“The greatest evil perpetrated,” Hannah Arendt wrote, “is the evil committed by nobodies, that is, by human beings who refuse to be persons.”
The film, Obey, is hosted at You Tube, and we’ve positioned it at the bottom. Read this before scrolling to the end!
The one hour deal links to why the liberal class, the liberals, the REI and NPR progressives, are killing us all with death by a thousand cuts with digital daggers.
In the end, they don’t really care that we have massive class divides, major ageism issues, that we have daily cuts to the public goods and public commons and public welfare.
They continue to consume as Consumopithecus Anthropocene.
It’s a typical show — just take a look at this article, on a site in Portland, Oregon, that lists jobs:
Are you looking for a full-time job in your field, but finding that many positions today are temporary or part time?
You’re not alone. More and more employers are hiring people for short-term jobs or projects.
Free Agent Nation
You can feel threatened by the growing trend to employ contingent workers, or you can make a 180-degree turn and see it as opportunity to become a free agent.
A free agent is someone who works for themselves, rather than as an employee of an organization. Daniel H. Pink, author of a 1997 Fast Company story, “Free Agent Nation,” coined the term and in 2001 wrote a book with the same title.
The premise being that we should just chuck labor history, advances in the workplace; chuck the workplace rights and valuable work we need in 30,000 incorporated municipalities; chuck the public service jobs, the jobs that should be funded by us, taxpayers, to fix a nation at risk. Just give up on demanding anything from politicians, leaders, the One Percent, corporations, businesses, and just, well, go rogue, lone-wolf, independent.
Watch those Fuller Brush and Mary Kay dollars come your way. Right on, and, shoot, didn’t some 8-year-old just make $200,000 for an app that tells kids where the best Popsicles and ice cream sundaes are, via satellite-guided, real-time, drone-captured GPS, holograms, too?
Nations at Risk — May Day … May Day!
Nation at Risk is not just some book title on education, and a bad one, too — READ!
One of my small successes in recent years was to get the New York Times to refer to “A Nation At Risk” as propaganda. Some have asked why I say that and, since it is a slow news summer, I’ll take a little time to explain why.
First, I note that in his memoir, The Thirteenth Man, Ted Bell who, as Secretary of Education, brought together the commission that produced “Risk,” is fairly candid about that commission. It was not to objectively examine the condition of Amer ican education, but to document the terrible things that Bell had heard about schools. In the introduction, the commissioners wrote that “The Commission was impressed during the course of its activities by the diversity of opinion it received concerning the condition of American education.”
No such diversity characterized the final report. After its opening, cold warrior rhetorical flourishes, “Risk” listed thirteen indicators of why we were at risk. It is a golden treasury of selective and spun statistics.
Consider:
1. There was a steady decline in science achievement scores of U. S. 17-yer-olds as measured by national assessments of science in 1969, 1973, and 1977. Maybe. NAEP was not initially set up to provide trend data. The scores from 1973 and 1969 are statistical extrapolations from 1977.
More importantly, why use science scores for 17-year-olds? Because this is the only one of 9 NAEP trendlines that will support crisis rhetoric. The science scores of 9- and 13-year-olds, don’t show it, nor do the trends at any of the three tested age s for math or reading. If anything, they are inching up.
2. Average achievement of high school students on most standardized tests is now lower than 26 years ago when Sputnik was launched.
They don’t have data on “most standardized tests.” At the time of the report, only the Iowa Tests of Basic Skills and Iowa Tests of Educational Development provided such trends. All other tests had floating standards: each time the tests were re-norm ed the median score, whatever it was, became the 50th percentile. Each new form of the ITBS and ITED tests, though, were equated to earlier forms.
It is true that the high school scores were lower than when Sputnik was launched–barely. What was also true was that scores had been rising for 7 consecutive years. Scores rose from 1955 to about 1965 (depending on grade), then fell for a decade. T hat decade began with the Watts riots which spread to all urban areas. Television permeated the culture for the first time. It included the recreational use of drugs, Beatles, Stones, summer of love, Woodstock, Altamont, Vietnam, Watergate, Black Panthe rs, SDS, SNCC, the Chicago Police Riot, Kent State and the assassinations of Robert F. Kennedy, Jr., Martin Luther King, Jr., and Malcolm X. The College Board called it a “decade of distraction.” They understated it.
But around 1975, the scores reversed and headed up, reaching all-time highs in the late 1980′s (where they remain).
3. The College Board’s Scholastic Aptitude Tests (SAT) demonstrate a virtually unbroken decline from 1963 to 1980.”
The College Board’s own panel, though, concluded that while easier-to-read textbooks had something to do with it, most of the decline came from changes in who was taking the test: more women, more minorities, more kids from low-income families, more ki ds with low high school GPAs. Doc Howe, the co-chairman of the panel wrote an article “Let’s Have Another SAT Decline.” Doc thought that the declined reflected an as yet incomplete opening of civil rights.
The Preliminary SAT norming studies which administered the PSAT to representative samples of students showed no decline during the period that average SAT scores fell.
4. International comparisons of student achievement completed a decade ago, reveal that on 19 academic tests, American students were never first or second and, incomparison with other industrialized nations, were last 7 times.
These studies all had fundamental methodological flaws. Only studies after 1989 (Second Internation Math Study) can be considered as possibly accurate. And the TIMSS Final Year of Secondary School study is worthless (see my articles in the May and Se ptember 1998 Phi Delta Kappan and Iris Rotberg’s Nay 15, 1998 Science article).
In studies that might be sound (I have reservations about all of them), American kids are above average in science, average in math, and second in the world in reading (second only to Finland, a small homogeneous country with huge taxes and tiny worrie s about teaching Finnish as a second language; in the county I live in there are 105 languages besides English).
5. Average tested achievement of students graduating from college is also lower.
Lower than what? This a classic dodge in advertising: something is lower, cheaper, newer, etc. How would they know? We don’t test college seniors. We don’t test high school seniors because they blow the test off, make pretty designs on the answer s heets, etc. One can only imagine what college seniors would do to a test. This is not a reference to GRE scores and there is no way of looking at the scores of college graduates from when they might have taken tests in high school.
6. Over half the population of gifted students to not match their tested ability with comparable achievement in school.
!?!?!?!? What on earth do they mean by “comparable achievement?” Do they mean scores on achievment tests? Can’t be because at that time in history, achievement tests were the principal way of identifying kids for G&T programs. The word “their” in the statement is grammatically incorrect. New York Times, Russell Baker sharply criticized the language of the report and declare that “Im giving them an A+ in mediocrity.”
I’ve never seen any data remotely related to this. I’ve spoken with both commission members and staff. No one can remember where this stuff came from.
And so forth.
FREE to Be Exploited
The Nation at Risk is Our Hubris and Our Unending conveyor belt of Bad Karma. Bad policy kills people USA. Illegal Wars Cost Trillions, USA. Us. You know, everything for the almighty dollar, for the almighty tax dodging corporation, USA.
Take the pulse of this land. The amount of hate, the amount of blaming the victim, the amount of myopia, both induced by brain carving mass media, mass pop-snapple-crack culture, mass delusion, magic thinking, and a 4,000-square-foot house, two-point-one kids, three-point-two pets, and a four car-snowmobile-boat garage, and that white picket fence enclosing six big screen plasmas, and a lawn gnome soccer team out front and a cuddly angel for every person. Hell, why not three guardian angels for every American Born Child.
So, the Oregon NPR just says, oh, unemployment is down, at 8.2 percent. That’s it. Not the facts on those people off the roll or dole are now not eligible for unemployment, you know, expired benefits. No more money. Thanks Obama and gang. Oh, the BLS is way off, and, the NPR fails to even look at the U6 figures, let alone the real fact on unemployment, and, what, underemployment and underpay.
So a fake number goes down, but the pain factor goes up. Great reporting.
Here, again, the Portland Mac List –
Why Become a Free Agent?
It sounds kind of scary! True, but even scarier is being a long-term unemployed person over age 45. Here are four reasons you should consider becoming a free agent:
1. Changed economic conditions present shortened job cycles, more project work, and budget-cutbacks.
2. Attitude shifts have created acceptance of the virtual work environment.
3. The Internet gives us technology like Skype and Google Hangout.
4. Free agents can more easily avoid ageism issues.
Free Agents Today
A 2011 survey sponsored by Kelly Services revealed that free agency is on the rise across all generations due to the entrepreneurial benefits of an independent work style. These statistics from the report are mind-bending:
Nearly 38% of Generation X workers today are free agents compared to 18% in 2008. Today, free agents comprise 49% of all baby boomers (age 47 – 65), and 66% of all silent generation workers (age 66 – 76). 25% of Generation Y (age 18 – 31) workers classify themselves as free agents, an increase from 21% in 2008. Citing Kelly Services? Geez, what about getting PayDay Loans in on the “free agent” fun.
Alas, though, what is an unemployed overqualified, underutilized person to do? Write back!
Unfortunately, this article is damaging and superficial and full of holes. Our society, our communities, need bricks and mortar and corporate responsibility and a labor force that is not fractured, fragmented and at-will, precarious, disjointed, and wage slavers.
The writing IS NOT on the wall — i.e. we have to go to school, go into debt, and then expect some magical thinking that life is so good in freelancer (free agent) land. This blog post pushes this marginalization of workers, pushes this freelancer goal, as opposed to forcing corporations and policy makers and elected officials to work for community change, back to a place where work is real, dedicated, honored, and is paid for.
Elance? I’ve been on it and studied it. Pennies on the dollar. Literally slave wages for hard work.
Read the book, Intern Nation for more on that scam, too — internships, unpaid, with no payoff, intellectually or economically. We have to have more analyses of the job market, labor and what the bottom line of corporations of greed are. It’s too easy to have Mac List and then these blogs that are not really part of a solutions based narrative on bringing sanity back to the US and global labor market.
We have to come together and BUILD good jobs, real ones, where people work in a community of place, not just a community of purpose with little regard for local conditions, factors and needs. We are in a fight to organize workers even at home working as say medical transcription experts. We have to have people covered by health insurance, benefits, and fairness. Any articles here on the ACA, Obama Care, and how even grant visionary universities and colleges are cutting part-time teachers’ wages so they do not have to pay into ACA?
Brave New World of Work is a start, a book to read. Deep thinking about what is now called the Brazilianization of labor.
My field is higher education, journalism, activism, and community planning. As of now, we have in higher education, your freeway flier, or roads scholar, making rotten money as higher education teachers. We have been called the New Faculty Majority, and there is an organization with the same name. Articles are coming out weekly on faculty on food stamps — we who have master’s and doctorates and more importantly decades of experience each working with young and old alike. EDUCATION. Some of us still teach labor issues, why the 40 hour work week is important to democracy, why we need a progressive taxation system, and why we need to regulate corporations in a world that is almost seamless with transnational money and transnational corporations.
Here’s a little quick look at apartheid of higher education thanks largely to this belief that we all are going to work at home, on-line, over the web, believing in economies of scale for all our working and living lives.
I’d be happy to add to the discussion here with a once-in-a-while column. But, again, what does Mac List pay? As a writer, my time is valuable. Look at Elance and see it’s mostly 1 cent a word, sometimes, .1 a penny a word. Absolutely scandalous.
So, again, many of us teach and work in communities out of a love of educating and writing. But, this world of the so-called freelancer is the wrong way to go. Really. Things have to get done outside the virtual realm, not through Google this or that, and Skype? This is how we build young people to work with the huge challenges of transnational corporate power, resource shortages, climate change and sequester after sequester?
Wrong!
Give Us Your Poor, Unemployed … Debit Cards Accepted
Now, if we peruse the woman’s web site, bang — we get the improvement web site. The stuff for sale. The coaching in a bottle. Bam — put down $97 smackers, or,
Your Core Values Profile + 2 coaching sessions to unpack your results and go deeper into your assessment
Learn your unique strategies during conflict situations Find out how you learn best Discover new insights for interacting effectively in a team environment Set yourself up for success in your current role or new career Your investment: $197 Your Core Values Profile + 3 coaching sessions that take a deep dive into your results
All of the above, plus… Using your core values to define the ideal careers and job types for you Discover your true, innate transferrable skills for changing job roles or career direction Your investment: $297 Core Values Index, trademarked by this person who is selling stuff to the unemployed. Absolutely American, PT Barnum. chutzpah, predatory, and, well, so imbued with the pop culture of our times, that she can come off as all-American entrepreneurial, but, alas, like churches should not be the first responders in hurricanes or to deal with decaying public schools, for-profit schemer should not be the answer to a solid civilian conservation corps, arts corps, jobs corps mentality.
Again, the DEATH of any LIBERAL CLASS. We have a continual cut to the heart, to the spleen, of collective safety nets. We are now at the point of dog-eat-dog, sell yourself for a penny an hour scheme.
It’s been Jan. 8th 2013. I make money writing a few things a month, but, I spend a lot of time applying to jobs. Lots of jobs. More than four dozen solid applications. It’s April 16, 2013. Now, well, we bright and bushy tailed ones are now applying to jobs that pay, drum roll, please! Oh, $13.50 an hour. Take that, Uncle Sam. Give me your brightest, give me your educated, give me your education heroes and heroines, and I have a deal for you.
Read the book, Death of the Liberal CLass. Check out this inventive one hour reading of some of the book’s passages.
Here, again, Hedges on education –
“We’ve bought into the idea that education is about training and “success”, defined monetarily, rather than learning to think critically and to challenge. We should not forget that the true purpose of education is to make minds, not careers. A culture that does not grasp the vital interplay between morality and power, which mistakes management techniques for wisdom, which fails to understand that the measure of a civilization is its compassion, not its speed or ability to consume, condemns itself to death.”
― Chris Hedges, Empire of Illusion: The End of Literacy and the Triumph of Spectacle
A nation that destroys its systems of education, degrades its public information, guts its public libraries and turns its airwaves into vehicles for cheap, mindless amusement becomes deaf, dumb and blind. It prizes test scores above critical thinking and literacy. It celebrates rote vocational training and the singular, amoral skill of making money. It churns out stunted human products, lacking the capacity and vocabulary to challenge the assumptions and structures of the corporate state. It funnels them into a caste system of drones and systems managers. It transforms a democratic state into a feudal system of corporate masters and serfs.
Teachers, their unions under attack, are becoming as replaceable as minimum-wage employees at Burger King. We spurn real teachers—those with the capacity to inspire children to think, those who help the young discover their gifts and potential—and replace them with instructors who teach to narrow, standardized tests. These instructors obey. They teach children to obey. And that is the point. The No Child Left Behind program, modeled on the “Texas Miracle,” is a fraud. It worked no better than our deregulated financial system. But when you shut out debate these dead ideas are self-perpetuating.
Or, how about the state of HIGHER education?
The nation’s elite universities disdain honest intellectual inquiry, which is by its nature distrustful of authority, fiercely independent and often subversive. They organize learning around minutely specialized disciplines, narrow answers and rigid structures that are designed to produce certain answers. The established corporate hierarchies these institutions service — economic, political and social — come with clear parameters, such as the primacy of an unfettered free market, and with a highly specialized vocabulary.
I was sent to boarding school on a scholarship at the age of 10. By the time I had finished eight years in New England prep schools and another eight at Colgate and Harvard, I had a pretty good understanding of the game.
You can see this attitude on display in every word uttered by George W. Bush. Here is a man with severely limited intellectual capacity and no moral core. He, along with Lewis “Scooter” Libby, who attended my boarding school and went on to Yale, is an example of the legions of self-centered mediocrities churned out by places like Andover, Yale and Harvard.
Hedges even Talks about Adjunct Faculty – Do YOU?
So, before watching this documentary, how about some feedback on this Alternet story — again, as I have repeated before, notice the pulse of America, in the comments section –
Academia’s Indentured Servants On April 8, 2013, the New York Times reported that 76 percent of American university faculty are adjunct professors – an all-time high. Unlike tenured faculty, whose annual salaries can top $160,000, adjunct professors make an average of $2,700 per course and receive no health care or other benefits.
Most adjuncts teach at multiple universities while still not making enough to stay above the poverty line. Some are on welfare or homeless. Others depend on charity drives held by their peers. Adjuncts are generally not allowed to have offices or participate in faculty meetings. When they ask for a living wage or benefits, they can be fired. Their contingent status allows them no recourse.
No one forces a scholar to work as an adjunct. So why do some of America’s brightest PhDs – many of whom are authors of books and articles on labour, power, or injustice – accept such terrible conditions?
“Path dependence and sunk costs must be powerful forces,” speculates political scientist Steve Saidemen in a post titled “ The Adjunct Mystery“. In other words, job candidates have invested so much time and money into their professional training that they cannot fathom abandoning their goal – even if this means living, as Saidemen says, like “second-class citizens”. (He later downgraded this to “third-class citizens”.)
We are going to have to talk about this piece, sort of another, yet another, catch-all piece on the adjunctivication of fragmented faculty USA.
Here’s one response — you know, while I type up and research another four possible leads for an All-American job in USA, I can multitask with the best of them.
Paul Haeder • 2 days ago
Ahh, here come the haters, the corporate cheerleaders, the I-got-mine-so-good-luck-suckers all-American uncaring community-bashing, society-hating trolls or just righteous digital drummers.
Amazing how many show up here on education topics. As if all teachers suck. All faculty are worthless. Right. It’s probably one of the last places of hope, education. Broken, yes. Exploitative, yes, to me, adjunct faculty, and to students need tools for the 21st century of greed-driven policy. But at least we are trying to educate under the most extreme conditions, including a Walmart warehouse of lies from the media and from the ADMIN class and the economists and those here who love to hate teachers. It’s a lie factory — but here are truth: PK12 teachers don’t love No Child Left Behind; teacher unions are there for students; education matters; exploitation is taught as bad.
But, when even the so-called heroes buy into that broken corporate model, when teachers flock to Walmart or lift their souls through the banking robbery system, the mortgaged lives they live are also precarious.It’s one dog-eat-dog system we’ve put into place, thanks to that credit report fear drilled into our heads. Teachers in the main are just part of that system. Education’s biggest problem is that it is a public good, and a right that many before today’s political whore saw as something worthy of a society.
But as we lament or laugh at Margaret the Milk Snatcher’s death, this society is made up of little Thatchers, little Eichmanns, little trickle down blustery tough guys.As Thatcher said to the world, there is not SOCIETY. Only individuals. And, while those Ivy League pukes and the profiteers make so much on the pain and the daily costs of being poor, the bulk of Americans consuming the plastic world of TV and blogs, they too like to spit on the feet of the poor.
Now, well, we have people with college degrees on food stamps, long-term unemployed. And what do these fellow Americans say? “Your f-ing fault. You got what was coming to you. See what all that time getting book sense did to you?”We have become a country — and world, at least in the West — of compliant greedy bastards who accept what for a minimum wage? Who accept what rights stripped away once we traipse off to work? Who accept detainment, economic thuggery, added-on sin tax, consumer tax, surcharge, anything to add to regressive taxation? Who accept the paymasters’ words, and who look at the less fortunate as failures … dinosaurs … out of their league … out of their time … too deskilled or unskilled to give a damn about.
OBEY Your PayMasters
Mazars and Deutsche Bank could have ended this nightmare before it started. They could still get him out of office. But instead, they want mass death. Don’t forget that.
justdrew, I have a hard time thinking of a mineral as a bad thing. Although it’s also hard to not come close to that when things like the following are considered.
Still it would seem that it is the humans that are responsible for their lack of humanity rather than the mineral.
Given that Gold has been an eminently useful means for manipulating the value of tangible goods through providing surpluses, then a scarcity of notes that have its putative backing, it’s hard to be a fan of Gold.
Still, the private issuance of money seems to be a problem that is several decimal points of greater order and influence.
Subsequent allegations that international bankers were responsible for President Lincoln's assassination, would be made in the Canadian House of Commons, nearly 70 years later in 1934.
The person who revealed this was a Canadian Attorney, Gerald G. McGeer. He had obtained evidence deleted from the public record provided to him by Secret Service Agents at the trial of John Wilkes Booth, after Booth's death. McGeer stated that it showed that John Wilkes Booth was a mercenary working for the international bankers. His speech would be reported in an article in the Vancouver Sun, dated, 2nd May 1934, which stated,
"Abraham Lincoln, the murdered emancipator of the slaves, was assassinated through the machinations of a group representative of the International Bankers, who feared the United States President's National Credit ambitions. There was only one group in the world at that time who had any reason to desire the death of Lincoln. They were the men opposed to his national currency program and who had fought him throughout the whole Civil War on his policy of Greenback currency."
Gerald G. McGeer also stated that Lincoln's assassination was not purely because the International Bankers wanted to re-establish a central bank in America, but also because they wanted to base America's currency on gold, which they of course controlled. They wanted to put America on a Gold Standard. This was in direct opposition to President Lincoln's policy of issuing Greenbacks, based solely on the good faith and credit of the United States.
The Vancouver Sun article also quoted Gerald G. McGeer with the following statement,
"They were the men interested in the establishment of the Gold Standard and the right of the bankers to manage the currency and credit of every nation in the world. With Lincoln out of the way they were able to proceed with that plan and did proceed with it in the United States. Within 8 years after Lincoln's assassination, silver was demonetized and the Gold Standard system set up in the United States."
1866 The European central bankers wanted the re-institution of a central bank under their control and an American currency backed by gold. They chose gold as gold has always been relatively scarce and therefore a lot easier to monopolize, than, for example, silver, which was plentiful in the United States, and had been found in huge quantities with the opening of the American West.
So, on April 12th, Congress went back to work at the bidding of the European central bankers. It passed the, "Contraction Act," which authorized the Secretary of the Treasury to contract the money supply by retiring some of the Greenbacks in circulation.
This money contraction and it's disastrous results is explained by Theodore R. Thoren and Richard F. Walker, in their book, "The Truth In Money Book," in which they state the following,
"The hard times which occurred after the Civil War could have been avoided if the Greenback legislation had continued as President Lincoln had intended. Instead there were a series of money panics, what we call recessions, which put pressure on Congress to enact legislation to place the banking system under centralized control. Eventually the Federal Reserve Act was passed on December 23rd 1913."
This is how the, "Contraction Act," passed by Congress affected America (the money supply goes down purely because currency in circulation is being withdrawn): Year In circulation Approximately per capita
Therefore in the twenty years since 1866 two thirds of the American money supply had been called in by the bankers, representing a 760% loss in buying power over this twenty years. The money became scarce simply because bank loans were called in and no new ones were given.
1872 Ernest Seyd is sent to America on a mission from the Rothschild owned Bank of England. He is given $100,000 which he is to use to bribe as many Congressmen as necessary, for the purposes of getting silver demonetized, as it had been found in huge quantities in the American West, which would eat into Rothschild's profits.
1873 Ernest Seyd obviously spent his money wisely, as Congress pass the, "Coinage Act," which results in the minting of silver dollars being abruptly stopped. Furthermore, Representative Samuel Hooper, who introduced the bill in the house, even admitted that Ernest Seyd had actually drafted the legislation.
1874 Ernest Seyd himself admitted who was behind the demonetizing of silver in America, when he makes the following statement, "I went to America in the winter of 1872-1873, authorized to secure, if I could, the passage of a bill demonetizing silver. It was in the interests of those I represented, the governors of the Bank Of England, to have it done. By 1873, gold coins were the only form of coin money."
1876 Due to the manipulation of the money supply in America, one third of the workforce is unemployed and unrest is growing. There are even calls for a return to Greenback money or silver money. As a result, Congress creates the, "United States Silver Commission," to investigate the problem.
This commission clearly understood that the national bankers were the cause of the problem, with their deliberate contraction of the money supply. An excerpt of their report reads as follows,
"The disaster of the Dark Ages was caused by decreasing money and falling prices ... Without money, civilization could not have had a beginning, and with a diminishing supply, it must languish, and unless relieved, finally perish. At the Christian era the metallic money of the Roman Empire amounted to $1,800,000,000. By the end of the 15th century it had shrunk to less than $200,000,000 ... History records no other such disastrous transition as that from the Roman Empire to the Dark Ages ..." Despite this damning report from the commission, Congress took no action.
1877 Rioting breaks out from Pittsburgh to Chicago. The bankers get together to decide what to do and they decided to hang on, as they knew that despite the violence, they were now firmly back in control. At the meeting of the American Bankers Association, they urged their membership to do everything in their power, to put down any notion of a return to Greenbacks.
The American Bankers Association secretary, James Buel, even wrote a letter to the members in which he blatantly called on the banks to subvert both Congress and the press. In this letter he stated,
"It is advisable to do all in your power to sustain such prominent daily and weekly newspapers, especially the Agricultural and Religious Press, as well as oppose the Greenback issue of paper money and that you will also withhold patronage from all applicants who are not willing to oppose the government issue of money ...
... To repeal the Act creating bank notes, or to restore to circulation issue of money will be to provide the people with money and will therefore seriously affect our individual profits as bankers and lenders. See your Congressman at once and engage him to support our interests that we may control legislation."
And now as we seem to approach the end of this tragicomedy, perhaps we will become more inspired to look closer to the beginnings to find where the plot went wrong.
Following a costly series of wars over the last 50 years, English Government officials go, cap in hand, to the money changers for loans necessary to pursue their political purposes. The money changers agree to solve this problem in exchange for a government sanctioned privately owned bank which could issue money created out of nothing. This was deceptively named the, "Bank of England," for the sole purpose of duping the general public into believing it was part of the government, which it was not. Like any other private corporation the Bank of England sold shares to get started. The private investors, whose names were never revealed, were supposed to put up £1,250,000 in gold coins to buy their shares in the bank, but only £750,000 was ever received. Despite that the bank was duly chartered and began loaning out several times the money it supposedly had in reserves, all at interest.
William Paterson
Although the Bank of England's private investors were never revealed, one of the Directors, William Paterson, stated,
"The Bank hath benefit of interest on all monies which it creates out of nothing."
Furthermore the Bank of England would loan government officials as much of the new currency as they wanted, as long as they secured the debt by direct taxation of the British people. The Bank of England amounted to nothing less than the legal counterfeiting of a national currency for private gain, and thus any country that would fall under the control of a private bank would amount to nothing more than a plutocracy.
Soon after the Bank of England was formed it attacked the talley stick system, as it was money outside of the power of the money changers, just as King Henry I had intended it to be.
1698 Following four years of the Bank of England, their plan to control the money supply had come on in leaps and bounds. They had flooded the country with so much money that the Government debt to the Bank had grown from the initial £1,250,000, to £16,000,000, in only four years. That's an increase of 1,280%.
Why do they do it? Simple, if the money in circulation in a country is £5,000,000, and a central bank is set up and prints another £15,000,000, stage one of the plan, sends it out into the economy through loans etc, than this will reduce the value of the initial £5,000,000 in circulation before the bank was formed. This is because the initial £5,000,000 is now only 25% of the economy. It will also give the bank control of 75% of the money in circulation with the £15,000,000 they sent out into the economy.
This also causes inflation which is the reduction in worth of money borne by the common person, due to the economy being flooded with too much money, an economy which the Central Bank are responsible for. As the common person's money is worth less, he has to go to the bank to get a loan to help run his business etc, and when the Central Bank are satisfied there are enough people with debt out there, the bank will tighten the supply of money by not offering loans. This is stage two of the plan.
Stage three, is sitting back and waiting for the debtors to go bankrupt, allowing the bank to then seize from them real wealth, businesses and property etc, for pennies on the dollar. Inflation never effects a central bank in fact they are the only group who can benefit from it, as if they are ever short of money they can simply print more.
Please remember people, when an entity has effectively infinite resources, it does not matter what 'price' one is given during a selling panic.
The Banker gets the asset.
All these things will continue as long as coercion remains a central element of our mentality.
How a student took on eminent economists on debt issue - and won By Edward Krudy | Reuters – 20 hrs ago
Reuters/Reuters - Harvard Professor and Economist Kenneth Rogoff speaks during the Sohn Investment Conference in New York, May 16, 2012. REUTERS/Eduardo Munoz
By Edward Krudy
NEW YORK (Reuters) - When Thomas Herndon, a student at the University of Massachusetts Amherst's doctoral program in economics, spotted possible errors made by two eminent Harvard economists in an influential research paper, he called his girlfriend over for a second look.
As they pored over the spreadsheets Herndon had requested from Harvard's Carmen Reinhart and Kenneth Rogoff, which formed the basis for a widely quoted 2010 study, they spotted what they believed were glaring errors.
"I almost didn't believe my eyes when I saw just the basic spreadsheet error," said Herndon, 28. "I was like, am I just looking at this wrong? There has to be some other explanation. So I asked my girlfriend, 'Am I seeing this wrong?'"
His girlfriend, Kyla Walters, replied: "I don't think so, Thomas."
In the world of economic luminaries, it doesn't get much bigger than Reinhart and Rogoff, whose work has had enormous influence in one of the biggest economic policy debates of the age.
Both have served at the International Monetary Fund. Reinhart was a chief economist at investment bank Bear Stearns in the 1980s, while Rogoff worked at the Federal Reserve, passing through Yale and MIT before landing at Harvard.
Their study, which found economic growth slows dramatically when a government's debt exceeds 90 percent of a country's annual economic output, has been cited by policymakers around the world as justification for slashing spending.
Former U.S. vice presidential candidate Paul Ryan, a Republican congressman from Wisconsin, is one influential politician who has cited the report to justify a budget slashing agenda.
Using the two professors' data, Herndon found that instead of a dramatic fall in growth, the decline was much milder, slowing to about 2.2 percent, instead of the slump to minus 0.1 percent that Reinhart and Rogoff predicted.
Things tend to move at a glacial pace in the world of academic research papers, but within 24 hours Herndon and his two teachers, who co-authored the report, Michael Ash and Robert Pollin, found themselves swept up in a global debate.
Herndon's paper began life as a replication exercise for a term paper in a graduate econometrics class. He expected to replicate Reinhart and Rogoff's results, then challenge the idea that high public debt caused growth to slow.
But he never got that far. Repeated failures to replicate the results roused his interest. Pollin and Ash encouraged him to pursue it after he convinced them he was onto something.
"At first, I didn't believe him. I thought, 'OK he's a student, he's got to be wrong. These are eminent economists and he's a graduate student,'" Pollin said. "So we pushed him and pushed him and pushed him, and after about a month of pushing him I said, 'Goddamn it, he's right.'"
Herndon approached Reinhart and Rogoff earlier this year for the spreadsheets they used in their paper. The two professors provided them at the start of April, unlocking the mysteries of the data that had stumped Herndon.
Herndon said only 15 of the 20 countries in the report had been used in the average. He also said Reinhart and Rogoff used only one year of data for New Zealand, 1951, when growth was minus 7.6 percent, significantly skewing the results.
Reinhart and Rogoff have admitted to a "coding error" in the spreadsheet that meant some countries were omitted from their calculations. But the economists denied they selectively omitted data or that they used a questionable methodology.
For Ash, the findings mean the claim that high public debt causes growth to stall no longer holds water.
"Their central thesis has been substantially weakened," he said.
Reinhart and Rogoff, however, say their conclusion that there is a correlation between high debt and slow growth still holds.
"It is sobering that such an error slipped into one of our papers despite our best efforts to be consistently careful," they said in a joint statement. "We do not, however, believe this regrettable slip affects in any significant way the central message of the paper or that in our subsequent work."
Now that Herndon has ably crossed swords with some of the most eminent figures in his field, he is thinking about expanding his work into a Ph.D. thesis.
(Reporting By Edward Krudy; Editing by Stacey Joyce)
We meet at the borders of our being, we dream something of each others reality. - Harvey of R.I.
To Justice my maker from on high did incline: I am by virtue of its might divine, The highest Wisdom and the first Love.
So who takes the "demise" of the Reinhart-Rogoff paper and runs with it? More explicitly, who goes and pins it onto Paul Ryan's lapel? I'd volunteer but...well, I have a doctor appointment or sump'n'.
America is a fucked society because there is no room for essential human dignity. Its all about what you have, not who you are.--Joe Hillshoist
I am re-posting the Reinhart analysis from two years ago (which includes a couple of naive statements from me in praise of some aspects of her work). The graphics were no longer available.
Now it should work:
Originally posted on Wed Jun 16, 2010 12:34 am.
Jack Riddler Deconstructs Carmen Reinhart
A second public meeting was held on May 26 of the Obama-appointed “National Commission on Fiscal Responsibility” a.k.a. the Alan Simpson/Erskine Bowles Commission. I referred to it above as the "Kill Social Security Commission" or "Catfood Commission" because of its high proportion of members who have long sought to turn the supposed "crisis of entitlements" into the nation’s number-one source of panic.
The commission is due to present its findings in December 2010, conveniently after the November election and whatever aftermath that brings. Obama seems to have set it up as a means of having an independent-seeming "bipartisan" body of "experts" hand down the inevitable proposals for austerity measures in the guise of a national necessity, so that both parties can go along with the ensuing cuts.
The session started with a genuinely interesting presentation by economist Carmen Reinhart. It was interesting for two reasons. First, because her work with Ken Rogoff attempts a broad, comparative, aggregate analysis of financial crises of different kinds over more than a century’s time. The results are worth a look.
Second, it is interesting because the questions and her responses made clear the limits imposed by ideology and capitalist euphemisms. At times Reinhart appeared not just unwilling but constitutionally unable to state clearly what her own data suggested, insofar as this wasn’t what the panel (or other adherents of mainstream finance beliefs) wanted to hear.
One of the most obvious examples of the euphemistic language is in the contrast between the concept of "financial innovation," which refers to the bankster scams in bubble times that Reinhart and her interlocutors seem freely to accept as the generators of financial crisis; and that of "financial repression," which refers to government policies that roll back "innovation" and regulate what the banksters can do (e.g., limiting how much interest they charge and to what purpose they may lend).
No one present disputed Reinhart’s assertion that financial "innovations" set up crises and generate high private debts. Or that these private debts largely pass into public debts following the inevitable crash. But this is treated as a given, and quickly passed over. The discusion shifts to public debt as the lone, intolerable problem that must be addressed, in part because of its supposedly bad effects on "growth" (another famously ideological term).
The alternatives mentioned as remedies for public debt are similarly narrow. Top of the list is fiscal austerity, which is taken as the most positive and necessary measure although it is also paradoxically acknowledged that austerity has even worse effects on "growth." Default is mentioned only reluctantly and treated as a disaster. "Financial repression" comes only as an afterthought, a necessary evil that should be taken in small doses. This is all a big kowtow to market ideology, and has little to do with reality.
Completely omitted are ideas such as making the financial “innovators” who caused the problem pay for the damage, i.e., of liquidating or expropriating the banksters rather than bailing them out, of establishing a public-utility banking system, or of taxing the rich to cover the public debt that made them even richer.
While Reinhart makes no suggestions on the specifics of financial austerity measures, it’s a big question whether the Commission’s December plan will address the giant sinkhole of "defense" spending at all.
The most historic thing about the meeting was that I was allowed to attend the proceedings and practice real-time peer review, as the following transcript of the first hour reveals.
Transcript of Commission Meeting, May 26 (This is my own transcript from a public meeting of a US government commission, and belongs to the public domain. The transcript has been edited lightly to remove chunks of filler language such as ums and ahs and repeated phrases, as indicated by ellipses.)
After opening formalities and friendly banter between Erskine Bowles (D) and former Sen. Alan Simpson (R-WY), two of the most notorious promoters of the idea that Social Security is a timebomb…
CHAIRMAN ERSKINE BOWLES (D, investment banker, current board member of Morgan Stanley and NC Mutual Life Insurance, former Clinton Chief of Staff, failed NC Senate candidate) : Everybody has left their partisanship at the door and hopefully we can get something done… But first we’re going to have a chance to hear from Prof. Carmen Reinhart from the center of International Economics at Maryland… She has vast experience in public and private sectors of the economy as well as at the academy, including a period as head researcher at the IMF. She just co-authored a book entitled This Time Is Different: Eight Centuries of Financial Folly…
PROF. CARMEN REINHART: It’s a real honor. I’d like to have the interaction as we go along rather than prepare remarks and then questions at the end so please feel free to chime in at any point in time. What I’d like to do is divide my presentation into four parts. The first two very, very short. One is the global setting and say a little about… the stages of crises, how we progress from one problem to another, that’s the negative way to put it. Then talk a little about the antecedents of crises but very little just as to the point where it’s relevant to where we are today. Most of my talk is going to be devoted to the aftermath of crises. I’ll say very little about the aftermaths as regards to the typical post-crisis experiences in housing and employment but the main thrust of my remarks is about debt, government debt. And there’s two themes. One is, when does a severe financial crisis end up being a debt crisis, as it is in Europe as we speak. And the second is what are the implications of high public debts for growth and inflation based on a very broad historic study that I have done with my co-author Ken Rogoff of Harvard University.
JACK RIDDLER (ACORN,* NY) : Now that’s how to frame a problem! * Anarcho-Communist Order of Raging Nihilists
REINHART: So in the handout starting with where we are in a global context if we could just move to the first chart…
REINHART: What is shown in that chart is basically the incidence of crises from 1900 to 2008, everything else that I talk about will be through 2010. But the focus is to highlight that we’ve seen in recent years and what we see now is really pre-[World War II], that post-World War II we haven’t really seen anything quite like this. So the chart… takes five types of crises. Severe banking crises. (1) Government internal debt crises. (2) Government external debt crises. (3) Right now Europe is having both because the solvency issue is affecting both internal debts and external debts alike. Inflation crises (4) and currency crises. (5) Currency crises is what we saw for example in the UK pound in 2008 and what we’re seeing in the euro right now. So it takes those five crises and it weighs them according to world GDP. So a US financial crisis carries a lot more weight than an equivalent financial crisis in Costa Rica.
REINHART: The red line takes those five severe crises and adds stock market crashes, defined as severe declines in equity prices of more than 25 percent… The bottom line of my showing this chart at the outset of my remarks is really to highlight that we haven’t seen since World War II something of this order of magnitude. You might note that we have similar readings in the 1950s but that’s the lingering part of World War II. That’s because not forget that Japan, Germany, Italy were in a state of default, some of them since the Great Depression, some of them since World War II, and those defaults were not resolved until 1952. Greece, the subject of so much public interest, was in a state of default until 1964… Greece has been in a state default roughly 50 percent of the time since independence in 1830, so [the current Greek crisis] is unprecedented by recent standards but certainly not by historic standards. The second point that I want to highlight from this chart before moving on is that the post-World War II period, the 50s 60s early 70s up to the oil crisis…
RIDDLER: "Oil crisis" is one way to frame the 70s, avoiding the fall of Bretton Woods after the rise of US trade competitors, and the profit-growth decline following the maturity of Western capitalism. These crises in turn saw big business and the banks start demanding every form of deregulation, so that they could squeeze out the remaining profit potentials in production (stagnate wages, for a start) and engage more freely in financial speculation.
REINHART: …was really quite an unusual period of calm, not just for the States but worldwide, and we’ve taken that for granted.
RIDDLER: It’s properly called “The Golden Age of Capitalism,” 1948-1973. It obtained for twenty-five years. Thirty-seven years have since gone by.
REINHART: If I were to extend this chart back another 100 years it would look a lot more like 1900 to 1945 than like the 50s 60s and early 70s. So that’s the point I wanted to make there. Turning to the next chart…
REINHART: This is just the set-up before I get to the heart of my remarks. The flow chart basically highlights the feast-famine cycle that the United States and most of the major world economies have been through. The feast phase has been you have financial innovation, you have a liberalization in the financial industry, we’re all geniuses. And a boom in asset prices ensues, fueled by a lot of credit, and it’s important to note that leverage begins there. Private sector begins to lever up there and this quite often ends in tears, it ends with a lot of those debts becoming non-performing and you have a banking crisis.
RIDDLER: In keeping with Reinhart’s overall framing, all the "good times" and everything that causes the crisis are compacted into one box out of the seven. Nevertheless it’s revealing that "financial liberalization" leads straight to "beginning of banking crisis," and that no one from the panel cares to challenge her when she says so. It’s tacit, but she seems to be acknowledging that, given the freedom to make their own rules, the big financial actors are guaranteed to exploit it to the point of abuse, since that’s how they make the big money.
REINHART: Banking crises have been usually associated with currency crashes as we saw for example in the UK. We really in the United States were the outlier, in that we saw a flight to the dollar in the fall of 2008. I will talk more about that towards the end of the remarks, because we’re seeing something similar right now in a somewhat different order of magnitude [a renewed "flight to the dollar" as haven]. But I will talk about the good and the bad of that. Because as most things it has the good and the bad. But the point that I want to highlight today is that often times these banking crises, whether there is fiscal stimulus or not, whether there is a large bailout or not, usualy end up with huge build-up in government debts. And that is also because revenues collapse. So even if you go to the pre-World War II experience where bailouts were very limited if you had any and counter-cyclical stimulus packages were non-existent, you’d still get a real serious deterioration in the fiscal because of prolonged severe slumps in revenues.
REINHART: Moving to the list into the antecedents, this is Slide 6, all I want to highlight is… I don’t want to dwell on this but the stages of crises, the first stage is a run-up in private debts. As the banking crisis unfolds public debts run up and this is where we are right now… I’d be happy to send you all the material, but if you go back to 1914 we have the highest level of private debt by a significant margin in the United States. This is household, non-financial and financial firms have the highest level of debt to income since the data has been kept from 1914 onwards. And so the indebtedness issue extends beyond the public sector…
RIDDLER: And she’s not going to overemphasize it, but let’s look at the real proportions of debt, public debt in relation to the rest, by recalling this chart from an earlier page.
(To create this chart, someone helpfully plugged in the numbers from the table at Federal Reserve, "Flow of Funds Accounts of the United States," Release Z.1, March 2010: Table D3, "Debt Outstanding by Sector" (1978-2009). The full report is at http://www.federalreserve.gov/releases/ ... ent/z1.pdf)
REINHART: I highlight this because this is a major problem going on in Europe right now. Spain and Ireland for example did not start out with high public debts but they have been in the process of acquiring a huge stock of private debt. In crisis times private debts often become public debts. So that’s also an issue to consider.
RIDDLER: You would think that would be THE issue to consider: privatization of profits in the good times, socialization of losses in the bad.
REINHART: Let me now turn to the aftermath of crises.
RIDDLER: I’d rather not, but please, Prof. Reinhart, this is your show.
REINHART: So we’re on Slide 8.
There are two comments that I’d like to make on this score. Severe banking crises are protracted affairs. In our work Ken and I have been emphasizing this pretty much since the onset of the crisis. When crises are this severe you do not get your typical recession. You do not get your typical housing market cycle or employment cycle they’re more protracted. Even when GDP recovers for example, much more quickly than the labor market. The equity market, this is not just because equity prices rebounded in 2009. The norm is that equity markets recover well before housing does. If you look at this chart, the left panel shows the magnitude of the housing market decline in the worst of all the post-war financial crises. The right panel shows the duration, the time it takes from peak to the market bottom-out. I’d like to leave you if anything with the theme that it’s a protracted process.
RIDDLER: And of course in the present case still ongoing -- below I’ll be posting Whitney’s latest article making the case that housing prices are about to decline by another 10 percent.
REINHART: It’s six years if you include Japan [1990-present], it’s five years if you exclude Japan. I mean we talk about V-shaped, W’s [i.e., chart lines], but in Japan it’s really been an L… But taking out Japan you’re still looking at about five years peak to trough. Let me highlight that in the United States the peak in housing was in the first quarter of 2006. The actual decline using Case-Schiller [the S&P home price index] which showed another decline in the most recent, it showed a 5 to 10 percent decline in the figures released this week, highlights that the slump in housing isn’t entirely behind us.
REINHART: Employment conditions also [show] a protracted recovery, on average the unemployment rate has increased in the worst of the post-WW2 crises by 7 percent. Let me say that this is not melodrama, it’s not meant to be melodramatic. If I really wanted to be melodramatic I would show the same statistics for the Depression, in which you’re talking about peak-to-trough declines that are much bigger. And the duration being much longer. So these are strictly postwar crises.
REINHART: But now I really want to get in the next slide into the heart of my presentation. And the true legacy of financial crises is more government debt. This is where we are right now. In January of 2009 Ken Rogoff and I presented this analysis at the American Economic Association meetings and it was met with a bit of incredulity. We’re basically saying, what this chart says, is that if you take the crisis year to be equal to 100, real government debt a few years later is on average 186. It means that it nearly doubles. This is not debt as a percent of GDP but real inflation-adjusted government debt [that] nearly doubles in three years following a severe financial crisis on average. And we are on track as I will highlight later to meet that near-doubling of debt, not just in the United States but in the major advanced economies.
REINHART: So in what remains of my remarks I’d like to address two issues. One is… the links between what becomes a surge in government debt to what becomes a debt crisis, a surge in insolvency. And the less dramatic, more benign, more common pattern which even absent a debt crisis, what are the implications for economic growth of high government debt.
RIDDLER: (Digression!) As a Greek, this chart shows me how much it sucks to be a perennial plaything in the Great Game of the imperialist powers. I’ll try to resist too much of a history, but let's note the major stations indicated by the chart. In the course of the independence struggles of 1821-1830, the European powers intervened to set Greece up with a Bavarian monarch who didn’t speak Greek, foreign technocrats to make the policies, and a mountain of debt that left the new nation in default at birth. Greece spent the rest of the 19th century paying off as it grew, economically as well as territorially in a series of wars with the Ottoman Empire. Debt rose again after 1888 due to a Great Power blockade meant to limit national dreams of uniting all Greek territories. Following a war lost to Turkey in 1897, Greece went bankrupt and its budget was put under the control of a six-power consortium (at least Crete was acknowledged as Greek). Debt declined until the gap in numbers collection, apparently during the Balkan wars and World War I. The nation’s biggest disaster followed in the 1922 war with the deportation of 1.5 million Greeks from Asia Minor, but apparently no one was lending at the time, because debt went down. The next spike of debt, also leading to default, followed from the Great Depression. The "hyperinflation" represents the period of occupation by the German Reich. A review of these events highlights the limits of an aggregate approach, in which the lines just appear to move on their own according to some abstract mathematical logic. (That certainly plays a role, thanks to the miracle of compound interest and the self-reflexivity of the market.)
REINHART: In Slide 12, after we go from financial crash to debt crisis… highlights since Greece has been so much in the heart of the discussion the remarks that I made earlier. But the surge in Greek debts actually is not as of recent vintage as it is for other European countries. We will see that in the next slide. The surge in Greek debts is more chronic. There is an important issue at hand in that remark, because debt crises often don’t happen overnight. They build up for some time and Greece was one of those cases where it was building over some time. However, in the inset of that slide I’d also like to highlight a theme in Greece that is as common in other parts of the European Union as it is in the United States, which is the surge in household debts at the same time. And this has implications that I will discuss later for growth. Because let me put it very bluntly, very high level of public debts is not new to the United States entirely or to Britain. Right after World War II we had a very high stock of public debts but private debts were nil at that time.
RIDDLER: The Greek household debt surge is more recent than in almost any other OECD country, dating back only to 1995, and in fact mainly follows the final introduction of the euro in 2002, after which new individual credit offerings came from abroad, in combination with a painful price equalization with the rest of Europe (inflation), foreign investment and heady promises of consumer paradise (the Olympics effect).
REINHART: So what is new or newer is the combination of both public and private indebtedness, this is a theme that I’ll return to.
A COMMISSIONER: Prof. Reinhart I have a question. On this chart you showed the household debt in 2008 of 49.7 for Greece. What is the corresponding number for the US now?
REINHART: It’s about double that. It’s about double that… Greece is a newcomer. Greece did not have access to debts, households did not have access [like in the] US ten years ago, twenty years ago. So the US numbers are actually more comparable to other European than Greece per se but the US number is about double that.
…and now for the most interesting chart…
REINHART: The next chart… averages public debt as a percent of GDP. That’s the blue line. And public debt as a percent of GDP for seventy countries that account for about 95 percent of world GDP. And this is not weighted by world income, so here Greek debts receive the same weight as German debts, receive the same weight as Italian debts, it’s not weighted. If we were to weight it by world income we would see that for the advance economies -- because of the surge in private debts and… in public debts have been so severe since the onset of the crisis -- for advanced economies weighted in share of world income we are the highest debt levels since the Depression. Even larger than around the time of World War II. The yellow shading… is where the link between banking crises, public indebtedness and… sovereign debt crises come in. The yellow shading is the share of countries that are in default. The percent of countries that are in default or restructuring. So for instance I’ve noted Greece was in a state of default until 1964. However since 1964 -- well Hungary was in default until 1967 but apart from that -- there have been no high-income countries in default since. So that yellow shading from the mid-1960s onward is zero if we only looked at advanced economies. The surge that you see in the 80s is of course the debt crisis, notably in Latin America but not exclusively. The point being we are seeing an advanced economy debt crisis which you’d have to go back to the 1930s.
REINHART: What are the links between the financial crises and the banking crises? … First of all let me clarify this gross government debt for all the countries. It is only central government. So it does not include things like government guarantees which also surge during crises. So in effect if we were to take a broader view of government debts that includes other levels of government and that includes guarantees, the recent surge… in debts would be that much more dramatic. And this is a global issue, not just a US issue.
RIDDLER: This is a fascinating chart, and rewards repeated observation. We see that debt peaks (blue line) lead to peaks in restructurings and defaults (yellow shading). Inflation numbers probably weren’t kept reliably before the 20th century, but after that hyperinflations are grouped in three periods: World War I and aftermath (during a debt and default upswing), 1970s (again a debt upswing, prior to a bunch of defaults in the 1980s) and in the 1990s, in that case probably more after currency devaluations due to the well-known series of financial meltdowns from that time in Mexico, Asia and Russia. I’ll repeat her observation that all the defaults after World War II and prior to the current crisis were in the third-world and East-bloc economies, under the weight of Western debts, which I submit is how the system was supposed to work.
GUY #1: (inaudible, question about US figure for gross central government debt to GDP)
REINHART: The US is very close to 90 percent gross, gross gross gross.
GUY #2: And that includes intergovernmental debt? Social Security and Medicare…
REINHART: Yes, that’s the gross.
GUY #1: It doesn’t have the guarantees?
REINHART: No, it does not include guarantees, only the federal government, so huge guarantees, Fannie, Freddie are not… and what I also want to highlight is that during the past three years other economies have also extended a huge level of guarantees to the financial industry, primarily but not exclusively.
GUY #2: Have you calculated a percentage with those guarantees for the US?
REINHART: No I have not but I think the IMF publishes some of the…
GUY #3: Do you know what it is?
THE GUY FROM THE IMF: No I don’t have it at the moment here.
RIDDLER: Now that was interesting, and bespeaks the agenda behind the Commission. They don’t want merely to define debt as a sum that must be repaid on past borrowing. They want also to lump in possible future obligations -- the "guarantees." And note that they want to talk about Fannie and Freddie, the Republican Talking Points, not guarantees to the Wall Street banks. And Social Security and Medicare -- the "intergovernmental debt," as the huge surpluses that these programs have built up since the 1980s were put into T-bills and have financed about half of the government discretionary budget deficits ever since then. Social Security and Medicare payments in the future, when these programs may no longer be in surplus, are also commonly seen as "guarantees." Reinhart knows these are not the same as existing debt, but the "Kill Social Security" movement wants to play it that way. So you’ll find that their propaganda often lumps current US government debt in with "expenditures guarantees" through 2040 or later, but still expresses the total as a percentage of current GDP, not taking all income between now and then into account. Reinhart just wants to get back to her presentation, which tends to avoid these issues as complicating. As we shall see, she wants a model that treats debt simply as debt, and wants to deemphasize how debt was accumulated or to whom it is owed, although these are crucial issues.
REINHART: But let me say that the surge in debt, the solvency issues that are in the forefront of Greece are solvency issues that will also have an impact on an area that we haven’t talked about that much, which is Eastern Europe. Right now… the surprise element of having EU members such as Greece, Italy, Ireland, Spain, that has drawn a lot of the discussion, but there is a huge stock of external debts also in Eastern Europe so if I were to expect that yellow shaded percent of countries in default, right now we’re focused on the euro zone countries, the wealthy countries we thought had outgrown this but let us also not forget that… emerging Europe is still an issue as far as debt. Now debt crises come in various shadings, and one thing that I’d like to remind is that barring the most extreme case of a default or a restructuring, there’s still downgrades that have real impacts on risk premium.
RIDDLER: Another capitalist euphemism. “Risk premium” is the extra points forced on those considered unreliable borrowers. A system that acts as a self-fulfilling prophecy. It can also be sheer windfall, as when the ratings agencies downgrade a country, prompting lenders to force "risk premium" on the inevitable debt roll-overs, whether or not that country borrows more or is truly a higher risk than before.
REINHART: Japan which is a country that lends - lends - to the rest of the world and is now sitting at debt to GDP of close to 200 percent was downgraded several times after its financial crises as public debt soared. And let me reiterate, Japan is a country that has financed its public debts internally, through high level of domestic saving and very little external debt, it was downgraded several times.
RIDDLER: Lucky for them they’ve essentially printed their own deficits internally for 20 years, and maintained a strong export base until now, or they would have been screwed on the “risk premiums.”
REINHART: Slide 15 which now starts moving toward the final issue I wanted to put on the table [asks] what are the links between debt and growth. But before… this chart, which is really dated because it only goes through roughly the end of 2009, those numbers are higher for everyone, the only part that I want to highlight is that 86 percent [average per-case] increase in debt following financial crises after World War II only appears to be a high number, it actually isn’t. We are on track to see and perhaps surpass that.
…but this is Carmen’s money chart…
REINHART: Now the exercise we did… we have put together a very large data set on public debt going back to 1800 in the case of the United States, to 1790 for Britain, about 70 countries of which 44 we have really good data for central government debt, to reiterate. Central or federal, not states or municipalities and so on. So the question that we posed was, if we were to take our historic period and break it down into periods in which government debt was (a) low, zero to 30 percent of GDP, (b) 30 to 60, (c) 60 to 90, and then (d) above 90, we’re not talking about causal relations or anything esoteric here…
RIDDLER: Certainly not automatically causal! But it won’t be long before the Commissioners and you are treating it that way…
REINHART: …just what was growth, and asked that simple question, what was median, what was average growth during those differen stages of indebtedness? The similar question was asked, what was average inflation performance? And we did this for advanced economies, we did this for emerging markets, we did this for pre-war and postwar, the whole period, and on page 17 I … bolded in red what the main result is. Which is when we look at these four buckets of debt, 0 to 30, 30 to 60, 60 to 90 and then above 90, surprisingly, to us, there is very little difference, it’s not statistically significant, the difference, between debts of 40 percent and debts of 20 percent. Below 90 percent there is very little statistical difference. But… it does kick in at debt levels above 90 percent, namely median growth rates are about 1 percent lower for periods of gross debt above 90 percent, while average growth rates are even lower.
RIDDLER: See? Suddenly the observed average drop in growth is something that "kicks in," as though crossing the threshold of 90 percent debt-to-GDP is the cause, rather than that the threshold is crossed as growth and revenues fall due to financial crisis.
GUY #3: And again, you calculate the 90 percent using both the public debt and the intergovernmental debt. You would say we are at 90 percent today.
RIDDLER: While I think the distinction between US intergovernmental debt (Social Security and Medicare trust funds) and “public debt” (that owed to everyone in the world outside the government, half of which or more is now foreign) is very important, I can’t shake the feeling that it gets so much attention from the politicians because in their hearts, they have already written it off, with the idea that Social Security will be privatized anyway. Remember, the Social Security trust fund -- made up of US Treasury bills -- is what Bush famously called “meaningless IOUs.”
REINHART: That’s right. And … two reasons for that. One is from the vantage point of debt servicing, debt is debt irrespective of who holds it,
RIDDLER: True, but with the intergovernmental these guys may feel they can handle the situation differently on the roll-overs, if for example interest rates rise for the "public" part of the debt roll-overs, they can still be held low on the intergovernmental debt roll-overs.
REINHART: and the second is more attuned to the data that we have, in which the most reliable time set that we have for these countries over these extended periods is gross rather than netting out intergovernment.
RIDDLER: It’s hard to imagine, for example, Greece in 1888 even had the concept in their statistics. The distinction is an "advanced economy" thing.
DAVID M. COTE (CEO of Pentagon contractor Honeywell International, 2009 reported earnings $12.8 million, sits on directors board of JP Morgan Chase, advisor to KKR, and one of the few CEOs invited to Obama’s post-inauguration corporate tete-at-tete) : When you talk about that 90 percent gross debt, if you included Fannie and Freddie, what would it be?
RIDDLER: I think this is the guy who asked that before. Again, "Fannie and Freddie" are guarantees, not (yet) debt, so adding them would make for a surprisingly invalid statistic for a business school graduate to be proposing. Unless you’re assuming that all Fannie and Freddie assets will fail all at once by 100 percent and be compensated by the government for same, a rather unlikely eventuality. But it serves well as a disaster talking point to take the heat off the Wall Street Friends of Mr. Honeywell who actually wrote 90 percent of the failed subprime junk.
REINHART: Well that’s the question of guarantees. All I can say it would be much higher, I’d be happy to look that up and share it with panel members… I don’t have any comparable. Guarantees are not exclusive to the current crisis. When we had the Korean crisis for example in 1997, the first thing the government did was go out and guarantee corporate external debts. So measuring actual guarantees is not, to compare apples and apples historically is not an easy comparison (sic). We just stuck to the things we could compare, which is gross government debt.
RIDDLER: Watch the video for Reinhart’s entertaining verbalisms, by the way. Nerds who nervously stammer when addressing a bunch of power-elite suits are cute.
DAVID LEE CAMP (R- MI) : Are there any recommendations for making government reporting of debt more transparent so that the warning signals come more quickly?
REINHART: That is a wonderful question. I didn’t put him up to it [ha ha ha from everybody]. The issue of hidden debts. One of our big themes is the issue of hidden debts… can take many forms, and one of them is guarantees. But there’s more to the hidden debts, if you don’t mind I would like to go back to the issue at the end of my remarks, because there are many manifestations, some of them involving the… reporting of guarantees but also issues of balance sheets, issues of central bank debts and so on that… there’s a broad issue of hidden debts. And hidden debts always sort of like the Loch Ness monster, when you think it’s dead, that’s when they raise their head.
RIDDLER: This is humonguous, but she’ll run out of time without so much as a sketch. The sketchy balance sheets that most readily come to mind are those of the Federal Reserve and the Pentagon. Those would be interesting to see, if they even exist in a proper form for the organization as a whole.
SEN. MIKE CRAPO (R-ID): You indicated the United States gross debt is over 90 percent now, our public debt if I understand if we don’t change things is projected to reach 90 percent in 2019, have you done analysis on what the impact of public debt reaching 90 percent would be?
RIDDLER: Again, he’s distinguishing between “intergovernmental” public debt -- biggest item, Social Security trust fund of currently $2.6 billion in accumulated surpluses since the FICA tax hikes of the 1980s -- and that held by non-government entitities.
REINHART: I have a problem with your views, which are very common, of public debt. I mean public sector. But you’re really talking about held by the public. And all the analysis that I’m presenting here is on gross debt, not held by the public [per se]. Remember, debt service is on both publicly held and non-publicly held, and is just… I’m constrained by the data that I have, and I have not broken that out. And if we broke it out it would be an exercise for the United States and that wouldn’t be enough. Because to be as candid as I can in this, if we were to look only at the US experience, we’ve only had comparable debt levels to this right after World War II which is a very special case.
CRAPO: Because it’s common here on the Hill to distinguish between public debt as opposed to intergovernmental debt, but I’m understanding you to say that the distinction is not one that is valid, in fact it may be invalid… and that as we analyze we should be looking at gross debt rather than…
REINHART: I would agree with that statement. In effect… there is a bias, not just in the United States, towards actually understating debts rather than the other way around.
REP. JEB HENSARLING (R-TX, got his start as staff to none other than Phil Gramm) : I don’t know if I missed it, but did you actually give a number north of 90 percent as far as our gross debt to GDP today or did I just hear you say… did you give a precise number… ?
REINHART: We are very close…
KENT CONRAD (D-ND, head of the Senate Budget Committee) : I just asked staff to do the calculation. As of today… we are at 89 percent, by the end of this fiscal year we’ll be over 90.
HENSARLING: One other quick question looking at your slide over here… you say that at 90 percent, gross debt to GDP the needle is hitting the red zone with respect to economic growth. You’re not necessarily saying in your roughly 200 year data set that we’re looking at negative… but that growth rates would be at least 1 percent less.
RIDDLER: This is not a conclusion supportable by the aggregate data. It could also be that weak growth pushes debt above 90. She already said that.
REINHART: If you look at the next slide, the average growth rate is slightly - slightly - below zero, but the median is still positive. The 1 percent difference in the median, however… remember if population is growing at 1 percent, 1 percent may not sound like a lot, but it’s the difference between rising per capita income and not at all. There’s one remark on the chart on page 18. We were expecting actually that inflation rates would be higher at higher levels of debt, but we actually did not find that… Let me say this, on inflation there is no statistical difference for the advanced economies. We did developing countries separately which I will show you time permitting… The significant differences [are] in growth, not inflation, in the advanced economies.
REINHART: In the next slide [“Emerging Markets”] the difference is both in growth and in inflation… What I’d like to make clear is this is not a causality, you have high debt therefore you have low growth. It works two ways. I think the causality is both ways. You have low growth, revenues suffer, debt builds up, as debt builds up so does risk premium. And I need to say this right now, because I think ironically the crisis which began with the subprime in the Uhited States has actually extended the life of the dollar as a reserve currency. And I’m concerned frankly that could lead to complacency. Because we studied the transition as a reserve currency from the pound to the US dollar. And it was… the writing was on the wall for many years in which countries started switching from linking to the pound, switch to the dollar, went from issuing debt in pounds (to the dollar). We were seeing that (now) with the euro. The euro was a serious contender as reserve currency to the dollar and that of course is being shattered right now. Which means that where we might have seen earlier signs of strain in debt issuance or financing, we’re getting a lot of leeway from international capital markets not because we’re doing things great but because of lack of alternatives. And I’d really like to put that on the table. I’ve taken enough time here.
CONRAD: You’re on Slide 19? And Slide 19 can you help us interpret this chart? Because this shows… Oh, it’s emerging.
REINHART: Because particularly emerging markets have hit a wall in financing that is much harder. Inflation financing becomes a much, we wanted to be clear that we looked at the two things [advanced and emerging economies] separately.
SEN. JUDD GREGG (R, NH): If your basic premise is, and I agree with it, that you can’t finance debt with debt without slowing growth, and when you finance with debt you create more debt. So you’re basically your premise is we’re in a downward spiral because it feeds off each other. How do you break it? What is a historical precedent for breaking that downward spiral of financing debt with debt, which slows growth, which leads to more debt?
REINHART: None of the replies I’m going to give are cheerful or easy, so let’s be… I’m not noted for being uplifting [ha ha ha’s all around] there have been some cases where fortuitously debt to GDP has gone down due to fast growth but they are a small number, small small. Most of the cases have involved big fiscal adjustment, have involved restructurings, so even in cases where…
OFF: Can you define restructuring?
REINHART: Restructuring is a polite way of saying partial default. Because a restructuring, what it’s intended to do, is lower interest rate costs, lengthen maturities or a combination of the two.
GREGG (with childish wonder!) : Can a world currency default? (crosstalk)
REINHART: Well, look… the United States defaulted in 1933, when it suspended the gold clause… We suspended the gold standard, let me explain why it… is considered a default. A default is anything that changes… the initial contract to terms that are less favorable to the creditor. And we had a clause, the gold clause, that said our bonds are repayable in gold. And we abrogated that clause in 1933. And said OK, this bond is payable in fiat currency. But the fiat currency had lost 33 percent approximately of its gold value. That is an abrogation of the original contract. So… a restructuring, and this is the way Standard & Poors [defines it], this is not something that I have come up with, this is the legalistic definition… A default involves a change in the contract that is less favorable to the creditor than that of the original term.
SEN. DICK DURBIN (D-IL, closest Senate ally to Obama, on the Keynesian counterattack): I hope I’m following your premise here, that a banking crisis that leads to an economic crisis involving a decline in housing and real estate values, has led in… maybe all of your examples to more government debt, and as the debt grows to GDP, the likelihood of economic growth is diminished.
REINHART: Yes.
DURBIN: If that government debt is premised not on political weakness but on a design plan that said we have to step in as a government, as the economy declines, with safety net and stimulus and guarantees, otherwise, the decline will go even deeper and further, and the debt will last longer. As you look at various countries that have approached this, have you seen, maybe this just basic Keynesian approach, have you seen that intervention by the government and incurring of debt at an early stage of the crisis has been more beneficial than the governments who did nothing?
REINHART: Let me give a very honest to that, which is there are not many examples of that. Because many of the countries that had -- forget the emerging markets… [where] even if countries wanted to act counter-cyclically, they could not because they had lost access. They couldn’t borrow. --
RIDDLER: Something judged inconceivable for the US. Let’s see later this year when the euro crisis has subsided one way or another, and the US seeks to finance another 1.5 trillion or so deficit, plus roll over at least a trillion in debt. Will the lenders be there? Will there be a massive Federal Reserve print to cover it all, and if so, how will the bond markets and the nefarious ratings agencies react?
REINHART: Those that were not emerging markets, like the famous Nordic crises of the early 1990s, they were constrained on how much fiscal stimulus they could also do, because they were also part of the European exchange rate arrangements. The examples of more aggressive counter-cyclical policy are to be found in this [current] crisis, and in Japan [1990s to today, really]. Those are the only examples.
WOMAN #1: But isn’t there an example in the 1930s in the Depression where there was a cutback in stimulus and actually we ended up in a double-dip?
REINHART: That’s absolutely right. In the 1930s -- I actually have a Brookings paper on this issue -- there was a bouncy, real increase in spending and then a withdrawal and you had a double-dip. But in the 30s the big, huge difference was we waited a long time to leave the gold standard and we had very tight monetary policy up until 1933. Here we had a massive monetary stimulus, so that is why I avoided [that example because] the monetary side in the 1930s was completely different. What you said is absolutely right.
CAMP (apparently throwing a fit at the very idea of stimulus spending) : I just wanted to say that in the 1930s, stimulus was not the only factor. We had tarriffs, to say that government spending was the issue, frankly it was World War II that got us out of the Depression in the 1930s, and that was big, but not, I think this point needs a little more elaboration…
RIDDLER: Now that wins the Bizarro Comment Prize for the whole hearing. World War II "got us out of the Depression," but this wasn’t due to the spending? What was it then? The magical meaning-giving power of war? He just argued for the opposite of his own premise, but never mind…
REINHART: To put it concretely, we had a very aggressive fiscal stimulus in the 1930s, more aggressive than the UK which actually did better, but we were very inconsistent. Namely, every time that there was the perking up of activity, we’d withdraw. So it’s a very bouncy fiscal stimulus… that’s how we describe it and quantify it in our recent work.
RIDDLER: All of which suggests that austerity is not the way to go!
DURBIN: Can I follow up on that because I thought the answer to my question was that stimulus doesn’t really work, but now it seems that inconsistent stimulus doesn’t work. Which is it?
REINHART: For me it’s inconsistent stimulus that didn’t work in the 1930s.
DURBIN: I know it’s a different world today, but looking at the situation today, we have tried to stimulate the economy, we’ve seen some recovery…
REINHART: What I can honestly say is we do not observe the counterfactual. We do not know what we would have looked like had it not been for the interventions that we did, we just don’t know that. I don’t have the long list of comparitors that say, okay, this country did stimulus, this one did not. I can only take my data so far.
RIDDLER: An admirable attitude in a scientist. Except again that World War II for the US was exactly the high, sustained stimulus that got the economy going.
INAUDIBLE: Inaudible.
REINHART: No, I did not say that. I began with fiscal austerity. I have used this example because I think it’s pertinent to us: Canada in the mid-1990s faced very unpleasant debt dynamics. And… we sort of knew that it was there, and they did not come to a fiscal austerity package voluntarily, actually of all things [it came about because of] the Mexican crisis. You may wonder what the Mexican crisis had to do with Canadian austerity, but in the mid-1990s, Canadian spreads began to move in tandem with emerging markets, and that actually was a wake up call.
RIDDLER: Do these lines just move? Wasn’t this related to the creation of a unified market under NAFTA?
JAN SCHAKOWSKI (D-IL, known to our readers only because of Sibel Edmonds’s claims, you damn voyeurs) : I’m just wondering if you did any analysis of debt as it relates to unemployment, or you mentioned per capita income…
REINHART: Per capita income on average in the postwar crises, it takes four years for per capita income to go back to pre-crisis level. This is postwar. Prewar it took much longer in the United States, it took ten years…
SCHAKOWSKI: Did you break it down by short-term surges in debt versus longer term or more historical surges?
REINHART: No because… our dividing principle was any year in which debt was 60 to 90 percent or above 90… so there is no discrimination of how you got to the debt, which is what I think what you are asking. Did we get to the high level of debt because of a financial crisis or…
RIDDLER: Uh oh. Pauses and filler ensue. Let’s reach for the woo.
REINHART: but it is a very robust result precisely because our sample of observations is big.
RIDDLER: Biiiiiig!
REINHART:You see, if I actually showed you the numbers for the United States, they would actually look worse than what I’ve reported here. And it was debt that we got to mostly through war. This was right after World War II
RIDDLER: May I note on the side that the current debt may also be related to wars?!
REINHART: If we start cutting it because of high debt levels because of financial crises and high debt levels because of wars, then we’d start winnowing our sample, and how much can you extract from a handful of observations. It’s drawing big lessons from six observations for the United States or five observations for Japan is not something… uh, one last thing I’d like to highlight on the issue of hidden debts. In studying all these financial crises, actual debts are on the whole bigger than anything any of the official statistics that we measure here [say], just as I suspect that if we were right now to calculate potential domestic arrears in Greece, debts would actually be bigger than what the official statistics are. There are a lot of ways of hiding debts, this is true of the private sector as well as the public sector. So I think exercises toward greater disclosure would be [good].
DAVE COTE: An observation and a question. The observation and this is as a non-politician here
RIDDLER: Oh shut the fuck up. That old dodge! You’re the one who tossed in Fannie and Freddie. Mr. I Can Afford To Pose As A Non-Politician. Oi.
COTE: …it seemed like we were having an American world economic discussion that started to turn into a political discussion. I hope that, I may be totally incorrect and I’m not trying to be offensive in any of this but I hope we get back to where we first started the conversation.
RIDDLER: You mean back at the slide where "financial innovation" by the likes of your company JPM Chase led directly to a financial meltdown?
COTE: The second one is, getting back to Sen. Durbin’s question, I thought your point at the beginning was not just the debt that the US had, but that it was in combination with all the private debt that exists that eventually turns into public debt because the economy can’t sustain it when we’ve got debt at about 100 percent of income, if I’ve understood. Is that correct?
RIDDLER: All that private debt turns into public "because the economy can't sustain it." A natural law that need not be defined: privatize the profit, socialize the loss.
REINHART: The hard numbers that I have are for gross central government debt. And the issue of private debt, which is a very important one… it is an additional consideration that weighs growth down, and I think, not I know. What I’m saying is right after World War II we had comparable levels of public debts but both the US and the UK had very low levels of private debt. Europe had no private debt. The point… is our study is only… about public debt. We have not done a comparable analysis of private debt. [It’s] different from the postwar experience when we had a lot of public debt. In the US, in the UK, in the Commonwealth, the issue of private indebtedness, which at any point in time can increase public indebtedness, is an additional issue to consider. I hope I’m making the distinction between the results that we do have and the issue of private debt which we haven’t looked at on a parallel basis to the public debt.
RIDDLER: Geez, you’d think the only way to do it was a broad write-down in all categories of debt. D'oh!
ERSKINE (me get last question!) : We’re sitting here today with a significant amount of private debt and public debt. We’ve tried to stimulate a very fragile economy and are at the very best at the beginning of a fragile recovery… Given where we are today, what would you recommend to this Commission?
REINHART: I have no positive news to give. Fiscal austerity is something nobody wants but it is the fact that it is the alternative.
RIDDLER: Only one thinkable to you and this commission, anyway.
REINHART: I am concerned about complacency. I am concerned that because the dollar has renewed its role as a reserve currency we may wait too long. Waiting too long doesn’t necessarily have to run out and act right now in terms of actual tightening but [to establish] a path that is sustainable. Let me also say that one of the things that happened in the 50s and 60s that cannot be denied is we had financial repression.
RIDDLER: AAAAAAH! NOT FINANCIAL REPRESSION!!!
REINHART: And what is financial repression? That is a system in which interest rates are controlled and there more directed credit and it was a way in which governments financed high levels of debt. We’re already seeing that. I think we are going to see a return of different forms of financial repression, because it is not just our problem, it is in Europe, Japan is in a similar situation. Japan has been able to carry its debts up to 220 percent of GDP. Because of various forms of financial repression. I think we will also realistically find ways of placing government debts at lower interest rates, not worrying so much about roll-over. I think in light of the fact that it’s not just the US but all the advanced economies, I think that will be in addition to fiscal austerity. I think that will be something that is not improbable.
ERSKINE: Thank you.
(last slide)
RIDDLER: In some ways, Reinhart is scientifically commendable. She and Rogoff accumulated as much long-term data on the questions as they could, even if the premises of what to ask are debatable. [Editors Note, two years later: Ha ha on the data accumulation, as we've discovered.]
She's timid about going past the brink of telling the suits what her data actually says. At the point where she's asked how runaway debt is overcome, the phrase "fiscal austerity" comes easily to her, because that's what the suits want to hear.
But she goes on, because there she has a second answer (never mind the others that are unthinkable to her and the Commission, such as liquidating the zombie banks).
While I yell "default! default! default!" it takes her a half-minute of nervous filler before she can finally drag out a word the suits don't want to hear, really aren't equipped to hear: restructuring.
Her empirical data clearly suggest that after banking crises, governments go more heavily into debt because bankster and private debts pass into public debts, and that this is what happened in the present case.
This should be a direct challenge to the idea that the banksters then retain command, terrorizing everyone into bailing them out, and later get to enforce fiscal austerity (through the bond markets and the obedient political suits) as though the public debt was solely to blame, or evidence of some kind of unique moral failing on the part of "government." But she doesn't say it to the suits, and she may not dare to think it.
To her credit, she remains a scientist -- I was charmed to hear her say that she has a limited number of cases of willed sustained countercyclical spending not related to war, so she can't reach a conclusion, because most of the people she’s telling that are willing to use the flimsiest apocrypha as the basis for conclusions predetermined by ideology.
As a member in a scholarly community, she's trapped by the language, and perhaps she wants to keep her "credibility," a word sadly confused with conformity to hegemonic opinion. At the end she uses one of the doublethink words of capitalist economics: "financial repression." Which means, when the government starts setting stable interest rates and directs how banks give out credit. Common in the 1950s and 1960s, periods of stability and growth in the capitalist world, prior to the crises and the neoliberal reactions. So when credit is directed by a public entity that may (or may not) make rational decisions, rather than the riotous foolishness of the unregulated financial market -- when the banks are made to follow rules -- this should be called directed, rational investment. But since the banksters make the language, it's "financial repression." Oh, horrors!
----
That was my initial reaction, and I posted it in the discussion at Mike Norman’s blog.
Matt Franko wrote: Nicholas, I think she paints the history with too broad a brush. She treats all govt debt of the past times as the same. While ignoring facts such as whether the govt debt was denominated in a foreign currency, or whether the govt operated a convertable currency regime. These two factors (which are quite different for the current US arrangements vs much of the history she presents) are very important conditional aspects that she ignores/overlooks. (both she and co-author Rogoff).
So I dont think I have as much professional respect for her work here as you seem to Im afraid.
Nah, I just enjoyed some of the stuff she brought to the table that was new to me, like the aggregated debt figures. I don’t think she ignored those facts, but she did downplay them to make her findings on debt and growth seem beefier. The more she differentiates, as she admits at one point, the less data she has to analyze.
Matt Franko wrote:WRT her and Rogoffs book, I wish we could find out how Princeton University Press came to publish (via a grant from whom?) this work by Professors from Harvard and U of MD.
The grant info would be interesting but the fact of publication by PUP is completely irrelevant. University presses publish academics from other institutions all the time.
Matt Franko wrote:You know if you think about it, she and Rogoff focused on this 90% of GDP level where they push the panic button for govt deficit levels; but all of their historic examples are where you had external sources of funding due to either convertability or debt denominated in a foreign currency.
So what they really found was the level (90% of GDP) to which external funding would go before cutting them off. So any nation that would set up their system like that could expect to push it to the 90% level before they would have to shut it down.
Thanks Reinhart & Rogoff, you have stumbled upon the funding constraint of scoundrel nations!
I picked up the fact that they ignored the distinction between soverign issuers vs external funders from other MMT blogs for sure.
but their 90% threshold may be of interest if you used it for forex trading. ie, if you had a govt that had foriegn denominated debt, or external funding, and was at the 90% historic doomsday threshold they (R and R) have come up with, maybe you really short it at that point.
I hope he means scoundrel banksters. But this is an important point. The 90 percent is a signal for the banksters to pile on with the "risk premiums" and ratings downgrades, so there may be something to it.
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Phew! I am an obsessive. I like to think I do this instead of some other private hobby, like painting. But I'm going to post a couple of more relevant articles I ran across while doing the above, and then take another break from this insane thread.
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We meet at the borders of our being, we dream something of each others reality. - Harvey of R.I.
To Justice my maker from on high did incline: I am by virtue of its might divine, The highest Wisdom and the first Love.
Grand Theft Market: High-Frequency Frontrunning CME Edition
Submitted by Tyler Durden on 05/01/2013
One of the New Normal responses to allegations, first started here in 2009 and subsequently everywhere, that all HFT does is to frontrun traditional market players (among many other evils) now that its conventional and flawed defense that it "provides liquidity" lies dead and buried, is that "everyone does it" so you must acquit because how can you possibly prosecute a technology that accounts for over 60% of all market volume and where if you throw one person in jail you would throw everyone in jail. Today we learn that this indeed may be the case, and not only at the traditional locus of HFT frontrunning such as conventional exchanges for stocks such as the NYSE or even dark pools, but at the heart of the biggest futures exchange in the US, the CME where as the WSJ's Scott Patterson explains frontrunning by HFT algos is not only a way of life, but is perfectly accepted and even smiled upon.
Stop us when all of this sounds familiar.
High-speed traders are using a hidden facet of the Chicago Mercantile Exchange's computer system to trade on the direction of the futures market before other investors get the same information.
Using powerful computers, high-speed traders are trying to profit from their ability to detect when their own orders for certain commodities are executed a fraction of a second before the rest of the market sees that data, traders say.
The advantage often is just one to 10 milliseconds, according to people familiar with the matter and trading records reviewed by The Wall Street Journal. But that is plenty of time for computer-driven traders, who say they can structure their orders so that the confirmations tip which direction prices for crude oil, corn and other commodities are moving. A millisecond is one-thousandth of a second.
The ability to exploit such small time gaps raises questions about transparency and fairness amid the computer-driven, rapid-fire trading that increasingly grips Wall Street and confounds regulators. Well, for there to be questions about "transparency" and "fairness" one's underlying assumption must be that they exist. Luckily, courtesy of 4+ years of constantly broken markets, in which regulators jawbone and talk about fixing everything any day now, but nothing ever changes, because why change - a rising manipulated tide lifts all boats (some more so than others) until it all crashes of course - nobody harbors even the faintest illusion that the stock and futures market casino is any less rigged than the shadiest Las Vegas backdoor operation.
What is more troubling is that while HFT had historically been relegated to such non-reflexive asset classes as stocks, now that it has entered the hyper-levered derivative and futures arena, all bets are off. Recall: "The Chicago Mercantile Exchange, a unit of CME Group Inc., is the largest U.S. futures exchange, handling 12.5 million contracts a day on average in the first quarter, according to Sandler + O'Neill Partners L.P. High-frequency trading generated about 61% of all futures-market volume, up from 47% in 2008, according to Tabb Group."
For those who are unfamiliar with how HFT frontruns everything here is a quick breakdown:
Fast-moving traders can get a head start in looking at key information because they connect directly to the exchange's computers, giving them the data just before it reaches the so-called public tape accessible to everyone else. The exchange connections contain a host of data, of which the advance notice of trade confirmations is only a piece.
All firms that connect directly to CME's trading computers are able to get information ahead of the market when their trades are executed, firm officials say. But many companies are unaware of the advantage or choose not to use it, traders say, either because they don't have the technology to take advantage of such tiny edges or employ different investing strategies.
CME spokeswoman Anita Liskey said the exchange operator is aware of the order delays, which industry officials refer to as a "latency." Others call it bare-faced robbery, or better yet Grand Theft Markets. And nobody cares. Actually, that's not true. Those w
While many speed advantages are well-known to market insiders, only a relatively small group of sophisticated firms appears to be aware of the CME's trade-reporting delays. The CME has told regulators that investors routinely get trade information at the same time. A March 29, 2012, CME presentation to the CFTC stated that market data "is disseminated to all participants simultaneously."
A Chicago trading firm says it recently detected delays between the time it received confirmations of trades and the time the CME published the information on multiple futures contracts covering thousands of trades. For two weeks in late December and early January, the firm detected an average delay of 2.4 milliseconds for silver futures, 4.1 milliseconds in soybean futures and 1.1 milliseconds for gold futures. ... Sophisticated traders have been aware of CME's order-latency issue for years and have incorporated the information into their trading strategies, according to an official with Jump Trading LLC, a big Chicago high-frequency company.
Officials with Virtu Financial LLC, a high-speed trading firm in New York, view a slight head start as good for the overall market, according to a person familiar with their thinking. The person said the data helps traders who buy and sell futures contracts throughout the day manage risk and post more quotes that benefit other buyers and sellers. The person said Virtu doesn't use the information to amplify its profits by anticipating moves elsewhere in the market. If you are not laughing hysterically here, you are not paying attention.
Proponents say eliminating the ability of parties in a trade to get information slightly in advance could lead to less-liquid markets because some firms would be inclined to trade less due to the greater risks.
Officials with Chicago-based DRW Trading Group see the data-feed lags at CME as a "fact of life," not an unfair advantage, because any firm trading in milliseconds can take advantage of it if they build their systems properly, according to a person familiar with their views.
Firms can use their early looks at CME trading data in several ways. One strategy is to post buy and sell orders a few pennies from where the market is trading and wait until one of the orders is executed. If crude oil is selling for $90 on the CME, a firm might post an order to sell one contract for $90.03 and a buy order for $89.97.
If the sell order suddenly hits, the firm's computers detect that oil prices have swung higher. Those computers can instantly buy more of the same contract before other traders are even aware of the first move. Then of course there is cross exchange latency arbitrage, a topic we first discussed in, oh... 2009.
Firms can also capitalize on that early information by buying a related product on another exchange before other traders know of a market shift. For example, it takes about 200 microseconds for trades to get from CME's Aurora, Ill., data center to the computers of IntercontinentalExchange Inc. ICE +1.12% about 33 miles away. A microsecond is one-millionth of a second.
Traders able to see market swings milliseconds before others gives them "an informational advantage," says Pete Kyle, a finance professor at the University of Maryland who is a former member of the Commodity Futures Trading Commission's Technology Advisory Committee.
Mr. Kyle likened the activity to "a tax on other traders" because "you get all the gains from being the first guy" to trade.
The CFTC, which oversees futures exchanges such as the CME, has been ramping up oversight of high-speed trading but agency officials said the CME'S latency issue isn't currently an area of focus. Have a problem with this latest feature of openly broken markets? Tough. Get in line. Else, just submit your order but expect to be routinely ripped off to the tune of pennies on every trade. Now multiply this by millions of times evry hour, for four years. It adds up.
No wonder it's called the wealth effect. Effect for you. Wealth for them.
*was conflicted as to where to post this, as Dr. Evil's suggestion in the "Brainstorm" thread addresses this topic, but this article is OT for that thread.
The editors at Online Accounting Degrees decided to research the topic of: Tax Havens of the Wealthy and Powerful
More and more companies are stashing their cash offshore, and they're doing it at alarming rates. Why? Put simply, it's about eluding the tax man.
- $21 trillion = - US, Japanese, and German economies combined. - EU, Russian, and Indian economies combined. - Total private wealth held in tax havens worldwide.
- $9.8 trillion = - Private wealth held in tax havens by a mere 100,000 people. - The amount of foreign aid the US would provide in 196 years at current rates. "Double Irish with a Dutch Sandwich"
- Profits routed through Irish and Dutch subsidiaries often end up in Caribbean shell corporations that don't pay US taxes. - 83 of the 100 largest companies in the US with subsidiaries in tax havens. Largest Major Corporate Investors
[corporation-unrepatriated income (in millions)]
- General Electric--$108,000 - Pfizer--$73,000 - Microsoft--$60,800 - Apple--$54,300 - Exxon Mobile--$47,000 - Merck--$53,400 - Johnson and Johnson--$49,000 Fastest Movers
[corporation-percentage increase in offshore investment 2009-11]
- Spectra Energy--%1141.8+ - Broadcom--%775.5+ - Visa--%588.4+ - Sandisk--%546.4+ - Ford Motor--%546+ - Home Depot--%426.3+ - Apple--%212+ - FedEx--%207.7+ - Starwood Hotels--%203+ - Unum Group--%197.6+ - Amazon--%119.3+ - Genworth Financial - %108.5+ Bailed out and bailing ship
Citigroup, Goldman Sachs, and Morgan Stanley were some of the larger bailouts of the 2008 financial crisis.
[corporation-amount received in bailout money-amount shipped offshore since-percentage increase since financial crisis]
- %73 of Americans feel that loopholes should be closed allowing corporations and the wealthy to avoid US taxes by shifting income overseas. - %83 of Americans feel that tax on US corporation's overseas profits should be increased to equal what their US income tax would be. - %90 of Small business owners believe that large corporations use loopholes to avoid taxes that smaller businesses have to pay.
[Tax Burden ]
Estimated Federal Income tax losses from tax havens = $150 billion per year
- US corporate untaxed wealth in tax havens= $90 billion - US individual untaxed wealth in tax havens= $60 billion - $150 billion = $1026 in additional taxes from every tax filer in the US. - $150 billion = %6 percent of total reportable income for the US not filed correctly. Havens
In 2007, tax havens accounted for nearly 9% of the world's gross assets and liabilities. Meanwhile these nations accounted for only .2 percent of the world's population and .25 percent of the world's GDP.
[nation title; total portfolio investment (in millions, 2010 data); population 2010] [0= <1 mil]
- Establishing a corporation offshore: - Three pieces of paper: - A nominal director declaration states that the nominal director with a tax haven address will follow the direction of the firm's real owner. - An undated resignation letter allows the nominal director to duck liability. - Power of attorney is granted to the corporation's real owner. - The Ugland House, one small building in the Cayman Islands is home to some 18,857 companies. - The state of Delaware, with a population of 917,092, is home to some 945,000 companies, many of which are shells. So you have a nominal owner, what happens then?
- Like Bidzina Ivanishvili, the Prime Minister of Georgia, you can buy Picasso's "Dora Maar au Chat" for $95 Million, a full $35 million more than it is appraised for. Just because you want to. - Also like Ivanishvili, you can provide 60,000 in your home region with free electricity and gas, build twenty schools, a stadium, and provide monthly bonuses to doctors and teachers. - At $2 million for a 65' yacht, the global private wealth in tax havens could fill the entire length of the Mississippi River 34.8 times. Citations
I think I mentioned the idea of "counter-trading" somewhere earlier, high-frequency trading with the goal of messing stuff up, not profits. Anyway - turns out the big boys are already doing it for profit (From Financial Times):
Financial markets are at risk of a ‘big data’ crash
...... Companies that have relied on the first generation of HFT, where unsophisticated speed exploits price discrepancies, have had a tough few years. Profits from ultra-fast trading firms were 74 per cent lower in 2012 compared with 2009, according to Rosenblatt Securities. Being fast is not enough. We, along with Marcos Lopez de Prado of the Lawrence Berkeley National Laboratory, have argued that HFT companies increasingly rely on “strategic sequential trading”. This consists of algorithms that analyse financial big data in an attempt to recognise the footprints left by specific market participants. For example, if a mutual fund tends to execute large orders in the first second of every minute before the market closes, algorithms able to detect that pattern will anticipate what the fund is going to do for the rest of the session, and make the same trade. The fund will keep making the trade, with higher prices, and the “algo” traders cash in. ........
Direct link to ft.com doesn't work without signing up with them, so here's the google news results for the headline. Should be the first one.
Elizabeth Warren grilled Treasury Secretary Jacob Lew on the Obama administration's opposition to breaking up the big Wall Street banks that are "too big to fail."
As a solution, Senators Sherrod Brown (D-Ohio) and David Vitter (R-Louisiana) introduced a bipartisan bill to break up the big banks and prevent future bailouts.
time to stop watching all the right wing scare tactics and ufo videos and sleep depriving radio shows and get on board the change train ...
Steve Marcus/Reuters Steven Cohen, the chief of SAC Capital Advisors. Federal authorities announced a raft of criminal charges on Thursday against SAC Capital, the hedge fund run by the billionaire Steven A. Cohen, an unusually aggressive move that could cripple one of Wall Street’s most successful stock trading firms.
In the 41-page indictment that includes four counts of securities fraud and one count of wire fraud, prosecutors charged SAC and its units with permitting a “systematic” insider trading scheme to unfold between 1999 and 2010, activity that generated hundreds of millions of dollars in profits for the firm. The case seeks to attribute certain criminal acts of employees to the company itself, claiming that the fund “enabled and promoted” the illicit behavior.
The problems at SAC, according to the indictment, partly stemmed from a breakdown in internal controls — and ethics. The indictment cited “an institutional indifference” to wrongdoing that “resulted in insider trading that was substantial, pervasive and on a scale without known precedent in the hedge fund industry.”
The case, announced by federal prosecutors and the F.B.I. in Manhattan, is the culmination of an investigation that spanned a decade. As the federal government mounted a relentless crackdown against insider trading, an investigation that reached into corporate board rooms and trading floors across Wall Street, it zeroed in on SAC, which became one of the most prominent players in the stock market.
SAC aggressively bought and sold stocks around market-moving events like quarterly earnings announcements and big mergers and acquisitions. Its success – at the height of his powers in 2006 and 2007 Mr. Cohen is reported to have earned about $900 million each year – afforded the firm a certain mystique. But it also generated whispers about whether the fund routinely crossed the line, prompting the government to target employees who pumped sources for insights that might give them an investment edge.
The pursuit of this “edge” is at the heart of the government’s case. SAC, according to the indictment, sought to hire traders with “proven access” to corporate insiders likely to hold inside secrets. Those employees were often rewarded if they outperformed other investors, the government said, a problem that SAC’s lax controls failed to thwart.
In one instance cited in the complaint, Mr. Cohen was warned that a prospective employee, Richard Lee, was a known member of an “insider trading group,” at another hedge fund. But Mr. Cohen, overruling objections from his own legal department, hired Mr. Lee anyway.
Five onetime SAC employees have now admitted to insider trading while at the fund, including Mr. Lee, who was not publicly known until his name surfaced on Thursday in the SAC indictment.
The indictment said that Mr. Lee, who worked at SAC from April 2009 to June 2011 and again from September 2012 to March 2013, possessed inside information about Yahoo and 3Com Corporation. In his guilty plea, Mr. Lee acknowledged that he traded on some of the inside tidbits.
Without evidence directly linking Mr. Cohen to illicit trades, the government stopped short of criminally charging him. But the case is a blow to him all the same. Not only does the firm name bear his initials, but Mr. Cohen owns 100 percent of the company he founded with his own money more than two decades ago.
The indictment is also stacked with references to Mr. Cohen, though he is identified only as “the SAC owner.”
In a direct rebuke of Mr. Cohen, a 57-year-old collector of art and real estate, the indictment said he “fostered a culture that focused on not discussing inside information too openly, rather than not seeking or trading on such information in the first place.”
To buttress the argument, the government cited instant messages that a recently hired SAC employee sent Mr. Cohen in July 2009. The employee informed Mr. Cohen that, due to “recent research,” he planned to bet against Nokia’s shares. The employee apologized for being “cryptic,” explaining that SAC’s compliance chief “was giving me Rules 101 yesterday – so I won’t be saying much,” adding that the warning was “scary.”
Mr. Cohen did not respond to the message.
In 2008, an SAC employee forwarded an e-mail to Mr. Cohen in which a job candidate is praised for his access to the industrial industry. The message described him as “the guy who knows the quarters cold, has a share house in the Hamptons” with a senior executive at a big industrial company and is “tight with management.”
While Mr. Cohen was not charged criminally, he still faces civil charges. The indictment on Thursday comes on the heels of a civil action filed by the Securities and Exchange Commission last week that accused Mr. Cohen of failing to supervise employees suspected of insider trading.
Thursday’s indictment against SAC, which seeks to recover the firm’s proceeds from illicit trades, represents a new phase in the investigation. Criminal charges against large companies are rare, given the collateral consequences for the economy and innocent employees. After the Justice Department indicted Enron’s accounting firm, Arthur Andersen, in 2002, the firm collapsed and 28,000 jobs were lost.
In the SAC case, the indictment could spook the fund’s investors. Already, amid several guilty pleas by former SAC employees and a series of civil actions brought by federal securities regulators, the fund’s investors have pulled about $5 billion of $6 billion in outside money from the firm. Those that have withdrawn money include big financial industry players like the Blackstone Group and Citigroup.
That exodus could accelerate in the wake of the indictment. SAC also must assuage concerns from Goldman Sachs and other large banks that trade with SAC and finance its operations. There is little precedent for what a criminal charge would mean for SAC and its banking relationships, but legal experts said that an indictment could trigger default provisions in the fund’s agreements with its trading partners, meaning that it would force brokerage firms to stop doing business with the fund.
But the charges will not necessarily destroy SAC. Until now, Mr. Cohen has been largely shielded from the crippling effects of mass investor withdrawals. Of the $15 billion that SAC managed at the beginning of the year, about $8 billion is Mr. Cohen’s.
One option for Mr. Cohen would be to shut down SAC and open up a so-called “family office” that manages his own personal fortune. But Securities and Exchange Commission, as part of a civil action filed against Mr. Cohen last week that accuses him of failing to supervise his employees, could seek to have him barred from the financial services industry for life, an outcome that would prohibit him from trading stocks.
Mr. Cohen could also deploy his deep Wall Street Rolodex to sustain the fund. He sits on the vaunted board of the Robin Hood Foundation, a nonprofit fighting poverty, with David M. Solomon, the co-head of investment banking at Goldman Sachs. He also serves as a trustee of Brown University, alongside Brian T. Moynihan, the chief executive of Bank of America. (One of Mr. Cohen’s seven children graduated from Brown.)
SAC, which is based in Stamford, Conn., with about 1,000 employees spread across the world, has scrambled to assure its staff that it did nothing wrong. On Monday, the fund’s lawyers circulated a document to staff that outlined their defense to the S.E.C.’s case, a measure that could curb an employee exodus. And on Wednesday, it issued a memo saying that “The firm will operate normally and we have every expectation that will be the case going forward.”
SAC could also stem concerns if it strikes a defiant tone in combating the criminal charge. The government will face off against an army of lawyers from two of the world’s most sophisticated law firms: Willkie Farr & Gallagher and Paul, Weiss, Rifkind, Wharton & Garrison. Martin Klotz at Willkie and Daniel J. Kramer at Paul Weiss have spearheaded the SAC representation.
For the criminal case, the fund has also enlisted Mark F. Pomerantz and Theodore V. Wells Jr. of Paul Weiss. Mr. Pomerantz has been involved in a number of insider trading cases, including the defense of Samuel D. Waksal, former chief executive of ImClone Systems, and Joseph Contorinis, a former portfolio manager at the Jefferies Group. Anthony Chiasson, a former SAC employee convicted last year, recently hired him to handle his appeal.
Mr. Wells is considered one of the country’s pre-eminent trial lawyers, and he and Mr. Pomerantz work closely together on many of their cases. Among Mr. Wells’s assignments have been political corruption cases, including representing Robert G. Torricelli, a former United States senator; I. Lewis Libby Jr., a former adviser to Vice President Dick Cheney; and Eliot Spitzer, the former New York governor.
A spokesman for SAC did not immediately respond to a request for comment.
The government’s effort to root out insider trading on Wall Street has swept up more than 80 people; of those, 73 have either been convicted or pleaded guilty.
The crackdown echoes the scandals of the late1980s, when one of the most powerful financial firms of that generation, Drexel Burnham Lambert, was forced to shut down, and its star banker, the junk bond salesman Michael R. Milken, served prison time for securities fraud. Another prominent financier, Ivan F. Boesky, went to jail for trading on secret information gleaned from a Drexel banker.
The Wall Street stars of that era were suspending-wearing, cigar-smoking investment bankers who were exposed trading on secret information about takeovers during a wave of corporate mergers.
Today, hedge fund managers have emerged as among the most powerful forces in finance, charging lucrative fees with the promise of delivering superior returns in up and down markets. Many of these firms, including SAC, are based in and around Greenwich, Conn., the New York suburb where many of them live. Mr. Cohen owns one of the largest homes in that town, a 35,000 square foot mansion that houses one of the world’s fabled private art collections.
Mr. Cohen’s extraordinary fortune and spendthrift ways — Forbes magazine places his net worth at about $10 billion — have been well documented, but less well known is that dozens of his employees have also accumulated spectacular wealth. In good years, SAC top portfolio managers earn tens of millions of dollars annually. Several dozen have left to start their own multi-billion dollar funds.
The indictment, however, shines a light on some traders who made their millions using a “black edge,” or an improper upper hand.
In addition to citing Mr. Lee’s conduct, the indictment focused on two SAC traders: Mathew Martoma and Michael S. Steinberg, both of whom were charged criminally. Each pleaded not guilty to insider-trading-related charges and face separate trials.
Mr. Steinberg’s case stems from trading the computer maker Dell. In a 2008 e-mail, an SAC analyst, Jon Horvath, told Mr. Steinberg that he had a “2nd hand read from someone at” Dell who provided financial information about the company before its earnings announcement. The e-mail from Mr. Horvath, who has since pleaded guilty and is expected to testify against Mr. Steinberg and SAC, was then forwarded to Mr. Cohen. Minutes later, Mr. Cohen started to sell his position in Dell, though his lawyers argue that he never read the e-mail and was merely following another employee’s trading patterns.
The indictment also references a 2007 e-mail Mr. Horvath sent to Mr. Cohen, saying “My edge is contacts at the company and their distribution channel.” The government blamed Mr. Cohen for failing to query whether Mr. Horvath’s contacts were legitimate or not.
Mr. Martoma’s case involves 2008 trading in the stocks of Elan and Wyeth, which at the time were developing an Alzheimer’s drug. Prosecutors accused Mr. Martoma of obtaining from a doctor secret information that the drug’s clinical trials were going poorly.
When the government arrested Mr. Martoma last November, the indictment cited a 20-minute phone call that Mr. Martoma had with Mr. Cohen the day before SAC began dumping its holdings in the drug stocks.
Mazars and Deutsche Bank could have ended this nightmare before it started. They could still get him out of office. But instead, they want mass death. Don’t forget that.
Nassim Nicholas Taleb Distinguished Professor of Risk Engineering, NYU-Poly; Author, Antifragile
What We Learn From Firefighters How Fat Are the Fat Tails?
Eight years ago, I showed, using twenty million pieces of data from socioeconomic variables (about all the data that was available at the time), that current tools in economics and econometrics don't work, whenever there is an exposure to a large deviations, or "Black Swans". There was a gigantic mammoth in the middle of the classroom. Simply, one observation in 10,000, that is, on day in 40 years, can explain the bulk of the "kurtosis", a measure of what we call "fat tails", that is, how much the distribution under consideration departs from the standard Gaussian, or the role of remote events in determining the total properties. For the U.S. stock market, a single day, the crash of 1987, determined 80% of the kurtosis. The same problem is found with interest and exchange rates, commodities, and other variables. The problem is not just that the data had "fat tails", something people knew but sort of wanted to forget; it was that we would never be able to determine "how fat" the tails were. Never.
The implication is that those tools used in economics that are based on squaring variables (more technically, the Euclidian, or L-2 norm), such as standard deviation, variance, correlation, regression, or value-at-risk, the kind of stuff you find in textbooks, are not valid scientifically (except in some rare cases where the variable is bounded). The so-called "p values" you find in studies have no meaning with economic and financial variables. Even the more sophisticated techniques of stochastic calculus used in mathematical finance do not work in economics except in selected pockets.
The results of most papers in economics based on these standard statistical methods—the kind of stuff people learn in statistics class—are thus not expected to replicate, and they effectively don't. Further, these tools invite foolish risk taking. Neither do alternative techniques yield reliable measures of rare events, except that we can tell if a remote event is underpriced, without assigning an exact value.
The Evidence
The story took a depressing turn, as follows. I put together this evidence—in addition to a priori mathematical derivations showing the impossibility of some statistical claims—as a companion for The Black Swan. The papers sat for years on the web, were posted on this site, Edge (ironically the Edge posting took place only a few hours before the announcement of the bankruptcy of Lehman Brothers). They were downloaded tens of thousands of times on SSRN (the Social Science Research Network). For good measure, a technical version was published in a peer-reviewed statistical journal.
I thought that the story had ended there and that people would pay attention to the evidence; after all I played by the exact rules of scientific revelation, communication and transmission of evidence. Nothing happened. To make things worse, I sold millions of copies of The Black Swan and nothing happened so it cannot be that the results were not properly disseminated. I even testified in front of a Congressional Committee (twice). There was even a model-caused financial crisis, for Baal's sake, and nothing happened. The only counters I received was that I was "repetitive", "egocentric", "arrogant", "angry" or something even more insubstantial, meant to demonize the messenger. Nobody has managed to explain why it is not charlatanism, downright scientifically fraudulent to use these techniques.
Absence of Skin in the Game
It all became clear when, one day, I received the following message from a firefighter. His point was that he found my ideas on tail risk extremely easy to understand. His question was: How come risk gurus, academics, and financial modelers don't get it?
Well, the answer was right there, staring at me, in the message itself. The fellow as a firefighter could not afford to misunderstand risk and statistical properties. He would be directly harmed by his error. In other words, he has skin in the game. And, in addition, he is honorable, risking his life for others not making others take risks for his sake.
So the root cause of this model fraud has to be absence of skin-in-the game, combined with too much money and power at stake. Had the modelers and predictors been harmed by their own mistakes, they would have exited the gene pool—or raised their level of morality. Someone else (society) pays the price of the mistakes. Clearly, the academics profession consists in playing a game, pleasing the editors of "prestigious" journals, or be "highly cited". When confronted, they offer the nihilistic fallacy that "we got to start somewhere"—which could justify using astrology as a basis for science. And the business is unbelievably circular: a "successful PhD program" is one that has "good results" on the "job market" for academic positions. I was told bluntly at a certain business school where I refused to teach risk models and "modern portfolio theory" that my mission as a professor was to help students get jobs. I find all of this highly immoral—immoral to create harm for profit. Primum non nocer.
Only a rule of skin in the game, that is, direct harm from one's errors, can puncture the game aspect of such research and establish some form of contact with reality.
We meet at the borders of our being, we dream something of each others reality. - Harvey of R.I.
To Justice my maker from on high did incline: I am by virtue of its might divine, The highest Wisdom and the first Love.
EVERYONE READ THE LAST POST, THE ONE QUOTING TALEB!!!
Meanwhile: Is this really happening? Someone's actually being hit with something that might hurt, albeit no jail? (Aside: Did everyone catch that Monopoly is eliminating jail from future versions? Out of political correctness, but seriously, how appropriate to this age where no motherfucker ever goes to prison for stealing billions and fucking over millions.)
And it's the Fabulous Fab himself?
Ah, whatever. Consolation scapegoating. The important stuff happened back in 2008-2009, when the government chose to revive the banking Godzillas so that they could continue to destroy cities, since it was such a vitally important monster, far too big to fail.
DealBook - A Financial News Service of The New York Times August 1, 2013, 3:36 pm Former Trader Is Found Liable In Fraud Case By SUSANNE CRAIG and BEN PROTESS
Updated, 10:03 p.m. | A former Goldman Sachs trader at the center of a toxic mortgage deal lost a closely watched legal battle on Thursday, giving Wall Street’s top regulator its first significant courtroom victory in a case stemming from the financial crisis.
A federal jury found the trader, Fabrice Tourre, liable on six counts of civil securities fraud after a three-week trial in Lower Manhattan. The case had given both sides — the government and Mr. Tourre — a chance to repair their reputations.
For the Securities and Exchange Commission, a regulator dogged by its failure to thwart the crisis, the case offered a shot at redemption following one courtroom disappointment after another, including two similar mortgage-related cases that crumbled last year.
For Mr. Tourre, 34, who abandoned his trading career to pursue a doctorate in economics and become a teacher, the threat of being barred from Wall Street came second to the black mark on his name.
Five years after Wall Street risk-taking nearly toppled the economy, the S.E.C. has taken only a handful of employees to court in connection with the crisis; most cases have been settled. The agency has not leveled fraud charges against one top executive at a big bank.
“He was the one that didn’t get away,” one of the nine jurors, Beverly Rhett, said after the verdict. “The decision-making was a slow and arduous process,” said Ms. Rhett, a retired teacher who was juror No. 2. “We went over each item with a fine-tooth comb. We looked into the semantics and tried to understand them as best as we could.”
“We never felt there was anything that was cut and dry,” she added.
The S.E.C. threw innumerable resources at Mr. Tourre’s case, underscoring its importance to the agency. The onslaught began when the S.E.C. opened an investigation into Goldman after the 2008 crisis.
Lorin Reisner, then the No. 2 enforcement official at the agency, conducted all the pretrial depositions, a task typically assigned to lower-level investigators. When it came time for trial, the S.E.C. assigned Matthew T. Martens to lead the case, although he typically oversees the agency’s trial lawyers without acting as one.
“There is no denying the importance of this to the S.E.C. because it is a financial crisis case,” said Stephen J. Crimmins, a partner at the law firm K&L Gates and former deputy chief litigation counsel in the S.E.C. enforcement division, who was not involved in this case.
Yet even with the triumph over Mr. Tourre, the S.E.C. could still face scrutiny.
Some critics have questioned why the agency chose to make Mr. Tourre — a midlevel employee who was stationed in the bowels of Goldman’s mortgage machine — the face of the crisis. Rather than aim at a high-flying executive, the agency pursued someone barely known on Wall Street.
Those concerns also arose in another S.E.C. crisis-era case, in which a jury cleared a midlevel Citigroup employee, questioning why the agency had declined to charge more senior executives. Even Ms. Rhett, the juror, after reflecting on Mr. Tourre’s case, said, “I could characterize him as somewhat of a scapegoat.”
“There are bigger fish out there swimming fat and free, and they made a lot more money from the mess than Tourre ever dreamed of making,” said Erik Gordon, a professor of law and of business at the University of Michigan.
For its part, the S.E.C. notes that it has won about 80 percent of its trials under Mr. Martens and has sued 66 chief executives and other senior officers in cases related to the financial crisis. S.E.C. officials also note that the agency files cases only where they can be proved, even if that means not pursuing top executives insulated from the bad acts of their employees.
Andrew Ceresney, co-director of the S.E.C.’s division of enforcement, said in a statement: “We are gratified by the jury’s verdict finding Mr. Tourre liable for fraud. We will continue to vigorously seek to hold accountable, and bring to trial when necessary, those who commit fraud on Wall Street.”
It is unclear whether Mr. Tourre will appeal the verdict. A spokesman for Mr. Tourre declined to comment.
But a friend who dined with Mr. Tourre this week at Walker’s Restaurant, a pub near the courthouse, said he appeared upbeat while discussing his doctoral program at the University of Chicago. “He doesn’t really care and finds the entire thing politically motivated,” the friend, who spoke on the condition of anonymity, said about the S.E.C.’s case.
After two days of deliberation, the nine-person jury concluded that Mr. Tourre had misled investors about the mortgage deal at the heart of the case. Of the seven charges against Mr. Tourre, the jury found him liable on six. He was found not liable of perhaps the most specific fraud charge, which contended he had knowingly made an untrue or misleading statement.
Juror No. 9, Leonel Lopez, 27, who works in advertising, said, “I found Mr. Tourre’s testimony to be genuine and the defense’s case solid, but the evidence suggested that a number of S.E.C. violations had occurred.”
As the verdict was read on Thursday, Mr. Tourre sat emotionless, briefly glancing at the jury before fixing his stare elsewhere. When the jury shuffled from the courtroom, few made eye contact with him. Minutes later, he departed the building, carrying a copy of “The History of the Decline and Fall of the Roman Empire” by Edward Gibbon.
Judge Katherine B. Forrest has the final say on the penalty Mr. Tourre must pay, be it forfeiture of profits or a fine. The fine could range from $5,000 to $130,000 for each violation.
Mr. Tourre could also be barred from the securities industry, but that decision lies solely with the S.E.C.
The S.E.C.’s victory reopens some wounds for Goldman, which is paying for Mr. Tourre’s defense. Inside the bank, employees had been quietly cheering for Mr. Tourre, whom one executive called “the poor kid.” Viewing the S.E.C.’s case as thin, the executives saw Mr. Tourre as a proxy for the fight they wanted to wage with regulators.
Goldman settled with the S.E.C. in 2010, paying what was at the time a record $550 million fine. The bank conceded that it had made a “mistake.”
On Thursday, a spokesman for Goldman Sachs said, “As a firm, we remain focused on being more transparent, more accountable and more responsive to the needs of our clients.”
The verdict comes three years after the S.E.C. thrust Mr. Tourre into the spotlight with civil charges and a series of embarrassing e-mails. Those e-mails, in which Mr. Tourre referred to a friend’s nicknaming him the “Fabulous Fab,” a moniker that has come to define Mr. Tourre’s persona, transformed him from an obscure trader into a symbol of Wall Street hubris.
The S.E.C.’s case against Mr. Tourre hinged on the contention that he and Goldman sold investors a mortgage security in 2007 without disclosing a crucial conflict of interest: a hedge fund that helped construct the deal, Paulson & Company, also bet that it would fail. In his opening argument to the jury, Mr. Martens, the S.E.C.’s lead lawyer, depicted the commission’s case as an assault on “Wall Street greed,” arguing that Mr. Tourre created a deal “to maximize the potential it would fail.”
Mr. Tourre was living in a “Goldman Sachs land of make-believe” where deceiving investors is not fraudulent, Mr. Martens declared on Tuesday.
Throughout the trial, Mr. Martens invoked documents that Goldman had submitted to investors — including a term sheet and a 66-page marketing book — in which the bank said that the deal was “selected by ACA,” an independent company, without reference to Paulson & Company. Mr. Martens also cited an e-mail in which Mr. Tourre stated that the riskiest slice of the mortgage trade — a piece typically bought by someone betting that the deal would succeed — was “precommitted,” when in fact it was not even going to be offered.
The S.E.C. also used some of Mr. Tourre’s love notes to a girlfriend who worked at Goldman to impugn his credibility. In one e-mail, he joked about selling toxic real estate bonds to “widows and orphans.”
On the witness stand, Mr. Tourre acknowledged that the e-mail had been “in poor taste.”
But he was confident that he did nothing wrong. “I am here to tell the truth and clear my name,” Mr. Tourre, whose fresh face and diminutive stature suggest he is much younger than his age of 34.
His lawyers portrayed him as a scapegoat who was 28 at the time of the crisis. The lawyers also noted that senior Goldman executives had approved the deal.
“The idea that Fabrice Tourre, a 28-year-old vice president, was conjuring up a $1 billion fraud, or conspiring with others, is just not supported by the evidence,” Sean Coffey, one of his lawyers, said during his closing arguments.
Mr. Tourre’s lawyers have argued that what Paulson & Company was doing should not have mattered to investors. The trade in question had to have an investor who was betting it would fail, and another betting it would rise — a fact each side knew.
The verdict calls into question the decision by Mr. Tourre’s lawyers not to call a single witness, a show of confidence that failed to impress a jury that also included a minister, a graphic designer and a former stockbroker. Some jurors appeared to nod off as the case became bogged down in financial minutiae.
On Thursday, as they emerged from the courthouse, several jurors appeared troubled. “It was intense,” one said. “Exhausting,” said another.
The mood was upbeat at a Starbucks down the street, where the S.E.C.’s legal team took shelter from the rain after the trial. They stood in a group near the doorway, tapping on their smartphones as they arranged train tickets home to Washington.
Mr. Tourre returned to the same place he had started each day: a cramped conference room in an apartment building next to the courthouse. Mr. Tourre, said one person in the room, was the only one there who was upbeat.
The war room, as his lawyers called it, was typically full of tinfoil containers from nearby fast food restaurants. A white board listed names of witnesses. Mr. Tourre often camped out in a smaller room littered with empty Diet Coke cans.
“It’s home right now,” he said recently, shrugging his shoulders.
William Alden, Michael J. de la Merced and Alexandra Stevenson contributed reporting.
This post has been revised to reflect the following correction:
Correction: August 2, 2013
A earlier version of this article misspelled the surname of a retired teacher who was juror No. 2 in some instances. She is Beverly Rhett, not Rhetts.
Copyright 2013 The New York Times Company
We meet at the borders of our being, we dream something of each others reality. - Harvey of R.I.
To Justice my maker from on high did incline: I am by virtue of its might divine, The highest Wisdom and the first Love.
U.S. Said to Plan to Arrest Pair in Big Bank Loss BY BEN PROTESS AND JESSICA SILVER-GREENBERG Updated, 9:30 p.m. | Government authorities are planning to arrest two former JPMorgan Chase employees suspected of masking the size of a multibillion-dollar trading loss, a dramatic turn in a case that tarnished the reputation of the nation’s biggest bank and spotlighted the perils of Wall Street risk-taking.
The former employees, who worked in London, could be arrested in the coming days, according to people briefed on the matter. The action, the people said, would involve criminal fraud charges.
The employees — Javier Martin-Artajo, a manager who oversaw the trading strategy, and Julien Grout, a low-level trader in London — could ultimately be extradited under an agreement with British authorities. Yet the people briefed on the matter, who spoke on the condition of anonymity, cautioned that it is unclear whether British authorities will be able to locate the men, who are natives of other European countries.
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FACEBOOK SAVE TWITTER E-MAIL GOOGLE+ PRINT SHARE PERMALINK Representatives for the F.B.I. and the United States attorney’s office in Manhattan declined to comment, as did a spokesman for JPMorgan. A lawyer for Mr. Martin-Artajo did not respond to an e-mail. A lawyer for Mr. Grout could not be located.
The plan to arrest the traders hints at an aggressive new stance from the government, which has come under fire for prosecuting only a few Wall Street employees tied to the 2008 financial crisis. Taking aim at employees of a Wall Street giant like JPMorgan, even when they fall below the executive ranks, could send a warning shot across the financial industry.
The losses at the heart of the JPMorgan case stemmed from outsize wagers made by the traders at the bank’s chief investment office in London. The traders used derivatives — complex financial contracts whose value is typically tied to an asset like corporate bonds — to bet on the health of large corporations like American Airlines.
Those trades soured last year, racking up steep losses for the bank. JPMorgan, which initially disclosed the problem last May, has since announced that the losses reached more than $6 billion.
After more than a year of gathering evidence about the losses, federal prosecutors and the F.B.I. in Manhattan have concluded that the two employees understated the value of their trades to hide the problem from executives in New York. Poring over internal e-mails and phone recordings that shine a light on how the employees valued the trades, authorities came to believe that Mr. Martin-Artajo directed Mr. Grout to falsify internal records.
Those actions, JPMorgan told authorities, caused the bank to lowball the losses. Last July, the bank restated its first-quarter 2012 earnings downward by $459 million, conceding errors in the valuations.
The charges hinge on the cooperation of another JPMorgan trader, Bruno Iksil, nicknamed the London Whale because of his role in the unusually large bet. Despite initially personifying the trade — the blowup is referred to colloquially as “the London Whale” — some investigators concluded that he was unfairly blamed.
After giving multiple interviews to authorities, first at a meeting in Brussels and then New York, Mr. Iksil secured a cooperation agreement from the government. It is unclear, however, whether he will face separate charges.
While authorities are not pursuing charges against JPMorgan’s top executives, according to the people briefed on the matter, the bank is nonetheless bracing for civil charges from regulators. The Securities and Exchange Commission, which is expected to cite the bank for lax controls that allowed the traders to undervalue the bets, could strike a settlement with the bank as soon as this fall.
The Financial Conduct Authority, a British regulator, also plans to fine the bank in the coming months, one person said.
In an unusually aggressive move, the S.E.C. is seeking to extract an admission of wrongdoing from the nation’s biggest bank. If JPMorgan concedes to that demand, such an admission would reverse a longtime practice at the S.E.C., which has allowed defendants for decades to “neither admit nor deny wrongdoing.” The people briefed on the case added that the agency had not threatened to file civil charges against JPMorgan executives.
As the criminal case progresses, the government could face challenges in the courtroom. For one, Wall Street cases are unusually difficult to prove to jurors who must grapple with financial jargon.
That hurdle is particularly high in this case, which centers on the vagaries of rules that even seasoned Wall Street employees struggle to interpret. Under the rules, traders are granted some leeway to value their trades on derivatives contracts because actual prices may not be readily available, presenting a challenge to prosecutors who must prove that employees intentionally cloaked losses.
Even though JPMorgan itself is not the target of criminal scrutiny, the case casts an unwelcome spotlight on the bank. The case could highlight the way the traders breached the bank’s own risk limits to make their bets — suggesting that JPMorgan, once hailed for its risk management, had porous controls.
The case also comes at a time when JPMorgan, which recently reported record quarterly profits, is already grappling with an array of regulatory woes. The bank faces inquiries from at least eight federal agencies, a state regulator and two European nations. Adding to its headaches over the trading losses, authorities are investigating the bank in connection with its financial crisis-era mortgage business. The bank, for example, recently disclosed that federal prosecutors in California are investigating whether it sold troubled mortgage securities to investors before the crisis. Regulators are also examining flaws in the bank’s debt collection practices.
The investigation into the trading losses stems from early 2012. As their bet worsened, JPMorgan has said, the traders started to underestimate the losses.
Since announcing the losses, the bank has overhauled its controls and ousted the employees involved in the bet. The bank’s chief executive, Jamie Dimon, has apologized for the breakdown.
The bank also commissioned an internal investigation into the trades, ultimately turning over its findings to federal authorities and a Senate subcommittee examining the losses.
An ensuing subcommittee report concluded that Mr. Martin-Artajo’s team of traders stopped recording the value of their bet in a “middle range,” shifting to some of the most generous possible figures.
In one recorded phone call referred to in the report, the London Whale, Mr. Iksil, told a colleague that the bank’s estimated losses were “getting idiotic.” Mr. Iksil added that “I can’t keep this going” and that he did not know where his boss in London “wants to stop.”
Reflecting concerns about the estimates, Mr. Grout kept a spreadsheet that tracked the difference between his valuations and the midpoint. The documents, according to the subcommittee’s report, showed that his valuations underestimated the losses by more than $400 million.
Mr. Grout, the subcommittee said, told Mr. Iksil in a recorded conversation, “I am not marking at mids as per a previous conversation.”
Mazars and Deutsche Bank could have ended this nightmare before it started. They could still get him out of office. But instead, they want mass death. Don’t forget that.
EVERYONE READ THE LAST POST, THE ONE QUOTING TALEB!!!
I just did, thanks for posting it. He managed to explain the central idea of his Black Swan book in the first three paragraphs.
The results of most papers in economics based on these standard statistical methods—the kind of stuff people learn in statistics class—are thus not expected to replicate, and they effectively don't.
The term "ludic fallacy" which he coined in that book has stuck with me.
It is a central argument in the book and a rebuttal of the predictive mathematical models used to predict the future – as well as an attack on the idea of applying naïve and simplified statistical models in complex domains. According to Taleb, statistics works only in some domains like casinos in which the odds are visible and defined. Taleb's argument centers on the idea that predictive models are based on platonified forms, gravitating towards mathematical purity and failing to take some key ideas into account:
* It is impossible to be in possession of all the information. * Very small unknown variations in the data could have a huge impact. Taleb does differentiate his idea from that of mathematical notions in chaos theory, e.g. the butterfly effect. * Theories/Models based on empirical data are flawed, as events that have not taken place before for which no conclusive explanation or account can be provided.
It reminds me of Ilya Prigogine and "the myth of entropy"
In his 1997 book, The End of Certainty, Prigogine contends that determinism is no longer a viable scientific belief. "The more we know about our universe, the more difficult it becomes to believe in determinism." This is a major departure from the approach of Newton, Einstein and Schrödinger, all of whom expressed their theories in terms of deterministic equations.
