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. 


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.