May the source be with you, but remember the KISS principle ;-)
Bigger doesn't imply better. Bigger often is a sign of obesity, of lost control, of overcomplexity, of cancerous
Financial Sector Induced Systemic Instability of Economy
While I believe in usefulness of capital markets, it is clear that they are double edge sword and
that banks "in a long run" tend to behave like
Mr. Capone may have something to say about danger of banks :-).That means that growth of
financial sector represents a direct threat to the stability of the society. Positive feedback loops
creates one financial crisis after another with the increasing magnitude leading up to a collapse of
financial system like happened in 1927 and 2008.
"Minsky's financial instability hypothesis depends critically on what amounts to a sociological
insight. People change their minds about taking risks. They don't make a one-time rational
judgment about debt use and stock market exposure and stick to it. Instead, they change their
minds over time. And history is quite clear about how they change their minds. The
longer the good times endure, the more people begin to see wisdom in risky strategies."
The Cost of Capitalism: Understanding Market Mayhem and Stabilizing our
Economic Future, by Robert Barbera
The flaw with Capitalism is that it creates its own positive feedback loop, snowballing to
the point where the accumulation of wealth and power hurts people — eventually even those at the
top of the food chain. ”
Banks are a clear case of market failure and their employees at the senior level have
basically become the biggest bank robbers of all time. As for basing pay on current revenues
and not profits over extended periods of time, then that is a clear case of market failure --
The banksters have been able to sell the “talent” myth to justify their outsized pay
because they are the only ones able to deliver the type of GDP growth the U.S. economy needs in
the short term, even if that kills the U.S. economy in the long term. You’ll be gone, I’ll be
Unfortunately, many countries go broke pursuing war, if not financially, then morally (are
the two different? – this post suggests otherwise).
I occurs to me that the U.S. is also in
that flock; interventions justified by grand cause built on fallacy, the alpha and omega of failure.
Is the financial apparatchik (or Nomenklatura, a term I like which, as many from the Soviet era,
succinctly describes aspects of our situation today) fated also to the trash heap, despite the
best efforts of the Man of the hour, Ben Bernanke?
Financialization is a Damocles sword hanging over the neoliberal society
While I believe in usefulness of capital markets, it is clear that they are double edge sword and
that banks "in a long run" tend to behave like
Mr. Capone may have something to say about danger of banks :-).That means that growth of financial
sector represents a direct threat to the stability of the society (Keynesianism
and the Great Recession )
Without adult supervision, as it were, a financial sector that was already inherently unstable
went wild. When the subprime assets were found to be toxic since they were based on mortgages on
which borrowers had defaulted, highly indebted or leveraged banks that had bought these now
valueless securities had little equity to repay their creditors or depositors who now came after
them. This quickly led to their bankruptcy, as in the case of Lehman Brothers, or to their being
bailed out by government, as was the case with most of the biggest banks. The finance sector
froze up, resulting in a recession—a big one—in the real economy.
Neoliberal revolution, or, as Simon Johnson called it after "quite coup" (Atlantic),
brought political power to the financial oligarchy deposed after the New Deal. Deregulation
naturally followed, with especially big role played by corrupt Clinton administration. Positive feedback loops creates one financial crisis after another with the
increasing magnitude. "Saving and loans" crisis followed by dot-com crisis of 2000, which in
turn followed by the collapse of financial system in 2008, which looks somewhat similar to what
happened in 1927. No prominent financial honcho, who was instrumental in creating "subprime
crisis" was jailed. Most remained filthy rich.
Unless the society puts severe limits on their actions like was done during New Deal,
financial firms successfully
subvert the regulation mechanisms and take the society hostage. But periodic purges with relocation
of the most active promoters of "freedom for banks" (aka free market fundamentalism) under the smoke
screen of "free market" promotion does not solve the problem of positive feedback loops that banks create
by mere existence. That's difficult to do while neoliberal ideology and related neoclassical economy
dominates the society thinking (via brainwashing), with universities playing especially negative
role -- most of economics departments are captured by neoliberals who censor any heretics. So year
after year brainwashing students enter the society without understanding real dangers that
neoliberalism brought for them. Including lack of meaningful employment opportunities.
Of course, most of high level officers of leading finance institutions which caused the crisis of
2008-2009 as a psychological type are as close to gangsters as one can get. But there is
something in their actions that does not depend on individual traits (although many of them
definitely can be classified as psychopaths), and is more related to their social position.
This situation is somewhat similar to Bolsheviks coup d'état of 1917 which resulted in capturing
Russia by this ideological sect. And in this sense quite coupe of 1980 is also irreversible in
the same sense as Bolsheviks revolution was irreversible: the "occupation" of the country by a
fanatical sect lasts until the population rejects the ideology with its (now apparent) utopian
Bolshevism which lasted
75 years, spend in such zombie state the last two decades (if we assume 1991 as the year of death of
Bolshevism, its ideology was dead much earlier -- the grave flaws in it were visible from late 60th,
if not after the WWII). But only when their ideology was destroyed both by inability to raise the standard of living
of the population and by the growing neoliberal ideology as an alternative (and a new, more powerful then Marxism high-demand
cult) Bolsheviks started to lose the grip on their power in the country. As a result Bolsheviks lost the power
only in 1991, or more correctly switched camps and privatized the country. If not inaptness of their
last General Secretary, they probably could last more. In any case after the ideology collapsed, the
USSR disintegrated (or more correctly turn by national elites, each of which wanted their peace of
The sad truth is that the mere growth of financial sector creates additional positive feedback loops
and increases structural instability within both the financial sector itself and the society at large.
Dynamic systems with strong positive feedback loops not compensated by negative feedback loops are unstable.
As a result banks and other financial institution periodically generate a deep, devastating crisis.
This is the meaning of famous Hyman Minsky phrase "stability is destabilizing".
In other words, financial apparatchiks (or Financial Nomenklatura, a term from the Soviet era, which
succinctly describes aspects of our situation today) drive the country off the cliff because they do
not have any countervailing forces, by the strength of their political influence and unsaturable
greed. Although the following
analogy in weaker then analogy with dynamic systems with positive feedback loops, outsized financial
sector can be viewed in biological terms as cancer.
known medically as a malignantneoplasm, is a broad group of
diseases involving unregulated
cell growth. In cancer,
cells divide and grow
uncontrollably, forming malignant tumors, and invading nearby parts of the body. The cancer may also
spread to more distant parts
of the body through the lymphatic system
or bloodstream. Not all tumors
are cancerous; benign tumors
do not invade neighboring tissues and do not spread throughout the body. There are over 200 different
known cancers that affect humans.
Like certain types of cancer they depend of weakening "tumor suppressor genes" (via "Quiet
coup" mechanism of acquiring dominant political power) which allow then to engage in uncontrolled growth, destroying
healthy cells (and first of all local manufacturing).
The other suspicion is the unchecked financialization always goes too far and the last N
percent of financial activity absorbs much more resources (especially intellectual resources) and
creates more potential instability than its additional efficiency-benefits (often zero or negative) can justify. It is hard
to imagine that a Hedge Fund Operator of the Year does anything that is even remotely socially useful to justify his
enormous (and lightly taxed) compensation. It is pure wealth redistribution up based on political domination
of financial oligarchy. Significant vulnerabilities within the shadow banking system and
derivatives are plain vanilla socially destructive. Yet they persist due to inevitable political power
grab by financial oligarchy (Quiet coup).
Again, I would like to stress that this problem of the oversized financial sector which produces
one devastating crisis after another
is closely related to the problem of a positive feedback loops. And the society in which banks are given
free hand inevitably degrades into "socialism for banks" or "casino
capitalism" -- a type of
neoliberalism with huge
inequality and huge criminality of top banking officers.
Whether we can do without private banks is unclear, but there is sound evidence that unlike growth
of manufacturing, private financial sector growth is dangerous for the society health and perverts society
goals. Like cult groups the financial world does a terrific job of "shunning" the principled individuals
and suppressing dissent (by capturing and cultivating neoliberal stooges in all major university
departments and press),
so self-destructing tendencies after they arise can't be stopped within the framework of
neoliberalism. In a way financial
firm is like sociopath inevitable produces its trail of victims (and sociopaths might be useful in battles exactly due
to the qualities such as ability to remain cool in dangerous situation, that make them dangerous in the normal course of events).
This tendency of society with unregulated or lightly regulated financial sector toward self-destruction
was first formulated as "Minsky instability hypothesis" --
and outstanding intellectual achievement of American economic Hyman Minsky (September 23, 1919 –
October 24, 1996). Who BTW was pretty much underappreciated (if not suppressed) during his lifetime because his views
were different from orthodox (and false) neoclassic economic theory which dominates US universities,
Like flat Earth theory was enforce by Catholic church before, it is fiercely enforced by an army of well paid neoliberal economics, those
Jesuits of modern era. Who prosecute heretics who question flat Earth theory even more efficiently then
their medieval counterparts; the only difference is that they do not burn the literally, only
Former Washington University in St. Louis economics professor Hyman P. Minsky had predicted the
Great Recession decades before it happened. Hyman Minsky was a real student of the Great
Depression, while Bernanke who widely is viewed as a scholar who studied the Great Depression, in
reality was a charlatan, who just tried to explain the Great Depression from the positions of
neo-classical economy. That's a big difference.
Minsky instability hypothesis ("stability is destabilizing" under capitalism) that emerged from
his analysis of the Great Depression was based on intellectual heritage of three great thinkers in
economics (my presentation is partially based on an outstanding lecture by Steve Keen Lecture 6 on Minsky, Financial
Instability, the Great Depression & the Global Financial Crisis). We can talk about
three source of influence, there authors writing of which touched the same subject from similar
positions and were the base of Hyman Minsky great advance in understanding of mechanics of
development of financial crisis under capitalism and the critical role of financial system in it
(neoclassical economics ignores the existence of financial system in its analysis):
Minsky didn't follow the conventional version of Marxism . And it was dangerous for him to
do so due to McCarthysm. Even mentioning of Marx might lead to strakism fromthe academy those years.
McCarthy and his followers in academy did not understand the difference between Marx great analysis
of capitalism and his utopian vision of the future. Impliedly this witch hunt helped to establish
hegemony of neoclassical economy in economic departments in the USA.
While Minsky did not cited Marx in his writings and did use Marx's Labor Theory of Value his
thinking was definitely influenced by Marx’s critique of finance. We now know that he read and
admired the Capital. And that not accidental due to the fact that his parents were Mensheviks -- a
suppressed after Bolshevik revolution more moderate wing of Russian Social Democratic Party that
rejected the idea of launching the socialist revolution in Russia -- in their opinion Russia
needed first to became a capitalist country and get rid of remnants of feudalism. They escaped from
Soviet Russia when Mensheviks started to be prosecuted by Bolsheviks.
And probably the main influence on Minsky was not Marx's discussion of finance in Volume I of Capital
with a "commodity" model of money, but critical remarks scattered in Volumes II & III
(which were not edited by Marx by compiled posthumously by Engels), where he was really critical of
big banks as well as Marx's earlier works (Grundrisse,
Theories of Surplus Value) where Marx was scathing about finance:
"A high rate of interest can also indicate, as it did in 1857, that the country is undermined
by the roving cavaliers of credit who can afford to pay a high interest because they pay it out
of other people's pocket* (whereby, however, they help to determine the rate of interest
for all) and meanwhile they live in grand style on anticipated profits.
The second source on which Minsky based his insights was Irving Fisher. Irving Fisher’s
reputation destroyed by wrong predictions on stock market prices. In aftermath, developed theory to
explain the crash and published it in his book "The Debt Deflation Theory of Great
Depressions". His main points are:
Neoclassical theory assumed equilibrium but any real world equilibrium will be short-lived
"New disturbances are, humanly speaking, sure to occur, so that, in actual fact, any
variable is almost always above or below the ideal equilibrium."
Theoretically... there must be—over-or under-production, over- or under-consumption,..., and
over or under everything else.
It is as absurd to assume that, for any long period of time, the variables in the economic
organization, or any part of them, will "stay put," in perfect equilibrium, as to assume that the
Atlantic Ocean can ever be without a wave." (1933:339)
According to Fisher two key disequilibrium forces that push economic into the next economic
crisis are debt and subsequent deflation
The "two dominant factors" which cause depressions are "over-indebtedness to start with and
deflation following soon after"
"Thus over-investment and over-speculation are often important; but they would have far less
serious results were they not conducted with borrowed money.
That is, over-indebtedness may lend importance to over-investment or to over-speculation. The
same is true as to over-confidence.
I fancy that over-confidence seldom does any great harm except when, as, and if, it beguiles
its victims into debt." (Fisher 1933: 341; emphasis added!)
A chain reaction when overconfidence leads to over-indebtedness: Debt liquidation leads to
Joseph Schumpeter was Joseph Schumpeter has more positive view of capitalism than the other two. He authored the theory
of creative destruction as a path by which capitalism achieves higher and higher productivity.
He capitalism as necessarily unstable, but for him this was a positive feature --
instability of capitalism the source of its creativity. His view of capitalism was highly dynamic
and somewhat resembles the view of Marx (who also thought that capitalism destroys all previous
order and create a new one):
Entrepreneurs profit by disrupting "equilibrium" of system
Finance plays essential role here by enabling entrepreneurs
To Schumpeter, entrepreneurs are people with good ideas but no money
To turn ideas into disruptive products or processes they resort to borrowing from banks
Boom caused by investment phase of entrepreneurs. New entrepreneurs undermine old or rival
products. Successful entrepreneurs repay debt, reducing money supply
In this sense the success (boom) carry the seeds of the subsequet bust because with the
success of "pioneers" draw other into thi same market and banks are more willing to finance them
seeing the success of pioneers. But when too many similar products are financed and hit the
market they create the glut and entrepreneurs who ere late to the party are unable to pay the
debts and go bankrupt desire the fact that might have superiors products (but not superior
enough). Slump caused when excessive products hit the market and there are not enough buyers.
Debt deflation follows.
Unlike Marx, who thought that the periodic crisis of overproduction is the source of
instability (as well as gradual absolute impoverishment of workers), Minsky assumed that the
key source of that instability of capitalist system is connected with the cycles of business
borrowing and fractional bank lending, when "good times" lead to excessive borrowing leading to high
leverage and overproduction and thus to eventual debt crisis (The
Alternative To Neoliberalism ):
Minsky on capitalism:
He followed Marx stating that "capitalism is inherently flawed, being prone to booms, crises
This instability is due to characteristics the financial system must possess and will
inevitably acquire, if it is to be consistent with full-blown capitalism.
Such a financial system will be capable of both generating signals that induce an accelerating
desire to invest and of financing that accelerating investment." (Minsky 1969b: 224)
“The natural starting place for analyzing the relation between debt and income is to take
an economy with a cyclical past that is now doing well.
The inherited debt reflects the history of the economy, which includes a period in the not
too distant past in which the economy did not do well.
Acceptable liability structures are based upon some margin of safety so that expected cash
flows, even in periods when the economy is not doing well, will cover contractual debt payments.
As the period over which the economy does well lengthens, two things become evident in board
rooms. Existing debts are easily validated and units that were heavily in debt prospered; it paid
to lever." (65)
It becomes apparent that the margins of safety built into debt structures were too great.
ans should be reduced...
As a result, over a period in which the economy does well, views about acceptable debt
structure change. In the dealmaking that goes on between banks, investment bankers, and businessmen,
the acceptable amount of debt to use in financing various types of activity and positions increases.
This increase in the weight of debt financing raises the market pnce of capital assets and
increases investment. As this continues the economy is transformed into a boom economy... ” (65)
This transforms a period of tranquil growth into a period of speculative excess
“Stable growth is inconsistent with the manner in which investment is determined in an economy
in which debt-financed ownership of capital assets exists, and the extent to which such debt financing
can be carried is market determined.
It follows that the fundamental instability of a capitalist economy is upward.
The tendency to transform doing well into a speculative investment boom is the basic instability
in a capitalist economy." (65)
The idea of Minsky moment is related to the fact that the fractional reserve banking periodically
causes credit collapse when the leveraged credit expansion goes into reverse. And mainstream economists
do not want to talk about the fact that increasing confidence breeds increased leverage. So financial
stability breeds instability and subsequent financial crisis. All actions to guarantee a market rise,
ultimately guarantee it's destruction because greed will always take advantage of a "sure thing" and
push it beyond reasonable boundaries. In other words, marker players are no rational and assume
that it would be foolish not to maximize leverage in a market which is going up. So the fractional
reserve banking mechanisms ultimately and ironically lead to over lending and guarantee the subsequent
crisis and the market's destruction. Stability breed instability.
That means that fractional reserve banking based economic system with private players (aka capitalism)
is inherently unstable. And first of all because fractional reserve banking is debt based. In
order to have growth it must create debt. Eventually the pyramid of debt crushes and crisis hit. When
the credit expansion fuels asset price bubbles, the dangers for the financial sector and the real economy
are substantial because this way the credit boom bubble is inflated which eventually burst. The damage
done to the economy by the bursting of credit boom bubbles is significant and long lasting.
«When credit growth fuels asset price bubbles, the dangers for the financial sector and
the real economy are much more substantial.»
So M Minsky 50 years ago and M Pettis 15 years ago (in his "The volatility machine") had it
right? Who could have imagined! :-)
«In the past decades, central banks typically have taken a hands-off approach to asset
price bubbles and credit booms.»
If only! They have been feeding credit-based asset price bubbles by at the same time weakening
regulations to push up allowed capital-leverage ratios, and boosting the quantity of credit as
high as possible, but specifically most for leveraged speculation on assets, by allowing vast-overvaluations
on those assets.
Central banks have worked hard in most Anglo-American countries to redistribute income and
wealth from "inflationary" worker incomes to "non-inflationary" rentier incomes via hyper-subsidizing
with endless cheap credit the excesses of financial speculation in driving up asset prices.
John Kay in his January 5 2010 FT column very aptly explained the systemic instability of financial
The credit crunch of 2007-08 was the third phase of a larger and longer financial crisis. The
first phase was the emerging market defaults of the 1990s. The second was the new economy boom and
bust at the turn of the century. The third was the collapse of markets for structured debt products,
which had grown so rapidly in the five years up to 2007.
The manifestation of the problem in each phase was different – first emerging markets, then
stock markets, then debt. But the mechanics were essentially the same. Financial institutions
identified a genuine economic change – the assimilation of some poor countries into the global economy,
the opportunities offered to business by new information technology, and the development of opportunities
to manage risk and maturity mismatch more effectively through markets. Competition to sell
products led to wild exaggeration of the pace and scope of these trends. The resulting herd enthusiasm
led to mispricing – particularly in asset markets, which yielded large, and largely illusory, profits,
of which a substantial fraction was paid to employees.
Eventually, at the end of each phase, reality impinged. The activities that once seemed so profitable
– funding the financial systems of emerging economies, promoting start-up internet businesses, trading
in structured debt products – turned out, in fact, to have been a source of losses. Lenders had to
make write-offs, most of the new economy stocks proved valueless and many structured products became
unmarketable. Governments, and particularly the US government, reacted on each occasion by
pumping money into the financial system in the hope of staving off wider collapse, with some degree
of success. At the end of each phase, regulators and financial institutions declared that
lessons had been learnt. While measures were implemented which, if they had been introduced five
years earlier, might have prevented the most recent crisis from taking the particular form it did,
these responses addressed the particular problem that had just occurred, rather than the underlying
generic problems of skewed incentives and dysfunctional institutional structures.
The public support of markets provided on each occasion the fuel needed to stoke the next crisis.
Each boom and bust is larger than the last. Since the alleviating action is also larger, the pattern
is one of cycles of increasing amplitude.
I do not know what the epicenter of the next crisis will be, except that it is unlikely to involve
structured debt products. I do know that unless human nature changes or there is fundamental change
in the structure of the financial services industry – equally improbable – there will be another
manifestation once again based on naive extrapolation and collective magical thinking. The recent
crisis taxed to the full – the word tax is used deliberately – the resources of world governments
and their citizens. Even if there is will to respond to the next crisis, the capacity to do so may
not be there.
The citizens of that most placid of countries, Iceland, now backed by their president, have found
a characteristically polite and restrained way of disputing an obligation to stump up large sums
of cash to pay for the arrogance and greed of other people. They are right. We should listen to them
before the same message is conveyed in much more violent form, in another place and at another time.
But it seems unlikely that we will.
We made a mistake in the closing decades of the 20th century. We removed restrictions that
had imposed functional separation on financial institutions. This led to businesses riddled
with conflicts of interest and culture, controlled by warring groups of their own senior employees.
The scale of resources such businesses commanded enabled them to wield influence to create a – for
them – virtuous circle of growing economic and political power. That mistake will not be easily remedied,
and that is why I view the new decade with great apprehension. In the name of free markets, we created
a monster that threatens to destroy the very free markets we extol.
While Hyman Minsky was the first clearly formulate the financial instability hypothesis, Keynes
also understood this dynamic pretty well. He postulated that a world with a large financial
sector and an excessive emphasis on the production of investment products creates instability both in
terms of output and prices. In other words it automatically tends to generate credit and asset bubbles.
The key driver is the fact that financial professionals generally risk other people’s money and due
to this fact have asymmetrical incentives:
They get big rewards when bets go right
They don’t have to pay when bets go wrong.
This asymmetry is not a new observation of this systemic problem. Andrew Jackson noted it in much
more polemic way long ago:
“Gentlemen, I have had men watching you for a long time and I am convinced that you have used
the funds of the bank to speculate in the breadstuffs of the country.When you won,
you divided the profits amongst you, and when you lost, you charged it to the bank. You tell
me that if I take the deposits from the bank and annul its charter, I shall ruin ten thousand families.
That may be true, gentlemen, but that is your sin! Should I let you go on, you will ruin fifty thousand
families, and that would be my sin! You are a den of vipers and thieves. I intend to rout you out,
and by the grace of the Eternal God, will rout you out.”
This asymmetrical incentives ensure that the financial system is structurally biased toward
taking on more risk than what should be taken. In other words it naturally tend to slide to
the casino model, the with omnipresent reckless gambling as the primary and the most profitable mode
of operation while an opportunities last. The only way to counter this is to throw sand into the
wheels of financial mechanism: enforce strict regulations, limit money supplies and periodically
jail too enthusiastic bankers. The latter is as important or even more important as the other two because
bankers tend to abuse "limited liability" status like no other sector.
Asset inflation over the past 10 years and the subsequent catastrophe incurred is a way classic behavior
of dynamic system with strong positive feedback loop. Such behavior does not depends of personalities
of bankers or policymakers, but is an immanent property of this class of dynamic systems. And the main
driving force here was deregulation. So its important that new regulation has safety feature which make
removal of it more complicated and requiring bigger majority like is the case with constitutional issues.
Another fact was the fact that due to perverted incentives, accounting in the banks
was fraudulent from the very beginning and it was fraudulent on purpose. Essentially accounting
in banks automatically become as bad as law enforcement permits. This is a classic case of control fraud
and from prevention standpoint is make sense to establish huge penalties for auditors, which might hurt
healthy institutions but help to ensure that the most fraudulent institution lose these bank charter
before affecting the whole system. With the anti-regulatory zeal of Bush II administration the
level of auditing became too superficial, almost non-existent. I remember perverted dances with
Sarbanes–Oxley when it
was clear from the very beginning that the real goal is not to strengthen accounting but to earn fees
and to create as much profitable red tape as possible, in perfect Soviet bureaucracy style.
Deregulation also increases systemic risk by influencing the real goals of financial
organizations. At some point of deregulation process the goal of higher remuneration for the top brass
becomes self-sustainable trend and replaces all other goals of the financial organization. This
is the essence of Martin Taylor’s, the former chief executive of Barclays, article
- Innumerate bankers were ripe for a reckoning in the Financial Times (Dec 15, 2009), which is worth
reading in its entirety:
City people have always been paid well relative to others, but megabonuses are quite new.
From my own experience, in the mid-1990s no more than four or five employees of Barclays’ then
investment bank were paid more than £1m, and no one got near £2m. Around the turn of the
millennium across the market things began to take off, and accelerated rapidly – after a pause in
2001-03 – so that exceptionally high remuneration, not just individually, but in total, was paid
out between 2004 and 2007.
Observers of financial services saw unbelievable prosperity and apparently immense value
added. Yet two years later the whole industry was bankrupt. A simple reason underlies this:
any industry that pays out in cash colossal accounting profits that are largely imaginary will go
bust quickly. Not only has the industry – and by extension societies that depend on it – been
spending money that is no longer there, it has been giving away money that it only imagined it had
in the first place. Worse, it seems to want to do it all again.
What were the sources of this imaginary wealth?
First, spreads on credit that took no account of default probabilities (bankers have been
doing this for centuries, but not on this scale).
Second, unrealised mark-to-market profits on the trading book, especially in illiquid instruments.
Third, profits conjured up by taking the net present value of streams of income stretching
into the future, on derivative issuance for example.
In the last two of these the bank was not receiving any income, merely “booking revenues”.
How could they pay this non-existent wealth out in cash to their employees? Because they had
no measure of cash flow to tell them they were idiots, and because everyone else was doing it.
Paying out 50 per cent of revenues to staff had become the rule, even when the “revenues”
did not actually consist of money.
In the next phase instability is amplified by the way governments and central banks respond to crises
caused by credit bubble: the state has powerful means to end a recession, but the policies it uses give
rise to the next phase of instability, the next bubble…. When money is virtually free – or, at least,
at 0.5 per cent – traders feel stupid if they don’t leverage up to the hilt. Thus previous bubble and
crash become a dress rehearsal for the next.
Resulting self-sustaining "boom-bust" cycle is very close how electronic systems with positive feedback
loop behave and cannot be explained by neo-classical macroeconomic models. Like with electronic
devices the financial institution in this mode are unable to provide the services that are needed.
Modern finance, he argued, was far from the stabilizing force that mainstream economics portrayed:
rather, it was a system that created the illusion of stability while simultaneously creating the
conditions for an inevitable and dramatic collapse.
...our whole financial system contains
the seeds of its own destruction. “Instability,” he wrote, “is an inherent and inescapable flaw of
Minsky’s vision might have been dark, but he was not a fatalist; he believed it was possible to
craft policies that could blunt the collateral damage caused by financial crises. But with a growing
number of economists eager to declare the recession over, and the crisis itself apparently behind
us, these policies may prove as discomforting as the theories that prompted them in the first place.
Indeed, as economists re-embrace Minsky’s prophetic insights, it is far from clear that they’re ready
to reckon with the full implications of what he saw.
And he understood the roots of the current credit bubble much better that neoclassical economists like
As people forget that failure is a possibility, a “euphoric economy” eventually develops, fueled
by the rise of far riskier borrowers - what [Minsky] called speculative borrowers,
those whose income would cover interest payments but not the principal; and those he called
“Ponzi borrowers,” those whose income could cover neither, and could only pay their bills
by borrowing still further.
As these latter categories grew, the overall economy would shift from a conservative but profitable
environment to a much more freewheeling system dominated by players whose survival depended not on
sound business plans, but on borrowed money and freely available credit.
Minsky’s financial instability hypothesis suggests that when optimism is high and ample
funds are available for investment, investors tend to migrate from the safe hedge end of the Minsky
spectrum to the risky speculative and Ponzi end. Indeed, in the current crisis, investors tried to raise
returns by increasing leverage and switching to financing via short-term—sometimes overnight— borrowing
late to learn?):
In the church of Friedman, inflation was the ol' devil tempting the good folk; the 1980s seemed
to prove that, let loose, it would cause untold havoc on the populace. But, as Barbera notes:
The last five major global cyclical events were the early 1990s recession - largely occasioned
by the US Savings & Loan crisis, the collapse of Japan Inc after the stock market crash of 1990,
the Asian crisis of the mid-1990s, the fabulous technology boom/bust cycle at the turn of the
millennium, and the unprecedented rise and then collapse for US residential real estate in 2007-2008.
All five episodes delivered recessions, either global or regional. In no case was there a significant
prior acceleration of wages and general prices. In each case, an investment boom and an associated
asset market ran to improbable heights and then collapsed. From 1945 to 1985, there was no recession
caused by the instability of investment prompted by financial speculation - and since 1985 there
has been no recession that has not been caused by these factors.
Thus, meet the devil in Minsky's paradise - "an investment boom and an associated asset market [that]
ran to improbable heights and then collapsed".
According the Barbera, "Minsky's financial instability hypothesis depends critically on what amounts
to a sociological insight. People change their minds about taking risks. They don't make a one-time
rational judgment about debt use and stock market exposure and stick to it. Instead, they change
their minds over time. And history is quite clear about how they change their minds. The longer the
good times endure, the more people begin to see wisdom in risky strategies."
Current economy state can be called following Paul McCulley a "stable disequilibrium" very similar
to a state a sand pile. All this pile of stocks, debt instruments, derivatives, credit
default swaps and God know corresponds to a pile of sand that is on the verse of losing stability.
Each financial player works hard to maximize their own personal outcome but the "invisible hand" effect
in adding sand to the pile that is increasing systemic instability. According to Minsky, the longer
such situation continues the more likely and violent an "avalanche".
The late Hunt Taylor wrote, in 2006:
"Let us start with what we know. First, these markets look nothing like anything I've ever encountered
before. Their stunning complexity, the staggering number of tradable instruments and their interconnectedness,
the light-speed at which information moves, the degree to which the movement of one instrument triggers
nonlinear reactions along chains of related derivatives, and the requisite level of mathematics necessary
to price them speak to the reality that we are now sailing in uncharted waters.
"... I've had 30-plus years of learning experiences in markets, all of which tell me that
technology and telecommunications will not do away with human greed and ignorance. I think
we will drive the car faster and faster until something bad happens. And I think it will come, like
a comet, from that part of the night sky where we least expect it."
Banking was once a dangerous profession. In Britain, for instance, bankers faced
“unlimited liability”--that is, if you ran a bank, and the bank couldn’t repay depositors or other
creditors, those people had the right to confiscate all your personal assets and income until you
repaid. It wasn’t until the second half of the nineteenth century that Britain established
limited liability for bank owners. From that point on, British bankers no longer assumed
much financial risk themselves.
In the United States, there was great experimentation with banking during the 1800s, but those
involved in the enterprise typically made a substantial commitment of their own capital. For
example, there was a well-established tradition of “double liability,” in which stockholders were
responsible for twice the original value of their shares in a bank. This encouraged stockholders
to carefully monitor bank executives and employees. And, in turn, it placed a lot of pressure on
those who managed banks. If they fared poorly, they typically faced personal and professional ruin.
The idea that a bank executive would retain wealth and social status in the event of a self-induced
calamity would have struck everyone--including bank executives themselves--as ludicrous.
Enter, in the early part of the twentieth century, the Federal Reserve. The Fed was founded in
1913, but discussion about whether to create a central bank had swirled for years. “No one can carefully
study the experience of the other great commercial nations,” argued Republican Senator Nelson Aldrich
in an influential 1909 speech, “without being convinced that disastrous results of recurring financial
crises have been successfully prevented by a proper organization of capital and by the adoption of
wise methods of banking and of currency”--in other words, a central bank. In November 1910, Aldrich
and a small group of top financiers met on an isolated island off the coast of Georgia. There, they
hammered out a draft plan to create a strong central bank that would be owned by banks themselves.
What these bankers essentially wanted was a bailout mechanism for the aftermath of speculative
crashes -- something more durable than J.P. Morgan, who saved the day in the Panic of 1907
but couldn’t be counted on to live forever. While they sought informal government backing and substantial
government financial support for their new venture, the bankers also wanted it to remain free of
government interference, oversight, or control.
Another destabilizing fact is so called myth of invisible hand which is closely related to the myth
about market self-regulation. The misunderstood argument of Adam Smith , the founder of modern
economics, that free markets led to efficient outcomes, “as if by an invisible hand” has played a central
role in these debates: it suggested that we could, by and large, rely on markets without government
intervention. About "invisible hand" deification, see
The Invisible Hand, Trumped by Darwin - NYTimes.com.
The moment in the financial system when the quantity of debt turns into quality and produces yet
another financial crisis is called Minsky moment. In other words the “Minsky moment” is the time
when an unsustainable financial boom turns into uncontrollable collapse of financial markets (aka
financial crash). The existence of Minsky moments is one of the most important counterargument against
financial market self-regulation. It also expose free market fundamentalists such as "former
Maestro" Greenspan as charlatans. Greenspan actually implicitly admitted that he is and that it was
he, who was the "machinist" who helped to bring the USA economic train off the rails in 2008
via deregulation and dismantling the New Deal installed safeguards.
Here how it is explained by Stephen Mihm in
Boston Globe in 2009
in the after math of 2008 financial crisis:
“Minsky” was shorthand for Hyman Minsky, an American macroeconomist who died over a decade
ago. He predicted almost exactly the kind of meltdown that recently hammered the global
economy. He believed in capitalism, but also believed it had almost a genetic weakness.
Modern finance, he argued, was far from the stabilizing force that mainstream economics
portrayed: rather, it was a system that created the illusion of stability while simultaneously
creating the conditions for an inevitable and dramatic collapse.
In other words, the one person who foresaw the crisis also believed that our whole financial system
contains the seeds of its own destruction. “Instability,” he wrote, “is an inherent and inescapable
flaw of capitalism.”
Minsky believed it was possible to craft policies that could blunt the collateral damage caused
by financial crises. As economists re-embrace Minsky’s prophetic insights, it is far from clear that
they’re ready to reckon with the full implications of what he saw.
Minsky theory was not well received due to powerful orthodoxy, born in the years after World War
II, known as the neoclassical synthesis. The older belief in a self-regulating, self-stabilizing
free market had selectively absorbed a few insights from John Maynard Keynes, the great economist
of the 1930s who wrote extensively of the ways that capitalism might fail to maintain full employment.
Most economists still believed that free-market capitalism was a fundamentally stable basis for an
economy, though thanks to Keynes, some now acknowledged that government might under certain circumstances
play a role in keeping the economy - and employment - on an even keel.
Economists like Paul Samuelson became the public face of the new establishment; he and others
at a handful of top universities became deeply influential in Washington. In theory, Minsky could
have been an academic star in this new establishment: Like Samuelson, he earned his doctorate in
economics at Harvard University, where he studied with legendary Austrian economist Joseph Schumpeter,
as well as future Nobel laureate Wassily Leontief.
But Minsky was cut from different cloth than many of the other big names. The descendent of immigrants
from Minsk, in modern-day Belarus, Minsky was a red-diaper baby, the son of Menshevik socialists.
While most economists spent the 1950s and 1960s toiling over mathematical models, Minsky pursued
research on poverty, hardly the hottest subfield of economics. With long, wild, white hair, Minsky
was closer to the counterculture than to mainstream economics. He was, recalls the economist L. Randall
Wray, a former student, a “character.”
So while his colleagues from graduate school went on to win Nobel prizes and rise to the top of
academia, Minsky languished. He drifted from Brown to Berkeley and eventually to Washington University.
Indeed, many economists weren’t even aware of his work. One assessment of Minsky published in 1997
simply noted that his “work has not had a major influence in the macroeconomic discussions of the
last thirty years.”
Yet he was busy. In addition to poverty, Minsky began to delve into the field of finance, which
despite its seeming importance had no place in the theories formulated by Samuelson and others. He
also began to ask a simple, if disturbing question: “Can ‘it’ happen again?” - where “it” was, like
Harry Potter’s nemesis Voldemort, the thing that could not be named: the Great Depression.
In his writings, Minsky looked to his intellectual hero, Keynes, arguably the greatest economist
of the 20th century. But where most economists drew a single, simplistic lesson from Keynes - that
government could step in and micromanage the economy, smooth out the business cycle, and keep things
on an even keel - Minsky had no interest in what he and a handful of other dissident economists came
to call “bastard Keynesianism.”
Instead, Minsky drew his own, far darker, lessons from Keynes’s landmark writings, which dealt
not only with the problem of unemployment, but with money and banking. Although Keynes had never
stated this explicitly, Minsky argued that Keynes’s collective work amounted to a powerful argument
that capitalism was by its very nature unstable and prone to collapse. Far from trending toward some
magical state of equilibrium, capitalism would inevitably do the opposite. It would lurch over a
This insight bore the stamp of his advisor Joseph Schumpeter, the noted Austrian economist now
famous for documenting capitalism’s ceaseless process of “creative destruction.” But Minsky spent
more time thinking about destruction than creation. In doing so, he formulated an intriguing theory:
not only was capitalism prone to collapse, he argued, it was precisely its periods of economic stability
that would set the stage for monumental crises.
Minsky called his idea the “Financial Instability Hypothesis.” In the wake of a depression, he
noted, financial institutions are extraordinarily conservative, as are businesses. With the borrowers
and the lenders who fuel the economy all steering clear of high-risk deals, things go smoothly: loans
are almost always paid on time, businesses generally succeed, and everyone does well. That success,
however, inevitably encourages borrowers and lenders to take on more risk in the reasonable hope
of making more money. As Minsky observed, “Success breeds a disregard of the possibility of failure.”
As people forget that failure is a possibility, a “euphoric economy” eventually develops, fueled
by the rise of far riskier borrowers - what he called speculative borrowers, those whose income would
cover interest payments but not the principal; and those he called “Ponzi borrowers,” those whose
income could cover neither, and could only pay their bills by borrowing still further. As these latter
categories grew, the overall economy would shift from a conservative but profitable environment to
a much more freewheeling system dominated by players whose survival depended not on sound business
plans, but on borrowed money and freely available credit.
Once that kind of economy had developed, any panic could wreck the market. The failure of a single
firm, for example, or the revelation of a staggering fraud could trigger fear and a sudden, economy-wide
attempt to shed debt. This watershed moment - what was later dubbed the “Minsky moment” - would create
an environment deeply inhospitable to all borrowers. The speculators and Ponzi borrowers would collapse
first, as they lost access to the credit they needed to survive. Even the more stable players might
find themselves unable to pay their debt without selling off assets; their forced sales would send
asset prices spiraling downward, and inevitably, the entire rickety financial edifice would start
to collapse. Businesses would falter, and the crisis would spill over to the “real” economy that
depended on the now-collapsing financial system.
From the 1960s onward, Minsky elaborated on this hypothesis. At the time he believed that this
shift was already underway: postwar stability, financial innovation, and the receding memory of the
Great Depression were gradually setting the stage for a crisis of epic proportions. Most of what
he had to say fell on deaf ears. The 1960s were an era of solid growth, and although the economic
stagnation of the 1970s was a blow to mainstream neo-Keynesian economics, it did not send policymakers
scurrying to Minsky. Instead, a new free market fundamentalism took root: government was the problem,
not the solution.
Moreover, the new dogma coincided with a remarkable era of stability. The period from the late
1980s onward has been dubbed the “Great Moderation,” a time of shallow recessions and great resilience
among most major industrial economies. Things had never been more stable. The likelihood that “it”
could happen again now seemed laughable.
Yet throughout this period, the financial system - not the economy, but finance as an industry
- was growing by leaps and bounds. Minsky spent the last years of his life, in the early 1990s, warning
of the dangers of securitization and other forms of financial innovation, but few economists listened.
Nor did they pay attention to consumers’ and companies’ growing dependence on debt, and the growing
use of leverage within the financial system.
By the end of the 20th century, the financial system that Minsky had warned about had materialized,
complete with speculative borrowers, Ponzi borrowers, and precious few of the conservative borrowers
who were the bedrock of a truly stable economy. Over decades, we really had forgotten the meaning
of risk. When storied financial firms started to fall, sending shockwaves through the “real” economy,
his predictions started to look a lot like a road map.
“This wasn’t a Minsky moment,” explains Randall Wray. “It was a Minsky half-century.”
Minsky is now all the rage. A year ago, an influential Financial Times columnist confided to readers
that rereading Minsky’s 1986 “masterpiece” - “Stabilizing an Unstable Economy” - “helped clear my
mind on this crisis.” Others joined the chorus. Earlier this year, two economic heavyweights - Paul
Krugman and Brad DeLong - both tipped their hats to him in public forums. Indeed, the Nobel Prize-winning
Krugman titled one of the Robbins lectures at the London School of Economics “The Night They Re-read
Today most economists, it’s safe to say, are probably reading Minsky for the first time, trying
to fit his unconventional insights into the theoretical scaffolding of their profession. If Minsky
were alive today, he would no doubt applaud this belated acknowledgment, even if it has come at a
terrible cost. As he once wryly observed, “There is nothing wrong with macroeconomics that another
depression [won’t] cure.”
But does Minsky’s work offer us any practical help? If capitalism is inherently self-destructive
and unstable - never mind that it produces inequality and unemployment, as Keynes had observed -
After spending his life warning of the perils of the complacency that comes with stability - and
having it fall on deaf ears - Minsky was understandably pessimistic about the ability to short-circuit
the tragic cycle of boom and bust. But he did believe that much could be done to ameliorate the damage.
To prevent the Minsky moment from becoming a national calamity, part of his solution (which was
shared with other economists) was to have the Federal Reserve - what he liked to call the “Big Bank”
- step into the breach and act as a lender of last resort to firms under siege. By throwing lines
of liquidity to foundering firms, the Federal Reserve could break the cycle and stabilize the financial
system. It failed to do so during the Great Depression, when it stood by and let a banking crisis
spiral out of control. This time, under the leadership of Ben Bernanke - like Minsky, a scholar of
the Depression - it took a very different approach, becoming a lender of last resort to everything
from hedge funds to investment banks to money market funds.
Minsky’s other solution, however, was considerably more radical and less palatable politically.
The preferred mainstream tactic for pulling the economy out of a crisis was - and is - based on the
Keynesian notion of “priming the pump” by sending money that will employ lots of high-skilled, unionized
labor - by building a new high-speed train line, for example.
Minsky, however, argued for a “bubble-up” approach, sending money to the poor and unskilled
first. The government - or what he liked to call “Big Government” - should become the “employer of
last resort,” he said, offering a job to anyone who wanted one at a set minimum wage. It
would be paid to workers who would supply child care, clean streets, and provide services that would
give taxpayers a visible return on their dollars. In being available to everyone, it would be even
more ambitious than the New Deal, sharply reducing the welfare rolls by guaranteeing a job for anyone
who was able to work. Such a program would not only help the poor and unskilled, he believed, but
would put a floor beneath everyone else’s wages too, preventing salaries of more skilled workers
from falling too precipitously, and sending benefits up the socioeconomic ladder.
While economists may be acknowledging some of Minsky’s points on financial instability, it’s safe
to say that even liberal policymakers are still a long way from thinking about such an expanded role
for the American government. If nothing else, an expensive full-employment program would veer far
too close to socialism for the comfort of politicians. For his part, Wray thinks that the critics
are apt to misunderstand Minsky. “He saw these ideas as perfectly consistent with capitalism,” says
Wray. “They would make capitalism better.”
But not perfect. Indeed, if there’s anything to be drawn from Minsky’s collected work, it’s that
perfection, like stability and equilibrium, are mirages. Minsky did not share his profession’s quaint
belief that everything could be reduced to a tidy model, or a pat theory. His was a kind of existential
economics: capitalism, like life itself, is difficult, even tragic. “There is no simple answer to
the problems of our capitalism,” wrote Minsky. “There is no solution that can be transformed into
a catchy phrase and carried on banners.”
It’s a sentiment that may limit the extent to which Minsky becomes part of any new orthodoxy.
But that’s probably how he would have preferred it, believes liberal economist James Galbraith. “I
think he would resist being domesticated,” says Galbraith. “He spent his career in professional isolation.”
The positive feedback loop in inherent the environment dominated by large transnationals
which funnel their excess cash into the financial system to speculate on asset appreciation.
As analysis in "The
Endless Crisis" suggests ( updating the classic 1960s analysis of the U.S. economy given by Paul
Sweezy and Paul Baran in "Monopoly Capital.") that the global economy is controlled by large
oligopolistic firms. Which boost their profits by lowering their costs and suppressing wages(on global
scale), using computerization, automation and relocating production to cheap-labor countries such
as China. Wage suppression in turn created permanent weak global demand. Which in turn dry
ups investment opportunities in expansion of existing manufacturing facilities. That forces transnationals
to funnel their excess cash into the financial system to speculate on asset appreciation. As
a result we have "permanent recession" punctuated by boom and bust cycles in financial markets.
Nature of leverage is such that it always represent a positive feedback loop. And leverage
is the essence of
banking operations. In the absence of negative control loops in a form of regulation,
purges, exiles, etc, financial system eventually loses stability which demonstrate itself in financial
crisis. Deep financial crisis often are followed by stagnation and can turn into social crisis.
The economy finds itself in a "stagnation-financialization trap" in which the only way to stimulate
growth is through the financialization process which leads to the next bubble and the next financial
crisis. Policy makers in Western countries are ready and willing to lead the world off this
cliff: "Restoring the conditions for finance-led expansion has now become the immediate object of
economic policy in the face of a persistently stagnation-prone real economy."(Foster and McChesney,
p 47). The authors add, "Not only have financial crises become endemic, they have also been growing
in scale and global impact." (Foster and McChesney, 43)
It is very difficult to gain a greater understanding of the broad social forces at play that
are shaping the financial sector, but self-destructing tendencies of the latter can be established
beyond reasonable doubt. And the problem here is not with people, although, again, I would
like to stress that a lot of financial actors are as close to psychopaths/sociopaths as one
can get. But people are better then institutions as Prince Kropotkin once remarked. The problem
is with reshaping of institutions via weakening of regulations (up to the total absence of thereof).
Regulations represent genome that guides growth and proliferation of organizational entities much
like cells in human organism. Bad genome creates cancer cells that kills the host. This
analogy with financial sector converting into cancer under a weak regulatory regime is less superficial
that one might think from the first sight. Some see the cycle in which financial sector undermines
economy the following way:
Boost Phase of Credit Expansion. Banks became dominant political force and start to
dictate the government policy.
Deregulation. Banks create for the themselves the "most favorable entity" regime including
access to government funds and taxation. Here revolving door greatly helps (see
Corruption of Regulators)
Overextended Credit Expansion and Over Capacity (dot-com bubble)
Growing Malinvestment ( there are no alternatives and one burst bubble is simply replaced
by the next. For example, dot-com bubble with the housing bubble in the case of the USA)
Impaired Debt and Policy Decisions, such as bailout of TBTF at taxpayer expense and
great cost for the economy. Please note that at this point banks have total political control,
so they essentially bail themselves out at the expense of the society.
Stalled Consumption due to shrinking of middle class and high structural unemployment.
The growing bills are passed on plebs. Cheap Money are Offered as the only Panacea Available.
Shrinking Loans and another round of Bank Speculation, this time in natural resources.
Search for Yield from Shrinking Pool of Productive Assets. Increasingly speculative
investments with high risk
Stagnation - Over-indebted economy, massive overcapacity with limited growth.
The growth of nationalism and protectionism (ref. 1920's -> 1930's). Military Keynesianism.
Oligarchy don't hesitate to sacrifice millions of plebeians in the subsequent wars that always
In financial markets, socially-responsible, rational behavior isn’t optimal. That makes
reckless, self and society endangering behavior not a deviation, but a norm. That makes finance a
close relative to organized crime. In this respect Jefferson famous quote "I believe that banking
institutions are more dangerous to our liberties than standing armies" is really prophetic.
Instability is an immanent feature of dynamic systems with positive feedback loops. Financial
sector introduces a dangerous positive feedback loop into economy precipitating bubbles and subsequent
crisis. Despite artful packaging, the banking industry game is very simple, namely, they
take outsized, leveraged risks and when they work out, pay themselves handsome rewards, and when
they don’t, dump them on the taxpayer. That's why asJohn Kenneth Galbraith aptly noted "Finance
is the Achilles' heel of capitalism." While there are multiple levels and multiple meaning
on each level of this statement, instability of dynamic systems with positive feedback
loops is a fundamental property of such systems and it cannot be changed by any superficial
measures not related to the strength of feedback loop.The "inherently procyclical"
nature of the financial systemimplies thatthat perceptions of value and risk develop in parallel. Bankers always suffer from a blindness
to future dangers that are intrinsic to the system because that stand in a way of getting outsized
profits. The better the economy is doing, the higher the ratings issued by the rating agencies,
the laxer the guidelines for approving credit, the easier it becomes to borrow money and the greater
the willingness to assume risk.
Wall Street execs have been whining for two years that to reduce pay incentives and bonuses
would cost the firms their best talent. The government’s response should be YES! That’s precisely
the idea. Finance was once a means to an end: the growth of the real economy. Banking once served
industry and services. Now finance has become the end, and the real economy is subservient
to financial services (it’s no surprise that after the crisis, over-the-counter derivatives
trading quickly climbed back up to more than $600 trillion). “At some point in our recent past,
finance lost contact with its raison d’être,” European Central Bank chief Jean Claude Trichet
said earlier this year. “Finance developed a life of its own…Finance became self-referential.”
Computers brought innovations into financial markets, but at the same time greatly strengthened
and enhanced positive feedback loops inherent in financial sector. In other words
they make financial players much more dangerous for society then before. Our present system
could not exist without Web-based brokers, indexes, CDO’s, tranches, MERS, high speed trading. Computers
also have allowed dramatic increase of complexity, which often is used to hide the most dangerous
and the most reckless behavior of financial players. Computers are become an integral part of the
feedback and add gain (amplification) to the loop. The gain from computers is not bad by itself but
the trend to remove all controls or attenuations while adding this gain is bound to cause instability.
HFT seems to me one of the more obvious and stupid examples.
Complexity and luck of transparency are central to financial services firm rent seeking.
Those opportunities dramatically increases with computerization of finance and invention of complex
financial instruments. It is interesting that other industries can be allowed to teeter and
fall - steel, railroads, automobiles - but banks are considered sacrosanct. If they are, then
they should be public utilities, but good luck with this idea in captured Congress.
Megabanks automatically become an instrument for acquiring and keeping political influence
for its management ("silent coup"). Financial sector became viewed by the elite as a
solution to stagnation of industrial production and the way to fend of international competitors
playing of the US role of suppliers of global currency. As a result financial sector became a formidable
political force. Like senator Durbin put it:
And the banks -- hard to believe in a time when we're facing a banking crisis that many of
the banks created -- are still the most powerful lobby on Capitol Hill. And they frankly own the
That compensates their inefficiency in internal market. Investment banks understand pretty well
that the best investment with highest return is an investment in political capital.
Saving oversized banks, however, may ruin a country’s public finances (Gros
and Micossi 2008). Take the example of Ireland; this country provided extensive financial
support to its large banks and subsequently had to seek financial assistance from the EU and the
IMF in 2010. The public finance risks posed by systemically large banks suggest that such banks
should be reduced in size.
Further evidence against big banks can be found from studies on banking technologies. Berger
and Mester (1997) estimate the returns to scale in US banking using data from the 1990s, to find
that a bank’s optimal size, consistent with lowest average costs, would be for a bank with around
$25 billion in assets. Amel et al. (2004) similarly report that commercial banks in North
America with assets in excess of $50 billion have higher operating costs than smaller banks. These
findings together suggest that today’s large banks, with assets in some instances exceeding $
1 trillion, are well beyond the technologically optimal scale.
Flawed incentives. The relationship between the rating agencies and big banks is a perfect
case study of flawed incentives and positive feedback loop within financial sector. Agencies
were unduly influenced (aka "were puppets of") by the institutions whose products they were grading.
Financial markets never play a purely passive role; they seek a political role and always
try to actively affect so-called fundamentals they are supposed to reflect. Their lobbying
efforts and regulatory capture are part of positive feedback loop that increases risks and
instability of the financial system. They tend to convert economy into what is using analogy
with military industrial complex can be called the crony capitalist financial-regulatory complex.That means that the necessary contraction of hypertrophied financial sector requires difficult
political changes which captured political establishment is unable to pursue on their own, so changes
often come packaged with violence. As Soros stated:
"These two functions that financial markets perform work in opposite directions. In
the passive or cognitive function, the fundamentals are supposed to determine market prices. In
the active or manipulative function market, prices find ways of influencing the fundamentals.
When both functions operate at the same time, they interfere with each other. The supposedly independent
variable of one function is the dependent variable of the other, so that neither function has
a truly independent variable. As a result, neither market prices nor the underlying reality is
fully determined. Both suffer from an element of uncertainty that cannot be quantified.
I call the interaction between the two functions reflexivity. Frank Knight recognized
and explicated this element of unquantifiable uncertainty in a book published in 1921,
but the Efficient Market Hypothesis and Rational Expectation Theory have deliberately ignored
it. That is what made them so misleading."
The Fiat-based currencies has additional built-in instability risks in comparison with gold
based currencies. This is not to say that gold based currencies are better. But the
ability of the US to run record current-account deficits over the past several decades is one such
effect, the effect impossible in gold standard currency environment and the US political elite (Republican
and Democrats alike) became increasingly comfortable with overconsumption. (The
World’s Financial System Has Become Unstable):
Leading Bush administration officials used to talk of the US current-account deficit being
a “gift” to the outside world. But, honestly, the US has been overconsuming – living far beyond
its means – for the past decade. The idea that tax cuts would lead to productivity gains and would
pay for themselves (and fix the budget) has proved entirely illusory. ...
[T]he net flow of capital is from emerging markets to the US – this is what it means to have
current-account surpluses in emerging markets and a deficit in the US. But the gross flow of capital
is from emerging market to emerging market, through big banks now implicitly backed by the state
in both the US and Europe. From the perspective of international investors, banks that are “too
big to fail” are the perfect places to park their reserves – as long as the sovereign in question
remains solvent. But what will these banks do with the funds?
When a similar issued emerged in the 1970’s – the so-called “recycling of oil surpluses” –
banks in Western financial centers extended loans to Latin America, communist Poland, and communist
Romania. That was not a good idea, as it led to a massive (for the time) debt crisis in 1982.
We are now heading for something similar, but on a larger scale. The banks and other financial
players have every incentive to load up on risk as we head into the cycle; they get the upside
(Wall Street compensation this year is set to break records again) and the downside goes to taxpayers.
Financial deregulation logically leads to over-trading and under-investment creating bubbles
and converting the economy into casino capitalism. The recent the ‘flash crash’ as a clear example
of the bubble and subsequent fragility such over-trading can create. Excessive trading in securities
increases instability of the economic system and creates perverted incentives for many economic actors.
The effect is similar to how drugs and alcohol chemically alter the personality, increasing the value
of instant gratification. As Hyman Minsky noted:
“In a world of businessmen and financial intermediaries who aggressively seek profit, innovators
will always outpace regulators; the authorities cannot prevent changes in the structure of portfolios
from occurring. What they can do is keep the asset-equity ratio of banks within bounds by setting
equity-absorption ratios for various types of assets. If the authorities constrain banks and are
aware of the activities of fringe banks and other financial institutions, they are in a better
position to attenuate the disruptive expansionary tendencies of our economy.”
-- Hyman Minsky, 1986
Growth of inequality connected with emergence of hypertrophied financial sector is another
positive feedback loop. Outsized pay in financial sector attracts talent and this talent
is used for destructive (or at least non-constructive) purposes. This is the situation similar to
the poor countries problem with mafia. What is so destabilizing isn’t just the high guaranteed pay
if you can break in (even though that is a huge part of it) but the allure of obscene sums of money
if you can make it to the top.
The share of US national income going to the top 1 per cent of the income distribution has risen
from 15 to 25 per cent over the past decade, mostly because of the growth in size and profitability
of the financial sector. This payments to the top percentile is a tax paid by the population (similar
to what population paid to royalty and church in middle ages) as a whole for the questionable
benefits of living in the casino capitalism economy. While the key to growth of inequality was financial
sector it also complemented by several additional trends:
Dramatic increase of renumeration of top management in all types of companies : by
increasing number of sociopath in higher echelons of financial institutions and second by destroying
morale of the firm which makes reckless moves more probable.
Due to regulatory capture. Concentrated wealth makes it easier to buy deregulation
to free itself up even more. At the same time concentrated wealth of financial sector finds fewer
productive investment outlets and naturally migrates into destructive speculation, including creating
huge speculative global capital flows. A positive feedback loop in which increase of income inequality
increase "financization" of the economy looks like:
Increase of income inequality ->
Inadequate effective demand in non-financial economy ->
Inadequate investment opportunities in non-financial economy ->
Investments flowing into parasitic financial “creativity”...
Regulatory capture, especially complete capture of the Fed (with NY Fed widely considered
to be a branch of Goldman Sachs) and SEC nullifies enforcement and creates another positive
feedback loop. "Revolving doors" provide an excellent opportunity to buy influence without overt
corruption. One recent example is Peter Orzag accepting position in Citi (Why
Citigroup) And that means that while on the job ambitious people might try to avoid to aggravate
banks. But without strong regulatory oversight banks very quickly convert themselves into wonder
machines that provides astronomic returns to brass and selected employees, high returns to
creditors, while at the end of each cycle causing huge losses to taxpayers. Banks must keep up
with their competitors, and if one does some wonder trick with somebody else money, they all must
do it to stay in business. That is why regulation is so vital in this highly competitive sector.
One cannot be virtuous as a commercial entity with obligations to shareholders and customers under
brothel rules. That why Greenspan
as an apostle of deregulation was so destructive for the US economy. This is another positive feedback
loop that feeds on itself. In search of profits which became more scares as financization takes life
out of real economy, financial firms are prone to subvert safeguards and endanger the very society
in which they operate ("financial terrorism effect". Wealth permits financial sector
to remove "sand in the wheels": vital for stability negative feedback loops in form of regulation
and, what is actually more important, strict law enforcement of existing regulations. Here
is a quote from Yves Smith post
Should the Fed Be Independent-
But there has been another thread mixed in with this: resentment at the Fed salvaging the banking
industry, with contingent and real costs, in the form of higher inflation, per
Alford’s and Leijonhufvud’s analysis. Now that many of those actions may indeed have been
the best among a set of bad choices (although I suspect economic historians will conclude the
Fed cut rates too far too fast). However, the big issue is that they involved consequences of
such magnitude that they should not have been left to the Fed. I was amazed, and was not alone,
when Congress did not dress down the Fed in its hearings on the Bear rescue for the central bank’s
unauthorized encroachment into fiscal action (ie., if any of the $29 billion in liabilities assumed
by the Fed in that rescue comes a cropper, the cost comes from the public purse). So the frustration
isn’t merely about outcomes, it’s about process, about the sense of disenfranchisement. And that
will only get worse as this crisis grinds along.
The proliferation of speculative side bets in the form of naked credit default swaps and other
derivatives can have significant negative effects on economic fundamentals such as the terms of financing,
the patterns of project selection, and the incidence of corporate and sovereign default. The
existence of zero-sum side bets on default has major economic repercussions. It has strangulating
effect starving real economy of funds as investors who are optimistic about particular company or
state instead of funding it sell protection. This diverts their capital away from potential borrowers
and channels it into collateral to support speculative positions. Naked CDSs are insurance policies
bought against some other persons property. Such as, I buy a policy against your house. Insurance
companies do not write such policies because I might decide to burn your house down. But even if
we assume that there will be no intentional damage to other’s property, we still are encouraging
diverting of funds. See
Guest Post Economic consequences of speculative side bets – The case of naked CDS « naked capitalism.
They also can create artificial demand. Conservative analyses indicates that in the peak years of
2006 and early 2007, Magnetar’s program drove the demand
for roughly 35% of subprime bonds. That fact refutes the claim that all derivatives, futures,
options and swaps are zero sum game: one person loss is another person gain.
By its nature investment banking is constantly tempted to move into grey zone and then slide
into criminal behavior. There is a profound similarity between investment bankers
and hedge funds "Masters of the Universe" and hackers. Investment bankers play a similar role in
financial system as hackers play in computer networks: they are engaged in systemic effort to undermine
existing laws and security controls. But there one important difference: investment bankers are often
obscenely rich and can buy themselves freedom after being caught. That's why criminal law should
consider financial sector crimes similar to the organized crime. "Algorithmic Terrorism”
( HFT) is one example (Nanex
- Market Crop Circle Of The Day). Nobody went to jail (yet). When you see the kind of losses
we have seen on AAA rated securities for example it is almost certainly there was there was some
kind of fraud involved. In fact growth of investment banking tend to be accompanied by large scale
fraud so this would not be unusual.
Tremendous political power that finance sector acquired due to outsized profits is channeled
toward lobbing that is socially and economically disruptive. Externalities produced by
unregulated banking sector are dangerous for society, but at the same time political power of the
financial sector created a lock in which prevents any meaningful correction. Classic Greek Tragedy
necessary follows. Regulators – and their superiors in the legislative and executive branches
– were captured both intellectually and via implicit form of corruption known as revolving doors.
"To a surprising degree, economic misfortune has correlated with low top marginal tax rates. The
top marginal tax rate at the time of the 1929 crash was 24%. After his election, Roosevelt promptly
raised it to 63% and then to 94%, and one could easily make the case that it was this rise, rather
than financial regulation, that played the primary — though certainly not the only — role in curbing
abuses by attacking greed at its source, without, by the way, damaging the economy. Roosevelt essentially
taxed away big money."
Disincentivizing greed - Page 3 - Los Angeles Times
For financial sector stability is destabilizing. Minsky financial instability hypothesis
can be simplified to the general statement that in any economy with large financial sectorstability is destabilizing as financial firms try to exploit the stable regime to extract
additional profit by increasing leverage and making excessively risky bets which serves as a tax
on real economy, strangulating it and creating the necessity for even more risky bets and higher
leverage. In the latter case large firms also implicitly transfer their risks to larger society (via
The cost of financial intermediation is ultimately a tax on commerce.Outsized,
predatory financial services sector poses real danger to viable businesses, to business expansion,
and to general economic productivity. Large part of activity of financial sector, especially
connected with securitized products, futures, options and derivatives is parasitic: "Banks tend to
make profits – or more accurately, extract rents – out of all proportion to any contribution they
make to the wider economy." Excessive rents weaken the real economy similar to cases
when parasite weakens the host (The
Banking Oligarchy Must Be Restrained For a Recovery to Be Sustained ). In addition to the
overhang of unindicted and undeclared fraud which is widespread due to regulatory capture, distorting
the clearing of the markets, an oversized financial sector essentially make the sum of government
tax and Wall street tax a real drag on the economy. The percentage of financial sector profits to
corporate profits recently peaked at 41%. This suggests that the scope of parasitic financial activity
is a real killer for the economy.
Weakly regulated banks tend to become classic cases of market failure and their employees
at the senior level have basically become the biggest bank robbers of all time. This tremendous
transfer of wealth is inherent in growth of financial sector. The best way to rob bank is to own
Academia serves as the Fifth column of the financial sector. The financial system can
brainwash society via control of corrupt academia in classic Lysenkoism scenario. Here is relevant
quote from The Quiet
Wall Street’s seductive power extended even (or especially) to finance and economics
professors, historically confined to the cramped offices of universities and the pursuit of Nobel
Prizes. As mathematical finance became more and more essential to practical finance, professors
increasingly took positions as consultants or partners at financial institutions. Myron Scholes
and Robert Merton, Nobel laureates both, were perhaps the most famous; they took board seats at
the hedge fund Long-Term Capital Management in 1994, before the fund famously flamed out at the
end of the decade. But many others beat similar paths. This migration gave the stamp of academic
legitimacy (and the intimidating aura of intellectual rigor) to the burgeoning world of high finance.
Reaganomics (and later Rubonomics) confused ends with means... As Stiglitz noted,
. ... a financial sector is a means to a more productive economy, not an end in itself. (Financial
a better measure of well-being). Attempt to convert the USA into new Switzerland on the
strength of dollar as a reserve currency was doomed from the beginning due to the country size constrains.
Highly leveraged economies are prone to deep and prolong crisis. "The lesson of history,
then, is that even as institutions and policy makers improve there will always be a temptation to
stretch the limits. ... If there is one common theme to the vast range of crises ... it is that excessive
debt accumulation, whether it be by the government, banks, corporations, or consumers, often poses
greater systemic risks than it seems during a boom. ... Highly indebted governments, banks, or corporations
can seem to be merrily rolling along for an extended period, when bang -- confidence collapses, lenders
disappear and a crisis hits. ... Highly leveraged economies ... seldom survive forever ... history
does point to warnings signs that policy makers can look to access risk -- if only they do not become
too drunk with their credit bubble-fueled success and say, as their predecessors have for centuries,
'This time is different' Carmen Reinhart and Kenneth Rogoff (cited from
The first thing to understand is that attempt to weaken positive feedback looks via regulation, approach
that can be called “regulation as a Swiss knife” does not work without law enforcement and criminal
liability for bankers, as there is an obvious problem of corruption of regulators. In this sense the
mechanism of purges might be the only one that realistically can work.
In other words it’s unclear who and how can prevents the capture of regulators as financial sector
by definition has means to undermine any such efforts. One way this influence work is via lobbing for
appointment of pro-financial sector people in key positions. If such "finance-sector-selected" Fed chairman
does not like part of Fed mandate related to regulation it can simply ignore it as long as he is sure
that he will be reappointed. That happened with Greenspan. After such process started it became
irreversible and only after a significant, dramatic shock to the system any meaningful changes can be
instituted and as soon as the lessons are forgotten work on undermining them resumes.
In essence, the Fed is a political organization and Fed Chairman is as close to a real vice-president
of the USA as one can get. As such Fed Chairman serves the elite which rules that country, whether
you call them financial oligarchy or some other name. Actually Fed Chairman is the most powerful unelected
official in the USA. If you compare this position to the role of the Chairman of the Politburo
in the USSR you’ll might find some interesting similarities.
In other words it is impossible to prevent appointment of another Greenspan by another Reagan without
changes in political power balance. And the transition to banana republic that follows such appointment
is irreversible even if the next administration water boards former Fed Chairman to help him to write
his memoirs. That means that you need to far-reaching reform of political system to be able to
regulate financial industry and you need to understand that the measures adopted need vigilant protection
as soon as the current crisis is a distant history.
Several other source of financial instability were pointed out by others:
The logic of markets gets extended to “fictitious commodities” – land, labor, and money.Polanyi (1944) famously zeroed in on the way that the logic of markets gets extended to
“fictitious commodities” – land, labor, and money – and the way that society reacts defensively
to that illegitimate extension. Today, arguably, it is the logic of finance that has been so extended,
turning everything it touches into an asset with a speculative price.
Excessive accumulations of financial wealth – “other people’s money” – tend to undermine democratic
political forms.Brandeis (1914) thought that excessive accumulations of financial
wealth – “other people’s money” – tend to undermine democratic political forms (among other
problems). Today, arguably TBTF financial institution threaten democracy.
There are some outstanding lectures and presentation on YouTube on this topic. Among them:
Modern technology makes many things possible, but it does not make them cheap... The camera
needs to work in pretty adverse conditions (think about the temperature inside the light on a hot
summer day, and temperature at winter) and transmit signal somewhere via WiFi (which has range
less then 100m) , or special cable that needs to be installed for this particular pole. With wifi
there should be many collection units which also cost money. So it make sense only for
streetlights adjacent to building with Internet networking. And there are already cameras of the
highway, so highways are basically covered. Which basically limits this technology to cities.
Just recoding without transmission would be much cheaper (transmission on demand). Excessive
paranoia here is not warranted.
According to new government procurement data, the Drug Enforcement Administration (DEA) and
Immigration and Customs Enforcement (ICE) have purchased an undisclosed number of secret
surveillance cameras that are being hidden in streetlights across the country.
first reported this dystopian development of federal authorities stocking up on "covert
systems" last week. The report showed how the DEA paid a Houston, Texas company called Cowboy
Streetlight Concealments LLC. approximately $22,000 since June for "video recording and
reproducing equipment." ICE paid out about $28,000 to Cowboy Streetlight Concealments during
the same period.
"It's unclear where the DEA and ICE streetlight cameras have been installed, or where the
next deployments will take place. ICE offices in Dallas, Houston, and San Antonio have
provided funding for recent acquisitions from Cowboy Streetlight Concealments; the DEA's most
recent purchases were funded by the agency's Office of Investigative Technology, which is
located in Lorton, Virginia," said Quartz.
Christie Crawford, who co-owns Cowboy Streetlight Concealments with her husband, said she
was not allowed to talk about the government contracts in detail.
"We do streetlight concealments and camera enclosures," Crawford told Quartz. "Basically,
there's businesses out there that will build concealments for the government and that's what
we do. They specify what's best for them, and we make it. And that's about all I can probably
However, she added: "I can tell you this -- things are always being watched. It doesn't
matter if you're driving down the street or visiting a friend, if government or law enforcement
has a reason to set up surveillance, there's great technology out there to do it."
Quartz notes that the DEA issued a solicitation for "concealments made to house network PTZ
[Pan-Tilt-Zoom] camera, cellular modem, cellular compression device," last Monday. According to
solicitation number D-19-ST-0037, the sole source award will go to Obsidian Integration
On November 07, the Jersey City Police Department awarded Obsidian Integration with "the
purchase and delivery of a covert pole camera." Quartz said the filing did not provide much
detail about the design.
It is not just streetlights the federal government wants to mount covert surveillance
cameras on, it seems cameras inside traffic barrels could be heading onto America's highways in
the not too distant future.
And as Quartz reported in October, the DEA operates a complex network of digital
speed-display road signs that covertly scan license plates. On top of all this,
Amazon has been aggressively rolling out its
Rekognition facial-recognition software to law enforcement agencies and ICE, according to
emails uncovered by the Project for Government Oversight.
Chad Marlow, a senior advocacy and policy counsel for the ACLU, told Quartz that cameras in
street lights have been proposed before by local governments, typically under a program called
"smart" LED street light system.
"It basically has the ability to turn every streetlight into a surveillance device, which
is very Orwellian to say the least," Marlow told Quartz. "In most jurisdictions, the local
police or department of public works are authorized to make these decisions unilaterally and
in secret. There's no public debate or oversight."
And so, as the US continues to be distracted, torn amid record political, social and
economic polarization, big brother has no intention of letting the current crisis go to waste,
and quietly continues on its path of transforming the US into a full-blown police and
I previously worked for one of these types of federal agencies and to be fair, $50,000
doesn't buy a lot of video surveillance equipment at government procurement costs. The
contractor doesn't just drill a hole and install a camera, they provide an entirely new
streetlight head with the camera installed.
It would be nice if they put some of this technology to work for a good cause. Maybe
warning you of traffic congestion ahead. Or advising you that one of your tires will soon go
Obviously that won't happen, so in the meantime, I can't wait to read next how the hackers
will find a way to make this government effort go completely haywire. As if the government
can't do it without any help. At least when the hackers do it, it will be funny and
Besides the creepy surveillance part, some of the street light tech is interesting .
lights that dim like the frozen food section - when no one is in front of the case --- RGB
lighting that shows the approximate location for EMS to a 911 call ( lights that EMS can
follow by color)
basic neighborhood street lights are being replaced by LED -- lights in this article.
Hey, I have street lights AND cameras on the same poles at the shop/mad scientist lab/
but- surveillance -- the wall better have these lights -- light up the border !
I personally don't understand the French electorate on these matters. Macron in particular
did not promise anything other than to deliver more of the same policies, albeit with
more youth and more vigor, as a frank globalist. Who, exactly, was excited at his election but
is disappointed now? People with a short attention span or susceptibility to marketing
gimmicks, I assume.
It is hard to talk about the French media without getting a bit conspiratorial, at least, I
speak of "structural conspiracies." Macron's unabashed, "modernizing" globalism certainly
corresponds to the id of the French media-corporate elites and to top 20% of the
electorate, let us say, the talented fifth. He was able to break through the old French
two-party system, annihilating the Socialist Party and sidelining the conservatives. The media
certainly helped in this, preferring him to either the conservative François Fillon or
the civic nationalist Marine Le Pen.
However, the media have to a certain extent turned on Macron, perhaps because he
believes his "complex thoughts" cannot be grasped by
journalists with their admittedly limited cognitive abilities . Turn on the French radio
and you'll hear stories of how the so-called "Youth With Macron," whose twenty- and
thirty-somethings were invited onto all the talk shows just before Macron became a leading
candidate, were actually former Socialist party hacks with no grass roots. Astroturf. I could
have told you that.
Macron has made a number of what the media call "gaffes." When an old lady voiced concern
about the future of her pension,
he answered : "you don't have a right to complain." He has also done many things that
anyone with just a little sense of decorum will be disgusted by. The 40-year-old Macron, who
has a 65-year-old wife and claims not to be a homosexual, loves being photographed with sweaty
... ... ...
So there's that. But, in terms of policies, I cannot say that the people who supported
Macron have any right to complain. He is doing what he promised, that is to say, steaming full
straight ahead on the globalist course with, a bit more forthrightness and, he hopes,
competence than his Socialist or conservative predecessors.
Bookmark In truth there are no solutions. There is nothing he can do to make the elitist and
gridlocked European Union more effective, nothing he can do to improve the "human capital" in
the Afro-Islamic banlieues , and not much he can do to improve the economy which the
French people would find acceptable. A bit more of labor flexibility here, a bit of a tax break
there, oh wait deficit's too big, a tax hike in some other area too, then. Six of one, half a
dozen in the other. Oh, and they've also passed
more censorship legislation to fight "fake news" and "election meddling" and other pathetic
excuses the media-political class across the West have come up with for their loss of control
over the Narrative.
Since the European Central Bank has been printing lending hundreds of billions of euros to
stimulate the Eurozone economy, France's economic performance has been decidedly mediocre, with
low growth, slowly declining unemployment, and no reduction in debt (currently at 98.7% of
GDP). Performance will presumably worsen if the ECB, as planned, phases out stimulus at the end
of this year.
There is a rather weird situation in terms of immigration and diversity. Everyone seems to
be aware of the hellscape of ethno-religious conflict which will thrive in the emerging
Afro-Islamic France of the future. Just recently at the commemoration of the Battle of Verdun,
an elderly French soldier asked Macron : "When will you kick out the illegal immigrants? .
. . Aren't we bringing in a Trojan Horse?"
More significant was the resignation of Gérard Collomb from his position as interior
minister last month to return to his old job as mayor of Lyon, which he apparently finds more
interesting. Collomb is a 71-year-old Socialist politician who has apparently awakened to the
problems of ethnic segregation and conflict. He said in his
farewell address :
I have been in all the neighborhoods, the neighborhoods of Marseille-North to Mirail in
Toulous, to the Parisian periphery, Corbeil, Aulnay, Sevran, the situation has deteriorated
greatly. We cannot continue to work on towns individually, there needs to be an overarching
vision to recreate social mixing. Because today we are living side by side, and I still say,
me, I fear that tomorrow we will live face-to-face [i.e. across a battle lines].
It is not clear how much Collomb tried to act upon these concerns as interior minister and
was frustrated. In any case, he dared to voice the same concerns to
the far-right magazine Valeurs Actuelles last February. He told them: "The relations
between people are very difficult, people don't want to live together" (using the term
vivre-ensemble , a common diversitarian slogan). He said immigration's responsibility
for this was "enormous" and agreed with the journalist that "France no longer needs
immigration." Collomb then virtually predicted civil war:
Communities in France are coming into conflict more and more and it is becoming very
violent . . . I would say that, within five years, the situation could become irreversible.
Yes, we have five or six years to avoid the worst. After that . . .
It's unclear why "the next five or six years" should be so critical. From one point of view,
the old France is already lost as about
a third of births are non-European and in particular
one fifth are Islamic . The patterns of life in much of France will therefore likely come
to reflect those of Africa and the Middle-East, including random violence and religious
fanaticism. Collomb seems to think "social mixing" would prevent this, but in fact, there has
been plenty of social and even genetic "mixing" in Brazil and Mexico, without this preventing
ethno-racial stratification and extreme levels of violence.
I'm afraid it's all more of the same in douce France , sweet France. On the current
path, Macron will be a one-termer like Sarkozy and Hollande were. Then again, the next
elections will be in three-and-a-half years, an eternity in democratic politics. In all
likelihood, this would be the Right's election to win, with a conservative anti-immigration
candidate. A few people of the mainstream Right are open to working with Le Pen's National
Rally and some have even defended the Identitarians. Then again, I could even imagine
Macron posing as a heroic opponent of (illegal . . .) immigration if he thought it could
help get him reelected. Watch this space . . .
How many immigrants from Africa come to Europe depends only on political will of Europeans. The
demography of African has nothing to do with it. Europe has means to stop immigration legal and
illegal. Macron talking about how many children are born in Africa is just another cop out.
A few months ago I claimed that Emmanuel Macron has/holds an ""Alt Right" worldview" due
to him having had interactions with an influential member of the French Protestant Huguenot
minority in France: http://www.unz.com/article/collateral-damage/#comment-1955020
[...] Macron : Germany is different from France. You are more Protestant, which results
in a significant difference. Through the church, through Catholicism, French society was
structured vertically, from top to bottom. I am convinced that it has remained so until
today. That might sound shocking to some – and don't worry, I don't see myself as a
king. But whether you like it or not, France's history is unique in Europe. Not to put too
fine a point on it, France is a country of regicidal monarchists. It is a paradox: The
French want to elect a king, but they would like to be able to overthrow him whenever they
want. The office of president is not a normal office – that is something one should
understand when one occupies it. You have to be prepared to be disparaged, insulted and
mocked – that is in the French nature. And: As president, you cannot have a desire to
be loved. Which is, of course, difficult because everybody wants to be loved. But in the end,
that's not important. What is important is serving the country and moving it forward.
The flailing New York Times attempted, frantically, to reassemble
George Soros into something resembling a respectable person in its November 1st edition.
The made-up claims and artifices used by the Gray Lady in this respect would tickle Edgar Allen
Poe who chronicled such an effort in his short story, "The Man Who Was All Used Up." If you
know Poe's story, he encounters a pile of clothing and artificial limbs lying on the floor
which begins speaking to him. A man then slowly assembles himself using all artificial parts.
As is typical of this newspaper, the actual George Soros is nowhere to be found in the
The Times describes Soros' fanatical drive to turn the United States into an opium den as
"drug reform." His disgusting crusade which looted Russia and subverted its intelligentsia on
behalf of the City of London is described as "service" on behalf of the United States. His
currency speculations which also destroyed whole countries are described as "intriguing"
investment decisions. The Times goes out of its way to mischaracterize Soros' confessed
adolescent role under the Nazis, working under forged identity papers in his native Hungary, to
confiscate the property of his fellow Jews. In a CBS 60 Minutes interview about this
perfidy, Soros admitted it, and stated that he had no guilt or regrets. Had he not acted in
this way somebody else would have, he said. The experience formed his character. The Times'
only reference to this well-known but inconvenient reality is to state that Soros lived under
the Nazis as a "Christian." But, what can you expect from a newspaper which openly praised
Adolph Hitler in his early incarnations?
The central purpose of the Times piece is name calling: pinning an anti-Semitic label on
those who think Soros is evil, particularly President Donald Trump. The fact that Soros is
funding British spy Christopher Steele's post-FBI existence, and the fact of Soros' continued
direction, participation, and funding of the regime change operation against the President
including many of the operations of RESIST, of course, have nothing to do with Trump's dislike
of George and are never mentioned to the reader. In this exercise, the Times also omits the
Israeli government's recent characterization of George Soros. While condemning recent
anti-Semitic incidents in Hungary, the Israeli Foreign Ministry emphasized that its statement
was not "meant to delegitimize criticism of George Soros, who continuously undermines Israel's
democratically elected governments by funding organizations that defame the Jewish state and
seek to deny it the right to defend itself." Finally, the Times asserts that all of the facts
now in circulation about George Soros are attributable to Lyndon LaRouche and unnamed Eastern
European tyrants. They link to the New York Times coverage of LaRouche's criminal
conviction. But even the footnote to that linked article makes clear that the Grey Lady can't
even do straight news coverage of a court case when it comes to their bete noire, Lyndon
LaRouche. As the corrective footnote explains, LaRouche was not convicted of substantive fraud
charges, like the Times article about that event asserted. Rather, the footnote explains,
LaRouche was convicted of a broad conspiracy. In truth, this was exactly the same type of Klein
conspiracy Robert Mueller is now using against the Russians he indicted for an alleged small
bore social media campaign in 2016. Klein conspiracies are famously abusive uses of the
conspiracy laws which allow prosecutors to cheat and convict people of made up crimes.
The Times' futile reconstruction effort of course fails, miserably. Soros is, simply, a man
who is all used up. The stuff people recount about him is provably and devastatingly true. The
only error made by his detractors is to believe he has any kind of power anymore. He only has
his money and such fame as comes from being a thoroughly British project –an aging and
overused hitman for the failing City of London.
"... Adam Schiff will shut down the probe that found FBI abuses. ..."
"... Credit for knowing anything at all goes to Intel Chairman Devin Nunes and more recently a joint investigation by Reps. Bob Goodlatte (Judiciary) and Trey Gowdy (Oversight). Over 18 months of reviewing tens of thousands of documents and interviewing every relevant witness, no Senate or House Committee has unearthed evidence that the Trump campaign colluded with Russia to win the presidential election. If Special Counsel Robert Mueller has found more, he hasn't made it public. ..."
"... But House investigators have uncovered details of a Democratic scheme to prod the FBI to investigate the Trump campaign. We now know that the Hillary Clinton campaign and the Democratic National Committee hired Fusion GPS, which hired an intelligence-gun-for-hire, Christopher Steele, to write a "dossier" on Donald Trump's supposed links to Russia. ..."
"... Mr. Steele fed that document to the FBI, even as he secretly alerted the media to the FBI probe that Team Clinton had helped to initiate. Fusion, the oppo-research firm, was also supplying its dossier info to senior Justice Department official Bruce Ohr, whose wife, Nellie, worked for Fusion. ..."
"... This abuse of the FBI's surveillance powers took place as part of a counterintelligence investigation into a presidential campaign -- which the FBI also hid from Congress. Such an investigation is unprecedented in post-J. Edgar Hoover American politics, and it included running informants into the Trump campaign, obtaining surveillance warrants, and using national security letters, which are secret subpoenas to obtain phone records and documents. ..."
Adam Schiff will shut down the probe that found FBI abuses.
Arguably the most important power at stake in Tuesday's election was Congressional
oversight, and the most important change may be Adam Schiff at the House Intelligence
Committee. The Democrat says his top priority is re-opening the Trump-Russia collusion probe,
but more important may be his intention to stop investigating how the FBI and Justice
Department abused their power in 2016. So let's walk through what we've learned to date.
Credit for knowing anything at all goes to Intel Chairman Devin Nunes and more recently a
joint investigation by Reps. Bob Goodlatte (Judiciary) and Trey Gowdy (Oversight). Over 18
months of reviewing tens of thousands of documents and interviewing every relevant witness, no
Senate or House Committee has unearthed evidence that the Trump campaign colluded with Russia
to win the presidential election. If Special Counsel Robert Mueller has found more, he hasn't
made it public.
But House investigators have uncovered details of a Democratic scheme to prod the FBI to
investigate the Trump campaign. We now know that the Hillary Clinton campaign and the
Democratic National Committee hired Fusion GPS, which hired an intelligence-gun-for-hire,
Christopher Steele, to write a "dossier" on Donald Trump's supposed links to Russia.
Mr. Steele fed that document to the FBI, even as he secretly alerted the media to the FBI
probe that Team Clinton had helped to initiate. Fusion, the oppo-research firm, was also
supplying its dossier info to senior Justice Department official Bruce Ohr, whose wife, Nellie,
worked for Fusion.
House investigators have also documented the FBI's lack of judgment in using the dossier to
obtain a Foreign Intelligence Surveillance Act (FISA) warrant against former Trump aide Carter
Page. The four FISA warrants against Mr. Page show that the FBI relied almost exclusively on
the unproven Clinton-financed accusations, as well as a news story that was also ginned up by
The FBI told the FISA court that Mr. Steele was "credible," despite Mr. Steele having
admitted to Mr. Ohr that he passionately opposed a Trump Presidency. The FBI also failed to
tell the FISA court about the Clinton campaign's tie to the dossier.
This abuse of the FBI's surveillance powers took place as part of a counterintelligence
investigation into a presidential campaign -- which the FBI also hid from Congress. Such an
investigation is unprecedented in post-J. Edgar Hoover American politics, and it included
running informants into the Trump campaign, obtaining surveillance warrants, and using national
security letters, which are secret subpoenas to obtain phone records and documents.
Mr. Nunes and his colleagues also found that officials in Barack Obama's White House
"unmasked" Trump campaign officials to learn about their conversations with foreigners; that
FBI officials exhibited anti-Trump bias in text messages; and that the FBI team that
interviewed then Trump National Security Adviser Michael Flynn reported that they did not think
Mr. Flynn had lied about his Russian contacts. Mr. Mueller still squeezed Mr. Flynn to cop a
All of this information had to be gathered despite relentless opposition from Democrats and
their media contacts. Liberal groups ginned up a phony ethics complaint against Mr. Nunes,
derailing his committee leadership for months. Much of the media became Mr. Schiff's scribes
rather than independent reporters. Meanwhile, the FBI and Justice continue to stonewall
Congress, defying subpoenas and hiding names and information behind heavy redactions.
There is still much more the public deserves to know. This includes how and when the FBI's
Trump investigation began, the extent of FBI surveillance, and the role of Obama officials and
foreigners such as Joseph Mifsud, a Maltese academic who in spring 2016 supposedly told Trump
campaign adviser George Papadopoulos that Russia held damaging Clinton emails. When he takes
over the committee, Mr. Schiff will stop asking these questions and bless the FBI-Justice
refusal to cooperate.
Senate Republicans could continue to dig next year, but Mr. Mueller seems uninterested.
Attorney General Jeff Sessions in March asked Utah U.S. Attorney John Huber to look into FBI
misconduct, but there has been little public reporting of what he is finding, if he is even
still looking. Justice Inspector General Michael Horowitz is investigating, though that report
is likely to take many more months.
* * *
All of which puts an additional onus on Mr. Trump to declassify key FBI and Justice
documents sought by Mr. Nunes and other House investigators before Mr. Schiff buries the truth.
A few weeks ago Mr. Trump decided to release important documents, only to renege under pressure
from Deputy AG Rod Rosenstein and members of the intelligence community.
Mr. Sessions resigned this week and perhaps Mr. Rosenstein will as well. Meantime, Mr. Trump
should revisit his decision and help Mr. Nunes and House Republicans finish the job in the lame
duck session of revealing the truth about the misuse of U.S. intelligence and the FISA court in
a presidential election.
"... Later, it emerged that QIA and Glencore planned to sell the majority of the stake they had acquired in Rosneft to China's energy conglomerate CEFC, but the deal fell through after Beijing set its sights on CEFC and launched an investigation that saw the removal of its chief executive. The investigation was reportedly part of a wide crackdown on illicit business practices on the part of private Chinese companies favored by Beijing. ..."
Russian VTB, a state-owned bank, funded a significant portion of the Qatar Investment
Authority's acquisition of a stake in oil giant Rosneft , Reuters
reports , quoting nine unnamed sources familiar with the deal.
VTB, however, has denied to Reuters taking any part in the deal.
"VTB has not issued and is not planning to issue a loan to QIA to finance the
acquisition," the bank said in response for a request for comment.
The Reuters sources, however, claim VTB provided a US$6 billion loan to the Qatar sovereign
wealth fund that teamed up with Swiss Glencore to acquire 19.5 percent in Rosneft last year.
Reuters cites data regarding VTB's activity issued by the Russian central bank that shows VTB
lent US$6.7 billion (434 billion rubles) to unnamed foreign entities and the loan followed
another loan of US$5.20 billion (350 billion rubles) from the same central bank.
The news first made
headlines in December, taking markets by surprise, as Rosneft's partial privatization was
expected by most to be limited to Russian investors. The price tag on the stake was around
US$11.57 billion (692 billion rubles), of which Glencore agreed to contribute US$324 million.
The remainder was forked over by the Qatar Investment Authority, as well as non-recourse bank
Russia's budget received about US$10.55 billion (
710.8 billion rubles ) from the deal, including US$ 270 million (18 billion rubles) in
extra dividends. Rosneft, for its part, got an indirect stake in Glencore of 0.54 percent.
emerged that QIA and Glencore planned to sell the majority of the stake they had acquired
in Rosneft to China's energy conglomerate CEFC, but the deal fell through after Beijing set its
sights on CEFC and launched an investigation that saw the removal of its chief executive. The
investigation was reportedly part of a wide crackdown on illicit business practices on the part
of private Chinese companies favored by Beijing.
Here is classic: GDP PPP per capita. What to pay attention.
#1, After 30 years and joining EU and NATO there is no difference in former Soviet bloc.
Just looks like Russia is greatest profiteer. Now those parasites are chained to west.
#2, countries of former Soviet bloc are in better shape than countries that were in sphere
of western imperialism. Especially look at countries where USA imperialism worked since 1823
Monroe's doctrine. Chart shows that in 200 years USA was not able to achieve much progress
despite permanent military interventions and political influence.
.............. try, try to "Unchain America" next July 4. What better way to celebrate
Independence Day than with a joining of hands across the land, if not to secede, then to
affirm our right to, one state at a time?
It's 2,790 miles from New York to Los Angeles, which is 14,731,200 feet. At three feet per
person, it would take around 4,910,400 people -- less than 1/66th of the US population -- to
make a human chain like the three Balkan states did.