Monday, 17 January 2011

Embracing Accountability - Starting Right Here (Part 1)

In common with much of Britain, my plans for the holidays were sacrificed to an untimely 'flu. Nasty. Very nasty. But now I gain strength daily and begin to address the backlog of social obligation - including this blog.

One of my frustrations with the bankers, central bankers, regulators and other worthies is their lack of reflection and shame regarding the errors of their past policies which have led to the crisis and the looting of global treasuries. There is no acceptance of personal or institutional responsibility and no public accountability.

Since it would be hypocritical to exempt myself from review, however modest my contribution as a blogger, I thought it might be good to start the year by reviewing what I wrote in 2008 and seeing how it stands up with today's perspective.

My first contribution to the blogosphere was Looting the Vaults at the Central Banks, published 15 May, 2008.

Any crisis now accelerates the trend toward greater public laxity, private excess and central bank secrecy. A crisis, real or manufactured, is most useful to increase the amount of public money clandestinely extended and diminish public oversight and administrative review of outcomes. This has been the pattern for at least 25 years, and may continue for some time to come before a taxpayer or creditor revolt ends the American spiral downwards towards bankruptcy and corporate tyranny.

It used to be the realm of conspiracy theorists to assert that policy makers in Washington were aligned with the military-intelligence complex in promoting international conflicts for profit or that the Federal Reserve was the tool of Wall Street banks in promoting irresponsible bubbles. Now it is accepted policy, defended openly in the media as right and inevitable, as providing an efficient means for America to meet the “threats” to security and financial stability in a changing world.

The danger of embracing the spin is that the productive economy shrinks from underinvestment and distortions as an increasing share of a slower growing pie gets diverted to government and the cronies who direct government policies.

I think I can safely say that I got that one right. The massive misallocation of public funds from taxpayers (present and future) to bankers in the US, UK and EU needs no further comment. Even in China, more and more credit is being diverted to large, speculative state-owned enterprises as productive, private, smaller companies are starved of credit.

Second up for review, is From Capitalist to Capital-less Economies, published 23 May, 2008:

For a time, the neo-classical economists appeared to have found a financial perpetual motion machine. As consumers, companies and governments borrowed more, they appeared to prosper more. Leveraging the accumulated equity in their homes, the consumers got bigger houses and bigger cars. Leveraging their fixed assets and future revenues, the companies got bigger balance sheets, bigger executive remuneration and bigger shareholder dividends. Leveraging their power of taxation and monetary creation, the governments got bigger militaries, bigger bureaucracies, bigger scope for patronage projects. The bankers intermediating all this debt got bigger too, with bigger bonuses for “loan origination”, bigger fees from M&A, bigger commissions and income from securities and derivatives dealing, and bigger influence with their supervisors to loosen any inconvenient accounting, reporting, audit, scope or expansion rules that might have impaired their freedom to keep the party going.

Free Market became the rallying cry of those who believed in perpetual motion. They passionately decried regulation as impairing the market’s freedom to allocate “capital” to the best likely return. They passionately decried taxes as diminishing the “capital” held by those who would reinvest it in growth. They passionately exhorted consumers, businesses and governments to borrow as much “capital” as they could possibly bear, and to err on the side of profligacy, so that more “capital” would be working to grow their revenues and balance sheets in the “free market”.

But the problem with this perpetual motion machine was that it was all the time grinding the seed corn. The “capital” it was pumping out was not the surplus of production over consumption, but the borrowed surplus of greater fools who believed in the hawkers’ pitch of perpetual motion and laid their meagre savings and accumulated assets on the barrelhead in faith the machine would return them multiplied.

Well, yeah. 'Nuf said. Only now, the government and central banks are forcibly appropriating what meagre assets may remain through public debt service which must be paid by either taxation or inflation. Either way, we are all poorer for the folly of excess leverage. Deflation in what you own; inflation in what you need.

As the third blog entry for back-validation, I offer Famine Futures: Deregulated Markets and Food Insecurity. The willful refusal of the political class to rein in speculation in essential foodstuffs is the more disgusting in many ways than their channeling of weath to banker cronies. Real people are really hungry, and it is going to get much worse.

Like so much that we have observed in the past eight years of the Bush administration, the origins of the current food crisis can be traced to the recycled policies of the Nixon White House. Henry Kissinger stated the premise succinctly in 1970: "Control oil and you control nations; control food and you control the people."

With credit, oil and food markets spiralling out of reach of the poor and straining the middle-class, it is worth exploring whether similar policies underpin similar problems. In each industry, a small handful of global companies control supply and a massive increase in ill-transparent speculation acting on pricing in exchange markets forces prices up regardless of the fundamentals of supply and demand. The risks for famine and political instability are huge. One doesn’t need to be a conspiracy theorist invoking the Trilateral Commission to feel that something is very wrong with policies leading to simultaneous crises in credit, oil and food that threaten not just the wealth but the wellbeing of most of the world’s population. . . .

Today global agriculture is dominated by eight multi-national corporations. The policies promoted by successive governments and international institutions including the IMF, World Bank and WTO have aimed at undermining local production, distributed commercial networks, and diverse local markets in favour of mass production, streamlined supply chains and concentrated global market pricing.

As with other areas of our lives, the policies of “free market fundamentalism”, as George Soros styles it, have not diminished risks but increased them. My children are hostages to food insecurity, as are yours and billions of others. A disruption in global food supplies or surge in prices that puts food staples beyond the reach of many low income or middle-class families cannot be offset from the back garden. The exposure of food to pricing in markets open to manipulation and excess speculation puts the lives of millions at risk.

With commodity prices still spiraling upwards, and riots leading to political instability, I wish I had been wrong.

So this week's back-validation is positive. I wrote well, and I wrote wisely. But nothing changed in 2008 except a few minds that were predisposed to question orthodoxy in any event.

I suspect this is the real reason why I find it hard to raise the pace and passion of 2008 today - although the 'flu was pretty awful. I can write, you can read, but who will change the world?


Anonymous said...

Excellent post. Thank you for returning to wrote another blog entry. You write very well. Do you have any formally published work?

Your last question, who will change the world?, is apropos. I ask myself similar questions, and like you, trying, usually in vain, to reach a satisfying answer. With wealth and power being ever more concentrated, that marginalizes or nuetralizes the capability of normal people to fight back... even organized groups of people. If someone is going to fight the good fight, it's going to have to be someone on the inside, who has a change of heart and who has allies.

While I am not political, I will say there is a palpable disappointment that President Obama is not that person, as so many millions in the USA thought he was.

Sadly, I also ask myself who I or anyone who might fight would be fighting on behalf of. My friends and family, certainly. But no longer for any principle or ideal. To live in the USA is to see how little unity, respect, intelligence, morality, common purpose or hard work there is remaining. It is a country divided along racial and socio-economic lines, even among religious lines if you count the dolts from organizations like the Westboro church (the goons who picket funerals).

I hope you will continue writing in 2011, even if only for the benefit of your readership. I also hope you will make some predictions, identify some timelines and milestones of what to watch out for in the coming times.

I will leave all with this: I am fortunate to live in a wealthy area of California. Never before have so many people I run into talk about things like keeping cash and an escape bag in their homes, buying a property in Canada or South America to escape to, building stocks of food and water, buying guns, etc. (no one mentions gold, interestingly and I don't own any either).

Thanks and keep writing.

London Banker said...

Many thanks for your kind words. As this series continues, I will address my own error in believing the sales pitch of Obama during the US elections of 2008. What looked like a popular uprising against the Wall Street-Washington axis, morphed into more of the same crony cover ups and even more massive depredations on the public treasury and currency. The takeover of the Tea Party movement by the likes of the Koch brothers shows that the co-opting of popular revolts occurs on both right and left.

The US wasn't unique in following bad policies, but stands out because Obama's delivered reality contrasted so starkly with his pre-election rhetoric. It is not just Americans who are disappointed.

I had begun to modestly stockpile a bit of food here in 2007, as discussed in the comments over on Roubini at the time. I then feared a war with Iran would disrupt supply chains. I gave all of it away in 2008 before my move to foreign parts. I must now decide afresh whether to restore the emergency stores. No decision yet. Gold has never appealed to me. As long as my family are fed and warm, our post-catastrophe wealth will lie in our skills at working together and with our neighbours to restore order and progress.

I am more confident about the cohesiveness and sanity of UK politics today. Blair was an unscrupulous and dishonest man, possessed of unshakable self-belief. In another time he might have been a tyrant. Only yesterday we learned that his instruction to the Attorney General before the attack on Iraq in 2003 was to "give as little legal advice as possible, and none in writing."

By contrast, the Tory-LibDem coalition government here is forced to be sensible by the dynamics of shared power. On the other hand, I am very wary of US exceptionalism and warmongering as the basis of the American economic empire. Supply chains are just as dependent on Gulf oil now as in 2007, and inflation in foodstuffs and commodities is worse than ever.

Anonymous said...

"For a time, the neo-classical economists appeared to have found a financial perpetual motion machine ..."

not sure why you are name checking neo-classical economists here. They more or less completely ignored debt, leverage etc. I think you meant "bankers".

and whilst you are probably right that things can and ought to be done about egregious speculation in food, the idea that food supplies would be more secure with food pricing taken away from the market (if that's what you meant), is crazy talk. I'm not a free market nut: I'm more than happy to see governments subsidizing R&D, infrastructure, and thinking strategically about supply, but I wouldn't want to eliminate the power of market prices to tell suppliers what to produce more/less of, and of higher prices to induce investment. (also, there's just about as much evidence that speculation reduces price volatility as there is the contrary).

Anonymous said...

return to 2008 ????

it's 2011....write something new..

London Banker said...

@ Anonymous 03:22
I'm working on some new posts. The point of looking back at what I wrote in 2008 is that it keeps me honest with myself about what I knew and when I knew it. I don't want to be like pundits who only forecast, and never check their record against reality in retrospect.

Nic said...

Thank you LB, (may I call you that?), I had been checking in and attributed your lack of posts to a ski-ing holiday or some such; best wishes for a full and speedy recovery.

I do hope you are able to provide some insight into the recent goings-on in Ireland. I read that the Irish Central Bank printed up 50 Bln Euros, surely not?

Anonymous said...

"...but who will change the world?" A very apropos conclusion given yesterday's US holiday. How would Dr. King respond?

It's so good to read your posts again. I've been a fan for sometime now, and was saddened when you took a leave of absence from Roubini's blog. Like many, I feared we'd never hear from you again.

Your silence coincided with Roubini's corporate re-structuring that essentially gutted his blog. I regard it as one of the recession's most significant losses. For a time, it was THE place to discuss the historic events as they unfolded. Perhaps your revitalized blog will fill that void. Has Miss America checked in yet?

I too am deeply disappointed in President Obama. His weak resume left me uninspired and raised more suspicions than hope which prevented me from getting too caught up in the "ground swell" non-sense. But I had hoped his election would check the grand scale theft perpetrated by Wall Street on America and the world. The absence of accountability is deafening, but perhaps that's just the point. I think it actually creates more fear than any indictments would.

I do recall one of your "2008ish" prognostications indicated the real estate crisis would clear by 2012. How do you view it today?

Thanks, and welcome back!

London Banker said...

@ Anonymous 08:30

Rich H./Miss America has more or less stopped blogging actively, but may stop by now and then for old times' sake. We certainly had fiery exchanges down in the "sandbox" on Roubini's blog in the day. We stay in touch by e-mail from time to time.

Capone showed up last month. He also has been largely avoiding blogs since the Professor took his thread behind the firewall.

I don't believe the real estate deflation is anywhere near over, as credit has not been allowed to deflate as it normally would in a recession. We all seem to be turning Japanese . . .

@ Nic

The central banks have proved lawless from the start of this crisis, innovating a slew of extra-legal mechanisms for bailouts - most of them still secret. So if the Irish are printing euros behind the ECB's back, who should be surprised? The worry, of course, is that the Greeks, Portugese, Spanish and others will follow suit. And then whither the euro?

I might be glad yet that the Pound Sterling remains a sovereign currency.

jo6pac said...

Thanks for the update and back date not much has changed but then again so much has and not for the better. Speedy recovery.

Detlef Guertler said...

Well, who will change the world?

It seems as if the change will not come top-down, but bottom-up. So every mind you influence by writing does help.
When I was a young journalist I once was extremely disappointed that even my best articles didn't change anything. My editor-in-chief consoled me: Writing is like putting something into a black box. You don't see, what happens inside, you don't see a direct result, but you can be sure: Something happens inside, and some results will come out of the box - even if you don't know, when and where. It helped me, and still helps.

Mark said...

Whither the Euro? The Euro will wither.

The pound may yet take a further pounding, since we have done so little to sort out the underlying banking (real estate) problems. We have that £800bn customer funding gap to re-finance, or call in the loans. We have banks being given £100bn annual subsidy by the estimate of the BoE - yet still converting it in part to bonuses on "profits" that are less than the subsidy. And we have a government that continued to increase its spending in real terms without having tax revenue to support it. It's all Greek to me, if that doesn't sound too Irish.

Elby the Beserk said...

Very good. As far as I am concerned, I am being robbed by politicians and bakers to pay for THEIR venal incompetence and greed. Add to that the fact that NOTHING has been done to address the root causes of the crash, which in turn means that this can - and will - happen again, this means that I am beyond angry with these arseholes, who blew the country up and then made US pay for it. Bastards.

Plongka10 said...

I came by via a link at ZH. Good to see you back and blogging again - I was a regular at Roubini's blog back in the day.

I agree with the comments that change will come from the bottom up; I used to say, only by withdrawing participation from the markets will we see change; however, Bernanke's overt monetisation has kicked the can down the road for a little time longer. I think it can only be a matter of time before the ROW loses faith with US fiscal policy.

Oh to be a fly on the wall in Washington now the Chinese are in town!

scandia said...

I join " Nic " in trying to understand printing Euros in Ireland. Is this not old fashioned mafia style counterfeiting? I know the politically correct word is " Mechanism ". What's the difference?
Why would the Irish print German Euros, not Irish Euros? Is the plate maker in Germany?

dearieme said...

I don't see any need to castigate oneself for having supported Obushma. A gamble's not paying off is not proof that it was wrong to take the gamble. The alternative was the unimpressive, and apparently exhausted, McCain.

Nassim said...

Thank you for your interesting contribution to my understanding of reality. I hope you get well very soon.

Funny how people seem to think that Obama or Palin or whoever is going to change the game. I gave up on that way of thinking 30+ years ago.

Any disinterested observer of the recent history of the Middle East would recognise how any time a new US president is elected, the media goes into overdrive about how some sort of peace deal is in the works. Nothing happens and the on-going building in and expulsions from occupied territory goes on like before.

If a country is not running its own foreign policy, how can it be controlling its own army or central bank? I mean, everything is up-for-grabs for those with the ready cash or influence.

IMHO, what is going on is primarily not a banking or an economic problem, it is a political problem. The only way to change the politics is from the ground-up. No sign of that from where I am standing (in Melbourne) either in the UK or the USA.

I agree with you that Blair was a very dangerous individual who has happily been defanged. I am also very pleased that they are letting this 28 detention business lapse - Cheers as 28-day terror detention power ditched

Right now, a lot of pundits are suggesting that events in Tunisia will be copied in a number of neighbouring countries. Personally, I think countries in Europe are more vulnerable as the security apparatus has a lot of catching up to do.

PeterJB said...

Now, you resurface after Blair justifies unaccountability? What a whanker. The US - gone by mid 2011 at least in appearance and reality. I have begun to blog again and will intensify during the next 4 weeks at verbewarp dot blogspot dot com

You say "Blair was an unscrupulous and dishonest man, possessed of unshakable self-belief." error where "was" should be read as "is".
Self belief? I seem to remember that his post graduate studies were fully subsidized for by US interests - which ones? I can only guess!

OK LB, I am hooked in - so let it all hang out!

Ho hum

Anonymous said...


My alternative to both Obama and McCain was Ron Paul. I know, I know, he's not electable and all that. But as of the last election, I threw that notion out. From now on, I go with the right candidate regardless. Corporate media be damned!

Anonymous said...

I could not be more pleased to see you posting again, LB. I too miss the Roubini days. Found you again via Zero Hedge. Feel better and keep the dialogue going. Hello to Peter JB too.

--Average Jane

Hayes said...

"I will address my own error in believing the sales pitch of Obama during the US elections of 2008. "

I recall

Anonymous said...

Hi LB,

I also found you through a link from ZeroHedge. I used to visit Roubini's blog regularly from 2007 to 2009 and I was always looking forward to seeing your posts. Nice to see you again and also some other folks from those times. Please share your thoughts any time you feel like. I still haven't registered so I'm still anonymous right now. Jasa

Anonymous said...

Ah, finally, some sanity! (been stuck at Zerohedge and have been getting tired of the constant drumming of "god, gold and guns") Steered here by Salinger and Gloomy...


Thanks LB, thanks for being out there.

Anonymous said...

Your finance and economics writing is excellent. You always were, and still are, hopelessly out of touch with American politics. Your failure in 2008 to see through the marketing veneer that was shrink-wrapped around Obama shreds your credibility on matters political.

For the love of God, man, when George Soros dresses up a light-skinned black man with no credentials whatsoever and prances him around Wall Street and Hollywood you should figure that something is amiss.

Anonymous said...

Actually Yves at Naked Capitalist mentioned LB's welcomed) return last week some time....

Jim said...


Do you have any views on when UK Financial Investments should be able to wind itself up and the taxpayer can have his money back?

When Osborne suddenly found £7.5 bln that we do not otherwise have to prop up RBS's Ulster Bank, I do not think it will be anytime soon. How long can we support something that needs as much money as the NHS's annual budget to stop things falling apart?

Anonymous said...

Is this a class reunion???

Nice to see you at it LB!!!

I'll post something when I get a chance. ...or email you. (super busy)

Funny you brought up "accountability" I wrote an incomplete thought on it about 2 or 3 months ago. (tying Jul Assan to the US and how we handle him... "if you trample over laws and rights to "bring him to justice" then you have to be accountable for the means in which you do so. ...because you inherit a system where laws and rights no longer mean anything."

I still write... but no one gets to see it. I do it for myself. (Literally, I'd say I write nearly an article every other week, save it to my PC, and then never post it anywhere... because I don't feel like putting the time in to clean it up, edit it... or sometimes coordinate the discombolated rants into an article that would make sense.)

...I actually thought about posting them in a stagnant place like Seeking Alpha, and calling these unprofessional ramblings "Incomplete Thoughts - by RH/MA" ...but just haven't done so.


Anonymous said...

FASB threw in towel on MTM yesterday. Now what? Seriously, how do you put a value on any financial instrument if there's a permanent cloud hanging over its underlying value. What do stock prices mean anymore? Thoughts on the market's wet kiss to Obama's SOTU address? <12K? How?


Deflated said...

@Nic - Irish printing - at first I thought that all they were doing was creating book-keeping entries to create credits at their Central Bank but then I found this comment on Alphaville:
"The Other liabilities number was primarily to the ECB and our allocation of euro banknotes within the Eurosystem at 12.31.09 & has grown from 69bn to 162bn in 1 year."
Where does the idea come from that the Irish borrowed plates from Germany and printed German Euros?

Above my desk I have pinned a one hundred trillion dollar banknote from the Reserve Bank of Zimbabwe. And each day I take a little more of our family's savings out of the UK banking system and convert it into something tangible.