"The Predator State" is the title of the latest publication by Professor James Galbraith (son of J.K.).
In the words of the man: "The Predator State refers to the takeover of state power by private interests masquerading behind conservative principle and basically acting for private clients and private profit."
This is the crux of the matter.
As The Economist states: "In a fight, the regulators have the legal power. But the financiers have the political power."
This post, which is a sequel to "¡Que Se Vayan Todos! - All Of Them Must Go" that we churned out last week, addresses the progression from where we stand now on the cusps of Depression to the Real demise ahead, and assesses the mechanics of decline as well as the paucity of intellectual robustness behind the free market capitalist model.
Reflexivity, Behavioural Economics, Psychopathic Personality Disorders, Fractal Mathematics, an Analysis of Shadow Banking and Markets, the Instability of Government Finances, the Black Market, Global Regulation, and Darwinism and Markets are all incorporated into a Collective Scenario Analysis of the state of play.
And we use the word "play" deliberately.
For that is what this crisis represents to the insiders - a game, a competitive and volatile opportunity where serious money may be made by correct market timing.
Ah! The Dichotomy of the Insider - informing all and sundry that everything is hunky dory when, in Reality, Hanky Panky and his hocus pocus ensured that everything is, in fact, Something Awful.
Friedman Is Fixed
Icelander, Gudrun Jonsdothir: "I don't trust the government, I don't trust the banks, I don't trust the political parties, I don't trust the IMF."
Marching Italian students: "We won't pay for your crisis."
The whole unsound foundation of the idiocies of Milton Friedman and the free market model is based on neoclassical economics.
This is a pseudoscience.
We might as well base our financial system on readings of the I Ching.
Neoclassical free market sorts base the fake solidity of their ideas on the rationality of the marketplace.
This is inadequate for two reasons.
Firstly, human beings are hardly rational and, secondly, by allowing an anything-goes environment, individuals with psychopathic and antisocial personality disorders (APDs/ PPDs) come to dominate the system.
Hence, there is a systemic instability in the model.
George Soros on Reflexivity: "... a two-way feedback loop, between the participants' views and the actual state of affairs. People base their decisions not on the actual situation that confronts them, but on their perception or interpretation of the situation. Their decisions make an impact on the situation and changes in the situation are liable to change their perceptions."
But, this is only part of the Real Reality.
Behavioural Economics originated over forty years ago but is only now being taken seriously by some of the more enlightened free market ideologues. Greed and stupidity blinded this myopic grouping to the true state of the game for nearly half a century.
As one may see, free market economics is most certainly not a science, dismal or otherwise.
Neither is is an art or an -ology.
It is a scam - a Giant Pyramid Ponzi scheme for the enrichment of the privileged and the psychopathic.
We are all a bundle of different personality styles and disorders. Each particular style/disorder possesses its own portfolio of associated perversions of rationality.
Magic Thinking, the Representativeness Effect, Adaptive Attitudes, Regret Theory, Cognitive Dissonance etc etc etc all combine to produce a cumulative effect.
Although individually these cumulations are, largely, neither here nor there, in accumulation, the mass psychology of the marketplace is something altogether more worrying.
So, when a system is primed for the advancement of individuals with APDs and PPDs, the result is a spiralling of the behavioural attributes linked to such characters.
Soros argues that the "market fundamentalism" of Alan Greenspan and his ilk, especially their assumption that "financial markets are self-correcting", was an important cause of the current crisis.
We would go further than this.
Friedmanism was the ONLY cause of this Depression.
The Here and Now
We have covered the present in the prequel to this monologue but there are two other infrastructural inadequacies to which we would like to draw your, no doubt, already waning attention.
Firstly, let us return to the deep thinking of the good Prof Galbraith.
The fiscal stimuli being rolled out globally will not work unless the banking stimuli work. Furthermore, for the latter to be addressed on any level, a meticulous audit of the banking assets needs to be undertaken before any government takes on such toxicity. The taxpayer must not take full responsibility for the psychopathy of the financial sector.
For, when you are dealing with a bank that is already underwater then "the risk capital is worth nothing. It [the bank] is being held up only by the expectation of Federal bailout."
The Reality is that many US, British and other global banks may already be insolvent.
Galbraith: "But so long as you're dealing with the old management and so long as you're dealing with old practices, so long as you don't have a clean audit of the books, the chances are that the bank is going to behave in ways that are not constructive, which do not contribute to the growth of the economy, and which leave all types of suspicions present in the system about the integrity of the institutions and of the regulatory process. And that's the problem that the Treasury Department seems determined not to face. And so long as it doesn't face it, we're not going to get out of this."
The second infrastructural fallacy of the free market is represented by the IMF - the International Misery Fund.
The US and its client state, the United Kingdom, dominate the IMF with their free market principles (sic). By forcing indebted countries to accept Friedman, the IMF ensures that financial crises will repeatedly return to haunt us.
Due to the psychopathic capital flows globally, ALL poor countries must build up reserves and savings to insure against the boom-and-bust cycles that Slack Jaw told us that he had terminated.
These savings are then regarded as a problem by the IMF as they distort, in their eyes, the various current account balances around the world.
The poorest people are supposed to get out there and spend and take risk so that those at the top of the Ponzi scheme may continue with their greed.
But people, and even governments, learn.
Consequently, the Most Idiotic are currently blaming China for both saving more and being less reckless. The Most Idiotic claim that the Chinese yuan is grossly undervalued (it isn't - all reasonable economists would agree that any undervaluation is less than 5%, and this miniscule matter has absolutely no relevance to the Reality).
For, as The Economist states: "The currencies of virtually all low income countries are undervalued, since prices are generally lower in these countries."
Then the ideologues at the paper get onto a sticky wicket regarding their fallacy of purchasing power parity (PPP). But things progress. At least, The Economist now regard PPP as merely an "idea" rather than immutable theory.
Although the Reagan, Bush and Clinton Regimes must bear the primary responsibility for the Depression, ObamaWorld hardly offers any respite.
Despite the inadequacies of the fiscal approaches, the same class of ideologue are making the same choices based on the same invalid model.
It is interesting aside here to note that nothing has changed under the Agent of Change.
Noam Chomsky: "As for current policies, I think Obama looks more aggressive and violent than Bush. The first acts to occur under his administration were attacks against Afghanistan and in Pakistan, both of which killed many civilians."
Oh! And the silence over the slaughter in Gaza.
If Obama were Black, he might choose to focus on Real change closer to home rather than illegal campaigns against "friendly" nations.
As the excellently named Benjamin Jealous of the National Association for the Advancement of Coloured (sic) People (NAACP) says: "Young Black people in the US are the most incarcerated people in the world."
The Predator State better elect a black man then...
The Onset Of The Real Depression
The parallels between 1929 and today are ominously expansive, both in the form of the crisis and in the lack of an holistic response to the crisis.
As we have stated before, the only difference is one of orders of magnitude.
We were being economic with the truth here.
There is another major difference - the specifics of the mechanism that will engender the full-blown Depression.
In 1929, market traders were dependent the ticker-tape. In a pre-IT world, all trades were manually recorded by armies of under-privileged people. There was no other option.
When the Crash occurred, the ticker-tape operators were unable to keep up with the tsunami of "sell" orders. Consequently, the ticker-tape started to fall behind time. Traders (and normal human beings too) were selling stock without being able to gauge the price at which they were selling their assets, as the prices were out-of-date and everybody understood that there was a run on.
This led to Panic.
This led to various Behavioural Exponentialities being energised.
The Panic became a self-fulfilling process.
But, let us step back a pace or two and take a bigger picture overview of this situation.
When the monster from the deep was first checking out the crisis in 1929, the historical equivalents of the financial elite (sic, once again) moved in to support the market.
Quoting from J.K. Galbraith in his book "The Great Crash 1929": "A decision was quickly reached to pool resources to support the market... Word had already reached the floor of the Exchange that the bankers were meeting, and the news ticker had spread the magic word afield. Prices firmed at once and started to rise. Then at one-thirty Richard Whitney [the vice-president of the Exchange] appeared on the floor and went to the post where steel was traded. Whitney was perhaps the best-known figure on the floor... As he made his way through the teeming crowd, Whitney appeared debonair and self-confident... At the Steel post he bid 205 for 10,000 shares... He continued on his way, placing similar orders for fifteen or twenty other stocks. This was it. The bankers, obviously, had moved in. The effect was electric. Fear vanished and gave way to concern lest the new advance was missed. Prices boomed upwards."
Exactly the same process is being attempted in today's computerised trading environment. In Britain, officials are buying into the market to inflate prices - the FTSE 100 is 5% inflated in this neoreality.
The next part of the story is of far greater concern and represents the Real beginning of a proper Crash, Noughties-Style.
In 1929, the officials who bought into the markets to inflate prices and to establish a positive psychology in the marketplace had a self-preservatory ace up their collective sleeves.
These officials understood that Finance Was Fixed.
These officials knew that the fake rise in prices was temporary and hyperreal.
These officials knew that, at some point, there was a selling opportunity to lock their own profits in, while driving the rest of the market to rack and ruin.
These officials profited by utilising the inadequacies of the ticker-tape.
Once the operators at the top of the Ponzi scheme decided that the fake price summit had been reached, they sold across the board and extensively.
The next layer of insiders below reacted similarly.
But the ticker-tape meant that the Reality was lost on the general trading population until it was too late.
Exactly the same mechanism has been put in place today.
The recent establishment of Dark Pools, where huge levels of institutional trading are taking place both off-exchange and away from any regulation whatsoever, are the modern-day ticker-tape. Dark Pools facilitate insider trading without any of the regulatory rigours of the Commitment of Traders Reports.
Once officials start to short-sell their illusory positions in the marketplace, there will be a time-asymmetry between these insiders and the rest of the planet. The Real price (although there is, in Reality, no such publicly available price) will be hidden from the market until, once again, it is too late.
The Friedmanists will continue to game the Depression for proprietary profit.
The Dark Pools and the associated Shadow Banking System (Offshore Financial Centres and the like) are the mechanisms.
Impostures new...
And we, through our Predator States, are paying for this ruse - we are buying the poker chips that are being traded in the Dark Pool Casino.
The timing of the Ponzi sell-off is difficult to determine without access to the hidden pricing system of the Dark Pools (effectively non-regulated private markets equivalent to those that have destroyed the integrity of football).
American banks have exposures to Alt-A mortgages (one level up from sub-prime) equivalent to $800 billion, for example. As Guy Cecala of Inside Mortgage Finance states: "The mortgage storm's first wave was sub-prime. Now we have been buffeted by Alt-A. But a bigger wave is on the horizon, and it cuts across all loan types."
But, whatever the trigger, we should rest assured that the insiders who created this Depression will also profit nicely from it's eventual formation as a full-blown Crash.
_____________________________________________________________________________________
As is rather too frequently the case, keyboard diarrhoea (I love the sound of my own keys!?) has resulted in my having to delay an assessment of the role of Darwinism and the conclusion of this rather excellent post until a later date.
But it will be worth waiting for as it will be an entirely top conclusion that will alter the way that you think about your hyperrealities.
It will be a Big Thought :)
Forget our arrogance.
Feed on our arguments.
© Football Is Fixed/Dietrological
In the words of the man: "The Predator State refers to the takeover of state power by private interests masquerading behind conservative principle and basically acting for private clients and private profit."
This is the crux of the matter.
As The Economist states: "In a fight, the regulators have the legal power. But the financiers have the political power."
This post, which is a sequel to "¡Que Se Vayan Todos! - All Of Them Must Go" that we churned out last week, addresses the progression from where we stand now on the cusps of Depression to the Real demise ahead, and assesses the mechanics of decline as well as the paucity of intellectual robustness behind the free market capitalist model.
Reflexivity, Behavioural Economics, Psychopathic Personality Disorders, Fractal Mathematics, an Analysis of Shadow Banking and Markets, the Instability of Government Finances, the Black Market, Global Regulation, and Darwinism and Markets are all incorporated into a Collective Scenario Analysis of the state of play.
And we use the word "play" deliberately.
For that is what this crisis represents to the insiders - a game, a competitive and volatile opportunity where serious money may be made by correct market timing.
Ah! The Dichotomy of the Insider - informing all and sundry that everything is hunky dory when, in Reality, Hanky Panky and his hocus pocus ensured that everything is, in fact, Something Awful.
Friedman Is Fixed
Icelander, Gudrun Jonsdothir: "I don't trust the government, I don't trust the banks, I don't trust the political parties, I don't trust the IMF."
Marching Italian students: "We won't pay for your crisis."
The whole unsound foundation of the idiocies of Milton Friedman and the free market model is based on neoclassical economics.
This is a pseudoscience.
We might as well base our financial system on readings of the I Ching.
Neoclassical free market sorts base the fake solidity of their ideas on the rationality of the marketplace.
This is inadequate for two reasons.
Firstly, human beings are hardly rational and, secondly, by allowing an anything-goes environment, individuals with psychopathic and antisocial personality disorders (APDs/ PPDs) come to dominate the system.
Hence, there is a systemic instability in the model.
George Soros on Reflexivity: "... a two-way feedback loop, between the participants' views and the actual state of affairs. People base their decisions not on the actual situation that confronts them, but on their perception or interpretation of the situation. Their decisions make an impact on the situation and changes in the situation are liable to change their perceptions."
But, this is only part of the Real Reality.
Behavioural Economics originated over forty years ago but is only now being taken seriously by some of the more enlightened free market ideologues. Greed and stupidity blinded this myopic grouping to the true state of the game for nearly half a century.
As one may see, free market economics is most certainly not a science, dismal or otherwise.
Neither is is an art or an -ology.
It is a scam - a Giant Pyramid Ponzi scheme for the enrichment of the privileged and the psychopathic.
We are all a bundle of different personality styles and disorders. Each particular style/disorder possesses its own portfolio of associated perversions of rationality.
Magic Thinking, the Representativeness Effect, Adaptive Attitudes, Regret Theory, Cognitive Dissonance etc etc etc all combine to produce a cumulative effect.
Although individually these cumulations are, largely, neither here nor there, in accumulation, the mass psychology of the marketplace is something altogether more worrying.
So, when a system is primed for the advancement of individuals with APDs and PPDs, the result is a spiralling of the behavioural attributes linked to such characters.
Soros argues that the "market fundamentalism" of Alan Greenspan and his ilk, especially their assumption that "financial markets are self-correcting", was an important cause of the current crisis.
We would go further than this.
Friedmanism was the ONLY cause of this Depression.
The Here and Now
We have covered the present in the prequel to this monologue but there are two other infrastructural inadequacies to which we would like to draw your, no doubt, already waning attention.
Firstly, let us return to the deep thinking of the good Prof Galbraith.
The fiscal stimuli being rolled out globally will not work unless the banking stimuli work. Furthermore, for the latter to be addressed on any level, a meticulous audit of the banking assets needs to be undertaken before any government takes on such toxicity. The taxpayer must not take full responsibility for the psychopathy of the financial sector.
For, when you are dealing with a bank that is already underwater then "the risk capital is worth nothing. It [the bank] is being held up only by the expectation of Federal bailout."
The Reality is that many US, British and other global banks may already be insolvent.
Galbraith: "But so long as you're dealing with the old management and so long as you're dealing with old practices, so long as you don't have a clean audit of the books, the chances are that the bank is going to behave in ways that are not constructive, which do not contribute to the growth of the economy, and which leave all types of suspicions present in the system about the integrity of the institutions and of the regulatory process. And that's the problem that the Treasury Department seems determined not to face. And so long as it doesn't face it, we're not going to get out of this."
The second infrastructural fallacy of the free market is represented by the IMF - the International Misery Fund.
The US and its client state, the United Kingdom, dominate the IMF with their free market principles (sic). By forcing indebted countries to accept Friedman, the IMF ensures that financial crises will repeatedly return to haunt us.
Due to the psychopathic capital flows globally, ALL poor countries must build up reserves and savings to insure against the boom-and-bust cycles that Slack Jaw told us that he had terminated.
These savings are then regarded as a problem by the IMF as they distort, in their eyes, the various current account balances around the world.
The poorest people are supposed to get out there and spend and take risk so that those at the top of the Ponzi scheme may continue with their greed.
But people, and even governments, learn.
Consequently, the Most Idiotic are currently blaming China for both saving more and being less reckless. The Most Idiotic claim that the Chinese yuan is grossly undervalued (it isn't - all reasonable economists would agree that any undervaluation is less than 5%, and this miniscule matter has absolutely no relevance to the Reality).
For, as The Economist states: "The currencies of virtually all low income countries are undervalued, since prices are generally lower in these countries."
Then the ideologues at the paper get onto a sticky wicket regarding their fallacy of purchasing power parity (PPP). But things progress. At least, The Economist now regard PPP as merely an "idea" rather than immutable theory.
Although the Reagan, Bush and Clinton Regimes must bear the primary responsibility for the Depression, ObamaWorld hardly offers any respite.
Despite the inadequacies of the fiscal approaches, the same class of ideologue are making the same choices based on the same invalid model.
It is interesting aside here to note that nothing has changed under the Agent of Change.
Noam Chomsky: "As for current policies, I think Obama looks more aggressive and violent than Bush. The first acts to occur under his administration were attacks against Afghanistan and in Pakistan, both of which killed many civilians."
Oh! And the silence over the slaughter in Gaza.
If Obama were Black, he might choose to focus on Real change closer to home rather than illegal campaigns against "friendly" nations.
As the excellently named Benjamin Jealous of the National Association for the Advancement of Coloured (sic) People (NAACP) says: "Young Black people in the US are the most incarcerated people in the world."
The Predator State better elect a black man then...
The Onset Of The Real Depression
The parallels between 1929 and today are ominously expansive, both in the form of the crisis and in the lack of an holistic response to the crisis.
As we have stated before, the only difference is one of orders of magnitude.
We were being economic with the truth here.
There is another major difference - the specifics of the mechanism that will engender the full-blown Depression.
In 1929, market traders were dependent the ticker-tape. In a pre-IT world, all trades were manually recorded by armies of under-privileged people. There was no other option.
When the Crash occurred, the ticker-tape operators were unable to keep up with the tsunami of "sell" orders. Consequently, the ticker-tape started to fall behind time. Traders (and normal human beings too) were selling stock without being able to gauge the price at which they were selling their assets, as the prices were out-of-date and everybody understood that there was a run on.
This led to Panic.
This led to various Behavioural Exponentialities being energised.
The Panic became a self-fulfilling process.
But, let us step back a pace or two and take a bigger picture overview of this situation.
When the monster from the deep was first checking out the crisis in 1929, the historical equivalents of the financial elite (sic, once again) moved in to support the market.
Quoting from J.K. Galbraith in his book "The Great Crash 1929": "A decision was quickly reached to pool resources to support the market... Word had already reached the floor of the Exchange that the bankers were meeting, and the news ticker had spread the magic word afield. Prices firmed at once and started to rise. Then at one-thirty Richard Whitney [the vice-president of the Exchange] appeared on the floor and went to the post where steel was traded. Whitney was perhaps the best-known figure on the floor... As he made his way through the teeming crowd, Whitney appeared debonair and self-confident... At the Steel post he bid 205 for 10,000 shares... He continued on his way, placing similar orders for fifteen or twenty other stocks. This was it. The bankers, obviously, had moved in. The effect was electric. Fear vanished and gave way to concern lest the new advance was missed. Prices boomed upwards."
Exactly the same process is being attempted in today's computerised trading environment. In Britain, officials are buying into the market to inflate prices - the FTSE 100 is 5% inflated in this neoreality.
The next part of the story is of far greater concern and represents the Real beginning of a proper Crash, Noughties-Style.
In 1929, the officials who bought into the markets to inflate prices and to establish a positive psychology in the marketplace had a self-preservatory ace up their collective sleeves.
These officials understood that Finance Was Fixed.
These officials knew that the fake rise in prices was temporary and hyperreal.
These officials knew that, at some point, there was a selling opportunity to lock their own profits in, while driving the rest of the market to rack and ruin.
These officials profited by utilising the inadequacies of the ticker-tape.
Once the operators at the top of the Ponzi scheme decided that the fake price summit had been reached, they sold across the board and extensively.
The next layer of insiders below reacted similarly.
But the ticker-tape meant that the Reality was lost on the general trading population until it was too late.
Exactly the same mechanism has been put in place today.
The recent establishment of Dark Pools, where huge levels of institutional trading are taking place both off-exchange and away from any regulation whatsoever, are the modern-day ticker-tape. Dark Pools facilitate insider trading without any of the regulatory rigours of the Commitment of Traders Reports.
Once officials start to short-sell their illusory positions in the marketplace, there will be a time-asymmetry between these insiders and the rest of the planet. The Real price (although there is, in Reality, no such publicly available price) will be hidden from the market until, once again, it is too late.
The Friedmanists will continue to game the Depression for proprietary profit.
The Dark Pools and the associated Shadow Banking System (Offshore Financial Centres and the like) are the mechanisms.
Impostures new...
And we, through our Predator States, are paying for this ruse - we are buying the poker chips that are being traded in the Dark Pool Casino.
The timing of the Ponzi sell-off is difficult to determine without access to the hidden pricing system of the Dark Pools (effectively non-regulated private markets equivalent to those that have destroyed the integrity of football).
American banks have exposures to Alt-A mortgages (one level up from sub-prime) equivalent to $800 billion, for example. As Guy Cecala of Inside Mortgage Finance states: "The mortgage storm's first wave was sub-prime. Now we have been buffeted by Alt-A. But a bigger wave is on the horizon, and it cuts across all loan types."
But, whatever the trigger, we should rest assured that the insiders who created this Depression will also profit nicely from it's eventual formation as a full-blown Crash.
_____________________________________________________________________________________
As is rather too frequently the case, keyboard diarrhoea (I love the sound of my own keys!?) has resulted in my having to delay an assessment of the role of Darwinism and the conclusion of this rather excellent post until a later date.
But it will be worth waiting for as it will be an entirely top conclusion that will alter the way that you think about your hyperrealities.
It will be a Big Thought :)
Forget our arrogance.
Feed on our arguments.
© Football Is Fixed/Dietrological