Over 400 billion US dollars - 211 and 77 billion euros - were used respectively by the European Central Bank and the Fed in the last week to support and stabilise stock exchange market prices - not to mention the additional massive injection of funds by the Bank of England and the Bank of Japan; the Fed lowered its discount rate by as much as half a point at a stroke, thus lowering the cost of finance by about ten per cent. A good thing not just for financial institutions that had taken on, incompetently or imprudently or both, deliberate additional risk to which they were not exposed in the first place; but a good thing too for individual investors and house-owners (especially those with mortgages), and for pension funds (and, therefore, future old-age pensioners ) so to some degree worthy recipients; but there are losers just as worthy.
So what kind of market is it where prices are determined not by the invisible hand of demand and supply but by the visible clenched fist and muscle of the state, for central banks, independent of the government or not, are indisputably part of the state? In what way is the efficiency of financial markets enhanced by blunting the market discipline of rewards and penalties based on performance? Why is this massive intervention good when it comes to capital markets but bad when it comes, say, to a fund for stabilising the price of copper?
What is to be done to compensate the losers from this operation, those exposed to the resulting higher inflation and who see their standard of living falling to an extent higher than their gains as investors and houseowners and pensioners? These redistributive effects will never be looked into or taken into account by any authority .
The ultimate administered price, i.e. the discount rate, the last form of central planning, is acceptable while other administered prices are spurned even for basic goods such as bread. Should capital assets owners be subsidised by public resources whereas total unrestricted flexibility is demanded of the labour market? Or are the same kind of subsidies slyly being provided for sustaining labour demand and wage levels in the high unemployment economy we are really living in ?
The intervention of Central Banks to subsidise capital values is in truth matched in the United Kingdom by what is effectively a state Labour Agency acting as Employer of Last Resourt, providing 'jobs' for any unemployed willing to work. But the Labour regime, under Brown's old-style planned economy structures hides these central activities so important to retaining power, while their economic gurus are silent on these issues as Labour boasts of 'transparency' , the freeing of the labour market from 'restraints' , and thinks to tell the other member states of the European Union that there is need for these UK innovations of the last ten glorious Labour years under our 'outstanding' former Chancellor, to be emulated.
Just as those who lose from the rescue of capital should have some means of redress, and compensation so, too, there must be a return to the political will and policies to control trades union instigated use of the state in distorting and rendering inefficient the working of the labour market.
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19 comments:
Friday was options Expiry in the US. Expiry prices are set by reference to 'Special Opening Quotes' in the underlyings. On Thursday evening there were probably several hundred thousand small traders (including me) holding deep in the money puts; their counterparties were the big options writers guaranteed by maybe 5-10 firms - the big boys of Wall St - who, had that announcement been made AFTER the US open, would have been paying out big-time. Instead they were reprieved by their pals at the Fed and my put expired worthless.
I'm not complaining. I've been at this long enough to know all about the corrupt manouverings of the financial elites and probably ought to have seen this one coming. I would just like someone with real clout to ask the (rhetorical) question, very publicly and to insist on an answer: "Why was the announcement made with unprecedented timing, BEFORE the market opened on options expiry day?"
I know pretty much how such a question would be fielded of course; it's just that I'd get some satisfaction from witnessing the squirmings of a barefaced liar, that's all.
Hello ST, I agree; why is the market being manipulated in this way by state authorities?
Why are the losers from this state (for the Fed is state) manipulation not compensated for unfair losses?
David Cameron and the Conservative Party, Mervyn King and the Bank of England, the Security Exchange Commission and its British counterpart, the Ecofin and the competent EU Commissioners, should be launching a major investigation, but then, to whome would they report? Presumably to their parliamentary and state authorities.
Sarkozy has called already for an enquiry on the operations of credit rating agencies - necessary but nowhere near enough.
Even were such enquiries made, even if the authorities listed could co-ordinate, there is no global governance agency that could take any remedial action.
It is the hallmark of so-called democracy in our time that there is no redress. At every level; and where once there was redress locally and even nationally, that too has often been disabled and dismantled.
Very good points, HG, but I bet your questions will remain unanswered, because answers are unpalatable to the prevailing hyperliberal ideologists.
Two comments on your excellent post:
First, financial markets are supposed to help spreading risk, but they can actually multiply and enlarge it, through the bets and the bets on bets made by transactors. There is not a fixed amount of risk to be shared through markets, the risk itself is made greater, and that cannot be good. In theory it is a zero sum game, but not when the outcome of those financial market transactions is a serious crisis, with real net losses through defaults and bankruptcies.
Second, would that there was an Employer of Last Resort, providing employment to all those willing and able to work, either on public works or for renting out labour to firms that need it but do not want to be committed to long term employment. This is not what is being provided by the NuLab government. Theirs is simply scandalous patronage, with overpaid improductive sinecures handed out to friends family and supporters.
This opens the question of the more general manipulation of economies. I saw years ago a chart correlating UK General Elections and the FTSE, and there is a similar study of US Presidential terms of office and the Dow.
You have previously commented on the research to show that the elite and their pets alter and exploit law and government to suit themselves. This is why we need a well-constructed Constitution - but who will bell the cat?
Oh dear, Sackerson, I once received an email that was headed:
Labels.
The ontologically-challenged Hatfield Girl has not realised that labels are more than a joke.
Future categories may have a membership of more than one item.
(the IT consultant)
At which point I gave up labels altogether as they had become quite disordered, and some too close in their labelling to labelling in others. The challenged felt that they were more to point up the arguments than to cross-reference; so you may well know more than do I about repeating myself (which is a likely weakness).
As for how to obtain a formal constitution, it isn't going to happen; one of the reasons I started blogging at all was because of the dawning realisation, and its demonstration by nuLabour, of the absolute, monarchical powers that rest with the head of the executive of the government party.
Constitutional description is extensive, but there is no redress should the kind of people running the state now get power; I do not believe they will do knowingly anything that might jeopardize its retention. Which is why their remarkable stupidity, ignorance, ineptness, is so interesting. Spot the coming cropper is quite fun (when it doesn't involve wholesale death and destruction, or the removal of civil liberties on a scale that is pre 16th century).
Their latest is the 'uncontested' imposition of the sister of the man who failed to rig the Scottish elections, onto their Scottish party section.
The Straw man is supposed to be cooking up a new 'written' constitution and, if you please, a new'Bill of Rights' (I thought we had a rather fine one of those).
I find the Straw man an extremely unpleasant and manipulative figure who acts outside of many of what might have been thought to be constitutional givens.
Scrobs has noted the 'non-existence' of the executive, the silence of all ministers, despite huge upheavals that might be thought proper areas for state action and even reassurance - floods, the virtual cutting off of the British army in Basra, the financial crisis, foot and mouth again ....
And the utter silence of the head of state in the face of immense concern about the new European Constitution - really that is quite, quite remarkable; all the heads of state of other member states have spoken on the tv and written in newspapers and things.
Frankly, we might as well not have one if inaction is what is required at all times.
For a very fine statement of what was the understanding of the nature of our constitution right up until the last decade horroshow began, see the Earl of Onslow's open letter to David Cameron in the Observer, around December 2005.
It is only a postponement though. The analogy is opening a new credit card account to pay for all your current debts.
It works in the short-term...
'It is a postponement' CU,
so what happens then, when the postponement is over?
It has never seemed worth looking at the past for an indication of what happens for events in the making, but only for the rules that govern the generation of certain kinds of results in general, i.e. setting up a centrally planned economy sustained by a pseudo democratic state will need and generate an overbearing nomenklatura, gross economic decline as the state becomes staffed by self-serving second raters, authoritarian repressive measures that eventually cut into the mass citizenry, the creation of castes with access to privileged goods in health, education, the management of their wealth, information, until we get right down to special road lanes for their vehicles and special shops for their consumption, and special airports for their longer journeys. Well, I think we are there already actually.
But when it all falls apart, no-one can know how it will do it; we can look at the economic inefficiencies to the point of self-destruct in the planned economies of the East, look at which managed and are managing the transition better or worse, and to which people's advantage ; Poland did outstandingly well thanks to Greg Kolodko and his team, (even though an interval of the hyper-liberal US timeserving creep Balcerowicz interrupted this most successful of transitions).
But when the postponement of gross distortions and market inefficiencies ends in our economies it's hard to imagine the fallout - particularly the political and social and systemic fall out.
But isn't it awfully interesting watching?
You may find resonances in this article by Marc Faber, entitled "Will the US become a banana republic?". How many points could you also tick off for the UK?
http://www.whiskeyandgunpowder.com/Archives/2006/20061221.html
"But isn't it awfully interesting watching?", you say. For me, I'd rather watch from a distance, or (like our elite) a great height.
From past posts it can be seen that I am sufficiently afraid of what is going on to take some distance Sackerson; and I mean afraid - perhaps it's being histrionic, probably is, but as there existed the other life, I chose to take it. And it isn't easy, and there is so much to learn when doing most things should be automatic, but I am not alone in emphasizing and developing an alternative world rather than get caught when the postponement ends with ruined finances, wasted years of investment and unrewarded foregoing of current pleasures for future comfort (Brown didn't get our old-age provision). And knowing where one stands vis a vis what is owed and what is due, and some social defence system to growing social violence. There certainly is growing social violence, with significant increases in woundings and killings in, for instance, the London suburbs, and all the fear that generates, while there is no culture or even right to self defend.
No-one round here does not have means to defend themselves. Walk in the woods? Take a roncola (a short machete) tucked down over the back of your jeans hooked over your belt, you might meet a boar, a savage dog, need to slice a viper, tidy up a bit of woodland with this hany coppicing tool, or tidy up an aggressive human.
Guns? of course, things have to be shot. Licences? of course, and you will get one from the local carabinieri without difficulty - other than needing to be of good and established repute in the neighbourhood which, of course is the nub.
Funnilly enought I was going to bring this to the attention of your giant pulsing brain HG..The only coverage I have seen of it was in Private eye comparing the current intervetions with the Major intervention preceding the ERM disaster ...
Love this
United Kingdom by what is effectively a state Labour Agency acting as Employer of Last Resourt, providing 'jobs' for any unemployed willing to work.
There are reckoned to be as many as 8,000,000 in the Public sector now and is it about 1500,000 on fake disability benefits . 5,500,000 are of working age on benefits and god knows how many pesioners who also have a vested interest in high taxes.
Pretty good head start for the Labour Party and with that sort of bribery avaiable democracy rather ceasees to be meaningful.Mandy predicted the post democtratic age a long time ago and We are getting there
So what kind of market is it where prices are determined not by the invisible hand of demand and supply but by the visible clenched fist and muscle of the state, for central banks, independent of the government or not, are indisputably part of the state?
Probably one that your hero Keynes would approve of - he never thought markets were perfect and was quite happy to see the state getting involved in smoothing market volatility.
Maynard Keynes is a hero for his wit, and for his extravagant command of the English language; his economics is that of a well-bred, well-educated liberal, and only a (smallish) part of his intellectual charm.
Few can resist a Kingsman when he puts himself out to entrap and bedazzle - well, not counting Charles Clarke, of course.
Morgan Forster's two cheers for democracy enjoy my support though N, we shall miss it when it's gone .
That clever Warren Buffett dude was telling everyone all these credit derivatives were a bad idea about 4 years ago. No wonder no-one gave a toss if the central banks are offering a bail-out.
What gets me the most is that everyone wants to point the finger at hedge fund managers. The Express did, the Telegraph did, the Times did. A few Eton and Oxford toffs are even a popular hate figure in the City it seems.
I blame crap bank managers and crap politicans. It's un-PC to demand a cull of Great White Sharks when a silly saffer surfer gets munched - he shouldn't have been in the water.
Same with all the people who bought these 'financial weapons of mass destruction' as Buffett put it, let them get their finger burned. I don't even care if a few banks fo under, I don't have any money to worry about, and if I did I'd be bloody careful where I put it.
Buiter recommends that central banks should not act as lenders of last resort,S-L, but as buyers of last resort thus removing risk even more and creating the risk of a really enormous crisis when postponement ends. Care for a bit of reckless behaviour anyone? You can do it at everyone's expense.
Disability benefit (living allowance) and incapacity benefit are different. DLA is paid to such as my ex, who has MS. Incapacity benefit is for those "too sick to work".
My ex, a DWP/Benefits agency worker some 15 years, was in a Job Center in the Thatcher years. Every month they had a target for moving people off UB into Incap. This to reduce the unemployment figures. Labour roared about it, and have done nothing to address it in 10 years.
Ex said they had people on theor books with the likes of "back pain" who hadn't worked for 5 years. Or "depression". Unemployed figures now only include those claiming benefit. There's around another 4,000,000 who are economically inactive, but not claming benefit. And everyone else works for the NHS... over 1.4m, and more managers than beds.
Sigh...
LBF! you will know everyone, I'm sure.
The real answer is to shrink the state and stop fiddling about with markets, just let them have their cruel way.
Lots of the defenders of the bought vote pretend that those who say they can't afford to support all these ok people are wicked grinders of poor faces. No-one would care to turn away, or force humiliation on those in need, but if we build cages with money inside people will warp themselves to fit the cage. It's so demoralising.
I could depress for England (I do), my back - well my back is a post on its own, a sympathetic, glazed smile is a reasonable demand, hundreds of pounds a week of other people's earnings is not.
When very young, so much of earned income was taken in tax that even then Mr HG had to do the time honoured things; we lived for months on his poker winnings and he got out there and inherited something.
Hi HG - aye, most of the reprobates are known to me. And blogs make the strangest of bedfellows. I'm not a regular poster on any blogs, but usually keep an eye on those Lilith frequents; yours keeps me on my toes, Hitch's reminds me how vile us males are as a species, and how funny we can also be, and the other regulars, well I like the cut of their jibs! Can't say fairer than that.
I'm a genetic socialist. I like the idea of "From each..., to each..." - seems a good model for a society. Indeed, I've voted Labour all my life, until Iraq that is.
How as it that a Johnny-On-The-Street, not a political animal, not a foreign affairs expert, knew immediately when we went into Iraq that Pandora's Box had been opening, and that the only certain outcome of the decision to invade, sorry, steal Iraq's oil, would be utter chaos there and savage loss of life?
I guess in essence I am a libertarian. Certainly the dead fist of the State rears ever more clunkingly as Brown tries to populate ever body in the country with NuLab placepeople. The endless "War On Terror" a license, as Orwell foresaw for the assault on human rights that we are seeing. Unless, that is, you are a criminal, in which case your human rights are more to the fore than anyone elses.
How does one change matters as a humble citizen? How do we get our "poll tax", that gets people on the streets and forces a change of tack. We seem to be driven willingly into submission of all matters to the state.
And bollocks to that, say I. They can shove their sodding ID cards up there jacksies. Sideways. No way am I going to have one. No way.
Identity Cards is a misnomer; what is proposed in England is a nationwide electronic tagging. It may not be welded to the ankle but it had better be welded to the person or it's the 90 day detention while your dearest try to find out where you were disappeared and if you're still in one piece.
My identity card cost just over 5 euros, has a photo, a number that refers to my entry in the registers of residence, and a florid signature by the mayor. It is most useful for identifying me to strange offices, banks, and for travelling. If it has any electronic moving parts they are cunningly hidden and have been through the wash occasionally, Daz should do for them I would think.
ID cards belong in a different legal system from England's, where no-one has a formal 'residence', as opposed to their domicile. Every civic and state status derives its validation from 'residence', it places everyone into a community and to change it is quite a wrench for many, I suspect. People are really pleased with where they come from even if they live in big cities when they have to adopt another residence to get the right to a parking permit, we all believe we're 'really' from our local comune.
(I wrote about all this but I'm ontologically challenged; sometimes I look at Lilith's labels and wonder if she is having a laugh, whereas Croydonian's are all well-organized and full of relevance and referencing purpose).
So, as usual, good words standing for perfectly fine systems are being used to mask wholly other undertakings to do with authoritarian dystopias.
Also, socialism achieved much in other times and other places, and the Labour party has an incredible and honourable place in making life fairer and safer for working people at every level. Socialism has folded its wings and we must reinvent our thinking; Labour belonged to a particular culture and economic system and has nothing more to say - it should just bask in its successful completion but is being marionetted around and disgraced in its exploitation.
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