C. S. Lewis On Pseudo-Intellectuals And Indoctrination

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Update:

I posted this excerpt from Lewis yesterday, not because I entirely endorse it, but because it sets off so many interesting trains of thought..

Some libertarians would be unsettled by the description of “true” pedagogy as a kind of reproduction of the teacher. The description even set me thinking whether, contra Lewis, there may actually be a devious line running from the good kind of pedagogy to the bad kind….

But the confrontation between “fact” and “value” that Lewis describes does seem accurate to me and actually reminds me, strangely, of Robert Pirsig’s analysis of “quality” in the philosophical novel, Lila.

Original Post

Novelist and Christian scholar, C. S. Lewis, in “The Abolition of Man”:

“Those who know the Tao can hold that to call children delightful or old men venerable is not simply to record a psychological fact about our own parental or filial emotions at the moment, but to recognize a quality which demands a certain response from us whether we make it or not. I myself do not enjoy the society of small children: because I speak from within the Tao I recognize this as a defect in myself—just as a man may have to recognize that he is tone deaf or colour blind. And because our approvals and disapprovals are thus recognitions of objective value or responses to an objective order, therefore emotional states can be in harmony with reason (when we feel liking for what ought to be approved) or out of harmony with reason (when we perceive that liking is due but cannot feel it). No emotion is, in itself, a judgement; in that sense all emotions and sentiments are alogical. But they can be reasonable or unreasonable as they conform to Reason or fail to conform. The heart never takes the place of the head: but it can, and should, obey it.

Over against this stands the world of The Green Book. In it the very possibility of a sentiment being reasonable—or even unreasonable—has been excluded from the outset. It can be reasonable or unreasonable only if it conforms or fails to conform to something else. To say that the cataract is sublime means saying that our emotion of humility is appropriate or ordinate to the reality, and thus to speak of something else besides the emotion; just as to say that a shoe fits is to speak not only of shoes but of feet. But this reference to something beyond the emotion is what Gaius and Titius exclude from every sentence containing a predicate of value. Such statements, for them, refer solely to the emotion. Now the emotion, thus considered by itself, cannot be either in agreement or disagreement with Reason. It is irrational not as a paralogism is irrational, but as a physical event is irrational: it does not rise even to the dignity of error. On this view, the world of facts, without one trace of value, and the world of feelings, without one trace of truth or falsehood, justice or injustice, confront one another, and no rapprochement is possible.

Hence the educational problem is wholly different according as you stand within or without the Tao. For those within, the task is to train in the pupil those responses which are in themselves appropriate, whether anyone is making them or not, and in making which the very nature of man consists. Those without, if they are logical, must regard all sentiments as equally non-rational, as mere mists between us and the real objects. As a result, they must either decide to remove all sentiments, as far as possible, from the pupil’s mind; or else to encourage some sentiments for reasons that have nothing to do with their intrinsic ‘justness’ or ‘ordinacy’. The latter course involves them in the questionable process of creating in others by ‘suggestion’ or incantation a mirage which their own reason has successfully dissipated.

Perhaps this will become clearer if we take a concrete instance. When a Roman father told his son that it was a sweet and seemly thing to die for his country, he believed what he said. He was communicating to the son an emotion which he himself shared and which he believed to be in accord with the value which his judgement discerned in noble death. He was giving the boy the best he had, giving of his spirit to humanize him as he had given of his body to beget him. But Gaius and Titius cannot believe that in calling such a death sweet and seemly they would be saying ‘something important about something’. Their own method of debunking would cry out against them if they attempted to do so. For death is not something to eat and therefore cannot be dulce in the literal sense, and it is unlikely that the real sensations preceding it will be dulce even by analogy. And as for decorum—that is only a word describing how some other people will feel about your death when they happen to think of it, which won’t be often, and will certainly do you no good. There are only two courses open to Gaius and Titius. Either they must go the whole way and debunk this sentiment like any other, or must set themselves to work to produce, from outside, a sentiment which they believe to be of no value to the pupil and which may cost him his life, because it is useful to us (the survivors) that our young men should feel it. If they embark on this course the difference between the old and the new education will be an important one. Where the old initiated, the new merely ‘conditions’. The old dealt with its pupils as grown birds deal with young birds when they teach them to fly; the new deals with them more as the poultry-keeper deals with young birds— making them thus or thus for purposes of which the birds know nothing. In a word, the old was a kind of propagation—men transmitting manhood to men; the new is merely propaganda.

It is to their credit that Gaius and Titius embrace the first alternative. Propaganda is their abomination: not because their own philosophy gives a ground for condemning it (or anything else) but because they are better than their principles. They probably have some vague notion (I will examine it in my next lecture) that valour and good faith and justice could be sufficiently commended to the pupil on what they would call ‘rational’ or ‘biological’ or ‘modern’ grounds, if it should ever become necessary. In the meantime, they leave the matter alone and get on with the business of debunking. But this course, though less inhuman, is not less disastrous than the opposite alternative of cynical propaganda. Let us suppose for a moment that the harder virtues could really be theoretically justified with no appeal to objective value. It still remains true that no justification of virtue will enable a man to be virtuous. Without the aid of trained emotions the intellect is powerless against the animal organism. I had sooner play cards against a man who was quite sceptical about ethics, but bred to believe that ‘a gentleman does not cheat’, than against an irreproachable moral philosopher who had been brought up among sharpers. In battle it is not syllogisms that will keep the reluctant nerves and muscles to their post in the third hour of the bombardment. The crudest sentimentalism (such as Gaius and Titius would wince at) about a flag or a country or a regiment will be of more use. We were told it all long ago by Plato. As the king governs by his executive, so Reason in man must rule the mere appetites by means of the ‘spirited element’.20 The head rules the belly through the chest—the seat, as Alanus tells us, of Magnanimity,21 of emotions organized by trained habit into stable sentiments. The Chest-Magnanimity-Sentiment—these are the indispensable liaison officers between cerebral man and visceral man. It may even be said that it is by this middle element that man is man: for by his intellect he is mere spirit and by his appetite mere animal.

The operation of The Green Book and its kind is to produce what may be called Men without Chests. It is an outrage that they should be commonly spoken of as Intellectuals. This gives them the chance to say that he who attacks them attacks Intelligence. It is not so. They are not distinguished from other men by any unusual skill in finding truth nor any virginal ardour to pursue her. Indeed it would be strange if they were: a persevering devotion to truth, a nice sense of intellectual honour, cannot be long maintained without the aid of a sentiment which Gaius and Titius could debunk as easily as any other. It is not excess of thought but defect of fertile and generous emotion that marks them out. Their heads are no bigger than the ordinary: it is the atrophy of the chest beneath that makes them seem so.

And all the time—such is the tragi-comedy of our situation—we continue to clamour for those very qualities we are rendering impossible. You can hardly open a periodical without coming across the statement that what our civilization needs is more ‘drive’, or dynamism, or self-sacrifice, or ‘creativity’. In a sort of ghastly simplicity we remove the organ and demand the function. We make men without chests and expect of them virtue and enterprise. We laugh at honour and are shocked to find traitors in our midst. We castrate and bid the geldings be fruitful.”

From Chapter One, “Men Without Chests,” in C. S. Lewis,  The Abolition of Man.

Harvard Undergrad & Perlman Student, Intern Beats Wall Street Whizzes

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Update (March 30):

If anyone claims that looking at gender and the way it inflects culture is inherently collectivist, I’d say they need to define collectivism more accurately. The way libertarians define it now, it’s more a term of abuse than a credible unit of analysis, unless it’s qualified pretty heavily.

There is a body of evidence that males are over-represented in highly aggressive behaviors of certain kinds. That isn’t an argument that men are “less moral” or that women are “more moral.” Not at all. For instance, women predominate in certain other kinds of crimes. In studies of child-killing/infanticide, women killers are often represented more heavily when considering certain age groups. Why? Perhaps because children are weaker than women physically and because women spend more time around them and usually have primary care of them. On the other hand, there are fewer female serial killers than male.

The richest financiers in the world are males. That’s a fact. Males are heavily over-represented in the financial industry and it’s a very male-dominated culture. There are complex reasons for that.

But they’re irrelevant to this post.

Do women benefit from welfare-state programs and set-asides and does that affect voting patterns, consumer culture, tax policy, and welfare policy? I’d say, with some caveats, probably yes.

[But conversely, men might benefit from crony capitalism on Wall Street and defense boondoggles, and indirectly, through set-asides from women that benefits families].

But, again, that doesn’t have much to do with this post…

For all I know, some of these financiers were pushed into reckless behavior because their wives were shopaholics or suing them for everything they had.

But, once again, that’s not this post.

So, this isn’t gender bigotry. It’s simply one way of looking at the influence of our own collectivist tendencies (masculinity as it’s constructed, as well as masculinity as a biological reality) on Wall Street culture.

Original Post

Deal Journal tracks down another outsider who spotted Wall Street’s corrupt practices ahead of the pros. Turns out she’s a woman too. There’s something about estrogen that doesn’t lend itself to mega financial swindles. We’re waiting for the Harvard thesis on the gender behind Wall Street’s agenda.

I hate to come to this conclusion, but a lot of the hot-air, recklessness, ego, hype, aggression, and cut-throat competition really does sound like the product of a culture that conflates masculinity with viciousness and braggadocio. Paulson, Weill, Rubin, Dimon…no women in the top sharks. But when you look at whistle-blowers and expose writers, women stand out: Ann Williamson, Padma Desai (both on the Russian crisis) Lucy Komisar, Meredith Whitney, Janet Tavakoli….

“Deal Journal has yet to read “The Big Short,” Michael Lewis’s yarn on the financial crisis that hit stores today. We did, however, read his acknowledgments, where Lewis praises “A.K. Barnett-Hart, a Harvard undergraduate who had just written a thesis about the market for subprime mortgage-backed CDOs that remains more interesting than any single piece of Wall Street research on the subject.”

“Barnett-Hart’s interest in CDOs stemmed from a summer job at an investment bank in the summer of 2008 between junior and senior years. During a rotation on the mortgage securitization desk, she noticed everyone was in a complete panic. “These CDOs had contaminated everything,” she said. “The stock market was collapsing and these securities were affecting the broader economy. At that moment I became obsessed and decided I wanted to write about the financial crisis.”

Back at Harvard, against the backdrop of the financial system’s near-total collapse, Barnett-Hart approached professors with an idea of writing a thesis about CDOs and their role in the crisis. “Everyone discouraged me because they said I’d never be able to find the data,” she said. “I was urged to do something more narrow, more focused, more knowable. That made me more determined.”

She emailed scores of Harvard alumni. One pointed her toward LehmanLive, a comprehensive database on CDOs. She received scores of other data leads. She began putting together charts and visuals, holding off on analysis until she began to see patterns–how Merrill Lynch and Citigroup were the top originators, how collateral became heavily concentrated in subprime mortgages and other CDOs, how the credit ratings procedures were flawed, etc.

“If you just randomly start regressing everything, you can end up doing an unlimited amount of regressions,” she said, rolling her eyes. She says nearly all the work was in the research; once completed, she jammed out the paper in a couple of weeks.”

More here about the young lady whose research probably played a big part in Michael Lewis’ new book, “The Big Short.”

[At least, Lewis acknowledged the research. That puts him several rungs above most celebrity authors].

Meanwhile, I really like that a violinist was involved in this. My own father was a very gifted amateur violinist and Perlman, Zukerman, Oistrakh, Elman, Kreisler, Menuhin and many others defined my childhood.

Perhaps a lifetime of being immersed in real virtuosity and creativity left Barnett-Hart immune to the glamor of the phony maestros of Wall Street …

CFTC Hearing: Paper Gold Is A Ponzi Scheme

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Adrian Douglas at GATA on another revelation at the CFTC hearing (a “revelation” that’s actually well known):

“As dramatic as this revelation was at the CFTC hearing, there was another bombshell at the hearing. This was the testimony I was able to deliver at the hearing while assisting Harvey Organ with his testimony. I was able to show that the London Bullion Market Association (LBMA) over-the-counter gold market is nothing but a massive “paper gold” Ponzi scheme. What was then astonishing is that the bullion bank apologist, Jeffrey Christian of CPM Group, who has always been staunchly against GATA, endorsed my comments as being “exactly right” and went on to confirm that the LBMA trades more than 100 times the gold it has to back the trades.

There were lots of almost as equally explosive admissions at the hearing, so I have made a transcript of the relevant section of the webcast. I have posted the two short video clips here and here which are what have been transcribed.

http://www.youtube.com/watch?v=9wIMpe9SjfQ

http://www.youtube.com/watch?v=e9bU0r6JP4s

The transcript is given below with some notes added by me. Continue reading →

Hayek and Bork On Intellectuals

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In an earlier blog, I expressed my disagreement with a common criticism in libertarian circles that socialism was motivated mostly by envy and spite. I made the point that most socialists I’ve known have had honorable motives, but, in my view, are superficial in their analysis of events. I cited Michael Oakeshott to that effect.

In this debate between noted legal scholar (and former corporate attorney) Robert Bork, Hayek makes the same point, only in relation to intellectuals: They confuse the intelligible with the rational.

More Capital Controls Hidden In Obama Stimulus Act

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Zerohedge notes the tightening of capital controls in the hiring incentives act (HIRE) passed on March 18 by the Obama administration. A more sober summary of the changes introduced can actually be found at Lexology.  Salient points from Lexology’s summary:

1. Withholding Tax on Payments to Foreign Financial Institutions, Trusts and Corporations. Effective January 1, 2013, the HIRE Act essentially forces foreign financial institutions, trusts, and corporations to choose between either agreeing to provide the IRS with information about their U.S. account holders, grantors and owners, or subjecting themselves to a 30% withholding tax on almost any payment they receive from a U.S. payor. The rules applicable to foreign financial institutions differ from those that apply to foreign trusts and corporations……….

….In general, “withholdable payments” to an FFI are subject to the 30% withholding tax unless the FFI enters into an agreement with the Treasury Secretary requiring the FFI to:

  • Obtain sufficient information from every holder of every account maintained by the FFI to determine whether the account is a United States account.
  • Comply with the verification and due diligence procedures that the IRS and U.S. Treasury may require regarding identification of United States accounts.
  • Provide annual reports on each United States account maintained by the FFI, which must include:
    • The name, address, and TIN of each account holder which is a specified U.S. person and, in the case of any account holder which is a U.S.-owned foreign entity, the name, address, and TIN of each substantial U.S. owner of such entity;
    • The account number;
    • The account balance or value; and
    • Except as provided by the Treasury Secretary, the gross receipts and gross withdrawals or payments from the account.
  • Deduct and withhold a tax equal to 30% of any “passthru” payment by the FFI to either a “recalcitrant account holder,” which is a U.S. account holder who withholds information from the FFI, or another FFI that does not meet the requirements necessary to avoid the 30% withholding tax.
  • Comply with requests by the Treasury Secretary for additional information about any United States account held by the FFI.
  • If foreign law would prevent the required reporting on United States accounts, attempt to get a valid waiver, if one is available under the applicable foreign law, from the account holder, and close the account if a waiver is not obtained within a reasonable period of time…………..

Foreign Entities that are not Foreign Financial Institutions. The new Code Section 1472 also requires 30% withholding on withholdable payments made to nonfinancial foreign entities, unless the withholding agent is provided with certification either (1) that the foreign entity has no substantial U.S. owners or (2) that identifies the name, address, and TIN of each substantial U.S. owner.

Payments to corporations whose stock is regularly traded on an established securities market or of (Lila: correction, “to”) an expanded affiliated group of such corporations, to entities organized under the laws of a U.S. possession and owned entirely by bona fide residents of that U.S. possession, to foreign governments and central banks, and to international organizations are not subject to 30% withholding under Code Section 1472.

[Lila: File under Crikey, What Does This Gobbledygook Mean?]

2. Required Disclosure by Individuals of Foreign Financial Accounts, Increased Penalties, and Extension of Statute of Limitations.The HIRE Act requires individual taxpayers who have an interest in a “specified foreign financial asset” to attach a statement to their income tax return if the aggregate value of all such assets during any year is greater than $50,000………

Required Disclosure. The taxpayer must disclose: In the case of any account, the name and address of the financial institution in which such account is maintained and the number of such account.

  • In the case of any stock or security, the name and address of the issuer and such information as is necessary to identify the class or issue of which such stock or security is a part.
  • In the case of any other instrument, contract, or interest, such information as is necessary to identify such instrument, contract, or interest, and the names and addresses of all issuers and counterparties with respect to such instrument, contract or interest.
  • The maximum value of the asset during the taxable year.

Penalties. There are new penalties for both the failure to disclose a foreign financial account and for understatements of tax attributable to undisclosed foreign financial assets.

The HIRE Act imposes a $10,000 penalty for failure to furnish the required information when due. If the taxpayer fails to correct such failure for more than 90 days after receiving notice of the failure, an additional $10,000 penalty is imposed for each 30-day period (or fraction thereof) during which the failure continues after the expiration of the 90-day period following the notice, up to a maximum penalty of $50,000.

In addition, the HIRE Act increases the penalty on of any portion of an underpayment of tax that is attributable to any undisclosed foreign financial asset understatement from 20% of the understatement to 40% of the understatement.

Extended Statute of Limitations for Undisclosed Foreign Accounts. The HIRE Act extends the statute of limitations for audits of certain unreported income from a foreign financial account from three years to six years.

3. Repeal of Foreign Exceptions to Registered Bond Requirement. The HIRE Act denies an interest deduction for interest on any unregistered bond (typically these will be bearer bonds), effective for bonds issued after second anniversary of the date of enactment.

4. PFIC Reporting. In addition to the reporting already required from shareholders of a passive foreign investment company (PFIC), effective as of March 18, 2010 the HIRE Act requires that each United States person who is a shareholder of a PFIC file an annual report containing such information as the Secretary may require. A foreign corporation that generates passive income (typically interest and/or dividends) is classified as a PFIC if (a) 75% or more of the corporation’s gross income is passive income for purposes of the CFC rules or (b) 50% or more of the average value of the corporation’s assets produce, or are held for the production of, passive income.

5. Electronic Reporting by Financial Institution Withholding Agents. The HIRE Act authorizes the IRS to impose electronic reporting requirements on financial institutions that are withholding agents, even if the institution files less than 250 information returns (the current threshold).

6. Foreign Trust Changes. The HIRE Act makes a number of changes in the rules governing foreign trusts. A transferor to a foreign trust that has a U.S. beneficiary is treated as owner for U.S. tax purposes of the portion of the trust payable to or accumulated for the benefit of a U.S. beneficiary. The HIRE Act provides that an amount is treated as being accumulated for the benefit of a U.S. beneficiary even if the U.S. person is only a contingent beneficiary or if any person has the discretion to distribute from the trust to any person unless the trust specifically identifies the class of permitted beneficiaries and none of the members of the class are U.S. persons.

Loans to a U.S. person or allowing a U.S. person to use trust property are also treated as payments to or accumulations for the benefit of a U.S. person unless the U.S. person repays the loan at a market rate of interest within a reasonable period of time or pays fair market value for the use of the property.

The HIRE Act also requires that any person who is taxable as the owner of a foreign trust must provide such information about the trust as the IRS may require. Penalties for failure to comply with the foreign trust reporting requirements were also increased, effective for returns required to be filed after December 31, 2009.

7. Taxation of Dividend Equivalents. The HIRE Act provides that dividend equivalents used in lieu of dividends to avoid 30% withholding on FDAP income, such as securities lending transactions, sales-repurchase agreements, and notional principal contracts, are treated as U.S.-source dividends for U.S. tax purposes………..”

My Comment:

The Zerohedge headline is rather alarmist, but on closer inspection, despite the dreadful sneakiness of sticking this into some apparently minor stimulus legislation, the controls are only a continuation of a trend already well under way.

The 30% withholding for refusal to disclose US account holder information is pretty high and so are the new penalties, and I’ll post on what I find out about them, but the disclosure rules are already in effect.

Most of this seems to be part of the administration’s attempt to go after off-shore business accounts suspected of money-laundering, tax-evasion, or criminal activity.

The proximate causes of the financial crisis lie in the off-shore and re-insurance racket. And the Obama administration is determined to end banking secrecy in order to end that. I can sympathize, because indeed multinational corporations do siphon off most of their profits through shell accounts in tax-havens, paying little or nothing to the jurisdictions in which they actually work and use public services. Meanwhile, the havens have become festering centers of crime, drugs, and arms sales, and also the home of  penny-stock fraud , as well as of naked short-selling scams.

The European Union Bank, chartered in Antigua in the Caribbean, for example, which boasted of being the first online bank, and which offered secrecy to account holders, was chartered as a subsidiary of Menatep, a large Russian bank, notorious for involvement with organized crime, as this Washington Post piece by Douglas Farah in 1996 noted.

The outfit Tax Justice.net is a global effort to deal with this huge relatively unrecognized problem, initiated by veteran off-shore investigator Lucy Komisar. It seeks banking transparency and an end to the off-shore racket.

This is a laudable goal. And so far as exposure of the crimes and corruptions of these havens help us understand poverty, development, and the impact of globalization, neo-liberalism, and various tax and regulatory regimes, I’m sympathetic.

But, beyond that, I’m wary of the methods and underlying premise. Strengthening the government regulatory and enforcement apparatus has more potential for abuse than use, this late in the crony capitalist game. There’s a much simpler and more libertarian approach to the underlying problems. And that is to reduce income taxes to the lowest level compatible with paying incurred obligations. A simple flat tax should do it.

Abolish pay-roll, personal income, and corporate taxes. Make up the short-fall where it should be made up –  in the kind of user fees and sales taxes described at Fair Tax.org, which are targeted at the biggest users.

Roads, for instance, are largely used..and damaged…by commercial trucks. Yet, these trucks pay far less than they ought, because of the lobbying of their trade associations. Fix these sorts of leakages and then cut income taxes and taxes on investment and job-creating activities, as illustrated in this WSJ piece on people moving to low income tax states. Then go back to sound money and a market interest rate.

You’ll get rid of the incentives for corruption, encourage small businesses to compete more easily, and keep big business onshore. But that’s unlikely to happen any time soon….

Instead, we’re going to have deeper infringements on privacy.

We already knew that private bank accounts were a thing of the past for most ordinary people. Not for the very rich, of course. But we already knew that too..

It remains to be seen whether the new controls will change that.

Make Sense, Not War…

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News flash for wannabe revolutionaries, paramilitaries, militias, etc., etc.

“To go to war is something even the most ignorant savage does with relish; but to start a revolution requires the ability for calm, rational thought and a manly courage to risk it all that does not currently exist in this country. Where once our forefathers shot at government troops marching through the Massachusetts countryside towards Lexington and Concord, today we are a frightened little flock that goes to pieces at the thought of Goldman Sachs suffering a well-deserved bankruptcy. 2010 America does not possess what successful revolutions are made of.”

—  C. J. Maloney at Lew Rockwell

Hmm. I think Mr. Maloney underestimates human beings. But a sober appraisal of the possibility and the consequences of violence is in order.

Or, to make a slogan out of this:

Make Sense, Not War…

Soros To Buy Stake In Bombay Stock Exchange, Goldman Seeks Commercial Banking License in India

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Palak Shah at the Business Standard :

“US micro hedge fund legend George Soros and the world’s third biggest philanthropist George Kaiser are in the race to acquire close to 4 per cent in the Bombay Stock Exchange (BSE), Asia’s oldest stock exchange.

Soros has bid for the BSE stake, held by the embattled Dubai Financial Group LLC, through Soros Fund Management LLC, and Kaiser has done so through private equity fund, Argonaut.

Other investors who have bid for BSE stake include New York-based private equity majors J C Flowers and Caldwell Investment, promoted by Toronto investment broker Thomas Caldwell. Caldwell is a specialist investor in stock exchanges and bought 4.3 million shares of the New York Stock Exchange in 2006. Sources added that a private equity fund has bid Rs 370 for each share, valuing BSE at over Rs 3,800 crore. Avendus Capital is advisor to the deal.

Dubai Financial, part of sovereign fund Dubai Holding, holds 3.92 per cent stake in BSE, which it bought when the exchange was demutualised in 2007. BSE was then valued at Rs 3,780 crore. While BSE and Avendus could not be reached for comment, sources familiar with the developments said Dubai Financial felt the exchange deserved a higher valuation in the current situation.

In the recent past, the valuation of the exchange saw a sudden spurt after a new management team took over in 2009.

While some stock brokers sold BSE shares at around Rs 180 a piece some six months ago, a bank auctioned 0.27 million shares at Rs 320 a couple of months ago.

Under the new management, BSE changed its derivative trading cycle to compete with the National Stock Exchange, launched a mutual fund trading platform and is upgrading its technology platform. BSE currently has a near 28 per cent share of the equity spot market in the country and has been making efforts to develop its derivative trading segment, where National Stock Exchange is a monopoly player. BSE will launch currency derivatives in May and is also in the process of increasing its stake in Central Depository Services Ltd to 51 per cent.

Currently, six foreign investors hold 25.65 per cent of BSE and five Indian institutions hold 12 per cent.

A little under 62 per cent of BSE’s shares are widely held. Among the key Indian shareholders are firms such as Bajaj Holdings and Investment, which owns 2.94 per cent, Infosys Technologies CEO and MD S. Gopalakrishnan, who owns 1.04 per cent and media major Bennett, Coleman and Co, which owns 1.04 per cent.

BSE recently announced 12 bonus shares for every share held and the exchange currently has around Rs 2,000 crore of cash reserves, which translates into cash per share of at least Rs 190.

BSE posted a net profit of Rs 55.42 crore on revenue of Rs119.21 crore for the quarter ended December 2009.”

The launching of the mutual fund platform and the upgrading of the technology and expansion of derivative trading is exactly what Goldman Sachs introduced into the New York Stock Exchange in the 1990s. And we saw what happened in the 15 years following. And Goldman is in India, currently seeking a commercial banking license to operate there.

With the same players around (Soros, Goldman Sachs etc. ), there’s no reason to believe that what’s coming up for the Bombay Stock Exchange won’t take the same direction. Before the financial crisis, the Indians had little exposure to the highly levered derivatives and toxic debt that blew up the system elsewhere. Let’s see whether this upcoming round they’ll be as lucky. With economies stagnant elsewhere, Asia and some select African countries are the only places where there’s actual economic growth occurring.

I’m afraid the same handful of corrupt players will game the system there…

More here at The Economic Times:

“His hedge fund Quantum, which was reported to have posted earnings of over 30% last year, went on a buying- spree at a time, when most funds were dumping stocks in a sliding market. On July 4, Quantum Fund bought a 3.8% equity in Jain Irrigation Systems, and close to 1% of the holding of Jai Corp for a value consideration of Rs 167 crore. Since February, the fund has made investments valued at close to Rs 600 crore, or $ 140 million, in various companies, including Indiabulls Financial Services, Indiabulls Real Estate and Kalindee Rail Nirman. Quantum’s selective stock picking comes at a time, when institutional investors have been pulling out a large chunk of money amid concerns over a combination of factors such as weak global markets, soaring global oil prices and spiraling inflation in India. “Hedge funds normally are active, when there is some momentum in the market. Quantum may be trying to do some value-buying, but one has to see how long the fund stays invested, given the prevailing uncertain market conditions,” said a stock-broker..”

Remember Formula K (or, the First Law of Kleptocracy) :

s(B) + s(G) + s(S) v. EE where ‘s’ is always a positive integer

Some (s) of the big banks (B – eg. JP Morgan, Goldman Sachs, Citi etc.)

+

Some parts of government (G – eg. parts of the SEC/Treasury/Fed Reserve Chairman, IMF, World Bank etc.)

+

Some hedge-funds and speculators (S – eg. Soros, Paulson (?), Loeb, Cohen and others reportedly involved in manipulation and collusion with government)

Versus

Every one else (EE)

Hanky-Panky At The Counting House

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I thought I’d repost a piece that I wrote in Dissident Voice, way back in 2006. It helps give some background to the JP Morgan manipulation story.

And it also adds some background to the ongoing re-valorization of the once discredited IMF. Along with that re-valorization, is the hyping of anyone supporting even further central regulation, although the financial crisis occurred in all sorts of places that have plenty of it.

All this centralization and global government is supposedly for the welfare of the world – but there is no “welfare of the world” that can be safely accepted as gospel from the mouths of the financial industry and its political and media allies.

Note the date of the piece below – back on June 6, 2006, when, dare I say it, most of the financial talking- heads and blogs now being treated as the only legitimate interpreters of reality were doing…well, they weren’t reading GATA or supporting its work, I’m pretty sure. To have done so then would have made them persona non grata in the very same liberal media that is now embracing this research and that GATA, in turn, seems to be endorsing….for its own reasons..

Check it out for yourself.

Here’s an excerpt from the piece: “Hanky-Panky at the Counting House” (June 6, 2006)

Also, at Dissident Voice, you can find “Was The IMF Involved in Gold Price Manipulation” (June 8, 2006) which was also posted at Daily Reckoning and on one of the gold sites.  I think it’s been taken off Daily Reckoning since.

“The unofficial theory is naturally a lot juicier, although described by even sworn enemies of paper currency as conspiratorial. Still, it’s managed to rear its head in the Wall Street Journal, so it can’t be all wet. Here is what widely respected libertarian Congressman Ron Paul had to say on Feb 14, 2002:

While the Treasury denies it is dealing in gold, the Gold Anti-Trust Action Committee (GATA) has uncovered evidence suggesting that the Federal Reserve and the Treasury, operating through the Exchange-Stabilization Fund and in cooperation with major banks and the International Monetary Fund, have been interfering in the gold market with the goal of lowering the price of gold. The purpose of this policy has been to disguise the true effects of the monetary bubble responsible for the artificial prosperity of the 1990s, and to protect the politically-powerful banks that are heavy invested in gold derivatives. GATA believes federal actions to drive down the price of gold help protect the profits of these banks at the expense of investors, consumers, and taxpayers around the world.

GATA has also produced evidence that American officials are involved in gold transactions. Alan Greenspan himself referred to the federal government’s power to manipulate the price of gold at hearings before the House Banking Committee and the Senate Agricultural Committee in July, 1998: Nor can private counterparts restrict supplies of gold, another commodity whose derivatives are often traded over-the-counter, where central banks stand ready to lease gold in increasing quantities should the price rise. [Emphasis added] (3)

More specifically:

Gold is borrowed by Morgan Chase from the Bank of England at 1 percent interest and then Morgan Chase sells the gold on the open market, then reinvests the proceeds into interest-bearing vehicles at maybe 6 percent.

At some point, though, Morgan Chase must return the borrowed gold to the Bank of England, and if the price of gold were significantly to increase during any point in this process, it would make it prohibitive and potentially ruinous to repay the gold. (4)

In plain English, the strong dollar policy that put the sizzle in the stock market under Clinton was made possible only by manipulating the gold market to keep prices low. The low interest rates which kept the economy on the boil went hand in hand with low gold prices. Investment banks used the low rates to borrow gold from the central banks and sold them short (short selling being the technique of selling assets you don’t actually own in the hope of buying back at a cheaper price because you anticipate a fall in the price). This allowed the banks to make billions from a market rigged to take the risk out of their shorting. And it kept the dollar pumped up. And who was the architect of this strong dollar policy? Why, none other than Robert Rubin of Goldman Sachs — one of the bullion banks most implicated in the gold fixing scenarios.

So, the appearance of another Gold-man at this critical moment is all the proof the gold cartel theorists need that more manipulation is in store to keep the dollar up, gold down, and the bullion banks from losing their . . . er . . .  shorts. (5)

And if this seems conspiratorial, consider what Paul Mylchreest, investment analyst at Cheuvreux, top ranked for its research in Western Europe and part of Credit Agricole, the largest bank in France says today, “Central banks have 10-15,000 tonnes of gold less than their officially reported reserves of 31,000. This gold has been lent to bullion banks and their counterparties and has already been sold for jewellery, etc. Non-gold producers account for most and may be unable to cover shorts without causing a spike in the gold price…” (6)

Or what the Wall Street Journal itself wrote about what took place in the seventies:

Worried the falling dollar was undermining its anti-inflation efforts, the Carter administration announced a multi-part support package on Nov. 1, 1978: The Treasury would use gold sales and foreign borrowing and draw on its reserves with the International Monetary Fund to defend the dollar. At the same time the Federal Reserve raised its discount rate a full point. (7)

And that was in the ’70s, when there was no credible alternative to the dollar, India and China were sleeping giants, Russia was still the Soviet Union, and the United States was not threatening to nuke the Middle East.

How bad is the situation?

[A]s of June 2000, J.P. Morgan reported nearly $30 billion of gold derivatives and Chase Manhattan Corp., although merged with J.P. Morgan, still reported separately in 2000 that it had $35 billion in gold derivatives. Analysts agree that the derivatives have exploded at this bank and that both positions are enormous relative to the capital of the bank and the size of the gold market.

It gets worse. J.P. Morgan’s total derivatives position reportedly now stands at nearly $29 trillion, or three times the U.S. annual gross domestic product. Wall Street insiders speculate that if the gold market were to rise, Morgan Chase could be in serious financial difficulty because of its “short positions” in gold. In other words, if the price of gold were to increase substantially, Morgan Chase and other bullion banks that are highly leveraged in gold would have trouble covering their liabilities. (8)

That was 2000. This is 2006.

So long as gold remains a mere relic . . . a yellow reminder of what used to be money . . . no harm done. Unless something absurd happens, that is. Something absurd like, say, gold doubling to $573 an ounce inside 5 years. If that happened, then the “carry trade” of borrowing gold to invest in paper could become a very expensive way to bankrupt the entire global financial system. (9)

This spring gold hit over $700. And that’s why the hanky-panky is likely to begin in earnest now.

Lila Rajiva is a freelance writer in Baltimore, and the author of the must-read book The Language of Empire: Abu Ghraib and the US Media (Monthly Review Press, 2005) She can be reached at: lrajiva@hotmail.com. Copyright (c) 2006 by Lila Rajiva

NOTES

(1) “Good as Goldman: Bush drafts Hank to bat third,” Daniel Gross, Slate, Tuesday, May 30, 2006.

(2) “Please, Sir, I Want Some More. How Goldman Sachs is carving up its $11 billion money pie,” Duff Mcdonald, New York Metro, Dec 21, 2005.

(3) Speech of Congressman Ron Paul, U.S. House of Representatives, February 14, 2002, www.house.gov/paul

(4) “All That Glitters Is Not Gold,” Kelly Patricia O’Meara, Insight Magazine, March 4, 2000.

(5) According to GATA, the cartel includes J.P. Morgan Chase, Deutsche Bank, Citigroup, Goldman Sachs, Bank for International Settlements (BIS), the U.S. Treasury, and the Federal Reserve

(6) “How Central Banks Have Kept Gold Down,” Adrian Ash, Money Week, February 9, 2006.


(7) “As Dollar Weakens, Hidden Strengths May Stave off Crisis,” Wall Street Journal, January 17 2005.


(8) See Note 4.

(9) See Note 6.

FBI Leads Joint Terrorism Task Force Raid On Christian Militias

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Yesterday, the FBI led a Joint Terrorism Task Force (JTTF) raid on Christian Militias in several states, reports the Detroit news:

“Federal prosecutors plan to unseal charges today against members of a self-described Christian militia arrested Saturday and Sunday in Michigan, Ohio, Indiana and Illinois.

At least seven people were taken into custody in raids by an FBI-led Joint Terrorism Task Force as part of an investigation into an Adrian-based unit of the Hutaree, a group that professes it is training in modern armed combat techniques for a prophesied coming battle with the Antichrist.

The suspects are expected to make an initial appearance in U.S. District Court in Detroit today, according to federal authorities, who declined to discuss the charges behind the multistate arrests.

My Comment

  • The arrests were part of an investigation into the nation-wide Christian militia Hutaree.
  • Other militias in the Detroit region targeted, like the Michigan militia, cooperated and testified against the Hutaree
  • Mike Lakomar of Michigan militia states that five arrests were made on Saturday and five early on Sunday morning
  • Lakomar states that the FBI became interested in the Hutaree after it made physical threats against Islamic organizations
  • The Hutaree may have been targeted for linking to conservative Christian sites, practicing survivalism, and professing a belief in the imminent coming of Christ and an apocalyptic show-down
  • Jim Gulliksen of the Michigan militia claims that the FBI targeted the Christian group because of widespread anger against the Obama health care overhaul and because of the threats. Gulliksen claimed that some months ago other Hutaree members had been arrested on weapons charges.
  • The Michigan militia member allegedly threatened was Muslim.
  • Gulliksen differentiated the Michigan outfit from the Hutaree by saying the Michigan members were concerned “with the nation,” whereas the Hutaree were more concerned with their religion.

    • It would be interesting to find out if the FBI, which isn’t talking right now, is really focusing on Christian survivalist groups solely because of the religious nature of their beliefs. If they’re actually basing their investigations on whether a group professes Christian beliefs or not, instead of focusing on actual physical aggression or credible and documented threats (beyond hearsay), that is alarming, as it could indicate discrimination against conservative Christian beliefs (which, of course, can always be defined very flexibly).

    JP Morgan Gets $3.4 Billion For Buying Wa-Mu; Shareholders Get Zip

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    At Seeking Alpha, Troy Racki writes about the second rape of Washington Mutual stock-holders and US tax-payers by JP Morgan:

    “In the settlement offer WaMu will relinquish all claims against JP Morgan and the FDIC. In return WaMu will be allowed to keep a $3.9 billion dollar deposit it held in its own bank. Most of the $3.9 billion deposit was generated from the sale of preferred securities in 2006 and 2007. Additionally WaMu will be allowed to keep $1.8 to $2.0 billion of its own tax return created from huge losses in 2008. The rest of the projected $5.6 billion return will be split between the FDIC and JP Morgan.

    According to the settlement terms JP Morgan will receive $5 billion in HELOC backed securities valued on the open market at 60% of par, $193 million in Visa class B securities, $2.1 billion in cash, and a $20 million wind farm, all from WaMu. Given the initial purchase price of WaMu for $1.9 billion in 2008, these additional assets received means that JP Morgan will pay a negative $3.4 billion for their purchase of the bank.

    The loss of these assets will heavily impact WaMu’s balance sheet which now stands to make only the bondholders whole, according to the settlement’s disclosure statement. Currently senior WaMu holding company debt trades at 106 cents on the dollar.

    Under the terms of the settlement WaMu shareholders will receive nothing.

    In the disclosure statement WaMu’s attorneys stated that the proposed settlement will net the most for all creditors and that further legal dispute would only financially harm the estate. This comes in stark contrast to prior statements by WaMu’s equity counsel that a protracted legal battle with JP Morgan and the FDIC may have returned up to $20 billion to the estate.

    Currently the settlement is awaiting the approval of the FDIC, Washington Mutual bank bondholders, WaMu unsecured creditors, WaMu preferred shareholders, and the bankruptcy judge. An incomplete plan of reorganization was also filed on Friday along with the disclosure statement. The incomplete POR lacks a balance sheet meaning that WaMu’s unsecured creditors are left only to guess at what they may eventually recover, if anything.

    Despite the negative purchase price, Jamie Dimon, CEO of JP Morgan has indicated that the purchase of WaMu could have been closed for less, much less. In July 2009 he stated that JP Morgan “could have bought WaMu for a dollar” because of the projected losses that would have been taken on the deal.

    The losses never materialized. In May 2009, JP Morgan wrote up its WaMu loan portfolio by $25 billion.

    Had the $1 purchase price gone through JP Morgan would have eventually been paid $5.1 billion by WaMu and the FDIC to assume the bank.

    While the deal may be good for JP Morgan, former WaMu customers are not so fortunate. Nationally many WaMu Providian credit card customers have since experienced dramatic rate increases. In Oregon, WaMu checking clients report that deposits are being held for fourteen days prior to being accredited to accounts. This abnormally long waiting period means that many checking customers are now being hit by multiple $35-a-peice overdraft charges for having insufficient funds. In northern California, out-the-door waiting lines for teller service at one branch sparked verbal outrage and multiple client threats to move deposits to a community bank branch. The branch responded after twenty minutes by temporarily adding a teller.

    Meanwhile FDIC chairwoman Sheila Bair is continuing to push for additional powers that would allow the FDIC to not only shutter banks but their holding companies. This authority would allow for the FDIC to avoid future conflicts when it closes a bank but is unable to force a holding company to capitulate, as is in the case with WaMu. It has come under scrutiny after internal JP Morgan e-mails and PowerPoint presentations revealed that as early as March 2008 regulators were in negotiations with JP Morgan on the closure of Washington Mutual, termed “Project West”, six months prior to the bank’s seizure.”

    More later…