A guest post from Chris Snuggs, a long-term supporter and author on Learning from Dogs.
Chris Snuggs
EU QUESTIONNAIRE – C Snuggs, 26 November, 2010
This questionnaire is designed to test your knowledge and opinions of the EU. Your answers will be collated and go towards the production of a report to present to your MEP (Member of the European Parliament)– if you can find him or her. Please give your opinion by ticking either T (true) or F (false) for each proposition.
a
THE EURO
1 Greece falsified its statistics in order to “qualify” for entry to the euro.
2 EU leaders KNEW this (like almost everyone else), but ignored it.
3 The EU’s OWN economists had told them that Greece and others could not live in the Eurozone alongside Germany.
4 Ergo, the EU elite connived in a LIE about the finances of Greece and the future of the euro..
5 Once Greece was in the Eurozone it spent money wildly and wastefully with many people retiring at 50, a bloated and overpaid civil service, civil servants who often didn’t bother to turn up, pensions bequeathed to relatives and so on.
6 The EU elite knew all this but DID NOTHING EFFECTIVE about it.
7 Now European taxpayers are having to pay BILLIONS to bail out feckless countries that vastly overspent.
8 The EU elite that lied and ignored these deep problems have been utterly incompetent guardians’ of EU taxpayers’ money. More than incompetent, they have been party to DEFRAUDING many millions of taxpayers for their own ambitions and political ends.
9 The VAST payouts of taxpayers’ money to bail out Greece, Ireland and soon Belgium, Portugal, Spain and Italy DO NOTHING TO FIX THE UNDERLYING PROBLEMS as highlighted in 3 above. This policy therefore represents an appalling further waste of money and merely postpones difficult decisions that EU leaders must make, and should in fact have made YEARS ago.
10 According to the EU’s OWN RULES it is ILLEGAL to “bail out” a bankrupt country. Despite this, the EU countries have bailed out Greece and now Ireland. Mr Van Rompuy was charged with finding a way that this could be done legally. Frau Merkel has suggested that the Lisbon Treaty be amended to allow bailouts to be done legally. How she proposes to amend this Treaty without the consent of member countries is a mystery.
11 The EU elite, knowingly having illegally bailed out Greece and now Ireland should be arrested en masse for illegal use of public money. The EU is very strong on law, except apparently for itself when it suits it.
EU FINANCE, SPENDING & REMUNERATION
12 The EU has failed to get its accounts signed off for the nth year in succession; NO PRIVATE CONCERN COULD GET AWAY WITH THIS.
13 At this time of economic crisis the EU wants to spend SIX BILLION EUROS on a new diplomatic service, including the placing of FORTY-SIX “diplomats” on Barbados and over FIFTY on Madagascar.
14 The number of EU citizens demanding this vast expenditure must be microscopic; though nobody knows for sure since the EU would never dream of asking its paymasters their opinion.
15 Europe is going through the worst period of financial chaos since WWII. Jobs are being lost almost everywhere; many EU countries are technically bankrupt; people’s living standards and public services are being drastically cut, except it seems in the EU in Brussels.
16 The EU has just won a court case against the people that finance it, the national governments. As a consequence, EU workers will receive a payrise backdated to last year with interest of 3.7% at a time of desperate economic hardship for many millions of EU citizens.
17 The head of the vast new “diplomatic” organisation is a Brit who has NEVER BEEN ELECTED to any post of significance and earns more than TWICE as much as ANY European leader, plus very considerable expenses. She is far from unique in the EU circle of the elite.
18 EU workers receive extraordinary perks (benefits) and also pay around 8% income tax. Very few of their electors (who pay their wages) benefit from anything like this sort of remuneration.
19 Peter Mandelson RESIGNED from his post as Commissioner to become an English Lord. Since his ludicrous remuneration for this was LOWER than his EU income the EU is paying him around £62,000 of taxpayers’ money for FOUR years to make up the difference, EVEN THOUGH HE RESIGNED.
20 The above-mentioned practice amounts to institutionalised THEFT of taxpayers’ money.
21 The EU has just created an English-language website to inform us of how wonderful they are. In other words, WE are paying to have EU PROPAGANDA shoved down our throats.
22 The EU paying some 300,000€ for a dogs’ home in Poland at a time when millions of people in Europe are suffering real economic hardship is just one example of frivelous use of taxpayers’ money.
THE RATIONALE OF THE EU
23 Mr van Rompuy, unelected “President” from a failing and disintegrating state (is this the reason for his obsession?), has said that “The nation states are dead.”He and the EU elite seek the creation of a European “superstate” controlled from Brussels.
24 Mr Van Rompuy has presumably informed President Sarkozy, Chancellor Merkel and other EU leaders personally that their states “are dead”. Their reactions have not been published so far.
25 This agenda was denied by the EU elite for many decades, which of course represents yet another LIE.
26 This unelected “President” earns more than any national leader in the EU. This is to give the impression that he is more important, since clearly the more money you are paid the more important you must be.
MEPs & DEMOCRACY
27 MEPs have just demanded a near 6% increase in the EU budget.
28 In this they are certainly not reflecting the wishes of the majority of their electors.
29 Many turn up in Brussels, sign on to qualify for their attendance allowance and then go away.
30 I do not know of any other profession where you get paid a vast salary and expenses and then EXTRA MONEY just for attending a meeting.
31 Most people haven’t got the foggiest idea who is supposed to be “representing” them in Brussels.
32 The EU as it stands is a top-down decision-making organisation whose leaders have a degree of self-righteousness (“Only we know what is good for you.”) that has to be suffered to be believed.
33 MEPs do not take their electors wishes into account.
34 The EU hates referendums since they give an opportunity to the people to express their opinion and actually make a decision. Naturally they can’t be trusted with decisions.
35 When a referendum goes against the EU the usual reaction is to oblige the country involved to do it again and again till the “right” answer is produced. In this the EU is a laughing stock, but the elite do not care as long as they get their way
36 MEPs periodically flog up and down from Brussels to Strasbourg. Sitting in Strasbourg is supposed to be some sort of symbol, but I don’t know of any voters who were asked if they wanted to pay through the nose for a symbol at vast expense, not least in carbon emissions.
CONCLUSIONS
37 The modern world is characterized by greed, arrogance and incompetence. These are qualities that the EU elite has demonstrated in abundance.
38 The EU elite has totally and utterly FAILED the people of Europe and is not fit for purpose.
39 Most people believe in cooperation within Europe, but not in a European superstate ruled from Brussels, a country both disintegrating and vastly endebted.
40 The EU elite has completely destroyed the faith that many ordinary people had in the EU as primarily a “common market”.
My overall reaction to the EU elite and its management of the EU is as follows. (Please tick ONE box.)
A) In general I am very pleased with the EU leadership.
B) I am quite pleased, even if some things could be improved.
C) I don’t care much either way. They can get on with it as far as I’m concerned.
D) I am not very pleased with the way the EU is run.
E) I am very dissatisfied indeed about the way that my money is being spent.
F) It is such a corrupt, wasteful and undemocratic shambles that we have to abolish it up and start again. My country is certainly better off outside the EU AS IT IS CURRENTLY RUN. I am profoundly disappointed.
F) I am disgusted at the EU elite’s arrogance, incompetence, dishonesty and venality.
[NB. If after reading the above, you really would like to submit your answers to the above questions to your local MP or MEP, then Chris has a form you may use that may be downloaded from here. Ed]
Will Hutton’s book continues to impress me; greatly.
On 28tTh October, I wrote an article about Will Hutton‘s impressive book, Them and Us. I had got to page 120 or thereabouts and could resist no longer the urge of reading the book to the end before commenting on Learning from Dogs.
Now I am reading through page 260 and, again, find myself incapable of waiting until the book is completed before offering further thoughts!
Despite being very optimistic about the long-term future, I sense that the period that we have been in since 2008 may turn out to be one of the darkest in recent history – I touched on this aspect in a recent post called Faith in a (new) future.
One of the things that strikes me is the complete lack of openness from the British Government about the likely growth scenarios over the next decade. Here was how the latest ‘growth’ figures were presented a couple of weeks ago, “The economy grew by 0.8% in the three months to September – double the rate that had been predicted by analysts.”
UK output increases by 0.8 per cent 4Q 2010
But here’s Will Hutton,
Britain is going to be much poorer than it anticipated just a few years ago.
They paint a sober picture of prolonged loss of output, high unemployment and depressed asset prices, and warn that there is no precedent for what happens after the kind of global crisis through which we have just lived. (My italics)
Hutton says that growth would need to accelerate to 3.25 per cent in order for output to reach its predicted level if the recession had not taken place.
He then says that a more plausible scenario if growth remains at 2.75 per cent (average level in recent years leading up to the credit crunch) “then it might never recover sufficiently to converge with the old trajectory.”
Hutton continues,
However, even that may be optimistic. The reality is that between the economic growth troughs of 1991 and 2009, growth in Britain actually averaged just over 2 per cent.
That would lead to a cumulative loss of output of more than £5 trillion!
It could be even worse. The economics team at Barclays believe that is it perfectly plausible for growth to average just 1.75 per cent for the first half of the current decade.
And all of this before the huge budget cuts announced by the UK Coalition Government start to bite!
So the reality is that we are a long way away from any form of real recovery, despite what the politicians are saying!
What is so impressive about the book is that Will Hutton is meticulous in his research (there are 23 pages of referenced notes at the end of the book) and from Chapter 9 starts setting out how Britain “has the opportunity to put things right fast.” So this is a book from a well-respected author that sets out carefully and logically the cause of the recession and then presents some powerful options for change.
The bottom line is that Britain has to be a much more fairer society. Not just Britain. Here’s an extract from a recent posting on Tom Engelhardt’s Blog. Tom is the author of the book, The American Way of War.
I’m no expert on elections, but sometimes all you need is a little common sense. So let’s start with a simple principle: what goes up must come down.
For at least 30 years now, what’s gone up is income disparity in this country. Paul Krugman called this period “the Great Divergence.” After all, between 1980 and 2005, “more than 80%of total increase in Americans’ income went to the top 1%” of Americans in terms of wealth, and today that 1% controls 24% of the nation’s income. Or put another way, after three decades of ”trickle-down” economics, what’s gone up are the bank accounts of the rich.
In 2009, for instance, as Americans generally scrambled and suffered, lost jobs, watched pensions, IRAs, or savings shrink and houses go into foreclosure, millionairesactually increased. According to the latest figures, the combined wealth of the 400 richest Americans (all billionaires) has risen by 8% this year, even as, in the second quarter of 2010, the net worth of American households plunged 2.8%
I had been in a bit of a rant mood and contributed a comment to that Post. I wrote:
I don’t have the knowledge to respond to Simon’s excellent Post in detail but his comments reinforce what feels like a constant throbbing in my mind – how can the citizens of so many countries have abdicated so much interest and concern in how they/we are governed. Wish I had even a clue as to the answer to that question.
Significant social unrest would be very scary – the ‘law’ of unintended consequences and all that – but there are times when I wonder if this, in the end, might be the only form of real progress for the hard-working, tax-paying majority.
End of rant! 😉
Interestingly, that stimulated some replies which were, in my opinion, worth sharing with you; kind reader of Learning from Dogs that you are!
Sir, you raise a sad but true point when you ask how a majority of us citizens, on a worldwide basis, could have lost true “by the people” control of our own governments.
For most of us the loss of healthy economic functioning has been the main consequence of this, something that has been very painful. But I also find myself reflecting on the unspeakable genocides in our collective human history. One gets an awful sense of how such things were permitted to arise…ZeroInMyOnes
And
Well spoken Paul Handover. The system cannot and will not be changed politically or judicially because the malevolent forces who conjured the system own and control both the political and judicial operations and operators. Those operators work to advance the interests of the predatorclass whose operations, operators, and structures are malevolent.
The people are the abused victims of predatorclass criminal enterprises bent on total control of the earths wealth and resources, and the enslavement or eradication of the rest of the population.
The peoples only hope for implementing the changes necessary to form a more perfect union is best described here:
(“We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable rights, that among these are life, liberty and the pursuit of happiness. That to secure these rights, governments are instituted among men, deriving their just powers from the consent of the governed. That whenever any form of government becomes destructive to these ends, it is the right of the people to alter or to abolish it, and to institute new government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their safety and happiness.”) TonyForesta
And
Paul Handover, that was not a rant. You are simply talking common sense.
Scary is right. And it’s scarier by the day.
We have to try to work constructively for change. I keep urging people to check out the potential for an economy based not on constant growth, which is impossible on a finite planet, but on some sane principles of equity and sustainability.
If you go to http://www.steadystate.org and look at their position statement, you can see that people from all over the world are signing on–yes, just three or four people a day–but they are from every continent and just about every country.
Now, can you help this “go viral”? Carla
These are strong, powerful views. I have joined Casse, the organisation referred to in Carla’s comment – see second Post from me today – and Tony’s comment motivated me to look up the history of the United States Declaration of Independence, the subject of a separate article on this Blog.
I read widely many Blogs out there because it seems that this channel is one which is more likely to offer real, valid commentaries on what is going on at present with regard to the economic crisis, that is the crisis in the broader sense.
Regulation remains largely ineffective (in fact, the industry has managed to demonize the word), the big banks are too important to fail, and interest rates are low across the yield curve. The Fed provides downside protection and there is no effective limit on the amount or nature of risks that the private financial sector can take. This is a recipe not for stagnation but rather for a metaboom in which we will receive warnings, including painful recessions – but consistently ignore them.
Then across the way we have a piece on The Daily Beast about Summers. I quote from the first two paragraphs with their permission (thanks guys.)
Washington is swirling with the usual rumors—the White House’s man was pushed! He jumped! But Summers is leaving because he made sure real reform was discussed—but not accomplished.
Thomas
The rumor that come November, when the mid-term elections are history, Lawrence Summers, administration’s quarterback on economic matters, will leave the White House, has been confirmed. The usual presumptions have been put in play: Summers is weary of the job; the president and his men and women feel the need for a new pair of hands under center; the man has done well; the man has done badly. There is no indication that, like Bush II’s ill-served first Treasury Secretary, Paul O’Neill, Summers is being canned for speaking truth to power. That is not the man’s style, not—let it be said—that there’s much evidence that the administration has better than a shaky grasp of the practical truths of American financial and economic life in the Age of Goldman Sachs.The bottom line is that we can expect the usual judgemental blahblahblah to grow in volume and marginality on the talk-show and Op-Ed circuit as the day calendared by the media for Summers’ leave-taking approaches.
Now go across to the article and read it in full. Read why Michael Thomas, the author and no stranger to Wall St., describes Summers as someone who “saw to it that the talk was talked, but the walk was never walked.”
And I’ll close by repeating a comment I made to the Baseline Scenario article:
I don’t have the knowledge to respond to Simon’s excellent Post in detail but his comments reinforce what feels like a constant throbbing in my mind – how can the citizens of so many countries have abdicated so much interest and concern in how they/we are governed. Wish I had even a clue as to the answer to that question.
Significant social unrest would be very scary – the ‘law’ of unintended consequences and all that – but there are times when I wonder if this, in the end, might be the only form of real progress for the hard-working, tax-paying majority.
“You’ve got to do your own growing, no matter how tall your grandfather was.” Irish quotation.
In England, inexplicable happenings are commonly ascribed to being ‘Irish’! It’s meant in a loving way; there is a great deal of warmth towards the different ways that Irish people appear to see the world. But what is facing Ireland (and other countries) as a result of some distinctly unfunny goings-on in the USA is potentially hugely damaging.
To many the way that the world has descended into a dark, economic abyss, which is likely to affect us all in so many ways, and in which we are going to remain for a long time (a la Japan?), is also inexplicable.
Thus a chance comment from Norm Cimon to a recent post on Baseline Scenario set off a chain of discovery that for me has been very interesting. Here’s how it ran.
I have subscribed to Baseline Scenario for some time. It describes itself thus:
The Baseline Scenario is dedicated to explaining some of the key issues in the global economy and developing concrete policy proposals. Since it was launched in September 2008, this blog has been cited by virtually every major newspaper, Internet site, and blog covering economic and financial issues.
It’s a great resource.
A recent Post on Baseline Scenario, Irish Worries For The Global Economy, had already attracted 135 comments at the time of writing this post. A recent one was from a Norm Cimon, who is described in Linked In as the owner of Info Synchronicity LLC. This is what he said:
That is the other side of the coin. William Black has been lucid on this topic, and clear on the morality of the current age and how to fix it. Put people in jail and let everyone know why they were sent there. If you want to change perceptions then change the reality. The anger of the general public and the disdain of Wall Street are tied to that one issue. No one has paid for the crime of the millenium and everybody knows it.
And included was this recording of Bill Moyers interviewing Bill Black, the author of The Best Way to Own a Bank is to Rob One.
Here’s the interview:
However, there’s more to this discovery than the YouTube video. If one clicks on the link behind Norm Cimon’s name on that Baseline post, then one is taken here. It’s a pdf of a paper written by Norm Cimon entitled, “Computing Power and Human Greed.” It seems to me to explain the tools, for want of a better word, that enabled the American banking system to behave in the way that Bill Black so roundly condemns in the Bill Moyer interview. Here’s how Cimon ends his paper:
With networked computers now cast by all organizations, including the financial sector, into the role of wizard-behind-the-curtain, we all live in Oz. It’s long past time we pull back the veil and call a halt to the mindless application of this supreme and supremely dangerous creation before the damage gets any greater.
Unfortunately, there isn’t a date to the paper but my guess was that it was written late in 2009. Whatever the date, it is a very apt observation.
Brits will be well aware that the Irish have been the source of many funny stories and ‘Irish’ humour is still a favourite with the English.
But this piece from Baseline Scenario is very troubling, and that’s putting it mildly.
The excellent article, as they all are from Baseline, is here.
I stole a small extract to underline the import of what BS are writing about.
However, let’s be clear: Europe’s headache remains large, and this should concern all of us – just look at Ireland to see how misunderstood and immediate the remaining dangers are. Ireland’s difficulties arose because of a massive property boom financed by cheap credit from Irish banks. Ireland’s three main banks built up loans and investments by 2008 that were three times the size of the national economy; these big banks (relative to the economy) pushed the frontier in terms of reckless lending. The banks got the upside, and then came the global crash in fall 2008: property prices fell more than 50 percent, construction and development stopped, and people stopped repaying loans. Today roughly one-third of the loans on the balance sheets of major banks are nonperforming or “under surveillance”; that’s an astonishing 100 percent of gross national product, in terms of potentially bad debts.
(That’s my italics, by the way.)
Anyway, do read it in full – it’s got important implications.
And then give yourself a proper laugh at the wonderful sense of humour that comes across from the Irish Sea ….
Another hugely interesting article from Patrice Ayme
Patrice is a good friend of this Blog so it pleases me very much to point you towards a recent article on Patrice’s own Blog. Here’s the abstract:
Obama is well on his way to become one of the most unaccomplished presidents of the USA, ever. This is made worse, because we are at a crucial juncture of history, and the USA is in leadership position. When the car is travelling fast, and the leader is asleep at the wheel, it will not just end in the ditch.
The little smoke and mirrors Obama threw up, will be easily reversed by the republicans, as planned. So, in the end, Obama will turn up as just an extension of Bush, without the smirk… nor the originality. By choosing the same ideological, Goldman Sachs team, that implemented plutocracy under Clinton, Obama asked those who put the car in the ditch, to get it out, not understanding that they were still drunk in their quest to selfish profit.
This story presently unfolding has been seen before; it was Great Depression II, the great depression of the 1930s. It was the stall after the deliberately engineered bubble of the 1920s.
The West got out of it by massive state enforced job programs, started under president Hoover (Hoover dam, Empire State building, etc,) and pursued by FD Roosevelt (Grand Coulee dam, etc.) and Hitler (Autobahn system, copied by Eisenhower in the 1950s, and everybody else since).
Millions got employed directly by the government and the massive mobilization of WWII did the rest, followed by the GI Bill in 1945. Europe had massive state organized and financed economic activity, led by the US Marshall plan (Marshall was the US chief of staff during WWII, and Secretary of State of Truman). Europe, traumatized by what had happened also made important institutional changes, oriented towards welfare, such as free health care. Sully’s plan of circa 1600 for a “Very Christian Council of Europe” was also implemented.
(Labeling used on aid packages.)
The Marshall Plan (officially the European Recovery Program,ERP) was the primary program of the USA for rebuilding and creating a stronger economic foundation for the countries of Europe (1947–51). Efforts focused on modernizing European industrial and business practices using high-efficiency American models (themselves learned from French industrialists to implement American production of the 75mm gun, the mainstay of French artillery in WWI).
All this help and investment, in the USA and Europe, was paid bymarginal tax rates on income as high as 90% in the USA (under US president Ike).
Right, now, instead, the richest Americans pay the lowest tax rate (15%), and wealth has not been so concentrated in a century (a century ago, great spaces and freedom were another form of wealth, at least in the USA, which have now disappeared).
Starting in 1996, a succession of ever larger bubbles, following part of Keynes’s ideas, has injected more and more money in the economy, money which came neither from savings nor production, but mostly borrowed from aliens, and, increasingly, the Chinese.
Robert Reich (UC Berkeley), who lost to Robert Rubin (Goldman Sachs) the debate on the economic strategy to pursue in the Clinton administration, wrote an essay in the New York Times, “How to End The Great Recession”, reflecting the approach that wealth needs to be redistributed. Reich mentioned what I have long observed: the real (inflation adjusted) median income has been going down for thirty years now. This is worse than what happened during Great Depression II. So this is Great Depression III, not just another recession.
I approve of Reich’s anti plutocratic approach, of course. As he says: “The Great Depression and its aftermath demonstrate that there is only one way back to full recovery: through more widely shared prosperity.”… However, this is not the whole story.Redistribution is good, however production is necessary.Keynes, as we will see, is about throwing money to the people, as the Roman emperors invented. That is not about meaningful employment.
Obama’s ineptitude is not all his fault. The economic advice he got, even from his opponents, has been terrible. For example, Krugman, whom I approve a lot of, wanted, like Romer (the ex-chair of economic advisers) a bigger stimulus. And so did I.
But stimulating what? How? To which aim? Most of Obama’s stimulus was wasted on short term alleviation of long term structural defects, exactly the sort of trap one does not want to fall into (French socialists fell into that very trap in the recent past, with the result that the income tax started to fully go to paying the interest on the French national debt).
The USA stimulus ought to have targeted to jump start a big energy infrastructure first, followed by a massively innovative scientific industry, modeled after the military industrial complex (the only thing the USA does really well nowadays, besides plenty of hot air). Instead, the debate in economic theory has been pretty much Keynes (somewhat of a neo-stupid, see below) versus Hayek (a pro-plutocratic neo-fascist who influenced the Chicago school’s meta principle that GREED, AND ONLY GREED, MAKES GOOD).
However, the military-industrial complex of the USA, by now, by far, the most competitive part of its economy, is not run according to Hayek, or Keynes. It is run along the lines defined by Jean Baptiste Colbert. That ought to be a hint, but no main stream American economist has picked it up.
American economists in good standing do not know who Colbert was, perhaps because he thrived when Indians were outnumbering European colonists in North America, and studying history is not as important than learning sports, and to learn to agree with one’s peers, in American schools.
Colbert started his career, and this is overlooked, overlooking the military, at the grand old age of 21. Colbert branched off into economy and finance much later, after helping to send the hyper rich “superintendent of finances”, Fouquet, to jail, for life.
The American economist Paul Kennedy, in a book about The Rise And Fall Of The Great Powers, basically expounded, as his theory, what was pretty much Colbert’s theory and practice(unsurprisingly, Kennedy does not talk about Colbert too much, and got rewarded with a prize for his depth and originality).
Colbert had perfectly understood that Great Power status necessitated a Great Economy. Thus Colbertism could be viewed as the highest form of militarism. Just like the USA is itself the highest form of militarism which ever was. Notice the rapprochement. Not to make fun of it: the position of Europe and the USA is unstable, just as the entire world economy, society and military situations are all simultaneously unstable, and military superiority is what keeps thing together, right now (unfortunately it is courting defeat in Afghanistan).
Colbert was actually following the model implemented, with spectacular success, by Henri IV and his economy and finance minister, Sully, a protestant military engineer, around 1600 CE, with state financed canals, silk factories and free markets.
Why are great powers great powers? Because they have achieved a technological superiority gradient, and have enough numbers to sit on top of it. Numbers are not everything: the Mongols carved the world’s largest empire in a few years, and with 200,000 warriors. “Technology” here is meant in the full etymological sense: any specialized discourse.
If we want to keep a superior lifestyle in the empire of the West, and a stable planet, it is high time to recover such a gradient, which is, basically, an intelligence gradient. Thus it is high time to redistribute the sort of economy which makes the military industrial complex of the USA so superior, namely COLBERTISM MODERNIZED.
Focus warning! This is a longer piece that usual but also a more important piece than usual. Please find the time to read it and explore the links. Thank you.
Many, many years ago I lived in Tamarama Bay, just East of Sydney,
Bronte Beach, Australia
Australia. It was a very short walk to Bronte Beach which was much better experience than the famous Bondi Beach about half a mile North of where we lived.
Thus when I saw the name Bronte Capital it caught my eye because of old resonances from the word “Bronte”.
OK, to the point!
John Hempton is a principle at Bronte Capital, an Australian fund manager. John is no slouch having been in his past a Chief Analyst for the New Zealand Treasury and Executive Assistant to the CEO of ANZ Bank in New Zealand. John’s CV is here.
Bronte Capital have a Blog – well who doesn’t – and it was a link to that Blog from Naked Capitalism that caused me to read a recent article from John about deregulation.
Despite me not understanding many of the technical aspects, it struck me with some force, so much so that I wanted to reproduce chunks of it on Learning from Dogs. John was gracious enough to give me written permission to so do! Thanks John.
I have just read Daniel Amman’s excellent biography of Marc Rich – the oil trader notoriously pardoned by Bill Clinton. I don’t want to get into the politics and ethics of the pardon other than to note that few things in it are black-and-white when you finished reading the book.
and a couple of paragraphs later explains that Marc Rich has a rather appropriate surname – well this is how John writes:
Marc Rich exploited price fixing/import/export controls to make simply unbelievable profits trading oil. Marc Rich & Co (the Swiss vehicle) was started with just over $1 million in capital and a couple of years later was making in excess of $200 million in profit. This level of profitability exceeds – by far – any other trading operation I have ever seen – and was probably the most profitable trading operation in history. Marc Rich & Co (since renamed Glencore) is possibly the most valuable business in Switzerland within the lifetime of its founder.
Just stop here for a moment.
This man, Rich, goes from one million dollars in capital to two hundred million dollars in profits in 2 years, give or take! Read on:
A typical Marc Rich & Co trade involved Iran (under the Shah), Israel, Communist Albania and Fascist Spain. The Shah needed a path to export oil probably produced in excess of OPEC quotas and one which was unaudited and hence could be skimmed to support the Shah’s personal fortune. Israel – a pariah state in the Middle East – wanted oil. Spain had rising oil demand and limited foreign currency but was happy to buy oil (slightly) on the cheap. Spain however did not recognise Israel and hence would not buy oil from Israel – so it needed to be washed through a third country. Albania openly traded with both Israel and Spain. Oh, and there is an old oil pipeline which goes from Iran through Israel to the sea.
So what is the deal? The Shah sells his non-quota oil down the pipeline through Israel and skims his take of the proceeds. Israel skim their take of the oil. Someone doing lading and unlading in Albania gets their take and hence make it – from the Spanish perspective – Albanian, not Israeli oil. The Spanish ask few questions. The margins are mouth-watering – and they all come from giving people what they really want rather than what they say they want. We know what the Shah wanted (folding stuff). We know what Israel wanted (oil). We know what Spain wanted (cheap oil). Who cares that Spain was publicly spouting anti-Israel rhetoric. [Similar trades allowed South Africa to break the anti-Apartheid trade embargoes.]
John explains:
It also helped that Marc Rich & Co was a (highly) multilingual firm. Rich is fluent in Spanish (it is the language he talks to his children in). He speaks English, German, Yiddish and presumably Hebrew. His business partner (Pincus Green – pardoned the same day as Rich) speaks Farsi amongst many other languages. They could do this deal because they could negotiate it and – deep in their heart they hold the Ayn Rand view that trade is a moral virtue and hence they do not need to be concerned with other morality. [The only line that matters is the law – and then it might not be the law of his adopted country – Switzerland – rather than the United States where he was resident.]
My italics, by the way. Just stay with me for a short while longer to ‘get’ John’s important message. Here’s John again:
The regulatory regime for domestic American oil was also perverse. Old oil (meaning wells drilled before the first oil crisis) received one price. New oil (wells drilled after the crisis) received a higher price. Squeeze oil (oil that was extracted from wells that ran less than 10 barrels per day) received a higher price still. The oil could be chemically identical and the price difference over $20 per barrel. Obviously a trader with a method (any method) of changing the oil source could make a fortune. Again I am not commenting on legality or morality. That was just plain fact. Ayn Rand applies – you give a value and you receive a value.
What all this regulation did was that it allowed people to make simply grotesque profits by thwarting regulation. The regulation thus worked less well and it was socially unfair. Pincus Green was good at negotiating in Farsi. He was astoundingly brave going to Iran immediately after the Shah fell. He was good at organising shipping. He worked really hard – but he did not invent something that changed the world and he wound up a billionaire. Traders make money by intermediating real business solutions – but these were real business solutions to problems made by legislation. Bad regulation, moral indignation about “trading with the enemy” or “trading with Israel” or with racists in South Africa made people with Ayn Rand morals exceedingly wealthy because you could arbitrage your way around any of these regulations.
OK, you are probably getting the drift of this important article from John. If any of this ruffles your hair, then read it all – it’s a very important message. This is what John is saying:
As a plea then I want a debate about the right form of regulation – a regulation that controls agency problems but does not allow arbitrage opportunities to people with “Ayn Rand morals”.
We are not going to get that from the current Tea Party Republicans. They simply argue that regulation (they say but do not mean all regulation) impinges on “freedom” (something that is clearly a good but hard to define). However many of the same people want planning regulations to ban a mosque in downtown New York because it is an insult to the victims of 9/11 (and banning mosques is not a restriction on “freedom”).
If that is the level of debate we are not going to get good re-regulation – we are just going to get pandering to whichever lobby group manages to garner most support. And that is a real risk because we will leave agency problems in place (they benefit the rich and powerful) and we will introduce the same sort of (dumb) regulation that made Marc Rich and Pincus Green astoundingly wealthy. That sort of regulation also benefits the rich and powerful – especially those with “Ayn Rand morals”. [The rich and powerful – if you have not noticed – are good lobbyists. Unless we are careful many amongst them will get their way.]
You didn’t rush those last three paragraphs, did you?
John concludes thus:
I don’t know how to do this well – but I thought I would state the obvious. The most obvious things that need regulation are things with a government guarantee (implicit or explicit). If you have an implicit guarantee (as we now know almost all large financial institutions have) then regulation really matters. If there are large agency problems (small shareholders, large management) then regulation should be deliberately biased to put power in the hands of shareholders not managers (eg banning staggered board elections).
Likewise other agency problems should be strongly policed and the regulation should be of the form that allows that policing. When Elliot Spitzer found that Marsh – a large insurance broker – was participating in bid rigging against schools buying insurance that was shocking – and is precisely the sort of thing in financial markets that should be policed strongly. But it took Elliot considerable effort to find and prove his case. The rules should be established so that sort of behaviour is really difficult to hide.
And I do not think that I need to explain to anyone how much mortgage brokers contributed to the crisis by (a) deliberately misleading borrowers about conditions on their mortgage and (b) participating in the faking of borrowers income/assets/education level when they on-sold the loans to Wall Street. Agency problems were at the core of the crisis.
On the other side if there is no agency problem then deregulation should remain the order of the day. Trade restrictions create arbitrageurs – and the arbitrageurs ensure the trade restrictions don’t work anyway.
There are obviously going to be extensions to this rough rule – and this post is really to garner discussion. But for a start I expect agents who benefit from their agency (and the abuse of their agency) to join the Tea Party.
It is difficult to get policy right. And when and if the policy is got right we are in for a very long fight to implement it.
I take my hat off to Mr John Hempton. He’s in the ‘finance’ industry, probably doing well, and yet he has the courage to hold a mirror up to the desperately immoral happenings going on around him.
It’s a real pleasure and honour to publish this Post.
Let me close with a short piece from the Sydney Morning Herald of the 2nd January, 2010.
John Hempton ... blog locally, act globally. Photo: Domino Postiglione
WHEN John Hempton started a blog as he recovered from pneumonia, he did not expect to send shockwaves through the finance industry.
But that is exactly what the 42-year-old fund manager did through his Bronte Capital blog. His exposé of an unrelated US hedge fund would eventually lead to $426 million in investments being frozen and authorities seizing control of the Albury fund manager Trio Capital shortly before Christmas.
I was a client for many years but had to terminate that client relationship when residence in the USA became highly likely! Very happy with the service and advice provided – extremely so! (I have no relationship at any level with that firm now!).
Anyway, David publishes what he calls Contrary View from time to time. His latest is reproduced with his permission.
No. 074 9th August 2010 A statistical impression
Over the last few weeks a number of graphs have appeared showing how the economy has apparently picked up to where it was before the credit crunch started. Such graphs invariably show a ‘U’ shaped curve demonstrating perfect recovery. This is the impression easily formed by a glance at such a graph, but it is the wrong assumption to make.
National Statistics reports Gross Domestic Product (GDP) as two different measures, both estimates showing a decline in GDP. Here are the latest figures (estimated), taken from their website last week:
3rd Qtr 2008 Index 102.6
2nd Qtr 2010 Index 99.0
This GDP index shows a permanent loss of output.
Detailed figures are also available (Table 1.02 of the UK economic accounts) and on the same estimating basis, seasonally adjusted, report:
3rd Qtr 2008 GDP £340,780 million
2nd Qtr 2010 GDP £328,766 million
No matter how you look at these figures, there has been a permanent loss of output of just over 3.5% in this period.
This loss of output means less work, so debts are more difficult to service. Why do the press produce graphs showing an apparently perfect recovery? The answer is that the graphs are taken from the National Statistics press release, for example on 23rd July 2010. The graph that is offered is a rate of change, not the level of output, and may simply have been copied without consideration of the impression formed.
WARNING: The firm can only be responsible for action taken on our advice given personally and specifically to be suitable for each individual. Statements on this site do not, on their own, constitute advice. Please note that UK regulatory requirements prevent us commenting on your existing investments or giving specific advice, unless you first sign one of our portfolio service agreements.
As I mentioned in a comment to a regular reader of Learning from Dogs:
To me, sufficiently old to have watched Governments for some decades now, the most striking thing about the present circumstances is the terrible decline in political integrity.
Sometimes looking down the other end of the telescope reveals more, much more!
Afghanistan - where is it leading?
Now that coalition forces have just recently suffered their deadliest month yet in the conflict in Afghanistan, it now has become more crucial than ever to rethink the strategy of the United States and its allies in the region. Currently, the cornerstone of this strategy rests upon two key factors – winning over the local peoples of the region, and training local forces to carry the burden when, and if, coalition forces leave the region.
At least on the exterior, these goals in Afghanistan do make some sense. The only possible way to succeed via a continued military occupation of Afghanistan is to attain and bank on the support of the local peoples. Also, if western powers are ever to withdraw from the region, local forces will have to be able to maintain whatever structure these forces leave in their wake.
However, while this strategy is not completely outlandish and does show some merit on the part of military strategists in that they are leaning more towards localized models that entail comprehension of diverse local factors, the question still must be asked – is this strategy actually possible to carry out and have the sought-after effects in the region? Can the United States and its allies actually win over the peoples of Afghanistan and western Pakistan, and can these same powers possibly train forces that will remain peacekeepers in the years to come?
Despite the fact that I admire the intentions of the military’s current strategy in this region, I do not think that their plan is in fact possible. It seems to me that rather we are fighting an unwinnable war to win over a people that we do not and cannot understand, and that by funding the Afghani security forces of today, we are inevitably funding our enemy of tomorrow, just as our nation has mistakenly done so many times in the past in this very region.
I cannot foretell the future. Nor can anyone else. However, I can comment on what is likely to occur. And, in constructing such a model, two of the most important subjects to understand are history and praxeology, or human behavior.
An attempt by the United States to make Afghanistan a stable, western-friendly state is by no means a new happening. The date of the beginnings of our intervention in the region could be debated, but a decent starting point is the late 1970’s when President Carter put forth the Carter Doctrine, which stated that the United States would defend its interests in the Middle East.
This doctrine just barely preceded the Soviet invasion of Afghanistan, and it was this invasion that saw the beginnings of American forces, at this point being mostly CIA and other such agencies, which were attempting to hamper the Soviet forces by funding the Afghani resistance.
Now, there is no room here for a history of American involvement in Afghanistan. However, what must be noted is that during the 1980’s and 1990’s, a pattern developed in the Middle East – the United States would fund a group in the hope of combating some common enemy, and then in later years the group funded with American taxpayer money would inevitably end up turning against the United States.
A few prominent examples of this are Al Qaeda, who received $6 billion from the United States from 1989 to 1992, the Afghani Taliban, who was receiving US foreign aid up to the very minute American forces entered their country (and continues to receive US foreign aid through Pakistani backchannels) and Saddam Hussein, who received chemical weapons from the US during the Iraq-Iran War of the 1980’s, weapons he later used to kill American soldiers.
This, though briefly put, is the history, or the “what.” So now must come an examination of the “why,” or the element of praxeology. For obviously, our attempts to forge friendships in the region in the past have failed. Our friends have become our enemies, in fact our worst enemies.
There are several possible explanations for why this occurs. However, mine is quite simple – we do not understand these people, we do not understand this region, we do not understand Islamic culture, and, to be quite blunt, we never will. It is not a wrongdoing by the West to look at the Middle East through Western eyes. Rather, it is the only way that a westerner possibly can look at the Middle East.
On top of this extremely problematic misunderstanding of the Middle East by Western peoples then comes another layer of problems, these being the base problems of intervention in any context, amplified by the extreme foreignness and instability of the Middle East as a whole. The consequences of intervention in any scenario are so unpredictable, so many, and so far-reaching that no one can possibly intervene and successfully fulfil their objectives without in the process creating a dozen new problems. This is seen with the federal government intervening in states in their own country – how much greater then are the problems when intervening in a region like the Middle East?
All this now brings us back to the point on considering the future. As I mentioned previously, I cannot say what the future holds. However, I can make an educated guess. And, based on analyses of both history and human behavior, it is safe to say that by both indirectly and directly funding the training of a new military force in Afghanistan, we very likely are creating our enemy of tomorrow. For when these people that we are now training realize that the United States is not leaving, that they are not in fact a free state, that they have become a part of the American empire, and that if they want to live culturally independent of western influence they will have to forcibly remove Western elements within their borders, it seems extremely probable that they will do exactly that.
To say that we are creating a force that will do what we expect it to do in the future is a wish at best. The reality is that we do not and cannot understand what is truly a foreign mindset, and our best course of action would be to distance ourselves from what is and will be for many years of region of perpetual conflict.
Learning from Dogs 