Dead Cat

The box is open and the cat is dead. The mathematical theoretical physics behind the "no risk" financial market experiment has ended up killing it. Theoretically the possibility of a loss was insured out of existence.

For example;

• Bank A issued a financial instrument and took out a CDS with Bank B against a possible default or loss.
• Bank B took out another CDS with Bank C to cover the possibility of Bank A's financial instrument going bad.
• Bank A took out another CDS against Bank C if it had to pay Bank B if Bank B payed Bank A 
• Bank A gets both the original loss back from Bank B but also the same again from Bank C.
• Bank C took out yet another CDS with Bank D to remove the risk of having to pay Bank A
• Bank D took out a CDS against Bank A's original financial instrument with Bank A.
• Bank A then used the payment from Bank C to pay Bank D.
• Ad infinitum 

So which Bank loses money? Nobody knows, not even them - but somebody eats the loss. Seems the citizens of any country with a Bank eat it.

The problem we have here is that the same folk that created the problem are trying to solve it. No fresh thinking, no real change in policies - accompanied by the dictum not to let a good crisis go to waste. Using this, or any, crisis to inject more of the same that caused it doesn't, unsurprisingly, appear to work. Never mind, we'll keep going until the life is choked out of it.

Not unexpectedly Obama and Cameron have popped-up demanding a quick fix. Primarily because when, not if, it all goes to rat-shit their banks will topple along with the rest. London and New York are the places that most carcinogenic financial instruments call home.

Let's not forget that, back when all this started in 2007, the estimated value of financial instruments lurking about the world was somewhere between 100 and 300 trillion dollars. Even if only 10% of them go bad - a joke - more like 40% on present estimates - then somebody has to print between 10 and 120 trillion dollars worth of money and give it to the banks.  And these estimates are on the conservative side. As all these instruments are in US dollars that would be bad, bad, bad for them - hence Obama's deep interest in having Europe not fuck the US economy.

Inflation won't solve it. Given the present state of the world's economy the result of a sufficient increase in money supply will be Stagflation - which we are already seeing signs of. Eviscerating trust in money and the printing of 100,000 Dollar, Pound, Euro notes to buy a cup of coffee doesn't sound like one of the better solutions.

So a very, very big turd is about to drop into the fan. This has been constipating since International Accounting Standards, introduced in 2005, prevented companies from provisioning against potential losses before they actually incurred them. Which is, of course, why banks are only now announcing hundreds of billions of losses and looking for some more free cash. Those now looking for the money are the same folk that lobbied for the change to accounting standards in the first place - so they could artificially keep their profits up - even if they knew that a debt was going bad. Better for the share price and the bonuses.

Anyway, I get back to my contention that Globalisation contains the seeds of it's own demise. When there is too little or no domestic industry, manufacturing or production and the banks are making unprecedented piles of money that money has to go somewhere and it, by default, goes into real property as that is the only place left for it to go

Around the turn of the millenium the same lack of alternatives created the "Tech" bubble.

To absorb the fists-full of money spewing out of the banks house prices exploded, builders went on the rampage. When regulations wouldn't permit this path they were changed or new markets created outside regulatory oversight. Not only did the finance industry believe they had found an infallible way to remove risk but they also didn't have to admit that they had lost the money until the instrument was undeniably dead and the loss was taken onto the books. So they had a few years to record record profits and bonuses before they became too big to fail.

The original bail-out money they were given was used to maintain this fiction - now that it has all been spent either they get another round of bail-out or they go down. Any money going to Spain to prop-up it's banks will be used to extend and pretend. When the next 100 billion of property market bad debt pops up, or RBS needs another 40 billion to survive, it'll be another matter entirely.

Upper-Class Tory twits & mindless idiots‏

I told you long ago not to talk or listen to politicians, bankers, economists or policy wonks. Instead, you should have been donating, very generously, directly to the money-men of the Conservative Party. It might have been an expensive "kitchen supper' as snacks go but by now you might have zero corporation tax, zero capital gains tax and a top personal income-tax bracket of 15p. All for a backhander of around 750k to the Tory Party. They might even privatise the police forces and toss in a knighthood for the round million. Follow the example of property developers that have bunged enough money at the Tory Party to get the whole of Britain turned into a free-for-all building site. Expect to see several property developers in the next Queen's Birthday Honours List.

To those of us with exposure to the American way of doing politics this comes as no great surprise - nor should it come as much of a shock to the citizens of the UK. Politics is about vested interests and the most vested of these is money and it's derivatives - wealth and power.  The man seen on hidden-camera offering to subvert democracy for large quantities of wedge got there because he threw enough folding money - (in his vernacular; a 'bar" and a couple of "plums")  - at the Tory Party to get the job as it's Treasurer. He made his money in Thatcher's Big-Bang City and he brought it's morality with him. That the Labour party did something very similar is no defence. Selling peerages and getting a "Bernie" from Bernie Ecclestone for political favours is part and parcel of what now passes for democratic politics in the age of unregulated capitalism. Didn't Marx and Engels say something about this? Instead of concentrating all power in the State all power is concentrated in private corporations. Either way democracy isn't involved.

The Irish have just added more proof, if any were needed, to the assertion that all power, in some manner or other, corrupts. Especially in an environment where the Treasurer of the Tory party refers to a billion quid as a "yard". Former Irish Prime-minister Ahern, where he to dwell in London instead of Dublin, could well have added the "Bertie" to the lexicon of money slang.

The recent litany of embarrassment for the UK government might be described as the Conservative Party Conundrum. The "New Labour" emulating "New Tory" modernisers of the Conservative Party are actually the former 19th century model (previously declared extinct) of wealth, class and privilege (requires a minimum of 300 years of inbreeding) now occupying the Parliamentary front benches while the Conservative Party and it's HQ remain firmly in the grip of the (mongrel) Thatcherites. Ne'er the twain shall meet. Cameron rose to power only because the Thatcherites went into hiding after egregious sleaze gave Thatcherism and it's adherents a bad name and made the Tories unelectable - New Labour then stole most of Thatcher's policies anyway. Cameron went out of his way not to speak to Thatcherites, to avoid contagion, in the hope of getting himself elected and he half succeeded. Thatcherites wouldn't have given him any good advice even if he asked for it. Now they're all regretting it.

This has resulted in a face-off between the resurgant Old Tory Entitlement and the Thatcher Meritocracy and they are both losing. The reappearance of Tory Class-Politics is exactly what Thatcherism was meant to prevent - unfortunately it was also meant to prevent exactly the present economic disaster from ever happening. So Thatcherites don't really have much of a clue as to how to solve it without admitting that it was their supporters that brought this disaster about or looking, god forbid, like the Labour party. The Tory Entitlement, represented by Cameron, Osborne and Maude, is doing what comes naturally to them -  concluding that what's good for them is, by definition, good for the country. By extension this means, in their minds at least, that the working classes are undeserving of the privileges dispensed by Public School and Oxbridge upbringings - and need to be treated as mindless idiots. The Lower Orders don't know what's good for them and, in any event, they don't matter. Meanwhile the system is tuned to provide the already privaleged with yet more privileges.

Unfortunately for the chinless upper-class Tory twits this sense of entitlement overlooks how they got put in power in the first place - by mindless idiots. No wonder they fought for so long to prevent universal suffrage. Not only has their socially-elevated personal view of what's right and proper upset the Sun newspaper reading Conservative working-class faithful but the Daily Telegraph, Times and Sunday Times reading middle-class Tory faithful to boot. They've managed to do this by surrounding themselves with doppelgangers - those whose senses of entitlement and self-worth greatly outweigh their abilities - but fit nicely into the Realm of Privilege they foolishly believe the country should revert to. They are so convicted of this notion that nothing - nothing other than electoral annihilation - will convince them that the return to a pre first world war Establishment isn't a good thing. This is benignly described as "being out of touch".

If they were simply "out of touch" it would be a good thing. They are also vastly and unknowingly incompetent. So that makes them oblivious to how vastly incompetently out of touch they actually are - as demonstrated by David Cameron showing his common-man, Cornish Pasty-munching, fuel-hoarding, pay-to-meet, credentials with a photo-op playing BADMINTON in the back garden of No.10! He probably did this on the advice of George Osborne - a man who probably thinks that Badminton is more popular than Soccer and is certainly more popular than Cornish Pasties - at least among the people he knows.

All of this brings us to the disconnect between Entitlement Politicians and the realities of power, money and the electorate. To the Entitlement money is vulgar and it is best to leave such unsavoury things to unsavoury people. By already having all the things others covet they believe they're much better than the people that elected them and so should, naturally, be looked-up to for leadership and guidance. We're better than you and have the plummy accent to prove it. Which begs the question - who are the real mindless idiots?

Neutrino Money

Other European nations are telling Greece, Ireland, Portugal and Spain what to do - although it won't be long before they form a Monk's Circle. The US and UK are telling all the Europeans what to do and the Chinese are telling everyone what to do - as in "Culturally, you need to change your way of living and change your way of spending” - to what? Military enterprises is what.

A truly enterprising US military can go a long way towards saving the American tax-payer $698,105,000,000 a year. Once corporatized as Army Inc., Air Force Pty. or Navy Plc. and monetised by the selling of shares on the open market the income can be used to pay-down Sovereign Debt. Rather than be inefficiently run by elected politicians and appointed uniformed career apparatchiks these Military enterprises will then be guided by the prevailing Free-market conditions, driven solely by the profit motive and answerable to their stockholders. Sponsorship, Branding Rights, Product Placement and Transfer Fees would add to the cash flow. This would also provide a lot more clarity as to the real objective of their business activities. Sadly, in the present economic circumstances, China would end up owning most of the US Army, Navy and Air Force - and possibly the Italian ones as well.

It stretches the imagination to assume that the present fiscal reality is just a special case within an immutable, if somewhat increasingly nebulous, Economic Theory. Meanwhile none of those tasked with our financial survival can fix their own problems, never mind anyone else's, trapped as they are with a doctrine that demands few, if any, rules. Doing the same thing over and over again and expecting different results leads, as Einstein remarked, to insanity - and, in this case, economic melt-down. Kant introduced the analytic-synthetic distinction, in which mathematical proofs are synthetic rather than real. This applies equally to the present concept of money which is about as synthetic as it gets

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Europe needs between two to four trillion synthetic Euros or, as it might now be more reasonably described, "Neutrino Money". The issue seems to be who is going to synthetise them. The European Commission, the European Central Bank and the International Monetary Fund would appear unable to dig up someone willing to wave the magic financial wand.  Any solution involves existing money changing hands and all three letter acronyms don't have any of that available - enter CERN. By abandoning the Euro and embracing the Neutrino as the European currency money can be everywhere it is needed before anyone even knows there isn't any.
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 "A Teller says "How much do you want". A neutrino walks into a bank".

This is only possible since the Gran Sasso National Laboratory in Italy claimed to have measured particles travelling faster than light - Neutrinos from CERN are arriving 60 nanoseconds faster than the speed of light allows. This is important if true - to the unwritten, unpublished and un-peer-reviewed theory that Einstein was wrong and for the past 100 years physicists have had their heads up their asses. This theory (The Fuck Spacetime Theory) is based on the fact that nobody understands the present one and anyway it doesn't work. So QED it is wrong. If there are particles hurtling around Space faster than light then they are outside of Time and can be everywhere in the universe all at once in no time at all - at least to us. This explains the the need for physicists trapped in Einstein's Relativity Shtick to invent extra dimensions and universes in an attempt to get around the blindingly-obvious incompatibilities with Quantum Mechanics.

When pondering "entanglement" of particles one might be excused for thinking that information is crossing the universe faster than light - this could also help in explaining Dark Matter and Dark Energy. When brought, in postprandial conversation, to the attention of assorted university professors, PhDs and others trapped within the mind-binding constraints of Academia, and the Standard Model, this thought experiment is described as full of shit and that an elegant solution to the meaning of everything is at hand - without anything going faster than light.

If so "Where the fuck is Gravity then?"