naked capitalism

Anonymous says:

Thanks for the Lessig link. I wrote a few papers in law school on copyright law, many based on a Lockean property rights analysis. So I’m a basic believer in the importance of copyright and its place in what appears to be a general social acceptance of certain “fair” ways to protect the rights of creators. But it saddens me to no end to see how out of control the system is in this country and how it has been thoroughly co-opted by corporate interests. It seems to be just another example of the “shadow plutocracy” that has been obscured beneath the recent plethora of bread and circuses.

Yves Smith says:

EvilHenryPaulson,

I am not disputing the general point, the cliche that even in bad markets that there are good stocks. It is that the New York Times cites several sources contending that the market is cheap. One is Marty Whitman, and per the MBIA example, his recent calls have been notably off.

doc holiday says:

God I love interspecies mingling, it just says more than can be expressed in words — this is all about tolerance and acceptance, companionship and the simplicity of friendship!

On that note, I have zero tolerance for wall street and corrupt government.

The evolution of this financial crisis is now like a contagion spreading from bank-to-bank and country-to-country, even from people like Buffett-to-Pimco. Bailout madness apparently is a coordinated effort for the global financial system to outrun the unregulated derivative monster it created.

This race against the destruction of capitalism does seem dire and profound as it challenges modern society, but thanks to years of foot-dragging by G7-like regulators, this financial crisis is now spreading at the speed of light.

This economic event continues to remind me of The War Of The Worlds, where the alien attack is eventually resolved by the collective failure of all the martians immune systems — they all fail together, as a group, because they are all exposed to the same bacteria from the same environment. The theme of a collective group of pirates on the same rat infested sinking ship clearly comes to mind this weekend.

I hate to jump right in to bees and Colony Collapse Disorder as yet another metaphor for this financial virus, but there is a very clear shared responsibility here, a deficiency shared from wall street, to Washington, Tokyo, London and the vast network of infected alien bees all exposed to the same toxic derivative poison, which remains un-recognized, un-controlled, un-confined and un-contained.

The current poisoned environment has obvious DNA roots in The South Sea Corporation. Hence, it may be worth going back through 300 years of toxic history to find similar examples of why financial viruses spread like fires, tsunamis or plagues. These previous events often rely on actions from G7-like leaders, who eventually spin words around in a haze of magic dust in an effort to gain confidence — yet, these are the same people that dance around in the loop to repackage Enron derivatives, bless subprime CDO Squared accounting fraud — and then dose out injections of liquidity to the drunken pirates.

FYI: EARLY SPECULATIVE BUBBLES
AND INCREASES IN THE
SUPPLY OF MONEY

http://mises.org/Books/bubbles.pdf

In the late 17th and early 18th centuries, England was waging numerous wars which it financed with continuous borrowing. This debt took the form of the government securities shown on the balance sheets of the Bank of England and the East India Company. The Bank, the East India Company, and later the South Sea Company, all were granted increased monopoly privileges in either banking or trading for their part in buying up government debt at lower interest rates.
Through his interest in the Bank of England and the East India Company, Law expanded his view of what forms money could
take. As early as 1707, only two years after Money and Trade was published, Law began to view exchequer bills, bills of exchange, and tallies as money.

In addition, new money was being created in the form of shares of stock in the Bank of England and East India Company.

What approximates most to a new type of money is the East India Company. The stock of this Company is divided into shares like that of the bank. They are traded each day on the exchange and the current price is published for the public’s information in the gazettes. As the transfer of these shares is easy they are given and received in payment at the
price at which they are traded, so that the
merchant or trader with payments to make does not need to hold money as a reserve. As part of his capital is held in the Indies Company he can use these shares for payment and if difficulties in exchanging them at that day’s market rate all he has to do is send them to the Exchange and convert them into specie, but as they are convertible they will not be refused. Law believed that this “new” money would rise in value along with inflation, as opposed to silver specie that would
decline in value as more was discovered or produced. Law felt that the exchequer bills and bills of exchange, like silver, were subject to this decline in value, because ultimately these instruments would be liquidated for specie.
But Law was beginning to view shares of stock, the way he had viewed land, as being superior to silver, believing that these shares could never decrease in value.
In ‘Me’moire, ‘ Law continued to propose a banking system based upon his land-bank proposal. However on a theoretical
level he was beginning to place more emphasis on liquidity. Murphy writes: ” He was defining as money any financial instrument that could be used as a medium of exchange.

Anonymous says:

I also enjoyed the Lessig article. Copyright is supposed to balance creators’ interests with society’s interest in cultural development. The balance has tilted completely to [mostly corporate] creators. Most copyrighted works from our childhood will never be available for adaptation during our lifetimes. For example, a 1955 novel that my wife would like to adapt to film is still locked up by the author’s heirs, and will remain so for decades. That’s oppressive. It leaves us culturally exploited and culturally impoverished.

Please help me with “The Bernanke Conundrum” article. Steve Waldman says, “The ’stabilization act’ included a clause that gives the Fed authority to pay interest on bank deposits, which permits the central bank to partially sterilize cash injections without having to sell securities from its much depleted portfolio.”

I understand the concept of stabilization. But I don’t understand how paying interest on reserves serves as a “partial sterilization” mechanism, or any sterilization at all.

The Fed’s H.4.1 report shows a balance sheet that has balloned from $900 billion to over $1.5 trillion in the past few months. It includes $414 billion of liabilities to the Treasury. As I see it, essentially the Fed has monetized $414 billion of questionable securities on the asset side of its balance sheet, and booked a $414 billion liability which can be spent on minority stakes in banks, tax rebates, helicopter drops, champagne baths, or whatever.

Or to adapt the Mises article quoted by Doc Holiday above (copyright law be damned!):

“Bernanke was beginning to view derivative securities, the way he had viewed land, as being superior to silver, believing that these instruments could never decrease in value.”

And if you book ‘em at cost, never writing them down to market … THEY CAN’T!

Anonymous says:

Obama announced that he is looking into changing bankruptcy law to allow individual debtors to modify mortgages on their primary residence. As many of you know, corporations can have mortgage debt modified in bankruptcy, and before the 1970’s, individual debtors also could. http://www.housingwire.com/2008/10/10/obamas-plan-fraud-prevention-bankruptcy-reform/

This will help current homeowners and hurt current lenders. But going forward, stregnthening bankruptcy protections this way will reduce credit lenders are willing to extend. Nevertheless, I am in favor of allowing this because borrowers, lenders, and the brokers and other facilitators involved have tendencies to make imprudent loans, and bankruptcy protection for debtors puts limits on their imprudent behavior.

Anonymous says:

"you'd rather see elected a corrupt chicago pol with no record at all, a slew of corrupt friends and associates (not one that is honorable), a man with a history that raises so many questions of judgement and character?"

YES. After the last eight years of constant looting & hideous governance, how can any Repulican even say the word "corrupt"?? You will have OBAMA and you might just learn to like it. By the way some feel Paul Volker has just a touch of honor.

Anonymous says:

My husband is originally from England, so he’s a dedicated Republican. However, he has an excellent education, master’s degrees in math, physics, and electrical engineering, and has not had so much as a telephone call for a job interview in the past six years. Rest assured he is NOT voting Republican this year, and that’s a warning balloon to Roger Ailes, Rush Limbaugh, the Swift Boat Veterans for Truth, and Karl Rove. My husband has learned the hard way that the Bush Tax Cuts do not work to create jobs in the US. Remind me what sort of people did Barack Obama associate with in law school?

yoyomo says:

Bless you Yves,
This picture of the fawn makes up for that heartbreaking picture of the cheetahs traumatizing the baby gazelle. This sort of inter-species harmony is cheering.

Anon,
Don’t bother.

John says:

Ya know… We’ve ONLY got a two party state in this country. The Dems are practical socialists the Republicans are practical fascists (or maybe were practical fascists, we’ll see of Palin and her followers imaginary-friend take the country to martial law before this election is over with). 75% of Americans have been perfectly happy with having EITHER a smothering guilt-ridden mommy-party or a kick-ass frat-boy daddy party. This allows the Joe-six-packs to vote without thinking; which is really all he wants. After all, when you talk with the average Joe-six-pack he hasn’t got a clue about the purpose of government other than using it to punishing somebody else. Sadly, the other 25% of the population have to pick from these two parties. That’s been the game for the last ~40 years anyway. Nothing’s going change as long as the two parties have a lock on the political process. Socialist and fascists philosophies of life are too contrasting for compromise and without a third party to force some sanity the US is stuck careening from fascism to socialism, with both parties giving away the country to the ruling party’s owners. Is dis a great country, or what?