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Τετάρτη, Αυγούστου 08, 2012
Κυριακή, Ιουνίου 10, 2012
here comes ...
Here They Come: Ireland Demands Renegotiation Of Its Bailout Terms To Match Spain
Well that didn't take long. The ink on the #Spailout is not dry yet (well technically there is no ink, because none of the actual details of the Spanish banking system rescue are even remotely known, and likely won't be because when it comes to answering where the money comes from there simply is no answer) and we already have an answer to one of our questions. Recall thatmere hours ago we asked: "We also wonder how will Ireland feel knowing that it has to suffer under backbreaking austerity in exchange for Troika generosity, while Spain gets away scott free." We now know. From the AFP: "Ireland wants to renegotiate its rescue plan to benefit from the same treatment as Spain, which looks set to win a bailout for its banks without any broader economic reforms in return, European sources said on Saturday." And with Ireland on the renegotiation train, next comes Greece. Only with Greece the wheels for a bailout overhaul are already in motion and are called a "vote of Syriza on June 17." And remember how everyone was threatening the Greeks with the 10th circle of hell if they dare to renegotiate the memorandum? Well, Spain just showed that a condition-free bailout is an option. Which means Syriza will get all the votes it needs and then some with promises of a consequence free bailout renegotiation. In other words Syriza's Tsipras should send a bottle of the finest champagne to de Guindos - he just won him the election..
Παρασκευή, Ιουνίου 08, 2012
Τετάρτη, Ιουνίου 06, 2012
Τρίτη, Μαΐου 29, 2012
Τρίτη, Μαΐου 22, 2012
Δευτέρα, Μαΐου 21, 2012
Κυριακή, Μαΐου 20, 2012
The Suicide Machine
The Suicide Machine
The True Costs of Bank Crises
In March 2010 Andrew Haldane, Executive Director for Financial Stability at the Bank of England, estimated that the financial crisis that began in 2008 will ultimately cost the world economy between $60 trillion and $200 trillion in lost production (link). The methods he used to reach his conclusions require a number of assumptions, but so would any effort at assessing the broader damage. And to his point, counting the cost of bank crises in terms of costs to the banks alone substantially misrepresents the economic harm that recurrent crises cause.
When J.P. Morgan announced last week that it had lost $2 billion from derivatives transactions gone awry, later revised to $3 billion and rising, the mainstream press reiterated the framing that this is a cost to be borne by the bank and that it indicates what the rest of us might be expected to contribute if another banking crisis erupts. The implication is that future crises are possible, ignoring that we are collectively still paying for the last crisis. And again, to Mr. Haldane’s point, the costs to Wall Street are nearly irrelevant when considering the total costs of banking crises.
This all proceeds from the premise that the broader economic order, of which the banks are a part, is a viable form of economic organization. Given that the current order is radically environmentally unsustainable, it is tempting to imagine that the lost production that Mr. Haldane is counting as a cost of the financial crisis has a silver lining in slowed environmental degradation. Additionally, any careful look at the business of banking finds degrees of predation inversely related to social power—even when they aren’t blowing themselves up, most of the world would be better off without predator banks.
This establishes a paradox—the existing economic (and political) order isn’t working. But, as political leaders on the right and what passes for the left these days claim, failing to sustain it would entail massive human costs in terms of unemployment, bankruptcy, poverty, divorce, suicide and the dissolution of our public institutions. Ironically, add increasing environmental destruction to this list and it well describes current conditions under the existing order. Apparently the best that defenders can offer is that things could be a lot worse
To point to the obvious, even Mr. Haldane’s lower cost estimate of $60 trillion isn’t being borne by the banks. The banks couldn’t pay this if they were forced to—it is more money than they will collectively earn in profits over coming decades. And it isn’t being borne by the large corporations that are earning the highest rate of profits in history. It is in fact a negative, an unmet promise made to the rest of us by the proponents of capitalism over recent decades. Through the prism of social struggle it appears as an absence, not as a more straightforwardly actionable misappropriation. But then, what is the ultimate difference?
Jamie Dimon, J.P. Morgan’s CEO, offered that the bank’s loss reflected a failure of risk models. But the bank’s risk models are necessarily narrowly delineated—what model could propose that transactions that could cost the broader economy $60 trillion if they go wrong balance out in favor of the transactions? Such risk models carry the implicit premise of heads, the banks win; tails, the rest of us lose. Practically speaking, these trades, when they work, are simply a method of converting a rigged game into cash. The assets being traded, reportedly a basket of credit default swaps, are un-funded insurance policies; accounting fictions that when aggregated guarantee bailouts—every bank requires that every other bank meet its obligations or the whole system collapses.
For all of the money that the banks have been allowed to create and pay out to the purported rocket scientists who build their risk models, the particular model under discussion in J.P. Morgan’s case (VAR, value-at-risk) is a work of rare idiocy. The question that it attempts to answer is: how badly can things go for one day, week, month etc. assuming (1) no other banks run into similar problems and (2) everything goes back to normal in the next period. What makes use of this model so questionable is that both of these assumptions are behind every spectacular financial collapse in modern history that didn’t involve outright theft (e.g. Ponzi schemes).
Ultimately the particulars of J.P. Morgan’s losses are so much noise. What they point to is an economic system designed to self-destruct. Add increasing environmental degradation in the face of global warming to structural financial fragility and what capitalism appears to have created is a full-blown suicide machine. And to invert Mr. Haldane’s premise—the $60 trillion in lost production (minimum) was never going to go to us anyway. The trajectory since the 1970s had it going to corporate executives, bankers and machines (automation).
The challenge for reformers and re-regulators is that the system is the problem. Companies pollute because they individually prosper while we collectively pay the costs. Banks take risks that are internally rational while they are systemically catastrophic. Environmental and financial crises cannot be solved with capitalism intact. In fact, when global warming and bank crises are considered, there is little evidence that capitalism ever produced any profits net of externalized costs. And the consolidation of wealth that capitalism produces undermines all attempts at remediation. Capitalism itself is a suicide machine.
What made J.P. Morgan’s loss news is the recognition that the financial crisis hasn’t been resolved. And again, this crisis isn’t from without. It is endemic to the system we are being told we must save. As Mr. Haldane has it, even if the crisis had been resolved, we would still collectively be out more than $60 trillion anyway. And the only way toward those trillions is through increasing environmental catastrophe. By appearances, the current order is in the process of imploding of its own weight. And while dislocations create fear, they also create openings for other possible futures.
Rob Urie is an artist and political economist in New York.
Τετάρτη, Μαΐου 16, 2012
Τρίτη, Μαΐου 15, 2012
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