Tuesday, May 8, 2012

Occupy Facebook

 "Devil or Angel I can't make up my mind"

Wing makers and diadem polishers are busy, glow sticks are being fueled as new members of the pantheon of Mammon are about to be welcomed into the fold. What's most difficult for me is my inability to be clear about their belief system. The same people whom we sanctify as good guys, known by their support for OWS, expanded democracy, and the redistribution of wealth, are this very minute checking their insider status, their stock allocations, and lock-up dates for their soon to be public shares of Facebook. Many new members of the soon to be fabulously wealthy are exploiting the very systems that they decried last MayDay. 

Those not lucky enough to be insiders are calling their brokers looking for shares, checking the institutions that they own in their 401s to see if they are going to get any shares, and planning to get the jump on the trading as soon as it starts. Warren Buffett isn't going to play. He can't place a value on the company but he knows that all the noise is creating a "sense of value" that has no intrinsic worth. ( "Bubbles" aren't revealed when they burst. Bubbles are the everyday nature of a stock market that makes prices on a multiple of  expectations of unpredictable future activity). He may also have noted that insiders are selling nearly half of the offering shares. It is usually a negative sign when insiders express so little faith in the future fortunes of their company that they want to rush to the doors to sell their shares. 

Many of the so called "good guy funds", for this post I took Calvert, an early and successful cluster of funds that markets that they invest in sustainable and moral corporations, if history is any guide (they own Google, Apple, and many other new media cos) will be at the trough buying from Morgan Stanley (lead underwriter). JPMorgan Chase & Co., Goldman Sachs Group Inc. (GS),Bank of America Corp., Barclays Plc (BARC) and Allen & Co. also will help with the IPO, Facebook said in the filing. 

The story of Sheryl Sandberg's migration from the Treasury Dept under President Clinton, who she worked for along the way before becoming COO of Facebook, is documented on Bloomberg here
So now, if you have clicked away, you know that Facebook is Wall-Street and that only the most naive believe that Facebook is in the social change business, here or abroad. The temporary exploitation of Facebook as a tool to organize a meet-up, should not be confused with the greater and longer lasting function of Facebook as a means to expand through their advertising sales, the ever increasing materialism of new markets. 

"Money for nothing, chicks for free"

As for the expansion of democracy, the implicit understanding that shareholders after all control the companies they invest in, is contradicted by Facebook  using a little known means to retain control: Zuckerberg adopted a dual-class structure in 2009. He has 10 votes for every other shareholder’s single ballot. 

The larger picture is just as morally confusing. What does it mean when we invest almost 100 billion dollars in an activity as vacuous as Facebook. Discussions of the policy of less or more government, investment in infrastructure or education, or the military for that matter, become meaningless against the backdrop of a culture that expresses its true sentiment, aspirations and dreams, by entering the casino and betting up the value of Facebook. Cuz that is what you are doing. Investors have become suckers in the largest ponzi scheme on earth. 

The shortest course in the mechanics of an IPO: An individual or group begins some form of activity that has economic value, or the potential of profit. They can organize that activity in a variety of forms. One could form a partnership, a co-op, a non-profit, or a closely held corporation. Facebook chose stock corporation. Lawyers develop documents which register the company formally, describe the activity, where it will function and the initial owners and board members of that company. Other docs spell out meetings and elections, formats etc. Stock is registered and distributed. Most is kept "on the shelf". In the case of Facebook there are 2.48 billion shares registered at a value of 6 cents a piece. (337.4 million are going to be sold through this IPO). When an insider is awarded shares in lieu of salary, or for a bonus, that 6 cents is their basis price. At some point, enough activity has taken place that someone initiates a conversation about taking the company public. That is selling shares either from the shelf, or from insiders to raise capital. That capital might be used to expand the company, liquidate debt, make acquisitions, or enrich insiders who decide to sell their shares. A set of sell side "bankers" goes through a process of due diligence and writes up the findings. The corporation and their bankers make judgements about how they might price these shares, and how they are going to word the "red herring" the offering document to the public. If you ever read a red herring you will note that they say nothing but the worst about the fortunes of said company. They are not allowed to hype without evidence. It is the wink in the process. The company goes on a road show attracting investors to the IPO and obtaining subscriptions, commitments to purchase x shares. On a date specific the company under the auspices of the SEC offers the shares. The initial shares are distributed and then trading moves to the markets where those less fortunate are allowed to buy and sell shares. There is often a pop created by either a perfectly legal agreement on the part of the bankers to commit to purchase shares in the after market, or a purposeful shortage of shares available determined by bankers guessing the demand, and then not satisfying it. Insiders whose shares are not part of the initial IPO are locked out of sales for 6 months. Their sales into the market after lockout are the first wave of dilution, that is selling more shares of a company into a market after a price per share is being determined on a trading platform. Remember those millions of shares that Facebook retained on the shelf. They too can and will be sold in "secondaries" to raise yet more money and dilute the shares further. 

It is getting so hard to maintain even the semblance of liberalism in the face of such temptation. Before you sell your soul, or wish that you had I think it is important to consider one small excerpt from Wendell Barry's Jefferson lecture: excerpt from Wendell Berry's 2012 Jefferson Lecture 

"That we live now in an economy that is not sustainable is not the fault only of a few mongers of power and heavy equipment. We all are implicated. We all, in the course of our daily economic life, consent to it, whether or not we approve of it. This is because of the increasing abstraction and unconsciousness of our connection to our economic sources in the land, the land-communities, and the land-use economies. In my region and within my memory, for example, human life has become less creaturely and more engineered, less familiar and more remote from local places, pleasures, and associations. Our knowledge, in short, has become increasingly statistical.
Statistical knowledge once was rare. It was a property of the minds of great rulers, conquerors, and generals, people who succeeded or failed by the manipulation of large quantities that remained, to them, unimagined because unimaginable: merely accountable quantities of land, treasure, people, soldiers, and workers. This is the sort of knowledge we now call “data” or “facts” or “information.” Or we call it “objective knowledge,” supposedly untainted by personal attachment, but nonetheless available for industrial and commercial exploitation. By means of such knowledge a category assumes dominion over its parts or members. With the coming of industrialism, the great industrialists, like kings and conquerors, become exploiters of statistical knowledge. And finally virtually all of us, in order to participate and survive in their system, have had to agree to their substitution of statistical knowledge for personal knowledge. Virtually all of us now share with the most powerful industrialists their remoteness from actual experience of the actual world. Like them, we participate in an absentee economy, which makes us effectively absent even from our own dwelling places."

Wednesday, May 2, 2012

May 2

Greeks protest their government's austerity measures, May 2011

Last October the far-right party Chrysi Avgi, also known as Golden Dawn, won its first seat in Athens city council. Since then it has held several anti-immigrant rallies in areas with large migrant communities. Fascist activists are also alleged to have carried out random revenge attacks on innocent migrants after a Greek man was stabbed to death in central Athens in March.
‘I never come out of the house during the night, because I’m afraid of the fascists,’ says Abolzar Jalily. ‘I came from Afghanistan to be safe.’ Jalily left his home after receiving death threats because he worked as an interpreter for foreign forces. Now he faces a fresh threat from a violent fascist movement operating with near impunity in downtown Athens, where Jalily lives with his family.
‘In one attack the fascists killed some refugees and injured more than 150 people. They beat them very badly and they could not go to the police because they would do nothing for them,’ he says.
Tania, a Bulgarian immigrant who has lived in Greece for 10 years, says she is too afraid to travel downtown after hearing stories about Albanians being randomly attacked. ‘There are some fascist organizations that are trying to blame foreigners for many things that happen here, one is taking their [Greeks’] jobs.’
Conditions for migrants in Greece are likely to deteriorate further. The new austerity measures will mean greater penury for those who are already last in line for state support and living wage jobs.
‘I am a single mum and I have no help from the government,’ explains Tania, who is a maths and physics graduate, but works as a cleaner and nail technician. If you are a foreigner here, you have no social services to help you.’

Sound familiar? Far right candidate Marie Le Pen garners 6 million French votes in the latest national election. Alabama, Arizona, and other states implement punitive anti-immigration laws. All of this has the effect of diverting our attention away from the looming debt crisis that will consume us all.  How quickly we forget. 

Pundits and politicians like to send up the Greek example as one to be avoided. Here is an excerpt from ABC news intended to enlighten us.

 Why is Greece in debt?
Like any state (or person, for that matter), it spent more money than it took in. After the switch to the euro, the traditionally strong Greek public sector saw wages rise to ultimately unsustainable levels. To compound this, the retirement age in the country is low (by Western standards) and benefits are generous.
But that alone is not enough to sink an economy.
Mass tax evasion, on the other hand, can certainly do the trick. And it did in Greece. When people and businesses don’t pay their taxes, it limits revenue. So when the money inevitably ran out, Athens turned to European banks for loans. Soon, the government was borrowing billions and those debts, like subprime mortgages in the United States, were often repackaged as complex commodities  and sold off around the continent. Everyone, especially banks in France and Germany, wanted a piece. Now they have it.

They had help. From wiki: (Goldman is being criticized for its involvement in the 2010 European sovereign debt crisis. Goldman Sachs is reported to have systematically helped the Greek government mask the true facts concerning its national debt between the years 1998 and 2009.[71] In September 2009, Goldman Sachs, among others, created a special credit default swap (CDS) index to cover of high risk of Greece's national debt.[72] The interest-rates of Greek national bonds have soared to a very high level, leading the Greek economy very close to bankruptcy in March and May 2010 and again in June 2011.[73] Lucas Papademos, Greece's new prime minister, ran the Central Bank of Greece at the time of the controversial derivates deals with Goldman Sachs that enabled Greece to hide the size of its debt.[74] Petros Christodoulou, head of Greece's debt management agency began his career at Goldman Sachs.[74] Mario Monti, Italy's new prime minister and finance minister, who heads the new government that took over after Berlusconi's resignation, is an international adviser to Goldman Sachs.[74] So is Otmar Issing, former board member of the Bundesbank and the Executive Board of the European Bank.[74] Mario Draghi, the new head of the European Central Bank, is the former managing director of Goldman Sachs International.[74] António Borges, formerly head of the IMF's European Department is a former vice chairman of Goldman Sachs International.[74] Peter Sutherland, former Attorney General of Ireland is a non-executive director of Goldman Sachs International. Karel van Miert, former EU Competition Commissioner is an ex-international adviser to Goldman Sachs.[74] These ties between Goldman Sachs and European leaders is an ongoing source of controversy.[74] )

Why does Europe — indeed, the world — care so much about Greece’s debts?
One of the perceived perks when Europe got together on a single currency (Greeks, for instance, gave up the drachma for the euro) was that a strong Europe could prop up an individual state in a time of need. But what’s happened is that Europe itself has become too weak, in the aftermath of the global financial meltdown, to bite the bullet on a country like Greece. A default would shatter otherwise monetarily strong countries like Germany. The Germans, like the Americans, would be left with a host of “too big to fail” banks ready to do just that. 

It is critical that we remember how we got here. We can't be blinded by big numbers. We can't scapegoat the 'immigrant" as the walls of our institutions collapse around us. They didn't create this monster. They didn't benefit from it. The pigs who did are being driven to work where they continue to push this horrific system to the breaking point.  And most of us live in the false sense of security that it won't effect us. It has, it is, and it has only just begun. The very same forces and institutions that are foreclosing on homes are foreclosing on countries. The "bond vultures " as they are known in the trade will be paid. An example:

 In the past three months, US asset managers Loomis Sayles and BlackRock, Swiss private bank Julius Baer, French asset manager Natixis, German investment fund StarCap and Luxembourg-based Ethenea Independent Investors were among a raft of funds to have bought Greek sovereign debt in the secondary market.
Between them, they acquired around €150m (£133m) of Greek debt, public filings on Bloomberg show. Market sources said there is still a lot of activity in Greek debt, despite the crisis, with data from public filings just the tip of the iceberg.
On average, Greek debt is trading at around 50% of face value, but markdowns are smaller for short-dated bonds and larger for longer-term debt. If bonds are redeemed at par as part of a second bail-out, vulture funds may as much as double their money, debt traders said. The Telegraph. 
In plain English:  These vultures win if the government pays the bond holders at face value. The government is desperate to satisfy these bond holders demands because if they don't, if they default, it takes them out of the system for the future. But lets name it. There is no "government entity" that pays as we are witnessing. It is the Greek people who are out the money. They will sacrifice jobs, pensions, health care so that these vultures can feed. The profits of these vultures is at the expense of the Greek citizenry. It is of course perfectly legal. It is what capitalism is all about.

This is one tiny trade. Imagine when the calls come in ( the bonds are due) to retire the outstanding debt ( bonds) that is on the books. The Economist publishes a debt clock here.  This indicator of where the 40 trillion dollars of debt is located only identifies the numbers on the books.  
Read the story of the 300 trillion dollars worth of derivitives here.  No one knows who holds these instruments nor,  how they will be cleared. 

OWS organizers bristle when outsiders tell them what they might want to focus on, what are the issues to be addressed, and what they might propose to alleviate the problems.  They want to keep the movement amorphous, open and horizontal. May Day is over. The "black block"  has wreaked its havoc, peaceful demonstrators have made their presence felt,  and nothing, nothing has been done to alleviate the problem. Turn away, leave it to the bankers to be the only ones who know how this game is played, and we will be consumed by their greed.  We have to get smarter. We have to do the hard work of averting  this disaster. It isn't going to happen as a result of a one day protest. We have to build a new economy.