bozo's return

Defending Paris and the Free Market

Last night on the tube I saw in someone else's Evening Standard the headline of an article:

"So have the free marketeers been proved wrong?"

Which reminded Bozo of a much loved witticism. Viz

"How many Frenchmen does it take to defend Paris?"

"Who knows, they have never tried!"

The one thing we learned from the crash and the credit crunch is that the market system we have been running in the West bears no relationship to a free market system. Any more than the Soviet system that collapsed in 1989/90 represented Communism in any real sense.

Let's go back to the Soviets for a second. Basically, everyone had a job, but people didn't always have food - still less tvs or gagdets or a free press. But the system could say - "Everyone has jobs!"

When the food went short - it wasn't the people running the system (let us call them the Apparatchiks) who suffered. Apparatchiks always  eat well and get limos to drive them down special lanes in the middle of the road. It is only the ordinary folk who actually suffered from Soviet systemic failure. The central system always paid whatever price was needed to be paid to preserthe system. And this system endured from 1917 to 1989 with only a few million victims of starvation or purge. It endured until the cost of military competition with Ronald Reagan made the last rouble of cash or credit just run out.

Whoa!! Wait a minute.

Let me get this right.

You mean when the system went wrong, the central government bailed out the system?

You mean that when the system went wrong, ordinary people suffered but the people at the top of the system didn't?

Surely thats the same system we have been running!!!!!!!!!!!!

Indeed erudite readers. Exactly the same.

We have no idea if the free market works - because we don't operate it.

Bear Stearns and Lehmans may have been allowed to go broke - but AIG wasn't. And if AIG had - well then so would half a dozen other investment banks (with Goldmans at the fore). Indeed - we are told that the reason AIG and RBS et al were balied out is to preserve western society as we know it. Right?

When Hank Paulsen was still at Goldmans he could have explained how the free market worked. That's why, as Secretary of the Treasury, he let Lehmans go down the loo. The market reaction to this scared ole Hank so he then decided the greater good involved making sure Goldmans survived.

The whole market - at this point in time was not saying "We are a free market, government must keep its hands off. The market will police our failures!"

Or if it was I didn't hear them - and nor did ole Hank. (Nor ole Gordon).

What I heard the market saying was:

"Give us money now! Or we won't get our bonuses! Er no, we mean give us money now or the whole fabric of western society will crumble into dust!"

Nowadays - whenever the subject of more stringent government regulation comes up the HSBCs of this world talk about moving HQ back to Asia. Why? So they can be free of course! free to be proper free marketeers! Until they need the tax payer to pay their losses and underwrite their bonuses again.

You can make a gazillion comments telling me Capitalism is superior to Communism.

You can tell me the western system has given more people more benefits than the Soviet system.

You can tell me more scientific and medical progress has been made in the Western system (and I will nod my head and say, yeah, military too - and wait till we start designing the enclaves we will need to build to protect the wealthy from the rapidly growing underclasses we have created).

You can tell me all that - and I will say but two things

1) Fine, its superior - but don't tell me its the free market - because in the free market the Federal Government doesn't own AIG or Royal Bank of Scotland "in order to preserve society as we know it".

2) The Soviet system worked too - until there wasnt enough money to bail it out any more.

I will let Abraham Lincoln say the third thing:

Labor is prior to, and independent of, capital. Capital is only the fruit of labor, and could never have existed if labor had not first existed. Labor is the superior of capital, and deserves much the higher consideration.

Feel free to spout that capitalism is superior - but don't tell me its the free market - not until 100 years after the banks return to private ownership.

The soviet system did not fail for any other reasons than that the pople stopped standing for it and the money to preserve it ran out.

When I read about JP Morgan's CIO (already long gone from our headlines) I am left wondering how long a "free" market full of such cowboys will take to repeat the whole crash. After all - if you keep doing what you have always done - you will get what you always got! And if we get another crash or two - I do wonder if the people will stand for it -and if the money will exist to bail it out again.

How familiar it all sounds.

 

Out of the mouths of babes...

As regular readers will know Bozo is a solid follower of the razor sharp philosophy of Hobbes (as in Calvin and Hobbes/ Bill Watterson).

Today I would like to highlight the wisdom of 6 year old Calvin in the 'toon published last Sunday online here.

With full acknowledgement to Mr Watterson let me share his wisdom (for those of you too lazy to click on the link), Calvin, whilst careering downhill on a cart with Hobbes, says:

It's true Hobbes, ignorance is bliss. Once you know things you start seeing problems everywhere and once you see problems you feel like you ought to try and fix them and fixing problems always seems to require personal change and change means doing things that aren't fun. And I say Phooey to that! But if you;re wilfully stupid you don't know any better and you can keep doing whatever you like!

The secret to Happiness is short-term stupid self-interest!

Hobbes interupts to say:

We're heading for that cliff!

Calvin Continues:

I don't want to know about it.

 

In a crumpled heap at the bottom Hobbes says :

I'm not sure I can stand so much bliss.

Calvin replies:

Careful, we don't want to learn anything from this.

 

Well surely it is entering the realm of patronising my well-read, well-educated, street-smart readers to point out the similarity of the whole 'toon to the behaviour of investment bankers?

Of course, there is a slight difference, the investment bankers float gently to earth on the parachute of immense bonuses leaving the hoi polloi to do the actual crashing.

But recent activity at JP Morgan clearly confirms that none of them want to learn anything at all from the last crash.

Rober Peston (many thanks and acknoweldgements to him) in his blog yesterday (to be found here) has actually found an investment banker who fulfilled the Hobbes role and told JP morgan their CIO was heading for a cliff.

His name? Bill Winters, former co-head of JPMorgan investment bank.

His warning?

• that the risks being taken by JP Morgan's Chief Investment Office were not transparent enough
• that it was a discreet trading operation answerable only to Dimon and whose deployment of the bank's precious capital could not be scrutinised by other senior executives

The result?

Well now you know why he is the former co-head. His warnings got him "pushed out of the bank in summer 2009" as Mr Peston puts it.

Yup he warned them three years ago and they echoed Calvin "I don't want to know about it!" and got rid of him.

Of course Jamie Dimon and Ina Drew have lost their jobs. But Jamie Dimon and Ina Drew are wealthy people who have benefited from bonuses generated by the CIO's activities for the past 3 years since the got rid of Mr Winters - so they will, I suspect, cope with this setback they will be floating gently to earth on their bonus parachutes.

Who will be lying in a crumpled heap at the foot of the cliff?

Interestingly, JP Morgan's employees are suing the bank for trashing their retirement funds. I hope they win - it will compensate them for the inevitable job cutbacks.

When JPM announces the rank and file redundancies remember where you read it first.

Risk, Regulation and Relocation

Alliteration alive and well...

 

Some random thoughts from the Bozo on the subjects of Risk, Regulation and Relocation.

Starting at the end.

I read with a smile today that Stuart Gulliver has told investors that relocating HSBC back to Asia is postponed indefinitely. Of course there may be a myriad of reasons (SG cites "too many moving parts") but SG himself lives in South Ken (I mean who wouldnt! Bozo lived there himself for a while) and let's face it the convenience of a 10 minute limo drive to the corporate box at Stamford Bridge or Twickenham is a lot more alluring than Hong Kong - let alone Zug. And I would be unsurprised to learn that many of the senior execs at HSBC - as well as many of the traders have weektime pads with postcodes such as SW1, SW7, SW5, SW10, W1 (with of course two or three other addresses each too)... and much as you might whine about high taxation (which whilst you might be technically liable for -  you don't seem to actually pay anyway) and new regulation - none of you really want to relocate to Zug, or Shanghai, still less Beijing or boring old Singapore (hardly a tax haven itself).

So What about Risk - well I smiled when I read in last night's Standard that JP Morgan's losses are more like £4.4 billion than £2 billion. How very predictable. But it also raised an eyebrow because last night I also viewed a documentary on PBS called "Breaking the Bank" - it was about the financial crisis but focused very much on the experience of BoA/Nationsbank/whatever taking over M Lynch. Clearly they got screwed - and clearly goold old Hank (line Goldman's pockets) Paulsen gave them little option. But the funny thing was that some guru/insdier said:

"We nationalised the banking industry that day in September, and the man at 1600 Pennsylvania Ave is now the most influential man on Wall Street."

Really?

I alread blogged about how little Barack has done to reform the culture of Wall Street - but the fact is that his failure to do so means that it is not his fault that some dipstick egomaniac at JPM has set fire to another large chunk of economic growth - soon no doubt to be paid for by some massive redundancies among the ordinary working people of JP Morgan - it is the fault of the ongoing unchanged culture of Wall Street.

The tax payers of the western world (and I mean those who actually PAY taxes) have paid a trillion or several to bail out a banking system which is so unchanged that it is already showing signs of doing exactly what it was doing in the lead up to the last crisis - less than 4 years after the so-called nationalisation of the banking system!!!!

There is an old saying - if you keep doing what you're doing, you will get what you always get.

So why is anyone in banking surprised by what has happened at JPMorgan?????

Which brings me to ask what the big problem of regulation is. Why are you all so worried about regulation?

I mean, given what has been happening since 2007 it seems clear that regulation isn't preventing banks making fortunes - it will be preventing them losing fortunes!

But I already know the answer - and so do they - and so should the government - and all of you.

The truth of the matter is that this London Whale - and his boss, and the senior people surrounding them are all stinking rich from bonuses paid before these positions went south. They are none of them going to go to prison (unlike the bloke who nicked a pair of traders in the riots) and they are none of them going to be asked to pay the cash back.

Despite all the lessons the bonus culture continues despite all these lessons to say to traders:

"you keep the winnings, the shareholders or (better still) the tax payers, will take care of the losses."

So why is anyone surprised that the behaviour of traders is just as dangerously irrational today as in 2006/07???

There is no real believable indivdual downside to a trader from irrational trading behaviour. None. So why is anyone surprised when more evidence of it comes to light?

Regulation is not really the answer - it really isn't - the real answer is cultural change in banking. The real answer is prudent rationality. But we have seen so much evidence that prudent rationality is out of the reach of the people running the world's largest banks that regulation is left to be the only answer.

Prison might help ... not so much fun having a pad in SW7 and another beside Lac Geneve when you are doing a 5 stretch in Wandsworth sharing a cell with an armed robber.

And you may tell me no laws have been broken - and I will - as usual sigh  a long deep sigh and marvel at a society that will lock up an unemployed, uneducated, teenager for nicking trainers but has no lawas to punish highly educated, wealthy, privileged people sending the economy deep into the toilet for the sake of the ablity to buy another house and another car.

Sigh...

 

Politics, statesmanship, slavery

Let me give you one of my favourite political quotes:

"The dogmas of the quiet past are inadequate to the stormy present. The occasion is piled high with difficulty and we must rise with the occasion. As our case is new, so we must think anew and act anew. We must disenthrall ourselves and then we shall save our country"

Of course it could be about today. But it was Abraham Lincoln's congressional address in December 1862.

When there is a war going on that has slavery at its core, the word disenthrall has extr special connotations. But we are a society in thrall right now.

The staff at JP MOrgans CIO division (and probably not just them) are in thrall too. They are in thrall to money. To the making of it. To the worship of it. Because needing three homes and five cars is being enslaved to stuff. Because needing yet another £1,000,000 in bonus, when you get paid £1,000,000 and your bonus is already likely to double that anyway is the act of a junkie.

Here is another quote:

"Just because something is technically legal doesn't mean that it's appropriate. If I went around doing whatever I thought I could get by with, I'd be a slave to my whims."

That was St Paul writing to the Corinthians. He wasn't talking about making money. But he may as well have been.

I am not against money - it serves a purpose. I am not even againts the rich - the ones who actually pay taxes and give to charities also serve a purpose. But I cannot see how this so called more psoperous world we live in is really doing any good for any but the top 1 percentile of the wealthy.

Since the fall of the Iron Curtain, every year the gap in the west between rich and poor has got wider. Every single year!

And people say to me, "why does God allow poverty and starvation in Africa?" Well I think God provided us a world with more than enough resources to feed everyone. We just arent very good at distributing it fairly. And those people who ask me the question would be outraged if God;s solution was take some of what they have and give it away!! They feel God's solution should be just to create some more for the poor without taking any from the rich - just so they can feel better about having five cars and three homes and a £1,000 a week cocaine habit.

But there is an argument for a fairer society that ought to make sense to even the most rabid atheist.

The last time we had a recession this deep and long and in which the poor suffered all the pain and the rich just shrugged their shoulders was the 1930s. In which time poor people across large parts of the world became massively radicalised. The democractic governments had done nothing for them - so the lunatic fringe got a big look from the masses. So we had the atheist Hitler, and the atheist Stalin. And a war that killed millions upon millions of people.

We all look at documentaries about those times and ask:

"how could ordinary Germans support that lunatic?"

And I think the answer is simple: "What have the democrats given me except poverty and austerity and how come while i have all that to deal with, the rich get richer!"

We want to throw a rioter in jail for stealing a pair of trainers - but not one single person involved with the whole financial collapse of the world has ever been charged with anything. And we call that morality!

You may think France in 1789 is ancient history. You may think Russia in 1917 is ancient history. But ancient history is there to show the dimwitted what happens when the rich get richer and the poor get poorer.

We are creating a society where the rich get richer and the poor get poorer and it doesnt matter who you vote for the same thing happens. [Thirteen years of New Labour saw the rich get richer and the poor get poorer!]

Let us be wise enough to see sense before we radicalise another generation of young people who see no benefit in preserving decent democratic government.

Let us disentrhall ourselves from the addiction to money for money's sake.

 

Not so much Outrage as Despair

So, it is a US Election Year - and i do despair.

Like many - I was rather pleased when Barack  was elected. Of course to a large degree what he had most going for him was that he was NOT George W.

regular readers will know that I was rather upset with him when he got all anti British and spent such a lot of airtime making political capital at the expense of BP - Or British Petroleum as he insisted on calling it.

 

That his outrage was insincere and totally political became oh so clear when Haliburton or American Haliburton as I like to call them) were found by US Courts to be equally liable with BP for the Gulf Oil disaster. Surprisingly we heard little from Obama on the subject. Not a single word in fact.

So we begin to suspect that he is just another typical US politician after all.

My one big hope was the statement he made in an interviews that "We have to change the culture of Wall Street."

This was a policy I could get behind.

And this is where I now feel so let down.

JP Morgan's recent trading disaster. For those of you who havent heard click here.

Looks like the culture change is pretty slow work huh Mr President?

In the Telegraph article it says that the first warnings about the activity of JP MOrgan's CIO deoartment were made in2007. That is (a) 5 years ago, and (b) just before the biggest financial meltdown in Global History. Yet, despite Bear Stearn's collapse, despite Lehman's collapse, despite the fact the only reason Goldman's still exists was the government bailout of AIG and the fact that theTreasury Secretary Hank Paulsen coerced AIG into paying out 100% of its debts and also made them give up the right to sue Goldmans. Of course Paulsen's previous job, as CEO of Goldmans had nothing to do with this, but I digress. Despite all that went on. J P Morgan did not rein in the CIO.

No far from it. The assets controlled by this bunch of cowboys has actually tripled since 2007 to $350 Billion.

So what has this got to do with Barack?

Well - unlike the last fiasco - it happened on his watch. And it happened after he promised change.

But what has he done to generate this change?

Zilch.

The core of his economic advisory team have always been the same academics who are paid fat consultancy fees by the financial services industry to keep the pedal to the metal on deregulation of banking and maintaining the open ended legality of the derivatives casino.

My favourtie case study in this regard is Larry Summers.

Larry worked on the Council of Economic Advisors under Reagan. Great start huh? He was a key economics man for Clinton at the time when Ole Bill was breaking down Glass-Steagal and allowing high street banks to join in the casino, putting depositors money at risk. My favourtie Clinto years story is then he and Alan Greenspan (another man asleep at the sub-prime wheel) joined in with Ken Lay of Enron to blame California Governor Davis for what Enron were doing to the state oif California!

The man is a total shill for the derivatives casino. Famously, at a symposium in which the Wolrd Bank presented a paper that said derivatives were making the financial world more risky not less, Summers sttod up and practically called them idiots. This was 12 months before CDOs caused the biggest depression ever known by the human race.

He is not just a shill though - he believes in this nonsense!!!  As president of Harvard University (it is his academic track record that theoretically qualifies him as un unbiased advisor to presidents) he persuaded the University to enter the Casino with its own money. By 2008 that little experiment had cost Harvard over $800 MILLION.

 

So why is Larry Summers a case study of how Obama let us all down in the refomr of financial services?

Well who was it who Obama hired as director of the White House National Economic Council?

Exactly.

Barack, I would be lying if I claimed not to be an expert on culture change - all my readers knw that is one of my fondest claims! But, even if you are NOT an expert on culture change, you kinda know that if you want to change the culture, hiring members of the Old Guard is not the way to go.

The fact is since january 2009, your main concern has been to be re-elected. And the banking industry floats a 10 digit amount of dollars in campaing contributions around the place, and you did not want to disqualify yourself from it.

The frightening thing, the seriously most frightening thing, is that the Republicans, especially the Tea Party versions ( and heaven forfend Sarah, the most unGodly Christian woman ever Palin!) of the Republicans represent a still worse option.

 

The USA is not the land of the free. It is the land where the rich run the show no matter who is in government and their influence on the global world is scary. It truly is.

 

 

 

Trumpet Blowing

OK 

First off - Apologies for the lack of words (of wisdom or otherwise).

I have composed so many pieces on ethics in the wake of News International - and opublished none of them.

Why because its peeing into the wind.

No one cares about ethics - that's why (to quote clever Mrs Bozo) the markets are going to hell in a hand basket.

You don't think it's ethical?

Then you are dim.

What it also is of course is very very predictable.

What  YOU didn't predict the collapse? 

YOU were one of those imbeciles buying it up?

Oh dear... well refresh your memories on what Bozo told you on 08 April 18 weeks ago.

Bozo Blog 08 April "Assets"

How do you spell Praetorian?

Over the weekend we watched The Blind Side. It is beyond question a feelgood movie. Sean and Leigh Anne Tuohy are as impressive on film as they were in Michael Lewis' book. And because Hollywood has done its thing (although not too aggressively) you kinda need to have read the book which (being by hard edged Michael Lewis) is , er, more hard edged than the movie.

BUT, what hit me most is that the poor part of Memphis, Tennessee was a lot like Arusha Tanzania. Not the bit where Graceland is. The bit where the poor black people live. When we were in Arusha we did some home visits with health care volunteers to HIV patients/families. I have to say it was far less depressing than seeing Memphis 2010. The world's richest country has people living in almost as much poverty as Tanzania! You may say the almost is a big gap - and i say PHOOEY. I say you look at poor America and try to tell me Capitalism is a success and I will laugh in your face.

You may say socialism has failed. And I will laugh in your face. Socialism has never been shown to have failed the way Capitalism has. The Soviet Union failed. But only an idiot compares the Soviet system to actual socialism. Besides we all know it failed because it could not both keep up a military hardware competition with the USA and  feed the population. And that was because of America's borrowing power. Winning that battle was the birth of the US deficit. But nowadays people are seriously questioning if America can actually sustain that deficit.

The lovely, delicious and sexy irony of that is that the last few trillion of deficit has been created by bailing out the banks who are the jewel of capitalism's crown.

Almost as deliciois is that it is analysts in the same bailed out banking system that question whether governments are spending/borrowing too much!!! It's like something Dogbert could have created (actually he probably did).

Capitalism has told us that it works because only the fittest and smartest survive. By the laws of capitalism there would be no Goldmans no AIG no Citi. So the lions of capitalism managed to suspend their onw laws for their own benefit for a while... Interestingly they still want to apply those laws to the poor souls who cannot pay their mortgages!

Now that is irony in spades. Citi, who should have been foreclosed on in 2007-08, was bailed out but doesnt want to allow any form of grace to its borrowers...

So in Memphis, and just about every other city in America you have people living in about the same squalor as in parts of Africa, and that is meant to show us the success of capitalism.

Really?

Of course what capitalism has created is plutonomy. The top 1% richest people in America control 95% of the wealth. Which is like Pareto on steroids!

The proponents will tell you that the American dream works because anyone can lever themselves up out of the squalor and achieve riches. Yeah right. It is aspiring to do just that which leads so many poor black Americans to arm themselves with automatic weapons and sell drugs. In the slums of memphis if you cannot claw your way out by playing sport (Gladiators anyone?) then your next best chance is by becoming a drug dealer.

The plutocrats the plutonomists are poor students of history. They don;t even understand the recent lessons of Reagonomics and the fall of the Soviets. They certainly don't understand the Roman lessons.

When the rich get richer and the poor get poorer; then the rich build bigger walls around their communities and pay more armed guards to patrol them.

Eventually the vast numbers of armed guards stop being the servants and become the masters.

Go and read your Gibbon and maybe you will learn how to spell Praetorian.

 

Enjoy!

Lingering Confusion

Hello all you finance gurus.

I still have some lingering confusion over the efficacy of the free market system and the competition base of capitalism as a social model.

Let me get this right...

Capitalism is freedom to choose....freedom to have whatever business idea you like and let the market decide if it works.

 

If it works, you get rich, if it doesn't you go broke.

Those people who have poor jobs or no jobs or lose their jobs.... Those people shouldn't get help from the tax payer. And if people do not have the right skill set that's something they should use their freedom to sort out.

Is that it?

Because I am a bit puzzled as to how a bank repossesses the home of one of those people, when that bank only exists because it got MASSIVE help from the tax payer. I am a bit confused that a bankCEO who the freemarket discovered was running a bank that was bankrupt still has a job... doesn;t the free market system say that person should be unemployed and having their home repossessed?

Have I missed something?

 

Shareholder Value

I read a fab article written by Andrew Hill in the FT online yesterday:

Find it here.

Then let me quote the key phrase:

The blinkered drive for shareholder value and the rewards it can generate for those who lead it have turned CEOs into excellent managers of expectations rather than tangible corporate performance. One study suggests a majority of managers would avoid starting a project that would create positive net present value – in other words, one that should improve shareholder value in the long-term – if it meant missing their next quarterly earnings targets.

Wow.

So that's good isn't it?

One hardly knows what to say... and Mr Hill says a lot of it well enough, so rather than plagiarise him I reccommend going to have a read.

But I do have a question.

Is it really investors who drive this behaviour? Or is it the investor's representatives??

If I invest in a fund, the fund manager will tell me that the value of that fund can go up and down; that past perfromance...yada yada... you know how the spiel goes! The fund manager wants his clients to have a long term view. The fund manager wants his client's to believe in their ability to beat the market over a time horizon that isn't measured in quarters but in years.

Cool.

So who is it who is telling the senior management of a business that they are history if they don't meet a quarterly target? Well its the fund managers, via analysts.

The longer I stay away from the market, the more nonsensical it all looks.

 

US Debt

I had intended to blog today on AV/PR.

But I couldn't resist mentioning S&P's threat to downgrade US Debt. It immediately brought the dodgy economist (who i still think may have been a spoof) from 10 o'Clock live two weeks ago into my mind. The one with the dodgy hairdo who said the government could learn a lot from the American (debt fuelled) plan to boost the economy.

 

The debt consequences of this plan has prompted even sub-prime-debacle-egg-on-face-losers S&P to raise an eyebrow.

You know I hatethe fact that its the poor people - you know - the one's who didn't create the crisis - are the only one's paying.

You know I would love to hit the people earning over £250k really hard, and don't give a toss if they all sod off to live in Zug, or Dubai (Or Benghazi for that matter). But those people who earn those salaries are the same ones running the markets who are going to rebel at the idea of governments borrowing their way out of a market-induced crisis.

 

Irony anyone?