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The Criminogenics of Free-Market Oligarchism…

June 14, 2012

Sometimes I have to ask myself what we are doing? If it is even half as bad as it seems, and all evidence is that it is more likely twice as bad as it seems, then surely some kind of action is called for. But that is the persistently troubling nature of the problem – it is wrapped up in a cloak of “individuality” and “do-nothingism.” Ho hum. The News Makes Me Crazy.

Engineering a crime spree. One of my core arguments against “economics” is that, while many economists are indeed working from a “scientific” set of principles, the worldview created by free-marketism is theological rather than scientific, and nobody has disabused “the people” of their mistaken ideas – partly because their ideas are supported by large numbers of the economist-priests themselves, partly because the worldview has been made into an American “Identity” of sorts.

So, what do we have? If you believe in your heart of dark little hearts that regulation is the enemy of capitalism, and knowing that to be true you only seek evidence that confirms your worldview, then no matter how bad things go in (say) the financial world, you will stick to what you “know to be true” no matter how much evidence is supplied to the contrary. That is what we call “conceptual confirmation,” where you have a model of the world in your head (conceptually) and you look at the world through those lenses (perceptual filters) and only to confirm your ideas about reality. In other words, it is starting with the answer and trying to bludgeon reality to fit your concepts and models and all of these “a priori truths” you have bouncing around in your noggin. This is the precise opposite of the scientific method.

So, more crime. Surprise surprise, surprise…

But all of this could be said differently, in the language of conspiracy:

“Over the last thirty years, the United States has been taken over by an amoral financial oligarchy, and the American dream of opportunity, education, and upward mobility is now largely confined to the top few percent of the population. Federal policy is increasingly dictated by the wealthy, by the financial sector, and by powerful (though sometimes badly mismanaged) industries such as telecommunications, health care, automobiles, and energy. These policies are implemented and praised by these groups’ willing servants, namely the increasingly bought-and-paid-for leadership of America’s political parties, academia, and lobbying industry.

If allowed to continue, this process will turn the United States into a declining, unfair society with an impoverished, angry, uneducated population under the control of a small, ultrawealthy elite. Such a society would be not only immoral but also eventually unstable, dangerously ripe for religious and political extremism.

Thus far, both political parties have been remarkably clever and effective in concealing this new reality. In fact, the two parties have formed an innovative kind of cartel—an arrangement I have termed America’s political duopoly, which I analyze in detail below. Both parties lie about the fact that they have each sold out to the financial sector and the wealthy. So far both have largely gotten away with the lie, helped in part by the enormous amount of money now spent on deceptive, manipulative political advertising. But that can’t last indefinitely; Americans are getting angry, and even when they’re misguided or poorly informed, people have a deep, visceral sense that they’re being screwed…

Global Sovereignty?? And a daily does of “Not all leaks are created equal.”

So, what exactly is “Global Sovereignty?” I guess that is just admitting to our imperial prerogative to invade your hierarchically (definitionally) lower “national sovereignty.”

The actual article goes on to discuss selective leaking and leak prosecution by the Obama administration. If you don’t think this is a big deal, see below and how most national security type journalists have been chilled, if not yet silenced completely – prosecuted and hauled into court, even… Good times.

Really it would be better if all journalism began and ended at the press briefing. We are at war, damnit, so fall in line!! But haven’t we always been at war with Eurasia? I forget now.

Decoding Dimon. I have argued several times (and will continue to argue) that you can not understand economics without the “Bio-Physical” component. Yves Smith has argued persuasively that you also can not understand modern economics without a deep understanding of how finance actually works. Do I think there is a certain “paid bias” and a little “political posturing with no hope of action” to these “hearings?” Of course. Does it appear that basically nobody is qualified to be asking questions? Also yes.

In Senate testimony, Dimon revealed his idea of “portfolio hedging” to be even more egregious than the harshest critics thought. Dimon presented the job of the CIO to be to make modest amounts of money in good times and to make a lot of money when there’s a crisis. (That does not appear to be narrowly true, since in the last couple of years, during which there was no crisis, the CIO’s staff were among the best paid in the bank and produced significant profits for the bank. That is a bald faced admission that the CIO’s mandate had nothing to do with hedging. A hedge is a position taken to mitigate losses on an underlying exposure should they occur. Instead, Dimon has admitted that the mission of the CIO is to place bets on tail risks that are unrelated to JP Morgan’s exposures. A massive, systemically destructive strategy like the Magnetar trade would fit perfectly within the CIO’s mandate.

Needless to say, this definition is an inversion of not just what the Volcker rule was meant to stand for (limiting financial firm gambles with taxpayer money), it’s NewSpeak, or in this case, DimonSpeak: “a hedge is whatever I say it is, no more and no less.” Another bit of DimonSpeak was his specious response when he was arguing against the Volcker rule. The JP Morgan chief asserted that a customer loan could be construed to be a prop trade. Um, no, Volcker applies to trading books. The fact that he’d run a line like that shows how little he thinks of the intelligence of the Senate Banking Committee and the public generally.

We argued yesterday that Dimon was running a hedge fund in the CIO, and his testimony confirms that. As we wrote:

It’s likely that a significant portion of the CIO’s activities were an accounting gimmick. Let’s remember why it was located in Treasury: it is the chief “investment” office, because it is managing the “investment” portfolio. Banks hold liquidity buffers so that they can meet a bank run. They get special accounting treatment on these positions. While they can sell them at any time, like trading inventories, they are NOT marked to market. Instead, they are kept in an “available for sale” portfolio, which is treated on a hold to maturity basis. That, in really crude terms, means you don’t need to recognize losses until they look pretty certain (usually, credit related).

So what does that mean, in practical terms? It means the CIO is the perfect prop trading/income smoothing vehicle. You can realize gains whenever you want to, by selling (provided the position is in a reasonably liquid market) or possibly even moving it over into your trading portfolio and you can defer most losses. If it makes a turkey trade, it can bury it until the bank has other trading gains or income in other businesses to offset it. And it can keep profitable positions around and realize them as needed to smooth earnings (while the unrealized losses are reported in footnotes, most investors don’t seem to pay much attention to that item). Investors really like smooth earnings, they mistake them for stability and strength of the business, as opposed to adept profit management. No wonder the people in the CIO were so well paid. They’d have to be Dimon’s favorite people.

By this point, most people’s eyes have glazed over. So the thievery shall continue, virtually unchecked.

In other News That Makes Me Crazy: It would appear Fukushima is still around (physical reality seems to persist long after our attention span dries up – Stupid Reality) &  Canadians are still protesting. (via Naked Capitalism) Ho hum.

Montreal. “A vision of free, publicly accessible post secondary education has strong roots in Quebec where the concept of universal access to education is often seen as comparable to socialized health care. This common value is the result of the massive overhaul of post secondary education in the 1960′s when, after mass student protests, the government created nine new university campuses and a free college system that was intended to open up higher education to those not part of the political and economic elite or clergy who then dominated Quebec. While tuition was initially justified to help cover the costs of the expanding campuses, students believed it would be eventually phased out.” “4170 estimated number of arrests made in Quebec since February as a result of the protests.” “We can not punish or arrest people for offenses they have not yet committed or are about to commit. Democracy requires that we take risks and that the police power should be strictly controlled.” Pearl clutching: Eugène Delacroix parody poster sold by Quebec rock band found in arrested Québec Solidaire MNA Amir Khadir’s home, shows Charest dead at feet of the Bananarchiste (Banane Rebelle guidant le peuple). Yves Bolduc, Quebec Health Minister: “There are always subliminal messages MR SUBLIMINAL Banane! Banane! put forward through paintings like this. For certain vulnerable people, this can be a danger.” Be sure not to keep any political cartoons in your house! Red Square: “The idea is to show up at Émilie Gamelin Park with $10 and receive a tattoo of the carré rouge on your chest. The event is called “Tatoo-O-thon de carrés rouges.” From the Facebook event: “They would like us to remove (our red squares). That is why we will put them on our chest in permanently. Imagine hundreds of people getting red squares tattooed on the chest at the same time, all in the same evening. A monumental ‘FUCK YOU’ to the authorities who would like to see (the squares) disappear.” Silent majority: “Will it be the PQ or the Liberals in the next elections? ‘It will either be the street and referendums or democracy and the economy,’ affirms Jean Charest. Under the pretext of this demagogic principle, the government is allowing a situation to fester to the point where it could deteriorate into a major social crisis. If serious events occur, the Premier will demonize civil disobedience, violence, chaos, vandals and all supporters of opposition movements.”

Minister of Culture, Communications, and the Status of Women, Mrs. Christine St-Pierre responds to Fred Pellerin, the red-square toting storyteller, who turned down the National Order of Québec. “St-Pierre’s public affirmation that there is a link between the red square and violence sends the loud and clear message that all those who have spoken out against the tuition hikes are potentially behind the universally condemned actions that have taken place at certain protests. The government is effectively saying that all those who wear the square could even be responsible. It charges anyone who wears the red square of guilt-by-association with the few that have committed some reprehensible acts. It also says that violent incidents are more than just the actions of a fraction of those present.”

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