Archive for September, 2008|Monthly archive page

Of Hats and Rabbits, 2

1. When measuring an age by the size of its heroes, it’s important to keep in mind that heroes, like assets, like securities, have both a notational value and a mark-to-market value. In the discrepancy between those two, notational and market, values is everything we need to know about size, direction, and velocity, of the age and the heroes.

Measured by its heroes, and adjusted for the market vs. notational values, clearly this is an age of, not advanced capitalism, but advanced capitalist dwarfism.

So….. Alan Greenspan, once a genius, a colossus, a wizard, a fountainhead gets carried in the financiers’ books of positions on that notational value. Meanwhile the mark-to-market value shrinks; not just shrinks, evaporates, withers, disappears and finally Greenspan is “uncovered” in all senses.

Marked-to-market he’s back to being just another ugly face wobbling down the runway of riches-to-rags capitalism, flogging his faux erudition for the chance at another meal. “Will obscure, equivocate for food” says the blurb beneath his picture in the fashion/finance guide.

What else can we expect? What heroes can be produced by a system so venal, so petty, so miserable that it at its peak, that its peak, that its moments of greatest profit and power are measured not by the collective advance of the human species but in the reversal of those previous advances; that its moments of greatness are just that reversal? What can be expected where a “golden age in financial freedom” is accompanied, fed, sustained by another dark age in which all of science, art, humanity is politicized in the service of its own destruction?

2. So… in its plunge into the abyss of declining asset values, capitalism’s financial oracles, heroes of digital and analog media, propose a rescue that consists, on paper, of a single solution– “Don’t Look Down”– as if the acceleration of a falling body due to gravity, as if terminal velocity, depended on an orientation of the head.

Comedy, horror, unintended and intended, ripple through the despair of the traders, brokers, economists, bankers, like shivers in forensic chill of a morgue.

The Wall Street Journal advises that shotguns and canned goods are sound investments in times like these.

The Financial Times advises Lehman Bros. (before bankruptcy): “When seized by a panic attack, focus on breathing slowly and deeply.”

It reports on Washington Mutual: “The destruction of shareholder wealth in the US financial sector is relentless. Washington Mutual, which parted company with chief executive Kerry Killinger [great name, bet he chose it himself —s.a.] on Monday, is joining Lehman on the rack.”

It wonders out loud: “If propping up the banking system is not a socially useful role, what is?”

Finally! Finally the bourgeoisie, blubbering all the way home from the bank, grasp Marx’s analysis of capitalist commodity production as private property but realizable only in a social role.

Socially useful role? Obviously, the market is judging the social usefulness of the banks, and deciding that such usefulness has been grossly overvalued. Far too much time has been expended on the capitalist reproduction of value.

And finally, none other than the shaved head knight in a white Dodge Charger (dual quads, Hurst four speed, 6 miles to the gallon), Secretary of the Treasury Paulson, mutters aloud, channeling Stevie Wonder, “Heaven help us all.”

3. So…what distinguishes the present predicament of capitalism from previous predicaments? Why is this dark night different from all other dark nights in which all cats are black? In a word, nothing. In a word, everything. In a word, magnitude.

Global finanical instruments have been measured at 167 trillion dollars, almost 3 times world GDP. In 1980 world GDP and global financial instruments were approximately the same size.

Total global financial instruments were measured at 53 trillion in 1993.

Credit default swaps are at 62 trillion– that is to say the “bets” on defaults have a notational value far greater than the market values of the securities at risk of default. Homeowners have negative equity when the amount due on their mortgages exceeds the value of their homes. It makes more “economic sense” to walk away from the home. Credit default issuers are in exactly the same position except they want to run, not walk.

All eyes and sighs turn to the “lender of last resort,” that creator of windows, that builder of bridges, the Federal Reserve. And the Fed itself? After opening its windows, after accepting lower rated collateral, what about the doctor’s own health?

The FRB, which one year ago, had 90% of its assets in US Treasury Securities has undergone, with the opening of the Primary Dealer Credit Facility and other mechanisms, an inflation in the notational value of assets with a decline in the quality of such assets– to the point that now only 50% of the Fed’s assets are in US Treasury instruments. And the market value of the other assets? Nobody knows.

However, the source for this distress, the predicament in capital is not in the overleveraging of the capitalist economy, the reproduction of expanding debt levels designed to parse, to chop, and ration available profit. These are manifestations, appearances of the real predicament, the real conflict beween expanded capitalist reproduction and profit; between private property and the accumulation of capital.

Next: Of Hats and Rabbits, 3. Roots and Prospects

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sartesian@earthlink.net

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Before We Go Any Further

1. No bailouts; immediate cancellation of residential mortgages on family units

2. immediate withdrawal from Iraq and Afghanistan; reductions in defense spending to be pooled into Social Security trust; universal single payer healthcare trust.

3. No export of capital; ban on US investors utilizing offshore shell companies; no US DFI by corporations, holding companies, trusts, banks,syndicates, etc. etc.

4. Seizure, without compensation, of all assets of financial institutions unable to meet market obligations, depositor demands.

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sartesian@earthlink.net

Of Hats and Rabbits, 1

1. Moose and Squirrel

“Hey Rocky, watch me pull a rabbit out of my hat.”

“Again?”

Six months ago the U.S. Federal Reserve put the Bear Stearns rabbit into JP Morgan Chase’s top hat by insuring the purchaser against possible loss on 97 percent of the Bear Stearns’ book— positions, obligations, outstanding trades– in mortgage back securities.

At the same time, the Fed opened a brand new window, the Primary Dealer Credit Facility, intending it to function in parallel to the Fed’s discount window to its member banks. Overnight loans at the NY Fed’s prime rate would be made available to the investment banks which were designated primary dealers in US Treasury securities. Collateral requirements were loosened to accept investment grade corporate securities, municipal securities, and mortgage and asset backed securities that could be priced by the dealer’s clearing bank.

That last bit was the dicey part. After years of “marking to market,” of steering their jolly pirate ship/party boat, the USS Leviathan, with an invisible hand across the green span of the world’s oceans, the lusty free marketeers of America had precisely no market for these mortgage backed securities and thus no way of pricing the items they most wanted to unload at the port of New York Fed.

With no way to price the securities that represented both asset and debt, there was no way within or without the Fed to refinance the debt. There was no way to recirculate the values that once were. And without circulation, there’s nothing. Finance is nothing. Refinance is everything.

The notational values existing only in the book entries of the investment banks could not be passed on. The buck had stopped all right. With that, the book was being closed. And burnt.

Meanwhile….meanwhile who didn’t, who couldn’t, experience a shiver of pleasure, of glee, of schadenfreude, viewing the pictures in the New York Times, the Financial Times, the Wall Street Journal, of the hundreds of thirty-something year old, bullet headed, over tailored, investment bankers stumbling out of their offices in Canary Wharf, in midtown, downtown, sans their company issued Blackberrysyour service has been discontinued– carrying their personal histories of pillage in cardboard boxes that read Iron Mountain?

Now, just maybe, now it will be possible to eat in a restaurant in Manhattan on a Saturday night without hearing them bellow like moose in the rut or chatter like squirrels amped on steroids, about their deals, their positions, their bosses, their companies.

Yesterday’s sharks just so much chum in today’s waters.

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A Brief Word

Six months after the Fed guaranteed Bear Stearns’ losses to JP Morgan Chase, six months into $500 billion in write-downs on the mountain of junk called “assets” with another trillion to go; after Fannie and Freddie got laid and the Treasury got scared; six months into overdue, seriously overdue, ‘I’m not kidding you are really late’ overdue, delinquency, and foreclosure; six months into a wasteland of cancelled IPOs, LBOs, credit lines, Ms&As, six months into the portfolio of photographs and streaming video showing all those young near and real MBA investment bankers, financial advisors, hedge fund floggers, structured investment vehicle dealers, specialty market makers, all dressed up with cardboard boxes in their arms with only one place to go –home, and that home overdue, seriously overdue, and I’m not kidding overdue– after all that IT HAS ONLY BEEN SIX MONTHS.

And after six months of incantations, jawbones, collateral easing, calming statements, rescue and resuscitation, of here epinephrine, of there defibrillation, the Fed and the Treasury had to let a patient go. The Lehman Bros died of complications.

In truth, it’s not medicine that the Fed practices, not even shamanism despite the hocus-pocus of interest rates. It’s triage. The Fed and the Treasury reviewing their own finances, assessing the criticality of their own health and that of the life-blood of the financial markets, the short-term “repo” markets, decided that their own credit ratings, their own abilities to operate with and in the money markets outweighed Lehman Bros rescue.

In the long-run for capitalism, the short-term is all there is. Finance is nothing. Re-financing, and re-re-financing is everything.

Much more to come

Address all comments to: sartesian@earthlink.net