[Archived] The End Of Global Capitalism?

[grizfoot]

Mervyn King today didn't rule out that he may have to consider nationalising the entire banking system in the UK. If the banks aren't lending and serving the purpose they are meant for, then maybe there's no other option out there.

[pg]

philipl - isn't that Telegraph article originally posted in January 2008?

[BuckyRover]

That's the phillipl way; all headline, no substance

[Billy Castell]

One unexpected feature of the crisis, the Russians have stopped drinking themselves to oblivion on expensive booze and there is a vast lake of unsold premium vodkas building up.

Does that mean the price may come down in supermarkets?!! What are the premium brands of vodka?

I think some of the stockbrokers in Moscow and elsewhere have switched from vodka to surgical spirit and brake fluid after the last few months.

[philipl]

Robert Peston argues that there is indeed an end to Global Casino Capitalism as he calls it equivalent to the end of Communism. I agree with him and the point he makes that the Chinese are now telling Hank Paulson what to do also points to the end of American domination.

The confluence of crises in America. Scary stuff.

[dave birch]

Come on philip, what's going to replace it?

If the capitalist world fell over tomorrow, the first to feel the pinch would be China and India. Not only that but Gold would go through the roof.

I think that we're ok for the time being.

[pg]

Instead of 'free-market' capitalism, such as in Anglo-Saxon countries... we'll have 'socialist capitalism'such as in Scandinavia.

Here is a great article written by Micheal Lewis, who shot to fame in the booming 1980's as a hot-shoe trader for Salomon Brothes, who left after two years to write the tell-all classic 'Liar's Poker'. He basically concludes that what we've seen is really the end of what started back in the early 80's, when Salomon invented the first mortgage derivative.

The End of the Wall St boom

Liar's Poker is a great read BTW (I read it back in '92). Another good book by Michael Lewis is 'The New New Thing' which was an autobiography of Jim Clark, the SGI engineer who founded Netscape.

BTW here is some interesting detective work my dad (the conspiracy nut) dug up w.r.t the Bush's administration's role in predatory lending and sub-prime.

Washington Post - Predatory lenders' partner in crime

The administration accomplished this feat through an obscure federal agency called the Office of the Comptroller of the Currency (OCC). The OCC has been in existence since the Civil War. Its mission is to ensure the fiscal soundness of national banks. For 140 years, the OCC examined the books of national banks to make sure they were balanced, an important but uncontroversial function. But a few years ago, for the first time in its history, the OCC was used as a tool against consumers.

In 2003, during the height of the predatory lending crisis, the OCC invoked a clause from the 1863 National Bank Act to issue formal opinions preempting all state predatory lending laws, thereby rendering them inoperative. The OCC also promulgated new rules that prevented states from enforcing any of their own consumer protection laws against national banks. The federal government's actions were so egregious and so unprecedented that all 50 state attorneys general, and all 50 state banking superintendents, actively fought the new rules.

But the unanimous opposition of the 50 states did not deter, or even slow, the Bush administration in its goal of protecting the banks. In fact, when my office opened an investigation of possible discrimination in mortgage lending by a number of banks, the OCC filed a federal lawsuit to stop the investigation.

Throughout our battles with the OCC and the banks, the mantra of the banks and their defenders was that efforts to curb predatory lending would deny access to credit to the very consumers the states were trying to protect. But the curbs we sought on predatory and unfair lending would have in no way jeopardized access to the legitimate credit market for appropriately priced loans. Instead, they would have stopped the scourge of predatory lending practices that have resulted in countless thousands of consumers losing their homes and put our economy in a precarious position.

When history tells the story of the subprime lending crisis and recounts its devastating effects on the lives of so many innocent homeowners, the Bush administration will not be judged favorably. The tale is still unfolding, but when the dust settles, it will be judged as a willing accomplice to the lenders who went to any lengths in their quest for profits. So willing, in fact, that it used the power of the federal government in an unprecedented assault on state legislatures, as well as on state attorneys general and anyone else on the side of consumers.

That article was written by Eliot Spitzer - the (then) governor of New York State.

What fate befell Eliot Spitzer? He was caught in a prostitution ring by the FBI and resigned in March 2008.

Spitzer is linked to prostitution ring

However, no criminal charges will be brought against him.

No Federal Charges for Spitzer

Spitzer wrote an interesting article in the Washington Post last month about the need to establish a new regulartory framework in the USA to stop this from happening again.

How to Ground the Street

Three overarching priorities should guide government actions in the new structure. First, we need better control of systemic risk. The currently splintered federal regulatory authority, the continued presence of off-balance-sheet transactions for financial entities (even post-Enron) and the failure to subject major players to any government oversight means that nobody can really understand the full risk facing the financial system.

Second, investors must be protected with adequate, accurate information. Firms must offer transparency both to individual investors and to government regulators.

And third, as Eric R. Dinallo, the superintendent of the New York State Insurance Department, has wisely pointed out, we will have to step back from the current environment in which government has become a guarantor of all major risk. The so-called moral hazard will serve to devalue risk in the market, and this too will have a debilitating long-term effect on capital flows. Only if private actors have to bear the real risks they incur will the market function properly. We are now perilously close to nationalizing risk.

As the rules of modern capitalism are rewritten over the next year, those who benefit from the enormous flow of cash being spread throughout the U.S. economy must be expected to compete within a system of rules that creates a true market -- based on sound, skilled regulation, vigorous corporate governance and transparency.

[philipl]

Come on philip, what's going to replace it?

If the capitalist world fell over tomorrow, the first to feel the pinch would be China and India. Not only that but Gold would go through the roof.

I think that we're ok for the time being.

We are not talking capitalism, we are talking the death of "casino capitalism" or "neo-conservative capitalism" or "Reagonomics" or whatever you want to call it.

Hopefully, true Keynesianism will replace it ie capitalism but regulated to avoid the inevitable excesses of pure market forces.

Some fascinating links there pg- thank you.

[philipl]

The markets seem to be taking the latest shocks relatively quietly.

- no bridging finance for the Big 3 auto firms

- former head of NASDAQ arrested for pyramid selling through his Hedge Fund; a mere $50bn fraud.

[LanghoRover]

This crisis will make 1929 look like a walk in the park.

As far as I can see there were two encouraging signs yesterday-

Obama effectively taking control of US financial policy now

Resource companies rising to more realistic valuations on the LSE

However, LIBOR remains stuck at a historically unprecedented level and I guess we are only about half way through all the bad news being revealed in the financial sector- if we are lucky.

One unexpected feature of the crisis, the Russians have stopped drinking themselves to oblivion on expensive booze and there is a vast lake of unsold premium vodkas building up.

You really think Obama is going to take control of anything philipl? people like Bernanke, Greenspan, Paulson are in the driving seat, Obama is just a mouthpiece. This Madoff guy who has just been caught with his fingers in the till are the sort of people running America now "and the reason our service people are dying in pointless wars overseas"........

philipl let me ask you something, the Federal Reserve what is it?..............

[AussieinUk]

I am really quite surprised no-one has mentioned the Bernard Madoff scandal... I still cannot believe the complexity of this pyramid scam. Bernard L. Madoff Investment Securities LLC

Bloomberg stating that disclosed investments top the $32bilion USD mark and potentially rising close to $50billion (some other commentators are looking at further sums of $75billion!!! - WTF)

The SEC needs a damn good kicking on this.. Unbelievable really

Btw - FoF's and Banco Santandar seem to be the biggest losers on this scam at the moment, but we will have to see once the financial forensics have been completed... HSBC and RBS look to have lost close to $2billion USD alone.

EDIT: It not just institutional clients, but apparently many high profile retail investors have also been caught up in this scam too.. Steven Spielburg to name one.

[dave birch]

The MAN group copped a bit too. I don't know how much, but if it's a significant amount then it might affect WBC and CBA in Australia as they gave a capital guarantee.

[philipl]

The Madoff scandal has come at a time when the system is literally punch drunk.

HSBC's disastrous foray into the US retail market has just got $1bn whilst RBS gets a triple whammy of the best performing part of ABN Amro which it massively overpaid for had unwittingly boosted its profits by investing in Madoff, the capital underpinning which has now disappeared.

The retiree communities in Florida are facing a huge wipe-out. The problem there is that whilst few were 100% on Madoff, the people they diversified their wealth with were also into Madoff (they had to be to generate competitive returns against him) and so as the whole mess becomes revealed, they are finding losses everywhere in their portfolio.

[American]

As someone who's business is fund reporting, I look at the scandal as an increase in our hedge fund business once the government responds.

Our old owner used to joke that he was going to put a statue of Sarbanes and Oxley up in our reception area.

[philipl]

There is a list of organisations who have declared losses so far on Madoff

Of course there are winners in all this- the folks who were in on Madoff's Ponzi getting unreal returns for a long time if they exited the returns.

Problem is they won't feel like winners now that their principle sum has gone.

[AussieinUk]

As someone who's business is fund reporting, I look at the scandal as an increase in our hedge fund business once the government responds.

Our old owner used to joke that he was going to put a statue of Sarbanes and Oxley up in our reception area.

I wouldn't say that American, the HF industry as a whole, is getting a very bad reputation at the moment (both institutional & retail investors), due to widespread redemption lock-outs on market illiquidity. Clients are generally disillusioned, as most HF's have lost 18% this year (up to and including November), which is hardly absolute returns...

The only decent funds that have returned better than 15% (some up to 40+ %) on investment, are the macro-based QT model's… These systems are computer based algorithms that look at technical trending over short, medium & long terms periods to mitigate risk and directionality.

There is a list of organisations who have declared losses so far on Madoff

Of course there are winners in all this- the folks who were in on Madoff's Ponzi getting unreal returns for a long time if they exited the returns.

Problem is they won't feel like winners now that their principle sum has gone.

Those principle sums wont be small.. I am surprised you could call them winners in any sense.

[philipl]

$50bn has been lost- the headline number although apparently it could be between $30bn and $75bn- a surprisingly wide range equivalent to the GDPs of Estonia, Latvia, Lithuania and Malta added together.

Where has this number disappeared to?

Well the fund managers will have been grazing on it- pretty well judging by Madoff's apparent plan to distribute the last $300m as staff bonusses. But if all $50bn had gone into Madoff's maw there would be a rapid task force scouring the world and recovering it.

Most of it has gone in super large "returns" paid to depositors who were unwittingly being topped up by the latest recruits.

So the early "victims" of a Ponzi always all do very well out of it- they have to in order to give glowing references to bring in the later victims who by definition have less time to benefit from the super-normal returns.

[AussieinUk]

$50bn has been lost- the headline number although apparently it could be between $30bn and $75bn- a surprisingly wide range equivalent to the GDPs of Estonia, Latvia, Lithuania and Malta added together.

Where has this number disappeared to?

Well the fund managers will have been grazing on it- pretty well judging by Madoff's apparent plan to distribute the last $300m as staff bonusses. But if all $50bn had gone into Madoff's maw there would be a rapid task force scouring the world and recovering it.

Most of it has gone in super large "returns" paid to depositors who were unwittingly being topped up by the latest recruits.

So the early "victims" of a Ponzi always all do very well out of it- they have to in order to give glowing references to bring in the later victims who by definition have less time to benefit from the super-normal returns.

No, I understand how it worked and the extent of the damage this scandal will cause, I just don’t think many (if really any) investors, would have been a winner out of this...

If you were getting guaranteed returns of 15% for the past five years, that money would probably be used as quarterly income distributions and not capital accumulation, as the scam was based on more and more new investors... You would need to be in Madoff's fund for over 7+ years (consistently), before you could match your initial principle and that’s not taking into account management fee requirements and dilution levies on capital redemptions...

No-one is going to totally withdraw seed capital from a fund, which is paying a guaranteed 2-3X above the commercial market IR...

Apparently Madoff was former Jewish window cleaner and his accountant for the fund was based in a small one room office, on the outskirts of NYC...

The point of arguing this is moot anyway...

[philipl]

Fun for all the family- play the Madoff game and find out how difficult it is to make $50 bn disappear!

Agreed- my point is the $50bn is sloshing around out there somewhere.

American reports indicate that the real estate world over there is likely to be the hardest hit. Madoff modelled his ponzi on the way the real estate business works (good point when you think about it) and that he drew many successful real estate operators into investing their surplasses with him.

[American]

I wouldn't say that American, the HF industry as a whole, is getting a very bad reputation at the moment (both institutional & retail investors), due to widespread redemption lock-outs on market illiquidity. Clients are generally disillusioned, as most HF's have lost 18% this year (up to and including November), which is hardly absolute returns...

Ah, but as financial reporting, we get paid no matter how Mutual funds do. Even if they liquidate, they have to file a report. The backlash of this will be the hedge fund business having to be fully regulated, unlike it is now.

[AussieinUk]

Ah, but as financial reporting, we get paid no matter how Mutual funds do. Even if they liquidate, they have to file a report. The backlash of this will be the hedge fund business having to be fully regulated, unlike it is now.

Ahh - Then it is no wonder you guys love Sarbanes-Oxley!! (sorry for being slow, I just couldn't tell on what side of the fence you were positioned)..

Regulation is a gold mine for you boys..

[philipl]

Madoff profit-takers might have to give it back

Devastating critique of banking by Paul Krugman

[Billy Castell]

There was talk of '10 retail chains going under next year' on the radio last night. Who are they on about, and what is the basis for these scare stories.

It also said that January is a good time to call in the recievers as companies have high levels of cash, and low levels of stock.

[philipl]

It looks like a nightmare on the high street- any retailer with significant debt is potentially in trouble.

The Times thunders about the Madoff era and the entire financial services sectors' collective neglect.

[pg]

Ok, I know that Woolworths has gone under. An English mate of mine said that Currys and Dixons were also gone...or about to go.

Is that correct? I haven't seen anything on the BBC.