Sunday, October 12, 2008

Financial Crisis Oct 10 2008

Financial Crisis Oct 10 2008
Andre Willers
Oct 10 2008 19h40

Is the sky falling ?

No , but there is an example of conspicuous stupidity or extreme real-politik :

( See “It’s stupid at the top”)

On Thu , Oct 2 2008 the US put a moratorium on short-selling for a week .
During this week , calming measures were taken(like the bail-out package , interest rate cuts , etc . ) . In the meantime , the hedge funds were assembling blocks of shares for a financial coup .

On Thu , Oct 9 2008 , this strategy was put into effect by systematically selling short into the US market , dumping shares at any sign of a rally .

This engineered an artificial panic . Wall Street fell by 9% . The Asian and European markets duly followed . (Shades of Rothschild in 1815)

On Fri , Oct 10 2008 , this strategy was followed through .
The hedge-funds rode the market down .
But towards the end of the day , short positions had to be covered and the market suddenly recovered from –10% to –3% . (Nobody wanted to be exposed over the weekend .)
Still , trillions were fleeced out of the market .(See below for estimate)

The stupidity comes in that the regulators should have realized that this would happen and extended the moratorium until the system was more stable .

The hedge-fund operators probably gave assurances that they would not do this .
This is as useful as dangling sausage in front of a hungry wolf and telling him “Stay!”

I am being charitable here . If the regulators chose to allow this , it means that they were either corrupt or that some hedge-funds might collapse without this infusion .

You pays your money and takes your choice .

An estimate of the amounts involved will clarify your mind .
US GDP (ie earnings) is about $14 trillion pa .
The average Wall Street P/E ratio is about 8 .
The price of the shares actually traded in the panic dropped by about (10%-3%=7%)
So , an upper boundary of the short-traders’
profit = 0.07 x 8 x 14 trillion
= approximately 7 trillion US dollars .

It does seemed engineered .
See my previous posts on estimated boundaries of futures exposures .
The minimum was about $3 trillion .
The mortgage bubble was trivial and easily handled by the bail-out .

The futures exposure was much bigger , and goes back to the days of LTCM .

This infusion of capital will enable the hedge-funds to unwind their positions in relative safety . (There was no way any politician could ask this . Maybe Mugabe)

Why not let the SOB’s sink ?
This will result in enormous debts created from nothing : ie with no “real” referent . The only way to survive would be to repudiate them , but this cannot be done without disadvantage to some states . The result is protectionism . And this was the cause of the 1930’s Depression . War usually follows .

Why not dispense with these credit mechanisms ?
These are essentially bubble-technologies . See my previous posts on Bubbles combined with Beth(1+) technologies .
These are directional . The negative aspects of the bubbles can be truncated , to give a netto positive movement .

Bubbles are deliberately used by regulators to steer societies (see previous posts) . But without a decent Beth(x) mathematics things sometimes go agley . But there are memes to handle busts . We are seeing them in action now . This is not a replay of the 1930’s Depression .

Some commentators now want to throw out the whole credit system .
This has been done before . (Early Christian and present Muslim societies) . In competition , they come distinctly second .
Once again the superiority of the Dutch-English credit system during the Napoleonic wars is noted .

Banks are the essence of Capitalism .
Banks mean credit (ie futures) creation , since they can lend more than their deposits .

Read Smith(“The Wealth of Nations”) . He understood this from his experience with Dutch banking systems .

Poor Marx was still stuck in a rural age . His famous statement should read :
“From each according to his present and his future capabilities , and to each according to his present and future needs.”

This generates a completely different theoretical model and society .
His original model confused the State with Banks .
Banks are always risky since they deal with futures .
But the state should only regulate them , and lop off failures .

Banks should always be deniable by the State .
(The US Federal Reserve and SA Reserve banks are private banks)

In the present crisis , the absence of the support of Chinese and Japanese capital reserves is noticed .
They have trillions in reserve , but have not lifted a finger to help .They are the wolves who are looking for weakness .

Social Capitalism .
Social regulatory controls over capitalist mechanisms are already de-facto , and formally inevitable after this little contretemps .

What is the optimum ownership of Banks by the State ?
It seems clear that the State is going to end up as the Reserve of Last Resort for Banks too large to fail . It seems fair that the State should then have a 33% share as discussed in Reserves in previous posts .
(See “Infinite Probe” et al)

But the state should not have controlling interest , and there should be many Banks .

The Chinese advantage
At the present moment it is because they are using a Bubble Beth(1) Technology .

Special Trade Zones are allowed to bubble up via relaxed capitalism , but kept within directed probable boundaries (the beth(1) part) .
This is a superior technology to plain capitalism , since it has provably delivered two decades of double-digit growth without boom-bust cycles inherent in unfettered capitalism .

The Organised Crime Advantage
A workable trust-free credit mechanism . Large amounts of capital .
Social mobility , shading into legitimacy at the upper levels .
Though I cannot imagine any mob-boss retiring into tranquil retirement if he did to his underlings what Lehman or Enron executives did .
Underground banking and money-transfers (terrorism connections) will get a huge boost.
The El Qaeda Bank anyone ?

The US and Western Advantage .
The US will approach will have to be via social controls on the capitalist process , an inherently more difficult exercise .

But there is an already existing control system we can use : taxes .

Note that this must be a Beth(1) system , ie a direction of probabilities . We are not interested in cast iron nets to catch every little fish in the sea .

An example
A fair , Green system is to tax every stakeholder in an enterprise . Stakeholders in a farm would include the animals , the plants , the soil , the workers , the boss . All of them contribute capital .

A non-linear tax on the income can be structured to reduce the disparity between the top stakeholder and the lower ones .

This has several advantages :

1.Anyone can get as rich as they want , but only by making everyone under him richer as well .

2. The green bit comes in because every element of production is included . No rape of the environment . To get rich , the farmer has to have better soil , plants and animals , with replacements .

3. This system could be stagnant (like the optimal low-energy farmers in Europe and Asia circa 17th century .)
This is where futures come in .

Futures stitch together a progressive future and a sustainable present .

4. No taxation without representation .
Coming problems like human-chimp hybrids(cheap labour) and smart computers(a variant) are automatically catered for .
If it pays taxes , it has a say .

The overall view :
The capital of the societies are still intact .The run-up of the bubbles was so immense that even after the decrease in prices , annualized returns over the last 7 years are still in the 18% pa range .

The anguished screams you are hearing are of the “Oh my daughter! Oh my ducats! “ variety . The owners of the media and their pals .

Freeze-ups are occurring (like they did in the past) because the mediums of credit-communication are in the hands of a few institutions whose owners have heavily vested interests in the status-quo .

But communications are no longer completely channeled through the bottleneck of money .

Alternative systems of distribution .
Several are available (barter , swops , favours , etc) . It is no problem to cobble together a beth(0) value system for trade .

Look at heavy-duty commercial Internet trading sites . They are going great guns .

But a beth(1) system can be directed in a time-sense . This inevitably involves some univalue counter(ie money) and banks (ie time-binding) .

There are some ready-made and available (eg Second-life Linden dollars .) Any real collapse of currencies will mean a default to these .

Humans have no shortage of money .

This is the real nightmare of the owners of money : it is fiat . And there is not necessarily a conversion to the new currency
(eg Reichmarks to Deutchmarks in 1947 , any currency reform )

Beth(2+) trading systems are outside the scope of this discussion .
But it is interesting to mention that a beth(n) trading system has a minimum of n independent currencies .
Eg , a beth(2) trading system involves favours and money . A typical human two-dimensional value system . There might be conversion between moneys at a fixed rate, but transference of a favour is counted as a favour (a primitive form of interest) .
This favour-transference is the basis of human (ape) politics . Hence graft . It is the same thing .

The Politics of Transhumans (Beth(n>2))
The number of values grow factorially . No wonder a quantum computing capability is essential for a transhuman .

Transhuman Taxes .
Death and taxes .
The “Death” part might not apply to transhumans , but the taxes bit certainly does .

Remember , taxes are a social obligation . If transhumans interact , there is a society and there are obligations . These are taxes .
Taxes can be seen as synonymous with politics . (If there is a society , there is politics.)

But imagine having to use a quantum computer to figure out your taxes .
Even worse , tax consultants and lawyers .
A transhuman tax lawyer boggles the mind .

We cannot imagine what these values are , but we can say that they exist .
Also that they are horrendously complex from our viewpoint . A quantum computing “primitive” computing complex would be required . An ordinary human would seem extremely autistic and retarded .

How can they pay these taxes ?
They have a wee problem .
Any material thing is meaningless .
The usual payment method is personal service . Not exactly a popular choice , plodding around in the material Arith I muck . About the equivalent of planting rice by hand .

The equivalent of money would be something that remains invariant under transformations for any particular beth(n) .

The Celestial Tax-Assessor .

Ever wonder why there are no Ancient Gods of Tax or Tax-assessors ?
They had a god for everything else .

The closest is the concept of Karma .An obligation , but nothing is said about enforcement or who does anything . The positions seem to vacant .

It was because tax was intimately connected with the priesthood .

They evolved in Sumeria from clerks intimately familiar with the irrigation systems .
They figured out what tax was sustainable , inventing writing and mathematics in the process .

Call this the Cost Plus system .

Initially this was purely Cost plus Tax .
(Eg Medieval , Ottoman , Communist systems)
Even the concept of personal profit was unknown or anathema .

Profit evolved later , as various strata of society fashioned increasingly ingenious ways of siphoning off the surplus .

One of the reasons for the stability of Ancient Egyptian civilization was that the priesthood were the tax-assessors .

This model was followed until some twisted genius thought up the tax-farm model.
This was enthusiastically followed by Empires . It was brought to perfection by the Roman Empire .

The Tax Farm .
The Emperor decided on how much money he wanted .
A large bureaucracy then parceled and sold this future obligation to entrepreneurs for a fixed sum . They had the sole licence to wring the taxes from every producer , with the Roman Army as enforcers . Tax payers had little recourse except ruinous law-suits or appeal to the priesthood .

As can be expected , this model always fails . The demands of the Emperor grows without regard to payability . Sooner or later , the bottom level’s capability of paying is overwhelmed and a revolution follows .

Does this sound familiar ?
Substitute “All the Traffic will Bear” for “The Tax Farm” and you can why we are where we are today .

And so it goes .


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