大象传媒

Paul

there is too much money to be made in driving spain's spread up. it has a long way to go [think potential profit for those betting it will go up]. so its buy the rumour [of bail out] sell the fact [of bailout] ie only sell when spain is proven to be out the woods. That won't happen till after portugal.

you probably are aware that funds are getting margin calls from their brokers as the brokers put the amount they need on bond deposits up [ie making it more expensive to buy them]. Margin calls are also happening in the commodity market due to wild quick swings [see china below].

The fed is doing to china what they did to japan when they currency manipulated [ask lawson]. The massive injection of cash is potentially blowing up the chinese economy through inflation [maybe they will start to see sense when its their pips that start to squeak?]

China bans hoarding of Oil and Coal

..Local authorities were ordered to crack down on hoarding, bogus bids meant to drive prices higher, and other illegal practices.

China is trying to cool inflation that surged to a 25-month high in October. Authorities say soaring food prices are mainly to blame, but costs for fuel and other necessities have also jumped, as supplies have run short.鈥�...



we are part of one world economy. china might think its smart currency manipulating but its going to blow up like japan.

Santander shares fell sharply today - down over 10% at one point before recovering. I have cash in Santander, former B&B, that is under the UK guarantee but you can see just how quickly bank runs can begin.

jaunty is right - there is too much money to be made now by the serial investors from Portugal, Italy, Spain... then France, then the UK.

We are also about to get a super-dose of Chinese inflation imported into the UK, into the West, in the coming months which will either impoverish most of us or we will see interest rates soar, just like Black Wednesday, and people will be handing back their house keys to the banks.

its also thanksgiving week so the markets are going to be erratic anyway as traders take the week off for the holidays. time to watch trains planes and automobiles. maybe its a metaphor of how governments are trying to 'get home' but pick up someone good at selling rubbish [the banks] who takes them on a ride they won't forget?

One blogger on the Alphaville page Paul referred to says "...when merkel talks we profit from the shorting of the EURO..."

If there were a physical attack on a central bank, the perpetrators would be wanted or jailed. But these virtual attacks are legal, despite doing at least as much damage. If he is contemplating our "enemies within", Bin Laden must be laughing all the way to the bankers.

It seems that international finance is on the verge of collapse. If it can be started again, there must be new rules. And we need retrospective legislation and the financial equivalent of the Nuremberg trails to punish those who are committing these "financial crimes against humanity".

this scene probably sums up the govt and banks 'going the wrong way' and their subsequent discussion about the use of a credit card

4

this is why the chinese view soros and those like him who in the past bet against asian countries as 'terrorists'.

these financial 'bets' against nation states destroy factories and jobs and thus lives as surely as any wave of bombers would do.

If you did a flow chart of those behind these bets, the schools they went to, the friends they mix with and the people they marry you would find a tight knit inner empire of power transferring wealth from the many to the few [like with the carbon trading exchanges]. It is the job of their PR men [the political class] to justify to the people why this 'sacrifice' [propping up the lifestyle of the rich with the ordinary person's taxes] is a 'good' thing. Like Labour did when they explained away why a cleaner in the City pays more tax than an executive.

The political class will merely explain away why all this is 'necessary' rather than defend the people from it.

Stephen Nolan is on Fivelive now talking about how did people think that a tiny 1 bedroom flat in the centre of Dublin was worth 700,000 Euros when now it is worth just 200,000 Euros now - and you could not give it away now.

I think the problem is that people still think it is worth 200,000 Euros.

Our property bubble has been no different to Ireland's bubble. Coming soon to a Union near you.

Isn't this all just a jolly old game of chess? We just need to work out who are the players and who are the pawns:

"The crisis will become euro-zone wide, at which point all eyes will turn to some combination of the European Central Bank, the German taxpayer, and the IMF. But the ECB can't pay and the German taxpayer won't pay.

Europe could place a call to Beijing to find out if China would like to commit some of its $2.6 trillion in reserves to keep European creditors whole. This would be an enormous opportunity for China to vault to a leading global role.

If China offered to recapitalize the IMF, become the largest shareholder, and move the organization to Beijing (according to the Articles of Agreement, the IMF's headquarters should be in the capital of the largest shareholder), wouldn't that make for an interesting chess game?"

Why dont you spend more time undermining the propaganda terms that are used so incessantly that they become 'accepted wisdom', and then for instance Newsnight gets on some fringe 'known faces' who have read the same manipulated headlines, stemming from propaganda, to regurgitate them and thus reinforce them. So the whole thing rolls on and the public are kept steeped in lies.

Im thinking of 'protectionism is the worst evil', 'migrant labour benefits the economy' when it clearly doesnt, with rubbish about 'the brightest and the best', 'free trade gets you out of recession' (when hardly anyone knows what trade now consists of and certainly wouldnt believe this if they did)

If you dont undermine and expose these lies, you reinforce them.

#4 Sasha Clarkson wrote:

'And we need retrospective legislation and the financial equivalent of the Nuremberg trails to punish those who are committing these "financial crimes against humanity".'

What would happen, say, if it came about that these people who were *retrospectively* found to be 'criminals' were predominantly from a single racial group?

Could they claim that they are being unfairly victimised and that the authorities are being racist?

"Stephen Nolan is on Fivelive now talking about how did people think that a tiny 1 bedroom flat in the centre of Dublin was worth 700,000 Euros when now it is worth just 200,000 Euros now - and you could not give it away now."

So by the logic of other posters ordinary people are ok to pick up the 500K gap on property bubbles but investors can't short the currency in which this idiocy is conducted?

Wouldn't it be great if we lived in a world where there was only upside? Where investments made by "the man on the street" always went up and "nasty bankers" always lost money. Tell you what - next time we have an election lets vote for the party that promises us the world on a stick and then all have a good moan when a clearly unsustainable system blows up. Let's forget we voted for them and just pick one group to blame who share some but not all the responsibility. That's sure to get it sorted so it never happens again. Who's with me?!

I saw the first estimate for the cost of Spain last night, approx 750bn Euro. Will be interesting to see if that is enough to motivate the EU.

I was left confused by the contribution from the young lady from Europe Reform ( was it). She gave two conflicting messages : Germans didnt want to guarantee its eurozone neighbours en bloc, but would defend the euro. I think Germany's position will start and end with self interest. A falling euro is good news for Germany's exports to emerging markets.It might help them re-gear away from its eurozone hub. However, its banking sector's claims on Spain and Italy and Ireland combined are very large. So, it cannot walk away. On the other hand it wont simply guarantee the lot. So, it will need to create a firewall where creditors share the pain so that sovereigns protect themselves.Merkel isnt dropping this point.

The one point that needs to be highlighted : we will move in to an era of HIGHER interest rates and the peripheral economies are going to find those rates near-on impossible to live with. That might be the trigger for a decoupling of the euro currency area. Eurocrats might find a way to dress up a peripheral currency as a provisional euro...they are very good at the spin.

THE BEST OF THE BEST (#9)

Your list of fatuous claims caught my eye stayingcool. I would like to add 'Best of the best' - applied to mercenaries unthinkingly, or wrong-headedly, fighting the Bush/Blair wars.

(Surely these wars skew global economics to some degree? It isn't ALL banks and speculators is it?)

Perhaps Dave will take a gap year in Afghanistan to show his mettle? Where has the honourable chap on that poster gone? All we seem to see is his shallow, jingioistic alter-ego. Nick can mind the store - they are THAT close aren't they?

The pitch of the comments on your blog threatens to pierce my ear-drums.

Let's be clear:

1. The shakiness of Eurozone debt reflects not the actions of short-sellers of physical bonds or buyers of CDS protection. Rather than being a symptom of a speculative attack, it is better understood as a symptom of self-defence. The 'perpetrators' of this self-defence are typically continental institutional investors (insurance companies, state controlled banks, private sector banks, pension funds) who had hitherto gone along with the idea that the Eurozone periphery was good for any money lent and are now not so sure. I spent some of last week meeting touring Europe and meeting such fiduciaries: there is a look of horror in their eyes when the possibility of a EU member sovereign default is raised.

2. An 'attack' on the Euro boosts the competitiveness of peripheral Eurozone exports, and stems imports. In this way it is not terrific for the rest of the world, but should not be understood as something that will destroy the Eurozone in the short run: it is a safety valve that is blowing. Would the blogosphere be happier with a stronger Euro? Probably not as we would be overwhelmed with complaints that this was part of the bankers plans to destroy competitiveness, crush domestic industry, promote consumerism etc. It's an exchange rate. It moves. It is not controlled. Get over it.

If your commenters wish to blame someone (and there appears to be great appetite in the blogosphere to apportion blame), why not examine the regultory structures that arose from the Basel I and Basel II bank capital frameworks. These facilitated/ encouraged far higher levels of leverage in the European banking system (leverage with reference to assets) than has ever existed in the supposedly over-levered US banking system; this leverage was understood as 'safe leverage' as opposed to the lower levels of toxic leverage becuase the leverage was into 'high quality assets' like government bonds, other banks' debt, etc, and resulted in a system that is massively leveraged and interconnected. Blaming the ill-design of regulatory structures is perhaps not a terrificly rousing call to arms. Better to rage at imagined conspiracies hey?

@10 "What would happen, say, if it came about that these people who were *retrospectively* found to be 'criminals' were predominantly from a single racial group?"

I rather doubt that that would be the case - and anyway there are plenty of WASPS who do not indulge in this behaviour, and would not be so indicted ;-O

@11 So by the logic of other posters ordinary people are ok to pick up the 500K gap on property bubbles but investors can't short the currency in which this idiocy is conducted?

You are putting words into other peoples mouths, but you also reveal yourself. To me an "investor" is someone who puts money into creating things. A short seller not an investor, but someone who bets, often with someone elses money, on destroying things. Shorters are at best like looters in a disaster and at worst like the arsonists who cause it. Yes - it's legal for now, but it's time that changed.

Also, I would like to bet that many of those who are shorting now are the same as those who helped create the bubble and the derivative bomb to start with.

I am not happy for ordinary people to take the hits for the lost 500k because of a stupid government guarantee. I am even less happy that even more lives will be wrecked because of your shorting friends!

@15 I'm so glad you want to help the poor in the EU periphery. I'm sure that those trying to pick up the pieces of their society amidst the broken glass will be most grateful to you.

LESSONS FROM HISTORY

Re-read what happened after WW1 in the German Weimar Republic.


Who were ultimately blamed in the 1930's for Germany's near total economic collapse in the 1920's and why?
Why was the phrase 'Arbeit Macht Frei' placed above the entrance gates to Nazi concentration camps?

Here's a clue (if one were needed)鈥�

The phrase Jew confetti was used to describe useless FIAT paper money after the hyper-inflation at that time.


Germany has an historical aversion to simply printing money and besides, it's a nation of savers. I don't think the Germans will allow the ECB to simply print it's way out of the current crisis. I believe they would rather see the Euro fail before transfering wealth from the prudent to the feckless.

So, if China were to come to the aid of Europe, I wonder what conditions they would attach to the aid...could they be ideological/political?

With money...comes influence.

# 15
When you say " ..continental institutional investors (insurance companies, state controlled banks, private sector banks, pension funds) who had hitherto gone along with the idea that the Eurozone periphery was good for any money lent and are now not so sure." do you argue that they should pay for their misjudgment or be bailed out by taxpayers?

I agree that Basel regulation opened a very wide door, but boy didnt market players jump through it quick in to their own shadow-world of alchemy...

The same people who were selling the "get rich on property" myth a decade ago, are now telling the poor s*ds that bought it that it's all their fault for believing them, and that they are doing us all a favour by helping the destruction.

It reminds me of a Tom Lehrer song:

This comment was removed because the moderators found it broke the house rules. Explain.

#19
I find the notion of socialising the losses associated with imprudent lending abhorrent when the gains were to be privately distributed.
But you do have to be careful what you wish for.
One could argue that the edifice of debt facilitated by bank regulation that is generous to sovereign debt holdings has been the prime facilitator to governments wishing to live beyond their means for such a long time.
For example, French debt to GDP has risen from 25% in 1975 to 85% today supporting a tax and spending mix that would otherwise be unsustainable (hopefully everyone understands that this is pretty basic stuff that is hard to dispute). Those of one political persuasion would point to a pension system and welfare state that the country clearly cannot afford; those of another political persuasion would point to marginal tax rates that are far far too low and the tax take far too low at a only 45% of GDP. (source:

There are two major trends going on, debt deflation and rising interest rates.

In the Paul Mason piece on the credit cycle and Haldane there is a clear graph.

Stronger banks, companies and individuals are paying off loans and shrinking their loan books. The weakest are defaulting on their debt. Administration of limited liability companies and personal insolvency means these debts will never be repaid.

Central banks have been fighting to keep interest rate low. This game now seems to be up. It is reminiscent of our struggle to stay in the ERM.

Higher interest rates will cause a further round of debt defaults. PIMCO's observation that deposits are flowing out of Irish banks could be genaralised as we see a flow from weaker to stronger banks.

Higher interest rates must play havoc with 'risk free rate of return' used in the models for pricing options. Short sellers may see gains in the short term but long sellers with deep pockets and longer time horizons are in a stronger position.

#11 Ben

Who is to blame? The pusher or the junky?

In theory the rate of interest charged on a loan should reflect the perceived risk. It should (and economists fanatically believe this) but it hasn't for about the last 10-15 years. Credit quality is inversely proportional to credit quantity. So given that we have witnessed massive debt growths in recent years we are in fact deluding ourselves that this was sound investment and won't come crashing down at some point.

Securitisation is at the heart of the problem because it creates the appearance of risk taming (i.e. low interest rate) but is in fact risk transfer to an unsuspecting (irrational or ignorant) counterparty (think taxpayers). It is tantamount to state sponsored fraud!

The average man in the street didn鈥檛 invent securitisation, it was the fringe banking sector in collusion with the Gvt. It鈥檚 aim: to keep up appearances whilst underlying wealth is slowly siphoned off. This paper describes the mechanism by which this occurs:



When we try to follow the trail and catch the culprits it will be hard for us to avoid chasing our own tails, as it will look like we got ourselves in to this mess (just look at the way the Irish people are being portrayed as the ones who created the specultative bubble, and therefore they DESERVE the austerity - a familiar strategy used in Greece).

Will we fall for it in the UK too?

I can barely bring myself to read this stuff anymore.

It is such a sad indictment of how utterly imature and un-prepared we are as a species to make good and proper use of the amazing advances in our understanding of the world and the technology that flows from it in the last 30 years or so.

In the context of our current understanding of the world, this whole situation upon which this thread is built amounts to commenting on the self destructive actions and rantings of a delusional madman as he goes about tearing lumps out of his own flesh with his own hands while spitting and cursing at others for the pain of his own actions.

It gets rather tiresome after a while and one starts to get the feeling the best way is simply not to have any more futile engagement with it anymore, just disengage from this insainity until it has run its course.

"Who is to blame? The pusher or the junky?"

Hawkeye - always like your posts! but need we speak in 大象传媒 binary? I'd say both bankers and the public are to blame. I realize I'm breaking 大象传媒 blog etiquette in saying this. Sorry.

Maybe you agree with the following, maybe not...

The deficit is the most pressing issue. This is why Ireland / Greece / UK are under pressure. The deficit is primarily caused by government overspend. I think cutting public expenditure is the only solution to this. I don't think many disagree that we have to tackle this (and financial regulation which is a letting the tail wag the dog).

What would you do to resolve the deficit? Banking reform isn't going to fix our monthly 拢10bn trade deficit.

Also I don't quite with this:

"The average man in the street didn鈥檛 invent securitisation, it was the fringe banking sector in collusion with the Gvt. It鈥檚 aim: to keep up appearances whilst underlying wealth is slowly siphoned off."

I don't think it's a conspiracy to siphon off wealth. It's obfuscating the decline of the west at the expense of the developing world. We want ever better lifestyles but we can't generate the wealth to justify them.

I do agree finance needs huge reform etc but it's not the only reason the UK has problems. We need less sitting around watching tv and eating, and more sitting down and reading books. The latter is not very attractive to our spoilt population. Banking reform alone is not a panacea, and I feel many present this as the sole problem as part of a culture of polarised responses that thrives in the UK.

#27

Yes, it is obfuscating the decline of the West, but if you are on the inside and know that this is going on, what would be your optimal (dominant) strategy? Keep schtumb and see what happens, or start hoarding?

Are you aware of the Savings & Loan Crisis? And have you heard of Akerlof & Romer's "looting: bankruptcy for profit"?

If the answer is no, then I suggest that you follow the link above and read the article. The scope for fraud in finance & banking is too large to just sweep under the carpet.

For a taster, read this:

#25

Securitisation of the risk in loans is similar to the model used in insurance and re-inurance.

The insured passes the risk to the insurer. The insurere retains some risk and passes the rest on to a re-insurer. This process is repeated and the risk is transferred and pooled.

The trick is in the contracts. The initial insure is a limited liability company. If the worst case happens, the insurer is wiped out the re-insurers pay out to limit in their contract and loss is passed back to person who thought he was insured for the full amount.

This is the trick of the disappearing middleman.

A similar ruse happened with the Christmas gift company that went bankrupt a few years ago. The parent company was not liable for the debts of its subsidiary and the loss passed to people who had paid in advance for their presents.

I expect the same to happen with the multi-national banks. The wise money is moved to subsidiary companies in safe havens with large deposits and little or no debt. The little people are left with deposits in weak local banks with an unenforceable guarantee from their government.

Hawkeye - I'm sure a lot of this happened. Let's imagine you and I worked this out and stopped it. Hooray for us! So we put the banking guys in their place and can now put that topic to one side for a minute.

Now, would this fix the deficit? Do you agree the deficit is very pressing and needs resolving as it's unsustainable? If so, how would you fix it, once you have put all the bad bankers in jail? Or is the UK now just fine and dandy and we have a positive trade balance and can sustain ourselves going forward.

ps yes banking is a brain drain but I don't think that alone would sort this.

is george Soros a mate of Bin Laden or are they both out to destroy capitalism....discuss...

THIS STUFF (#25)

Jericoa writes: "I can barely bring myself to read this stuff anymore."

And I find it hard to stop writing it Jericoa. It is reported that a dying man often calls for his mother . . .

Your first paragraph, more-or-less, sums up the stance I have taken here for years. But we are educated for cleverness ABOVE ALL ELSE. Worse: we are nurtured for anxious, needy immaturity. Combine the two and you have the CONSUMMATE WESTMINSTER PARLIAMENTARIAN. It takes maturity to assess ones own inner damage; it takes courage to address it. Neither attribute appeals to the PARTY selectors - they seek juvenile, craven, obedient, ambition. The only possible way forward, as I see it is to

SPOILPARTYGAMES.

#25 Jericoa

One way to look at it is to try & explain why we have economic crises.

This has to be one of the greatest & most pressing intellectual challenges of humanity's history.

Even amongst Marxists there is disagreement & difficulties finding the evidence.

Are we stuck with crises & all the human misery that goes with them:
1. forever,
2. until social realtions change or
3. can capitalism ever be reformed so that there's no more boom & bust?

If you've ever been in a car crash you will know that there is a horrible moment, when the crash becomes inevitable, that time slows down and you see everything with crystal clarity. I'm beginning to get that feeling now.

What appears to be happening that vast amounts of money created, by and large, off the back of the housing bubble are now being moved from one place to the next in the hope that they will find a safe haven where they can retain their value. So banks, and now countries that are perceived to be at risk haemorrhage and, if they were not at risk on day one they soon are.

This raises the risk of contagion, because if the vulnerable cannot repay the safer intitutions (banks or countries) that have lent big to them, then those institutions too will fail. So, in rush the safer countries to cover the debts and prevent this: by borrowing (presumably from those investors who are fleeing the scene).

If this continues, then sooner or later all this money will have to be owed by some institution/country that is able to pay it back. and who might that be? If, as I suspect, the answer is "no-one" then the end game of all this will be defaults all-round.

As others have said, the orthodox banks and institutions that have bought bonds as securities over the years must be horrified at the prospect: but the more people speculate on this outcome the more it risks becoming a self-fulfilling prophecy. (And who does not like a one-way bet!)

If this is the game, then Governments may not be given the time to devalue their debts and re-boot their economies through inflation.

At some point, surely it will be time to call a halt. Maybe ban all speculation, debt transfers etc (Governmetns cannot control the markets economically any more - but they still have the power to regulate). Nationalise the banks, rationalise the debts, allow asset values to fall and refocus our economies on making and selling stuff. A lot of people might lose under such a scenario - but maybe not as many as will be hurt if the current strategies are followed to their logical conclusion.

A TEMPLATE FOR BANKING REFORM AND DEFICIT/DEBT ELIMINATION!

Find out how Germany did it in the following link to a brief explanation...



'The Nazis came to power in Germany in 1933, at a time when its economy was in total collapse, with ruinous war-reparation obligations and zero prospects for foreign investment or credit. Yet through an independent monetary policy of sovereign credit and a full-employment public-works program, the Third Reich was able to turn a bankrupt Germany, stripped of overseas colonies it could exploit, into the strongest economy in Europe within four years, even before armament spending began.'

I am very fortunate not to have personal debt. But some of my (relatively modest) assets are based upon other people's unsustainable debt. There is no perfect solution to this crisis, but one way or other debt will have to be written off, if our (collective) children are not to be sold into perpetual debt-slavery, as the present Irish Government seems to want to do to its citizens.

I think that the fairest way of writing off the debt would be to have say 100% inflation over 4 years, together with high taxes on high earners and short-term capital gains. Also, credit controls and an end to FR banking so the bubble can't start again. Also some controlled forced bankruptcies in the financial sector.

This would undoubtedly see me being personally poorer, but I don't care - the world would be better.

BTW this vid is nearly half an hour, but it's well worth watching all of it - Bill Moyers interview with William K Black - a former US regulator who managed NOT to be disgraced. His accusation of fraud and cover-up in high places is very plausible.



I also love John "King of the Paupers" Turmel, even if he is a bit "wonkish".

(How banks create money)

(Forgive Sir Evelyn de Rothschild)

#30

The solution is simple. Turn all creditors into shareholders. The current incentive structure is to loot in a zero sum game (see #29). Whereas we need to establish a means whereby risk & reward is symmetrically allocated. See below:

/blogs/newsnight/paulmason/2010/11/ireland_the_second_republic.html

#36 Sasha Clarkson

You high inflation plan will wipe out the prudent savers and reward the feckless and greedy who took on too much debt.

Sadly, this appears to the only plan of Bernanke and King.

Irish Four Year Plan

3.4% 3.9% 4.4% 4.7% "Baseline" interest rate assumption for Ireland on their general govt debt 2011 - 14....are these credible whether they use their cash reserves or otherwise. Will the EU/IMF be charging these rates or anything close?

The Irish will be well and truly shafted...

Ireland unveils austere 鈧�15bn budget to cut deficit


'The effect of the measures - required as the precondition for an EU-IMF bailout - will mean the average Irish household will have to pay up 拢3,000 in extra taxes.'

36. At 2:14pm on 24 Nov 2010, Sasha Clarkson wrote:
I am very fortunate not to have personal debt. But some of my (relatively modest) assets are based upon other people's unsustainable debt. There is no perfect solution to this crisis, but one way or other debt will have to be written off, if our (collective) children are not to be sold into perpetual debt-slavery, as the present Irish Government seems to want to do to its citizens.

I think that the fairest way of writing off the debt would be to have say 100% inflation over 4 years, together with high taxes on high earners and short-term capital gains. Also, credit controls and an end to FR banking so the bubble can't start again. Also some controlled forced bankruptcies in the financial sector.

This would undoubtedly see me being personally poorer, but I don't care - the world would be better.

BTW this vid is nearly half an hour, but it's well worth watching all of it - Bill Moyers interview with William K Black - a former US regulator who managed NOT to be disgraced. His accusation of fraud and cover-up in high places is very plausible.



I also love John "King of the Paupers" Turmel, even if he is a bit "wonkish".

(How banks create money)

(Forgive Sir Evelyn de Rothschild)

-------------------------------------------------------------------------

How about Gold and Silver? The lumps of metal that have been real money for thousands of years.

Hawkeye-Pierce (24)

"When we try to follow the trail and catch the culprits it will be hard for us to avoid chasing our own tails, as it will look like we got ourselves in to this mess (just look at the way the Irish people are being portrayed as the ones who created the specultative bubble, and therefore they DESERVE the austerity - a familiar strategy used in Greece).
Will we fall for it in the UK too?"
That happened long ago. What we're seeing now I suggest, is just lots of things coming to a head. I take it you heard what Irwin Stelzer said the other night when contributing to a discussion with Will Hutton and
Gillian Tett?

Stelzer: "My feeling is I would rather take my chances with the markets, and what's going to happen is obvious, this is fiat currency, there's nothing behind it, we'll print more of it, you'll pay it off with chap money..Now will you go so far as crating social upheaval, that's another matter, and I'm hoping not, their is not the Weimar Republic".

No, it's a repetition of a related, unresolved problem though. History has not been learned from.

I've outlined what I see as having been central to what's been going on in two other posts over recent days, but I'll just add this. One should have expected destructive behaviour as soon as
became de rigueur. This was long ago, shortly into the 1930s depression for the first Unit Trust. It's just been a slow burner, accelerated by The Big Bang' in the mid 80s when accounts massively went nominee and computerised (see how the Dow-Jones chart went logarithmic?) and the n set off by Clinton and Blair's financial eregulation in the States in 1999 and UK in 2000. Note these parties both had the same internationalist agenda. In my view they helped capitalism self destruct by helping it go naked. The collapse of the USSR in 1990 helped that too, as after that, what did the USA have to protect Europe from with it's military umbrella (the quid pro quo for European purchase of Treasury Bonds aka US debt).

Unit Trusts are just one of the oldest ways which risk was diversified (a form of securitization essentially) and a means whereby investors handed control over to those who could easily profit from managing their funds. The entire process allowed both fund manager and investor to turn blind eyes to how they made money. Fund managers take risks with other people's assets. They then create all sorts of self-serving stories to justify their behaviour. That's what those attracted to risk always do. They crave excitement, and will create all sorts of narratives to keep doing what they do. Gambling is an addiction. Those prone to this are also at risk of a life of crime. There's no easy cure. It requires painful cold-turkey.

The problem as I see it is this. Whilst anti-capitalists want capitalism to fail, capitalists also want regulation to fail. It is a tough call to judge which is really failing, capitalism or regulation.

#41

Silver and gold may be a store of value but they are not much use as a means of exchange. If gold goes to $2,300 dollars an ounce as some predict, how do you sub-divide it for a weeks shopping?

Most transactions are electronic in developed countries. Direct credit for pay; direct debit for mortgage, insurance and utilities. Electronic transfer for credit card payments and point-of-sale purchases. Cash is out of fashion.

It seems to me the government debt problems are preceded by bank credit problems. If the primary problem is one of confidence in the banks, it may be that cash will prove more popular than either plasic electronic money or lumps of precious metal.

It certainly has rarity value at 3% of the money supply.

#42

I agree - unit trusts, insurance funds, pension funds, investment funds and hedge funds. All manage, mostly, other peoples savings and charge a management fee of 1-2% of funds under management per year for the privilege.

The other actors doing well are those taking a commission on every trade. Strangely, the big players in 'asset management' and market making are parts of the same firms.

The retail banks are the mugs in the game between the retail depositors and the 'sophisticated' investment types.