalism, stole us the golden age. Now we have choices and destiny in between a shaky cyclical recession, a decade of depression in the 2010s, and re-inventing Socialism. For empirical facts and analyses, search  my blog, or excerpts from my “blog before the blog” from summer 2007: where I report and discuss how the recession has been read in real time: e.g. by Attac in July 2007, The Economist in October, etc. You’ll perhaps come to the conclusion that Bernanke bosses, the Wall Street boyz: either they are analphabet, or they have no time to read anything, nor even economic news and bulletins. If the Fed wasn’t the Fed (a purely Keynesian matter, discussed also in some comments to Prof. Roubini’s blog) Bernanke, instead of burning billion $ in “rites of winter, then spring and summer”, should have just sent them a Xmas card with a free (0 cost) yearly subscription to: http://investmenttools.com/futures/bdi_baltic_dry_index.htm  NOTES _ (1) Prof. Roubini reached a climax when, in a creative Dostò-Shakespearian mood, he described Alan Greenspan’s decision making this way.To Raise or Not To Raise? Reading into Greenspan Hamletian Mind. Aug 29, 2004As Greenspan sips through long reams of obscure economic data (are cardboard production data a good leading indicator of economic activity?) while relaxing daily in his bathtub, he is pondering whether he should increase the Fed Funds rate at the September 21st FOMC meeting. Here is what he is mumbling in his mind, in between a bubble bath and endless wonky economic statistics:”Well, the September 21st decision will be a real tough one, the last one before the elections! I thought that the economy was perking up; and then we hit this Q2 “soft patch”! But is it really a soft patch as we have been claiming in public or the beginning of a deeper deceleration of the U.S. and global economy? Japan is also slowing down (…) and figures from Europe are the usual mixed bag with overall softness and a sub-part Q2 growth of 2%. So, I am usually as Kriptic in public as Delphi’s oracle but on this one I am a bit schizophrenic myself even in private. I haven’t really figured out what to do! I feel like Hamlet: to raise or not to raise?”

Published in: on February 10, 2008 at 4:36 am  Comments (1)  
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Carré Rouge et la Brèche: l’union fait la force

Du site http://www.labreche.ch/RevLB/2007/RevLB01.htm on reproduit aussi dans notre file pdf: carrerouge_labreche la page qui annonce que les revues marxistes Carré Rouge et La brèche se sont unifiés à partir du no.1 de la nouvelle Revue trimestrielle “Carré rouge / La brèche”, qui vient de paraitre. Le formulaire pour s’abonnner est sur le site.

Au sommaire:
Pourquoi cette revue?
Les salarié-e-s s’affrontent à un changement de période qui est le résultat de la rencontre dans le temps de plusieurs développements historiques. Ce constat devra conduire la réflexion portée par cette revue.

Fin d’un cycle. Sur la portée et le cheminement de la crise financière
L’hypothèse défendue dans cet article est que l’économie mondiale se dirige vers une crise d’une certaine importance (…) au moment où les instruments mis en oeuvre par les banques centrales ont commencé à montrer leurs limites, à force d’avoir été utilisés de façon répétée depuis vingt ans.
François Chesnais

Dossier Ecologie politique

L’environnement social et naturel du capitalisme fossile
Elmar Altvater
Atteinte aux processus fondamentaux de la reproduction naturelle. L’écologie de la destruction.
John Bellamy Foster
Agrocarburants. La nouvelle panacée capitaliste