Bank Chief Admits He Didn’t Know…

John Thain now admits no one at Merrill had any idea what their CDOs (collateralized debt obligations) were worth. They created them on computer programs. Not only was the global economy rear-ended by a bunch of greedy corporate hacks, it turns out they were too dumb to know what they were doing and too reckless and arrogant to ask. It’s bad enough being scammed by psychopaths. It really hurts to be scammed by morons.

“We think it’s good news that Thain is now emphasizing the knowledge problem when it came to banking–highly paid, well-educated people at the top of their field just didn’t understand the credit derivative products they were buying and selling. This is important as much of our financial reform seems to ignore this problem, focusing instead on fixing incentives in compensation.

It also undermines the idea that the Fed–or any other regulator–will be able to properly assess the risk of these kinds of derivatives.”

My Comment:

I’ve always suspected this, because in graduate school one of my close friends was working on a PhD in finance (where he’d ended up after starting out in mathematics). He was very smart and believed that you could quantify decision- making at all levels. He wanted to turn the social sciences into the hard sciences. We had passionate arguments about this, since I thought the hard sciences were a very faulty (if useful) model for the arts and humanities.  I was flabbergasted to find out one day that he didn’t understand what a mortgage was – he lived in such a rarefied world of theory and had been a student for so long. It wasn’t that he lacked empathy or emotions. He didn’t. What he lacked was any experience of the practical world. [He ended up becoming a trader for JP Morgan and had an office at the World Trade Center. Fortunately he wasn’t in on 9-11].

Ron Paul: Fractional Banking Finances War…

John Rubino on Ron Paul:

*”Paul makes it clear that the Fed isn’t the whole problem. It’s just one part of a system that first went wrong with the introduction of fractional reserve banking centuries ago (banks used to be warehouses, storing depositors’ money for a fee), followed by the spread of European central banks (really just scams to allow a few elite bankers and politicians to expand their own power at the expense of everyone else) and then, finally, the introduction of fiat currency, which freed governments to expand spending and borrowing without regard to, well, anything. The problem, in short, is the whole of modern banking and finance.

*The middle part of the book features transcripts of Congressman Paul grilling Fed chairmen Greenspan and Bernanke. Some of these transcripts date back to the early Reagan era, which means that for going on three decades Paul has been fighting this fight, and slamming into the same brick wall. The Chairmen feel no need to explain themselves to a lowly congressman, and respond with a mixture of lies and obfuscation that apparently fooled most of Washington. The generally-respectful Paul even refers to Greenspan as “pathetic” after one especially dishonest piece of testimony. Less charitable readers will, by the end of this section, want to take a congressional microphone and beat Greenspan and Bernanke senseless.

*Fractional reserve banking and fiat currency make war easier. Back when a ruler needed actual gold to field an army, invading a neighbor required some serious forethought. But once a dictator (or the world’s policeman) could just print a few billion pieces of paper and order some new tanks, “defending the national interest” got a whole lot easier. Hence the bloodbath of the 20th century, and perhaps the mess of the coming decade.

*Paul knows all the major sound money/Austrian economics classics, and he cites them liberally. The “recommended reading” list contains a year’s worth of serious research.

*Though he continues to fight, he’s not optimistic about averting the coming train wreck, which he refers to as the “BIG ONE”.

Libertarian Living: Neuroeconomics and Cooperation

The Science and Ethics of Cooperation,” by Michael Townsey, Prout Institute:

“The cooperative system is fundamental to the organization and structure of a Prout (the Progressive Utilization Theory) economy. It is an expression of economic democracy in action – cooperative enterprises give workers the right of capital ownership, collective management and all the associated benefits, such as profit sharing.[i] Prabhat Ranjan Sarkar, the propounder of Prout, goes further and argues that an egalitarian society is actually not possible without a commitment to the cooperative system.[ii] The commitment is not just to an economic order but also to a cooperative ethic and culture. This essay explores some of the scientific evidence that humans have a predisposition to cooperation and in particular to economic cooperation. The evidence comes from a new and exciting field of research known as neuro-economics. We then turn to those insights provided by sociological studies.

Neuro-economics

Neuro-economics is the study of the neuro-physiological underpinnings of economic decision making. The field is new and providing unexpected insights into human economic behavior. Classical economic theory requires individuals to make complex calculations to maximize their personal advantage or utility. Utility, however, is a strangely ambiguous concept. On the one hand it is given a numerical value which implies the counting of something but on the other it is entirely abstract and not anchored to anything in the real world that can be counted. The advent of neurophysiology led to the idea that utility was really a surrogate for some chemical currency inside the brain, with most interest focused on serotonin molecules because these are known to be responsible for the experience of pleasure.

It turns out that a wide range of molecules of emotion[iii] impinge on the mental cost-benefit calculations that are supposed to take place inside the brain and they have unexpected effects. For example, in a ‘sharing experiment’, person A was asked to share a sum of money with person B. These experiments demonstrated behavior inconsistent with neoclassical theory. People appear to put a high value on fairness. In a follow up experiment, persons A and B were placed in the same experimental scenario as before, but they were (unknowingly) given an intranasal administration of oxytocin. Oxytocin is a neuropeptide that plays a key role in social attachment and affiliation in animals and causes a substantial increase in trust in humans. In these experiments the effect of oxytocin was to increase the amount of money that A gives B. The experimenters concluded that “oxytocin may be part of the human physiology that motivates cooperation.”[iv] It is worth adding that such hormone-mediated interactions are not confined to human relationships but are also likely to be involved in human-animal relationships.[v]

Oxytocin is not the only neuro-chemical to promote cooperation. Recent observations of bonobo monkeys in the jungles of the Congo reveal fascinating contrasts with chimpanzees.[vi] Bonobos are matriarchal and show little aggression compared to the patriarchal chimps. Chimps respond to strangers with aggression, while bonobos demonstrate curiosity. When under stress, chimp tribes degenerate into fighting while bonobos respond to stress by engaging in collective sexual activity. Scientists have concluded that bonobos demonstrate higher levels of trust both with each other and with strangers. Of most interest, however, from a neuro-economics point of view, is the ability of the monkeys to perform a simple task requiring cooperation in retrieving some bananas that are out of reach. Although both species are intelligent enough to work out a solution (for example, by one climbing on the shoulders of the other or by one holding a ladder for the other), the chimps fail because they cannot trust one another. On the other hand, bonobos have no trouble cooperating to retrieve the bananas.[vii]”

Gulf Arabs to Move Out of Petro-Dollar (Updated)

Update:

I’m adding my comment at the top here after watching this puzzling day. Gold shot up to new highs over $1040 (and not just in the US but elsewhere). Is this the bull break-out the bugs have been waiting for? Maybe. Central bankers and officials from the Gulf states came out to pooh-pooh the story, but it couldn’t be put back in the box.

My puzzlement is this: If gold is soaring because of this “revelation” of the dollar’s death – then why did the dollar itself sink only modestly (at least, as I write).

I note also that the stock market recovered some of its ground. That might have something to do with the Australian Reserve Bank announcing a tighter policy, quite unexpectedly, and in apparent belief that the recovery is real, never mind Joseph Stiglitz, George Soros, Marc Faber, Jim Rogers, and other no-longer-strange bedfellows who think the opposite.

V-shaped, U-shaped, Square-root shaped, or corkscrewed, the recovery isn’t your grandfather’s recovery, that’s for sure. And someone is trying to make a silk purse out of this sow’s ear. That skepticism leads me to wonder whether this very convenient rumor, which coincides with the IMF meeting in Istanbul, might be a certain kind of saber rattling in anticipation of negotiations – except that these very public meetings are never where anything substantial takes place any way. (So says Simon Johnson in a recent blog post). But the IMF is selling gold, we know, and we know also that it wants to make sure it doesn’t hit the markets too hard when it does. Could this little upswing be helpful toward that end? Probably. Could this rumor – widely denounced as insubstantial – have something to do with that? Perhaps.

 

In the news, the Independent’s Robert Fisk reports on the coming fall of the petro-dollar:

“In a graphic illustration of the new world order, Arab states have launched secret moves with China, Russia and France to stop using the US currency for oil trading

In the most profound financial change in recent Middle East history, Gulf Arabs are planning – along with China, Russia, Japan and France – to end dollar dealings for oil, moving instead to a basket of currencies including the Japanese yen and Chinese yuan, the euro, gold and a new, unified currency planned for nations in the Gulf Co-operation Council, including Saudi Arabia, Abu Dhabi, Kuwait and Qatar.

Secret meetings have already been held by finance ministers and central bank governors in Russia, China, Japan and Brazil to work on the scheme, which will mean that oil will no longer be priced in dollars.

The plans, confirmed to The Independent by both Gulf Arab and Chinese banking sources in Hong Kong, may help to explain the sudden rise in gold prices, but it also augurs an extraordinary transition from dollar markets within nine years.”

China Saved Brazilian Economy, Says Brazilian Economist

From the Brunei Times:

“In Latin America, IMF economists said the crisis is affecting countries differently depending on whether, like Mexico, they are more closely tied to the US or, like Brazil, they have more links with China.

If it was not for China we wouldn’t have seen positive growth in the second quarter in Brazil,” Ilan Goldfajn, chief economist at Brazilian bank Itau Unibanco, said at an IMF-organised conference in Istanbul. He said the world would now start to “rebalance towards Asia”.

Thoreau On the Dangers of Comfort

“We now no longer camp as for a night, but have settled down on earth and forgotten heaven. We have adopted Christianity merely as an improved method of agriculture.

We have built for this world a family mansion, and for the next a family tomb. The best works of art are the expression of man’s struggle to free himself from this condition, but the effect of our art is merely to make this low state comfortable and that the higher state be forgotten.

There is actually no place in this village for a work of fine art, if any had come down to us, to stand for our lives, our houses and streets, furnish no proper pedestal for it. There is not a nail to hang a picture on, nor a shelf to receive the bust of a hero or a saint.”

          —- Henry David Thoreau, “On Practicing Economy in Life”

The Spectacle of General Secrecy

Political theorist Guy de Bord on the spectacle of public life:

“The concentrated spectacle

The spectacle associated with concentrated bureaucracy. Debord associated this spectacular form mostly with the Eastern Bloc and Fascism, although today mixed backward economies import it, and even advanced capitalist countries in times of crisis. Every aspect of life, like property, music, and communication is concentrated and is identified with the bureaucratic class. The concentrated spectacle generally identifies itself with a powerful political leader. The concentrated spectacle is made effective through a state of permanent violence and police terror.[edit]

The diffuse spectacle

The spectacle associated with advanced capitalism and commodity abundance. In the diffuse spectacle, different commodities conflict with each other, preventing the consumer from consuming the whole. Each commodity claims itself as the only existent one, and tries to impose itself over the other commodities:

Irreconcilable claims jockey for position on the stage of the affluent economy’s unified spectacle, and different star commodities simultaneously promote conflicting social policies. The automobile spectacle, for example, strives for a perfect traffic flow entailing the destruction of old urban districts, while the city spectacle needs to preserve those districts as tourist attractions.

The diffuse spectacle is more effective than the concentrated spectacle. The diffuse spectacle operates mostly through seduction, while the concentrated spectacle operates mostly through violence. Because of this, Debord argues that the diffuse spectacle is more effective at suppressing non-spectacular opinions than the concentrated spectacle.

The integrated spectacle

The spectacle associated with modern capitalist countries. The integrated spectacle borrows traits from the diffuse and concentrated spectacle to form a new synthesis. Debord argues that this is a very recent form of spectacular manifestation, and that it was pioneered in France and Italy.

According to Debord, the integrated spectacle goes by the label of liberal democracy. This spectacle introduces a state of permanent general secrecy, where experts and specialists dictate the morality, statistics, and opinions of the spectacle. Terrorism is the invented enemy of the spectacle, which specialists compare with their “liberal democracy”, pointing out the superiority of the latter one. Debord argues that without terrorism, the integrated spectacle wouldn’t survive, for it needs to be compared to something in order to show its “obvious” perfection and superiority.”

My Comment:

Thanks to reader J. T. Gordon for reminding me of this. I’ve posted before on de Bord and the notion of the spectacle of society. Like so much powerful analysis, this one too has roots in the ideas of Friedrich Nietzsche, one of the most productive thinkers of the last 150 years.

What should be noted here is that in the spectacle of secrecy, the greatest emphasis is placed on openness. Thus, “freedom of speech”  occupies a central position in the culture. By this means, all barriers to privacy are brought down, all psychological barriers between the individual and the crowd. Yet, this openness at one level (in public culture) operates side-by-side with secrecy at the highest level (governments and corporate leaders).

(More later)

Back…

Reading through this again, I feel I need to question De Bord’s division, which corresponds to communist, capitalist and liberal democratic. It’s too neat. In fact, things are much more muddy

How the Pathocracy Stays In Power

The question is often asked how a society that in its day-to-day workings exhibits culture and lawfulness can also support behavior at high levels that’s criminal. The question was asked of German society in the 1930s and could well be asked of the US today.

A good answer is given by Carolyn Baker

“One of the main factors to consider in terms of how a society can be taken over by a group of pathological deviants is that the psychopaths’ only limitation is the participation of susceptible individuals within that given society. Lobaczewski gives an average figure for the most active deviants of approximately 6% of a given population. (1% essential psychopaths and up to 5% other psychopathies and characteropathies.) The essential psychopath is at the center of the web. The others form the first tier of the psychopath’s control system.

The next tier of such a system is composed of individuals who were born normal, but are either already warped by long-term exposure to psychopathic material via familial or social influences, or who, through psychic weakness have chosen to meet the demands of psychopathy for their own selfish ends. Numerically, according to Lobaczewski, this group is about 12% of a given population under normal conditions.

So approximately 18% of any given population is active in the creation and imposition of a Pathocracy. The 6% group constitutes the Pathocratic nobility and the 12% group forms the new bourgeoisie, whose economic situation is the most advantageous.

When you understand the true nature of psychopathic influence, that it is conscienceless, emotionless, selfish, cold and calculating, and devoid of any moral or ethical standards, you are horrified, but at the same time everything suddenly begins to makes sense. Our society is ever more soulless because the people who lead it and who set the example are soulless – they literally have no conscience.

My Comment:

To this I will add that the pathocracy also exhibits and encourages the exhibition of sentiments that mimic and substitute for emotion. Various kinds of false sentimentalities and emotionalism mimic authentic emotion to create a facade that deceives the onlooker. One could go further and say that this distortion extends from the affective life to the cognitive, where a false and superficial “logic” takes the place of genuine reasoning….

UK Military Protocol for Security & Counter-Intel Ops

An important document on how the British state deals with what it perceives as security threats:

“This significant, previously unpublished document (classified “RESTRICTED”, 2389 pages), is the UK military protocol for all security and counter-intelligence operations.

The document includes instructions on dealing with leaks, investigative journalists, Parliamentarians, foreign agents, terrorists & criminals, sexual entrapments in Russia and China, diplomatic pouches, allies, classified documents & codewords, compromising radio and audio emissions, computer hackers—and many other related issues.
The document, known in the services as the “JSP 440” (“Joint Services Protocol 440”), was referenced by the RAF Digby investigation team as the protocol justification for the monitoring of Wikileaks, as mentioned in “UK Ministry of Defence continually monitors WikiLeaks: eight reports into classified UK leaks, 29 Sep 2009.”

Read more at Wikileaks on UK protocols for dealing with security threats of all kinds, from investigative journalists looking for disclosure of official documents to Chinese officials seeking “influence” (there’s an extensive section describing Chinese intelligence gathering).

What A Billionaire Can Buy

For those who think that nationalism is the threat, rather than transnationalism, consider this:

“Bill Gates, America’s richest man with a net worth of $50 billion, has a personal balance sheet larger than the gross domestic product (GDP) of 140 countries, including Costa Rica, El Salvador, Bolivia and Uruguay. The Microsoft ( MSFT – news – people ) visionary’s nest egg is just short of the GDP of Tanzania and Burma.”

More here at Forbes.