What a GREAT capitalism refoundation

by kcurie Sat May 15th, 2010 at 09:16:07 AM EST

It is not easy... it is really not easy to explain what is going on in the economic world. With so much nonsense in the radio , TV and newspapers... how do you respond? How do you explain what is going on? the card game is a brilliant idea.

Here I propose a short, simple (as simple as possible but no more than necessary) explanation that we should disseminate.

I tried the other day to write the minimum needed to explain it. So, I ask for your input. What would you need to write down to explain what is going on... in something that does not last more than a couple of pages?

I gave it a try and came up with this structure.

-A paragraph about the need to explain what is going on.

-Another paragraph about the particular situation of each country

-Another about the stupidity of the media."You are not going to get the real news there".

-Declaration that you should feel victim of a crime but you need two basic ideas about economics to feel that you have been mugged.

-A first economic paragraph explaining the fallacy of being rich if you have more money. Explaining inflation, hyperinflation, deflation explicitly. Explain short term and long term growth implicitly. Finally, explain that 5-6 % inflation is not necessarily bad. The key point is making you believe it is so.

-Second paragraph explaining aggregate demand and monetary mass. Explain the role of the banks and the credit economy explicitly. Explain implicitly, without details, the open market operations.

-Describe the nature of the financial collapse. CDO and CDS do no appear, they are the casino part of the financial world.

-Explain what a typical liberal (in the Krugman sense of liberal) response is: Nationalize banking system, separate casino from banking. Increase aggregate demand by transfering purchase power to the unemployed and middle classes, generate inflation (5-6 % in Germany, smaller in other parts of the world) by generating debt and print money , if necessary (no distinction between printing directly and monetize debt). World unbalances can be commented here but it is difficult.

-Explain in detail why inflation at 5% is awful for the casino club but good for the average company, worker in debt

-Put a list of measure to solve the deficit problem (European tax agency, Tobin tax). it should be a short list.

-Very short explanation (better links) on how the financial market forces countries to follow a low inflation path.

-Final paragraph explaining the risk of following this path.

And a final "A la mierda"

Please, is there anything important missing? Anything I should remove?

Any other structure proposed?

What a GREAT capitalism refoundation | 54 comments (54 topical, 0 editorial, 0 hidden)

Re: What a GREAT capitalism refundation (none / 1)

The Spanish version is here..

http://avionesdecercanias.blogspot.com/2010/05/vaya-mierda-de-refundacion-del.html

The Spanish speakers can see the flow of the argument. I am sure it can be improved and sent everywhere.

A pleasure

I therefore claim to show, not how men think in myths, but how myths operate in men's minds without their being aware of the fact. Levi-Strauss, Claude

by kcurie on Sat May 15th, 2010 at 09:17:53 AM EST

Re: What a GREAT capitalism refundation (4.00 / 7)

-A paragraph about the need to explain what is going on.

Repos, CDOs, credit default swaps, subprime mortgages - it all sounds terribly complicated. It actually isn't. It's a very simple scam: The largest banks in the world have been allowed to mix the part of their business that does speculation (essentially a game of Russian Roulette) with the part of their business that does valuable services like checking accounts and credit cards. The (entirely predictable) result is that the banks in question are able to take the winnings when they win, and make your savings account take the bullet when they lose.

-Another about the stupidity of the media."You are not going to get the real news there".

Just off the top of my head, I can name five internet blogs or Unserious economists who predicted the crash. How many Serious reporters and Serious publications can you name who can make that claim?

-A first economic paragraph explaining the fallacy of being rich if you have more money. Explaining inflation, hyperinflation, deflation explicitly. Explain short term and long term growth implicitly.

What is money? Money is a promise by someone else to give you something valuable. When your house becomes more expensive, it means that you get more money. But it does not mean that there are more valuable things for other people to give you - your house becoming more expensive produces not a single ball bearing, lays not a single meter of railway track, builds not a single cargo ship and digs not a single gram of iron out of the ground. So that nice new money you got from your house getting more expensive? It's counterfeit. It's Monopoly money, passing for real cash.

-Describe the nature of the financial collapse. CDO and CDS do no appear, they are the casino part of the financial world.

But so what if you get some counterfeit money from selling your house? That doesn't hurt anybody, right? Well, the guy who bought your house probably borrowed some 80 % of this counterfeit money at a bank. So now the bank has a whole lot of counterfeit money on its books. The bank doesn't like that, so it tries to replace the counterfeit money with valuable stuff. But the economy doesn't make enough valuable stuff to trade for all the counterfeit money (that's why it was counterfeit in the first place), so the banks start killing companies and selling their machines as scrap.

Scrap isn't as valuable as machines, but the banks can take the scrap and sell it - they can't take the machines and sell them. So in their attempt to make all of their counterfeit money real, they destroy the economic engine that could be used to make some of the counterfeit money real.

-Explain what a typical liberal (in the Krugman sense of liberal) response is

Of course, the banks only exist because we the people allow them to exist. Without a government charter, the banks can't operate. So instead of allowing the banks to strangle the real economy in a futile attempt to save themselves, we can strangle the banks and save the real economy. The economy that makes food and steel and computers.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat May 15th, 2010 at 10:06:52 AM EST

Re: What a GREAT capitalism refundation (4.00 / 2)

Teh first idea is already in the spanish version. PRecisely that. it is just a casino mixed with the credit. So this is exactly what it is there.

The last point regarding the bans is already implicit with a tax on the casino. Maybe a more explicit version can be updated.

However, the most interesting part is the example of counterfeit money. It is really interesting. But I do not know how it will fit in the present situation. it is true that they have to do it, but at the end of day I do not know how it fits the overall scheme. In the spanish version I take an academic approach: Problems of deflation a nd hiperinflation.. and that everything works just as fine with 1% and with 6 % inflation.. the question is who benefits.

So the point about banking having a tendency to liquidate.. where does it fits in the financial meltdown? My idea is that, at the end of the day, the important point is your first point... casino and credit mix.

A pleasure

I therefore claim to show, not how men think in myths, but how myths operate in men's minds without their being aware of the fact. Levi-Strauss, Claude

by kcurie on Sat May 15th, 2010 at 10:16:37 AM EST
[ Parent ]

Re: What a GREAT capitalism refundation (4.00 / 7)

The counterfeit money is essential to explain intuitively what goes wrong when the banks give credit where they shouldn't. They are in fact creating money where none should have been created. And the point is that banks then turn that money they create for other through credit and turn it into profit in terms of real valuable stuff. So, if I'm a bank and I create a billion through credit that should never have been given and then I pay myself a cool 10 million (just a 1% commission) for the privilege, how is that different from counterfeiting 1 billion and laundering 10 million of it to keep as my personal stash?

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan

by Carrie (migeru at eurotrib dot com) on Sat May 15th, 2010 at 10:39:55 AM EST
[ Parent ]

Re: What a GREAT capitalism refundation (none / 1)

Is counterfeiting easy to explain? Itwas a key part of the financial meltdown?

It seemed to me that it could have played a role in the German banking system.. but this is aline in the structure of the problems facing Europe. I mean, in the narrative I am trying to write, the problem is that the average german worker did not get a wage rise, and it went to the banking system... I certainly could add a line regarding how the banking grabbed money by giving it to someone in Spain.

But is it really necessary to explain it in detail.. or the shame is obvious without explaining it in detail.

A pleasure

I therefore claim to show, not how men think in myths, but how myths operate in men's minds without their being aware of the fact. Levi-Strauss, Claude

by kcurie on Sat May 15th, 2010 at 10:46:04 AM EST
[ Parent ]

Re: What a GREAT capitalism refundation (4.00 / 6)

The state gives banks the prerogative to create money, though credit. The Banks abuse that prerogative and create way more money than the Central Banks intended or were even aware was being created. Counterfeiting is an apt metaphor.

One thing that needs to be explained is the difference between money and cash. Only the state can mint cash in the form of notes and coins, but banks can create money by the magic of double entry accounting. Ask the audience to compare the average amount of cash they have in their wallet with the average balance of their bank account. That's the difference between cash and money.

Now ask the audience what the bank does when they give someone a mortgage. Do hundreds of thousands of Euros get delivered by armoured van in stacks of €500 euro bills? No. The bank credits the loan amount to the borrower's account (as a liability to the bank) and adds the loan to the other side ot its balance sheet (as an asset to the bank). The magic of double-entry accounting. The same thing with a loan or overdraft.

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan

by Carrie (migeru at eurotrib dot com) on Sat May 15th, 2010 at 10:52:42 AM EST
[ Parent ]

Re: What a GREAT capitalism refundation (none / 1)

I try to explain this with a metaphore about the credit economy. I just say that they are allow to create money from nothing during the credit.

A pleasure

I therefore claim to show, not how men think in myths, but how myths operate in men's minds without their being aware of the fact. Levi-Strauss, Claude

by kcurie on Sat May 15th, 2010 at 10:55:25 AM EST
[ Parent ]

Re: What a GREAT capitalism refundation (4.00 / 6)

Technically, they are allowed to create money subject to a reserve capital requirement. Roughly, with a 10% reserve requirement and $10 million in capital a bank can create $100 million in loans, with a 5% reserve requirement it can create $200 million in loans and with a 2% reserve requirement it can create $500 million in loans. In 2007 most US banks appeared to be operating with about a 5% reserve while a good many European banks were operating with about a 2% reserve. And this does not address the niceties of what might qualify as reserve capital.

As long as the prices of assets which banks have financed are increasing, they can function effectively with almost no reserve. But if assets they have financed fall in value by more than their reserve capital they are technically insolvent, but their insolvency may not be revealed until they are unable to meet an obligation. Once this happens with a large bank, the shit storm begins.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sat May 15th, 2010 at 10:14:48 PM EST
[ Parent ]

Re: What a GREAT capitalism refundation (4.00 / 2)

isn't all credit the creation of money? When A sells B 10 rocks and gets back a Purchase order payable in 30 days for $100 dollars, the PO creates $100 that may not exist.

by rootless2 on Sat May 15th, 2010 at 11:16:39 PM EST
[ Parent ]

Re: What a GREAT capitalism refundation (none / 1)

isn't all credit the creation of money?

To one extent or another it is, which is why offering credit is a favorite sales tactic. But banks do it wholesale and are, to some extent, regulated as to how they do it. And I believe that even a lowly catalog or internet vendor who offers a credit card or a store chain that offers their own card has to do so under the aegis of a bank. But that is a surmise and I am prepared to be corrected.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun May 16th, 2010 at 01:11:58 AM EST
[ Parent ]

Re: What a GREAT capitalism refundation (4.00 / 2)

Any person can create credit, and while credit may be monetised, but it is not in itself money, although it is implicit in a monetary relationship.

Such credit created by a person is based upon the use value of 'Labour' which I would define as a combination of:

(a) Energy - manpower, or unqualified labour;

(b) 'Subjective' Knowledge - what I have between my ears, including knowledge, experience, intuition, common sense, creativity, contacts etc etc - which enables me/(someone else) to put my manpower to best/(most profitable) use.

But note that credit may also be created based upon the use value of productive assets, particularly land/location, and most money in existence comes into existence through credit created by banks and secured against the use value of land/location.

An increasing amount of credit is based upon the use value of 'objective' knowledge, which is 'monetised' through the use of property rights and/or the concept of the corporate 'legal' person.

The monetisation of use value requires a framework of trust, and we are accustomed to using credit intermediaries for that purpose, who back an implicit guarantee of a borrower's credit with an amount of proprietary capital set by banking regulators. The process also requires an accounting system to record credit obligations.

Finally, exchange transactions require a 'Value Standard' or unit of measure for value, which is analogous to the metre as a standard unit of measure for length or a kilogramme as a standrd unit of measure for mass.

Note here that we are accustomed to a Unit of currency being the same thing as a Value Standard or unit of measure. This is not necessarily the case. A Value Standard is an abstract unit, whereas a Unit of currency is a store of value (or money's worth) which is generally acceptable in exchange.

In my analysis - and I have now got past the foreword of my 'tract' on the subject - we will see national currencies based upon 'unitised' land value, and an international reserve currency based upon 'unitised' energy in one form or another, while transactions generally will be made by reference to an 'Energy Standard' ie a standard unit of energy in an amount which is meaningful to everyday experience (eg energy equivalent to 10 Kilo Watt Hours, or the energy equivalent to the fuel use of a litre of n-Octane).

The necessary framework of trust will be a Credit Clearing Union, backed by mutual guarantees and provisions into default pools, and it is this framework which enables the monetisation of our credit.

The point is that credit created by banks is based upon a claim over someone else's credit. ie a claim over credit issued by someone else. This 'claim over a claim' is essentially two negatives creating a false positive, because credit intermediaries back the credit they create with little or no 'money's worth' of capital.

The credit necessary for the circulation of goods and services and creation of productive assets requires no investment/deposits, although it does require a trust framework. Credit backed by the use value of productive assets, on the other hand, does require investment/deposits.

The reason why virtually all schools of Economics - apart from the modern monetary theorists/ cartalists - fuck it up is that they assume conventional money to be a debt instrument, when it is in fact the opposite polarity ie a credit instrument.

This ideological assumption is of course aimed at justifying the otherwise unjustifiable - ie the privatisation of the Credit Commons - and at obscuring an inconvenient reality.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Sun May 16th, 2010 at 06:28:11 AM EST
[ Parent ]

the question comes to mind (none / 1)

Because, trade used to be based on letters of credit which could be issued by anyone and had value depending on the credit of the issuer. At some time these began to always pass via banks. Doesn't the internet make disintermediating banks more plausible again?

by rootless2 on Sun May 16th, 2010 at 11:08:56 AM EST
[ Parent ]

Re: the question comes to mind (4.00 / 2)

rootless2:

Doesn't the internet make disintermediating banks more plausible again?

Peer to Peer Finance -which is not to be confused with Peer to Peer lending like Zopa - is what I have been working on this past 10 years, with some seed funding a couple of years ago from the Norwegian government.

If I am right, then Money 3.0 will be the outcome.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Sun May 16th, 2010 at 12:37:59 PM EST
[ Parent ]

Re: the question comes to mind (none / 0)

what's the difference between finance and lending in your scheme? Just the type of credit?

by rootless2 on Tue May 18th, 2010 at 10:34:58 AM EST
[ Parent ]

Re: the question comes to mind (4.00 / 3)

Because, trade used to be based on letters of credit which could be issued by anyone and had value depending on the credit of the issuer. At some time these began to always pass via banks. Doesn't the internet make disintermediating banks more plausible again?

Every odd Joe won't be able to have his letter of credit accepted - he'll have to go through a trusted middleman who will vouch for the payment. Either that, or he will have to pay in some commodity currency that the recipient of the payment trusts to hold value.

Modern reserve banking partly nationalises the role of middleman through the depositor guarantee.

And by and large, the problem is not in that part of the monetary system. By and large, the problem is in the part of the monetary system where the remaining private middlemen have abused the trust placed in them by the general public to create counterfeit money, which they have then mixed with the money that the sovereign guarantees.

So preventing a repeat performance requires at least one of two things:

Prevent private middlemen from counterfeiting, by popping the next asset bubble that they are using for their game of three-card monte.
Prevent private middlemen from mixing their role of private middleman with the role of administrator of publicly guaranteed checking accounts.

The two are not mutually exclusive, but #2 is - historically speaking - a lot easier than #1.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun May 16th, 2010 at 01:41:53 PM EST
[ Parent ]

Re: the question comes to mind (4.00 / 2)

This is interesting.

Firstly, I have first hand knowledge - including direct contact with the general manager of the central bank - of the ongoing 'FactoRepo' initiative in Ecuador whereby any VAT-registered firm will be able to discount VAT invoices directly with the Central Bank, and thereby access working capital.

Since Ecuador is in fact 'dollarised', what FactoRepo will achieve for their Central Bank is a reduction in their reliance on dollars from a gross figure to a net figure during whatever settlement cycle they opt for. Reduced reliance on the Fed is politically attractive.

It also reduces reliance on private banks as credit intermediaries, but there is a potential role for them as service provider managers. Of course, a FactoRepo technique would work perfectly well anywhere there is a VAT system, but I suspect that banks would insist on extracting a monopoly rent that rendered it unattractive to users.

Secondly, this could be a transitional stage to a true 'Peer to Peer' credit clearing union. In a true P2P model, businesses would issue mutually guaranteed undated credits/IOUs subject to 'guarantee limits' managed by service providers, whose agreed costs would be shared by a suitable service charge.

The mutual guarantee would be backed by payments made by both sellers and buyers into a default 'Pool' in common ownership, and the service providers would receive a share of this payment after defaults, thus aligning their interests.

In terms of settlement of credit, any payments (which are not strictly necessary provided guarantee payments and service charges are paid) would be applied on a FIFO basis to the longest outstanding credits first.

In addition 'settlement agent' software eg Ripple Pay could seek out 'chains'. So if A owes B owes C owes D owes A then these obligations may be netted out down the chain. This is exactly how the bilateral 'off-exchange' Brent/BFOE crude oil forward contract works on contract expiry, so that open bilateral Brent contracts may be 'booked out' and price differences settled in dollars.

The outcome for (say) Ecuador would be that no actual Fed dollars would then be needed at all, and the US dollar would then be used - in the absence of anything more credible - only as a pure, abstract, 'Value Standard' or unit of measure.

For users, any excess in the Pool could be distributed equally as a dividend, and of course this would reduce negative balances and increase positive balances. The outcome would be a net transfer from those who use the guarantee to those who provide it, thereby sharing the fruits of the 'Credit Commons'.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Sun May 16th, 2010 at 04:29:23 PM EST
[ Parent ]

Re: the question comes to mind (none / 0)

what's a "vat invoice" ? I know what a VAT is.

by rootless2 on Sun May 16th, 2010 at 10:19:21 PM EST
[ Parent ]

Re: the question comes to mind (4.00 / 2)

The part of your bills that are due to VAT.

Say you have an invoice of € 100 in a place with 25 % VAT. 20 %, or € 20, of that are your VAT invoice.

Since you get this money back from the government, you can, in principle, use it as collateral for credit.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon May 17th, 2010 at 07:03:45 AM EST
[ Parent ]

Re: the question comes to mind (none / 1)

thnks

by rootless2 on Thu May 20th, 2010 at 03:02:52 PM EST
[ Parent ]

Re: What a GREAT capitalism refundation (4.00 / 3)

Minsky puts it this way: anyone can create money, the problem is to have it accepted.

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan

by Carrie (migeru at eurotrib dot com) on Sun May 16th, 2010 at 04:45:35 AM EST
[ Parent ]

Re: What a GREAT capitalism refundation (4.00 / 2)

And it is that trust that is at the heart of everything. Once counterfeiting, gouging, obfuscation etc are allowed (and lawyers are paid millions to define them as allowed) the trust breaks down. Not only between financial institutions, but also in the wider population.

When trust totally breaks down, panicing people queue up at their bank to withdraw all their trust in the form of cash - the wallet part. What they are saying is "We don't believe you!"

You can't be me, I'm taken

by Sven Triloqvist on Sun May 16th, 2010 at 05:24:41 AM EST
[ Parent ]

Re: What a GREAT capitalism refundation (4.00 / 3)

eople queue up at their bank to withdraw all their trust in the form of cash

But because of fractional reserve banking there s never enough cash, by definition.

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan

by Carrie (migeru at eurotrib dot com) on Sun May 16th, 2010 at 05:30:14 AM EST
[ Parent ]

Re: What a GREAT capitalism refundation (none / 1)

thus precipitating the Downward Trust Spiral aka The Weimar Republic ;-)

You can't be me, I'm taken

by Sven Triloqvist on Sun May 16th, 2010 at 05:36:44 AM EST
[ Parent ]

Re: What a GREAT capitalism refundation (4.00 / 3)

Isn't an atavistic fear of a repeat of that at the heart of our current policies?

It would be ironic if they were to precipitate the very catastrophe they're trying to avert.

Time to read The Economic Consequences of the Peace.

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan

by Carrie (migeru at eurotrib dot com) on Sun May 16th, 2010 at 05:40:28 AM EST
[ Parent ]

Re: What a GREAT capitalism refundation (none / 1)

I had read excerpts from Smith, Malthus and J.S. Mill, but The Economic Consequences of the Peace was the first entire economics tract I had ever read. I should re-read it.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun May 16th, 2010 at 10:41:36 AM EST
[ Parent ]

Re: What a GREAT capitalism refundation (none / 1)

Alas, the link no longer seems to work.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun May 16th, 2010 at 10:42:37 AM EST
[ Parent ]

Re: What a GREAT capitalism refundation (4.00 / 3)

isn't all credit the creation of money?

All credit that third parties trust will be repaid is the creation of money.

That's how the counterfeit money disappears so fast when trust in the banking sector blows up.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun May 16th, 2010 at 06:09:34 AM EST
[ Parent ]

Re: What a GREAT capitalism refundation (none / 0)

As long as the prices of assets which banks have financed are increasing, they can function effectively with almost no reserve. But if assets they have financed fall in value by more than their reserve capital they are technically insolvent, but their insolvency may not be revealed until they are unable to meet an obligation. Once this happens with a large bank, the shit storm begins.

See JakeS: Financial Meltdown: The Card Game.

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan

by Carrie (migeru at eurotrib dot com) on Sun May 16th, 2010 at 05:02:58 AM EST
[ Parent ]

Re: What a GREAT capitalism refundation (none / 1)

I write exactly this point, but I do it in two parts. first I just say they can create money.. then , ina nother place I say that if theya re bankrupt they can't.

I do not give a lot of details.. I thought it was not really necessary to explain the details of how tehy do it.

It would require another paragraph and I tried to remain as short as possible.

A pleasure

I therefore claim to show, not how men think in myths, but how myths operate in men's minds without their being aware of the fact. Levi-Strauss, Claude

by kcurie on Sun May 16th, 2010 at 07:19:14 AM EST
[ Parent ]

Re: What a GREAT capitalism refoundation (4.00 / 5)

Just a few days ago, in the business (salmon-coloured pages) of the weekend edition of El Pais...

¿Pero esto es todo? · ELPAÍS.com		But, this was all? - ElPais.com
La reforma financiera no arranca por la presión de la banca y las dificultades para darle la vuelta a 25 años de desregulación		Financial reform can't seem to get going due to the pressure from banking and the difficulties to undo 25 years of deregulation
CLAUDI PÉREZ 02/05/2010
La gran banca internacional -la banca, a secas- es la principal causante de la crisis, de la locura colectiva de los mercados en los últimos años. Eso es algo que ya casi nadie discute. Ni siquiera los propios banqueros, que llevan unos años surrealistas: en Francia, durante los ochenta, los socialistas tomaron los bancos; en España, izquierdas y derechas hicieron poco más o menos lo mismo con las cajas; en la última década, en Estados Unidos, los bancos tomaron el Gobierno, y una vez llegada la crisis el sector consiguió cerrar una macabra cuadratura del círculo y "combinar lo peor del capitalismo y lo peor del socialismo: socializar las pérdidas y privatizar los beneficios", según la definición acuñada por el sociólogo Nicholas Taleb. En realidad, los chanchullos del sistema financiero están detrás de casi cualquier crisis de calado en los últimos 200 años. Aunque esa, probablemente, sea otra historia.		The great international banking -or, simply, banking- is the main cause of the crisis, of the collective folly of the markets in the last few years. This is something almost nobody disputes. Not even the bankers themselves, who have had a surreal few years: in France, during the 1980's, the Socialists took over the banks; in Spain, both the left and the right did pretty much the same with the Cajas; in the last decade, in the US, banks took over government, and once the crisis arrived the sector managed to square the circle and "combine the worst of capitalism with the worst of socialism: socialise losses and privatize gains", according to the definition given by sociologist [sic!] Nicholas Taleb. In reality, the wheeling and dealing of the financial system are behind just about any important crisis of the past 200 years. Though that is, probably, another story.
O tal vez no tanto: "No es que el sentido de responsabilidad de la comunidad financiera respecto a la sociedad sea pequeño: es que es prácticamente nulo", escribía tras el crack de 1929 y la Gran Depresión el maestro John K. Galbraith, uno de los grandes economistas del siglo XX. Desde su despacho en la Universidad de Texas, su hijo James K. Galbraith -también brillante economista- se ríe con sorna al otro lado del teléfono cuando se le pregunta por la refundación del capitalismo que prometieron los líderes mundiales hace ya más de dos años, tras el inicio de la Gran Recesión. "Es un espejismo pensar que el sistema puede funcionar tras la reforma financiera. El debate está planteado entre aquellos que son favorables a instaurar esa ilusión (los demócratas en Estados Unidos) y los que prefieren un sistema de rapiña. La tercera fuerza, en realidad la única fuerza efectiva, es el sistema judicial, que apenas ha comenzado a actuar. Que sea de veras efectiva (a través de investigaciones, de demandas y sobre todo de condenas) está por ver".		Or maybe not so much: John K Galbraith, one of the great economists of the 20th century, wrote after the Crash of 1929 and the Great Depression: "It's not that the sense of social responsibility of the financial community is small: it's practically nonexistent". From his office in the University of Texas, his son James K. Galbraith -also a brilliant economist- laughs over the phone when he's asked about the refoundation of capitalism promised by world leaders over 2 years ago [uh, I thought that was at the G20 which was less than 18 months ago...] after the start of the Great Recession. "It is a mirage to think that the system can continue to function after financial reform. The debate is between those who are favourable to installing this illusion (the US Democrats) and those who prefer a system of predation. The third force, in reality the only effective one, is the judicial system, which has barely started to act. That it can be really effective (through investigations, indictments and sentences) is to be seen".

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan

by Carrie (migeru at eurotrib dot com) on Sat May 15th, 2010 at 10:27:39 AM EST

Re: What a GREAT capitalism refoundation (4.00 / 2)

This idea is just included int he separation between casino and credit...

Another option would be to get rid of leverage banking.. but that is not something the rational economists agree on...

The seapration of casino from banking is indeed possible.. it should seem.

I have come to think that bankers will overplay their no-inflation card... and a semi-euro collapse will force them to monetize debt and generate inflation. The only question would be then if german workers will get their proper wage raise (not if Merkel can avoid it).

A pleasure

I therefore claim to show, not how men think in myths, but how myths operate in men's minds without their being aware of the fact. Levi-Strauss, Claude

by kcurie on Sat May 15th, 2010 at 10:35:15 AM EST
[ Parent ]

Re: What a GREAT capitalism refoundation (4.00 / 5)

I have a problem with this El Pais piece - it makes it sound it's all about banking and all happening in the US. In fact it's about bogus economics education, what Krugman has called the Dark Ages of Macroeconomics, and a political and economic leadership who is too indoctrinated to do the right thing in response to a financial crisis, or a recession, or a speculative market attack.

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan

by Carrie (migeru at eurotrib dot com) on Sat May 15th, 2010 at 10:41:37 AM EST
[ Parent ]

Re: What a GREAT capitalism refoundation (4.00 / 3)

Indoctrination and economic incentives. they all think like zombies because the indoctrination regarding the perils of 5 % inflation.. Only Krugman talks about it.. and then explains the consequences of the worst possible solution.. deflation..and then all the stupid media people quote him saying that "spain must have deflation".

No Portugal, Italy, Spain, Ireland, Latvia, etc.. will have deflation because of a mix of greed and ignorance.

A useless deflation if Germany keeps on cutting benefits. So, everything will be worse... the dark times of macroeconomics indeed.

A pleasure

I therefore claim to show, not how men think in myths, but how myths operate in men's minds without their being aware of the fact. Levi-Strauss, Claude

by kcurie on Sat May 15th, 2010 at 10:52:21 AM EST
[ Parent ]

Re: What a GREAT capitalism refoundation (4.00 / 4)

Portugal, Italy, Spain, Ireland, Latvia, etc.. will have deflation because of a mix of greed and ignorance.

A useless deflation if Germany keeps on cutting benefits. So, everything will be worse...

Europe may soon cease to be a place worth living in, if the Germans have their way.

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan

by Carrie (migeru at eurotrib dot com) on Sat May 15th, 2010 at 10:53:45 AM EST
[ Parent ]

Re: What a GREAT capitalism refoundation (4.00 / 5)

It wouldn't be so bad if it were only the Germans, but it seems all serious people agree that Hoover was right all along. And even most normal people seem to have been taken in by the deficit-terrorists.

by generic on Sat May 15th, 2010 at 02:28:32 PM EST
[ Parent ]

Re: What a GREAT capitalism refoundation (4.00 / 6)

Functionally, it is as though Keynes never existed. Mainstream economics, largely Samuelson, has recreated Keynes on a Neo-Classical foundation, then discredited that flawed recreation and then relegated him to a footnote in the History of Economic Thought which is no longer even a required course in most economics departments. When I was in grad school, my friends in Economics took turns teaching History of Economic Thought to undergraduates out of Schumpeter. That is no longer done in very many places.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sat May 15th, 2010 at 10:25:11 PM EST
[ Parent ]

Re: What a GREAT capitalism refoundation (4.00 / 5)

"We're all Keynesians now" was a great misdirection. We were never Keynesians, at most followers of Samuelson's bastardization (I guess that could aptly have been described with Germany's former minister's "crass Keynesianism"), and the phrase was uttered as we were getting ready to toss out the bastardization and discredit the original.

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan

by Carrie (migeru at eurotrib dot com) on Sun May 16th, 2010 at 05:13:41 AM EST
[ Parent ]

Re: What a GREAT capitalism refoundation (4.00 / 3)

Zapatero: "Sarkozy amenazó con salirse del euro" · ELPAÍS.com		Zapatero: "Sarkozy threatened to exit the Euro" - ElPais.com
El presidente español les explicó a los barones del PSOE "las insólitas turbulencias financieras" que ha vivido Europa en estos diez días y les ilustró sobre la complicada tensión del Eurogrupo con algunas intervenciones internas de Sarkozy que los que le oyeron interpretaron como amenazantes. Zapatero comentó que Sarkozy llegó a exigir un "compromiso de todos, para ayudar todos a Grecia, cada uno en su medida, o Francia se replanteará su situación en el euro".		The Spanish Prime Minister explained to the PSOE leadership "the unusual financial turbulence" that Europe has lived in these 10 days and illustrated the complicated tension within the Eurogroup with some interventions by Sarkozy which were interpreted as threats. Zapatero mentioned that Sarkizy got to the point of demanding "a commitment by all, to all together help Greece, each in their own measure, or France will reconsider its position within the Euro".
Otro de los barones presentes concluyó de la exposición de Zapatero que "Sarkozy llegó a pegar un puñetazo sobre la mesa y amenazó con descolgarse del euro, lo que obligó a Angela Merkel a doblar la muñeca y llegar a un acuerdo".		Another of the PSOE leaders present concluded from Zapatero's presentation that "Sarkozy got to the point of banging the table and threatening to get out of the Euro, which forced Angela Merkel to give in and reach an agreement".

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan

by Carrie (migeru at eurotrib dot com) on Sat May 15th, 2010 at 10:47:32 AM EST

Re: What a GREAT capitalism refoundation (4.00 / 3)

An agreement which would be useless if German pursues more deflationary policies. It is crazy.

I think, eventually, reality will hit Merkel in the head.
I only hope

A pleasure

I therefore claim to show, not how men think in myths, but how myths operate in men's minds without their being aware of the fact. Levi-Strauss, Claude

by kcurie on Sat May 15th, 2010 at 10:53:45 AM EST
[ Parent ]

Re: What a GREAT capitalism refoundation (4.00 / 5)

I haven't heard anyone talking of not appointing Axel Weber to lead the ECB when Trichet's term is up next year.

Maybe we need to start a Stop Weber! campaign just to get a debate started.

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan

by Carrie (migeru at eurotrib dot com) on Sat May 15th, 2010 at 10:55:10 AM EST
[ Parent ]

Re: What a GREAT capitalism refoundation (none / 0)

Axel Weber and Mario Draghi in pole positions as fight for ECB succession starts - Telegraph

Axel Weber and Mario Draghi in pole positions as fight for ECB succession starts The campaign wasn't supposed to start until next year. But the race for the job of next president of the European Central Bank has already begun in earnest, complete with PR campaigns, political manoeuvring and sometimes dubious innuendoes.
By Pierre Briancon
Published: 6:00AM GMT 03 Feb 2010
The two candidates to replace Jean-Claude Trichet are Axel Weber, the Bundesbank president, and Mario Draghi, the Bank of Italia governor. Although Trichet's mandate expires in October, 2011, Europe's leaders will later this month choose a new vice-president for the ECB, to replace Lucas Papademos. That decision over the vice-president will largely determine who becomes president.
The ECB is a finely tuned machine where geographical influences have to be delicately balanced. If Portugal's Vitor Constancio becomes the ECB's number two, Weber will be in pole position for the top job. But should Luxembourg's Yves Mersch make it, then Draghi probably has a lock on the nomination.

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan

by Carrie (migeru at eurotrib dot com) on Sat May 15th, 2010 at 11:01:45 AM EST
[ Parent ]

Re: What a GREAT capitalism refoundation (none / 1)

Axel Weber for ECB presidency... « Mostly Economics

Despite Francesco Giavazzi's wise words, the speculation over the next ECB president keeps getting hotter.
WSJ economics blog points to a Bloomberg survey which polls 27 econs on their prediction. 25 vote for Axel Weber, Bundesbank President.
WSJ has a nice profile of Weber as well

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan

by Carrie (migeru at eurotrib dot com) on Sat May 15th, 2010 at 11:02:31 AM EST
[ Parent ]

Re: What a GREAT capitalism refoundation (none / 0)

FT.com / Brussels / Finance & Markets - ECB begins leadership overhaul (16 February 2010)

In turn, Mr Constâncio's appointment - still subject to formal approval by eurozone leaders - will affect the "balance of power" considerations when Mr Trichet's successor is chosen.
Although the ECB is still young, a convention has arisen whereby its top posts are split between small and large countries, southern and northern Europeans, and, to a lesser extent, between "hawks" and "doves".
Regarded as a "dove" in ECB terms, less likely to worry about inflation when growth is weak, and from a southern European country, Mr Constâncio's selection appears to have strengthened the hand of a northern conservative for the top job - that is, Germany's Mr Weber.

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan

by Carrie (migeru at eurotrib dot com) on Sat May 15th, 2010 at 11:05:39 AM EST
[ Parent ]

Re: What a GREAT capitalism refoundation (none / 1)

Mish's Global Economic Trend Analysis: Bundesbank President Axel Weber Feuds with ECB President Jean-Claude Trichet about Defending Euro

Now that ECB President and monetarist pussycat Jean-Claude Trichet has Thrown the ECB Rulebook Out the Window, battle lines have formed in regards to defending the Euro.

Please consider Weber Draws Battle Lines as Pressure Mounts on ECB
...
Trichet is also battling Merkel's Coalition Call for `Orderly' Defaults
...
For more details, please see Merkel's Coalition Calls for EU `Orderly' Defaults; Spain Prime Minister says Speculation of a Bailout for Spain is "Complete Madness"

It seems that Bundesbank President Axel Weber and German Chancellor Angela Merkel have figured out a little something that escapes the mind of ECB President Jean-Claude Trichet: Defending the Euro from defaults by Greece, Portugal, and Spain may be extremely expensive, perhaps impossible.

The first article ("Weber draws battle lines") was noted here on ET.

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan

by Carrie (migeru at eurotrib dot com) on Sat May 15th, 2010 at 11:08:40 AM EST
[ Parent ]

Re: What a GREAT capitalism refoundation (4.00 / 2)

we probably should.. but they can not do more damage than what they have already done.

Soon it will be time for the crude reality, either austerity plunges Europe into another recession and debt piles up and the solvency of Germany is at stake or the program works as the gurus expected and an slow recovery slugs trhrough without inflation.

In the latter case, Greece is still insolvent becuase rich people do not pay taxes there...in the former all Europe is insolvent in four further years of recession.

So, either Greece defaults or inflation is created.

Or Spain and Italy stops deflating their economy or Germany recovery is halted...

I hope they will not have any ther option than monetize debt, generate inflation, increase german salaries and put a high tax on the casino... A mass transfer of wealth from teh casino and banking system to the German worker and Portugal and Greece or everything collpases.

Of course, bankers cold be right and you can growth at 0.1 % every semester for ten years with high unemployment and low inflation despite deficit spending cut which translate in lower aggregate demand.

A pleasure

I therefore claim to show, not how men think in myths, but how myths operate in men's minds without their being aware of the fact. Levi-Strauss, Claude

by kcurie on Sat May 15th, 2010 at 11:32:12 AM EST
[ Parent ]

Re: What a GREAT capitalism refoundation (4.00 / 2)

If the economy grows at 0.1% it's not a recession, right?

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan

by Carrie (migeru at eurotrib dot com) on Sat May 15th, 2010 at 12:02:52 PM EST
[ Parent ]

Re: What a GREAT capitalism refoundation (4.00 / 2)

With 0.3 % inflation and 15% real unemployment... of course it is!!!! Who cares about the unemployed.. or the low gorwth.. as long as GDP increases more than inflation and I can increase my share of power..

A pleasure

I therefore claim to show, not how men think in myths, but how myths operate in men's minds without their being aware of the fact. Levi-Strauss, Claude

by kcurie on Sat May 15th, 2010 at 12:48:39 PM EST
[ Parent ]

Re: What a GREAT capitalism refoundation (none / 0)

So who holds the key here? More muscular German labour unions demanding wage increases commensurate with productivity growth?

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Sun May 16th, 2010 at 02:51:02 PM EST
[ Parent ]

Re: What a GREAT capitalism refoundation (4.00 / 2)

I'm increasingly coming to view a currency union as a tradeoff between lower ForEx risk and higher inflation. Except that in the case of the €, Germany seems to want to eat its cake and have it too, by eliminating ForEx risk but not accepting higher inflation.

There is no durable solution without higher German inflation. Growing real wages do not necessarily contribute to that, but will be desirable in their own right to eliminate the output gap within the €-zone.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun May 16th, 2010 at 02:56:32 PM EST
[ Parent ]

Easy... Tax the rich (none / 1)

The wealthy (mostly, those making money from capital, rather than productive work) have cornered a disproportionate share of the cake. This was tolerable in times of growth, but with dramatically falling real incomes for the majority of Europeans, they are going to choke on that cake... Best to take it off them and share it around. It's the only way to save capitalism from itself.

_{It is rightly acknowledged that people of faith have no monopoly of virtue
- Queen Elizabeth II}

by eurogreen on Sun May 16th, 2010 at 04:24:55 PM EST
[ Parent ]

A silly question (well, several) (none / 0)

Can it be "deflation" if the money was counterfeit in the first place?

Or: are you not responsible for the counterfeit money you borrowed?

And: if you lived off counterfeit money for years, "deflation" is just a return to reality, isn't it?

Wind power

by Jerome a Paris (etg@eurotrib.com) on Sat May 15th, 2010 at 05:31:55 PM EST

Re: A silly question (well, several) (4.00 / 3)

Or: are you not responsible for the counterfeit money you borrowed?

That's beside the point.

The point is that the insistence on trying to make counterfeit money real (instead of just writing it off as counterfeit) is liquidating perfectly fine going concerns for no good reason.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat May 15th, 2010 at 05:42:40 PM EST
[ Parent ]

Re: A silly question (well, several) (4.00 / 5)

Hey, the counterfeiters are off the hook. After all, they already laundered their counterfeit money for bona fide assets...

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan

by Carrie (migeru at eurotrib dot com) on Sat May 15th, 2010 at 07:29:28 PM EST
[ Parent ]

Let me keep it simple: (none / 1)

The bad guys: Super-wealthy; higher-ups in large corporations; FOX/Rush; Chinese govt.; most govts./politicians.
The good guys: The rest of the planet, all species included.
Their goal: Complete subjugation/extermination of US.
Our goal: Survival; living the "good life" (what nonsense)

Status: We're losing. No pleasant end in sight. But keep drinking alcohol, folks. Stay sedated till it's too late.

They tried to assimilate me. They failed.

by THE Twank (yatta blah blah @ blah.com) on Sat May 15th, 2010 at 06:30:01 PM EST

What a GREAT capitalism refoundation | 54 comments (54 topical, 0 editorial, 0 hidden)

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