Thursday, December 15, 2011

Persons of the Year

Persons of the Year-The Oligarchs

This was the year in which it was confirmed that corrupt politicians come in all flavors; ethnicities, colors, sexual orientations, and educational attainment levels. For anyone paying attention, the self interest of world leaders reached a level of such proportions that even the most docile acted up and out against them. It is yet to be determined if the activists have changed anything. The continued reliance on the processes of governance, without structural change, forebodes that where uprising happened, the net effect was to change the faces of the players, but not the game.

"Peanuts", first year psychology courses, ad-men and comedians all extol the truth of negative reinforcement, "don't care what you say about me, just say something". GM execs used to say of Nader, when he was busy critiquing the safety of their autos, he wasn't knocking the use of autos, (which claim 1 million lives annually), he was worried about them rolling over. Nader was occupying their space. He was critiquing them. He was not out advocating for something like public transportation.

As long as we validate the brutes, the greedy, the killers, by occupying their spaces, we insure that we are not contemplating what the alternative might look like.

No better evidence can be cited than the results of the COP 17 on global climate change that just ended in Durban, South Africa. There the players from all perspectives, pro-business, big oil,, or reps from the so-called 99%, pointed at "governments' policy" to increase, limit, change, control, or modify behavior by the imposition of rules. As if large third parties, can by the force, control the inclination of individuals to destroy their world. Evidence to the contrary abounds: speed limits, FDA's inability to regulate the food and drug industries, anti-smoking regulations, the SEC, are just the tip of a list, exclusively American, that would give credence to the observation that humankind is it's own worst enemy, and they are ungovernable.

Naomi Klein wrote a piece for the Nation that she discussed with Andrew Revkin here. "The piece begins with Klein’s conclusion, reached after she spent time at a conclave on climate sponsored by the libertarian Heartland Institute, that passionate corporate and conservative foes of curbs on greenhouse gases are right in asserting that a meaningful response to global warming would be a fatal blow to free markets and capitalism.

She challenges the environmental left to embrace this reality instead of implying that modest changes in lifestyle and shopping habits and the like can decarbonize human endeavors on a crowding planet."

These are statements well worth reading, within the context of seeing the world as left/right, corporate/individual, or as organized or randomized. What neither Andrew or Naomi can say, they do make their livings being pundits in mainstream media, is that the revolution, if you actually want it, is within our means. It is not dependent on powerful governments, or NGOs, or corporate reform.

What Gandhi knew, what MLK knew, was that margins are razor thin. The boycott is the easiest and most effective weapon for change. Outstanding examples are the refusal of American colonials to buy British goods after the passage of the Stamp Act (1765), the Chinese boycott of U.S. goods (1905) because of the poor treatment of Chinese in America, the refusal of Gandhi's followers to buy British-made goods in India, and the Arab League boycott (1948) of all companies dealing with the state of Israel.

The "market" and specific targets within it, cannot withstand a withdrawal of even 10% of their customer base. Here's a list of net margins.

Want to integrate a bus system, stop riding. Want to bring a consumer driven economy to its knees, stop buying. Want to change the global demand for carbon, stop driving. Don't appreciate one or another corporate policy, find out what they produce and stop buying it. Koch Industries is in the news a lot and produce many consumer goods. The Wonkette had some advice on the subject.

There are some very dedicated boycott organizers out there. Scan this site for inspiration. The point is to stop being driven by "their" agenda. That was the anti-message the OWS tried to deliver. The irony was that they validated (by occupying) Wall Street as the power center. What if all those college students prevailed on their institutions to stop dealing with the street? What if they implored their parents to move their money off "the street"? What if, like the example of these young Canadian delegates to COP 17, they turned their collective backs on the systems that oppress them?

"Whatever you do will be insignificant, but it is very important that you do it."

Mahatma Gandhi.

Thursday, December 1, 2011

Learning to count

You go girl

It is not enough to simply shout or sign that the system is unfair and thus has to be reformed. It would help if protesters knew how it was unfair and could target their rage appropriately. Protesters must learn to count.

OWS, strikes by British government workers, Greek citizens demanding political reform, are all doomed if the participants don't know how to count. The most recent example of the so-called liberal media getting it wrong and misguiding their readers occurred in today's NYT op-ed by Nicholas Kristof. In his article he recounts the confessions of a former Chase banker who cooked the country. He then goes on to report the findings of the Bloomberg revelation that has minds whirring; "as Bloomberg Markets magazine published a terrific exposé based on lending records it pried out of the Federal Reserve in a lawsuit. It turns out that the Fed provided an astonishing sum to keep banks afloat — $7.8 trillion, equivalent to more than $25,000 per American.
The article estimated that banks earned up to $13 billion in profits by re-lending that money to businesses and consumers at higher rates. The Federal Reserve action isn’t a scandal, and arguably it’s a triumph. The Fed did everything imaginable to avert a financial catastrophe — and succeeded. The money was repaid."
There's the rub, "the money was repaid".

To understand why the money was not repaid you have to know about an important fundamental: This is the definition of the Bond Carry Trade:
For the bond market, this refers to a trade where you borrow and pay interest in order to buy something else that has higher interest. For example, with a positively sloped term structure (short rates lower than long rates), one might borrow at low short term rates and finance the purchase of long-term bonds. The carry return is the coupon on the bonds minus the interest costs of the short-term borrowing. Of course, if long-term interest rates unexpectedly rose (and long-term bond prices fell as a result), the carry trade could become unprofitable.

The second fundamental is to understand that the long tradition of the Fed NOT signaling what moves it was about to make re. interest rates kept the process of a free market capitalism alive and cost players money in that they had to hedge (protect themselves) if the Fed were to change interest rates. Now the fed has spoken and told the players that they will not raise rates for at least two years. The effect of this is to allow the banks (the major players) to borrow Fed money at virtually no interest rate and invest the same money in long term treasuries. That is what they are doing with the majority of the money, not lending it to business or home buyers. They then pocket the difference, firm up their balance sheets, and return the loan when they want to.

What was lost to the Fed was the opportunity costs. Money they might have made in their portfolio had they not given it to the bankers for free.

Opponents of bailouts complain that to help "main street" or home owners, is impossible because of "moral hazard", picking winners and losers, giving one group an unfair advantage. But that is just what the Fed has done.

Imagine the following scenario for example. You own a failing cupcake business. The Fed decides that your business is critical; you employ people, are in the stream of commerce, and anchor a block of retail shops. They decide to bail you out. They lend you let's say 3 mil at no cost which you promptly invest in 30 year government bonds yielding roughly 4%. You pocket the 120k annual cash flow, (money the Fed would have earned) keep your business running, and when all turns bright again, you repay the original 3 mil loan. That opportunity doesn't exist for you. That is what is, has, and continues to be the unfairness that those who are suffering the consequences of Fed policy haven't been able to articulate. Make no mistake. Central Banks all over the world have made up some of the losses (most still remain off the books) of their member banks and allowed the underlying failures on investments wiped out in the crisis to fester. So housing value remains low, which limits tax revenue, which breaks governments ability to function (Teachers are fired, tuitions rise, services are privatized). Pension trusts losses mount and therefore are unable to meet their obligations. Businesses can't get loans, there is no job creation, and the economy craters.

Not to worry. the Fed triumphed and they are being repaid.