Author Archives: Yves Smith

Ilargi: Follow The Money All The Way To The Next War

The prospect of unnecessary war has focused Ilargi’s mind. He starts with an important article in Handlesblatt that a record number of NC readers flagged, then turns to an issue we’ve focused on: what is the evidence behind US claims of Russian responsibility for the downing of MH17? After Colin Powell’s Iraq WMD canard, it’s remarkable that anyone accepts “trust me” from American officials, but remarkably, that’s where things stand.

One excuse offered for the failure of the US to support its claims is that the military apparatus does not want to expose its information-gathering capabilities. But there’s another, more obvious reason.

Links 8/9/14

Randy Wray: Why Money Matters

Our Mission Oriented Finance conference explores how to direct funding toward what Hyman Minsky called “the capital development of the economy”, broadly defined to include private investment, public infrastructure, and human development. (See more here.)

But to understand how, we need to understand what money is and why it matters. After all, finance is the process of getting money into the hands of those who will spend it.

Michael Hudson: S is for Saint-Simon

Part S in the Insider’s Economic Dictionary

S-curve: The typical shape of growth in nature, such as human beings whose height tapers off as they reach maturity. They also typify most business cycles, which taper off after an upswing as employment, raw-materials and resource limits are approached and wages and commodity prices rise, slowing profits. The demand for specific products likewise tapers off as markets become saturated. Meanwhile, the fact that financial claims and debts tend to grow at compound interest means that financial dynamics tend to outrun the S-curve of production and consumption, creating business crises which end the upswing.

Links 8/8/14

Access Journalism, Agnotology, and Breeding for Elite Incompetence

There’s nothing quite like watching systems deliberately made worse, all in the name of better propaganda.

One rapidly escalating trend among officials and government agencies is making more and more information, including decades-old material, either impossible to obtain or accessible only to journalists who are “trusted,” meaning they are deferential to authority and will put the best possible spin on what they are fed.

Private Equity Kingpins KKR, Blackstone, TPG Settle Collusion Lawsuit for $325 Million with Detroit Police and Fireman (et. al.)

It’s pretty much a given that the underlying conduct smells to high heaven when the top legal fixers in America can’t get seriously rich men out of trouble. In this case, the rich men are the private equity alpha players: KKR, Blackstone, and TPG, who have agreed to shell out $325 million among them to settle claims of collusion on bidding for potential acquisitions. Note that this settlement needs to be approved by the judge to become final. Three other funds, Bain, Goldman, and Silver Lake, already settled with the plaintiffs.

Ilargi: Europe Teeters On The Edge

Yves here. Ilargi is more amped up that usual on the topic of Europe’s self-inflicted wounds resulting from joining the US in imposing so-called Tier Three sanctions against Russia. This own goal results from Europe offering itself as as economic shield, since by virtue of having its nations far more engaged in commerce with Russia than the US, it stood first in line in the event Russia decided to respond in kind. And that’s before you throw in that Europe’e economy and its banking system are in far more fragile shape than America’s.

Wolf Richter: Goal of Booming ‘Internet of Things’: Monitoring, Sensing, Remote Control – Factory Workers First, You Next

I first heard about what would later be called the Internet of Things in 1991 from Michael Hawley, who happened to be providing support for my NeXT computer. Hawley was then a graduate student at MIT and favorite of Nick Negroponte. (Hawley, who had also worked at NeXT, pointed out that having him do my tech support was tantamount to having Steve Jobs on deck). He later became a professor in the MIT Media Lab

In addition to showing me the coolness of networks (like accessing files on remote computers, which was bleeding edge back then), he was also keen about discussing digital libraries and how his belt buckle would be able to talk to his refrigerator and why that would be useful. I kept quiet about my reservations about my objects having private conversations about me.

The problem with the idea of having even more devices than your smartphone and tablet gathering information for your convenience, of course, is the many ways all that data can be used against you.

GFC Seer Raghuram Rajan Warns of New Crash

Yves here. There has been so much anticipation of the seemingly inevitable next financial markets crash that it’s easy to brush off yet another market call. But given Rajan’s track record, it’s worth at least listening to his reasoning.

It’s noteworthy, however, that post author Llewellyn-Smith sees no crash detonator prior to 2016, which might as well be 2025 as far as most investors are concerned. I have no idea what the timing will be, but the focus on financial/asset markets as the trigger seems unduly narrow. Geopolitics are vastly more fraught than in the runup to the global financial crisis, and we also have more unstable weather, such as the drought in California, which is certain to put pressure on food prices in the US. In other words, it appears that real economy risks, which are often wild cards, are not adequately factored into these “when might the wheels come off” exercises.

Only Now Does Influential Bank Group Complain That Low Volatility is Producing Too Much Risk-Taking

The spectacle of banks wring their hands about how low volatility is leading them as well as investors to take on too much risk bears an awfully strong resemblance to a child who has killed his parents asking for sympathy for being an orphan.

How Much of a Short Position Did Paul Singer Take in Argentina? And Who Were the Bagholders?

With the Argentine default, we are seeing a replay of a strategy that established Naked Capitalism readers will remember from the crisis: use a complex structure to disguise risk so that short sellers can place their wagers at far lower prices than they would be able to otherwise. And that raises the interesting question of how large a net short position Paul Singer, the instigator of the litigation that has undone Argentina’s restructuring deal and put the country in default, took against Argentina, as well as the relationship among the parties that put on the positions on behalf of short sellers.

Ilargi: In The Lie Of The Beholder

Yves here. Ilargi uses strained messaging in response to recent market upsets, the Argentine default, and the failure of Banco Santo Espirito to address one of NC’s pet topics, propagandizing. Most people think of propaganda as the deliberate crafting of false or misleading messages, or the simple Big Lie. However, there’s also the variant of the deeply vested partisan. As Upton Sinclair stated, “It is difficult to get a man to understand something when his salary depends on his not understanding it.” And a lot of those salaried-by-the-status-quo folks have access to media megaphones.

CalPERS Rescinds $700 Million Investment With Private Equity Fund Headed By Doctor With No Private Equity Experience

You cannot make stuff like this up. The giant public pension fund CalPERS didn’t just make a “what were they smoking” private equity investment. The turkey deal was also stunningly large.

Regulators Reject Living Wills of 11TBTF Banks, a 100% Fail Rate

Mirabile dictu, it looks like Elizabeth Warren’s grilling of Janet Yellen on the Fed’s failure to make progress on Dodd Frank resolutions, also known as living wills, has had some impact. From the Wall Street Journal: