Last week I linked to a BBC video interview with Alessio Rastani, a trader who predicted that, well, Europe is well and truly fucked, and the rest of us with it, and that he and a lot of other people were prepared to make a lot of money off Europe’s misery. The response from the Powers That Be was immediate: Rastani wasn’t a real trader, Rastani was one of the Yes Men, Rastani was just a showoff wanting TV time, yadda yadda.
Okay, fine. Here’s Dr. Robert Shapiro, advisor to the IMF and presidents Clinton and Obama, saying the very same thing. Again on the BBC. And PS: he is not one of the Yes Men, okay?
Listening to all of the politicians, pundits, financial (not so-) wizards and bankers one would think that we were facing some sort of unavoidable natural disaster – such as a comet or asteroid impact, or a deadly tectonic event involving trillions of tons of molten lava! Perhaps they need to be reminded that what we are actually up against is an entirely man-made ‘cock-up’ and human beings should be able to sort it out – although that, of course, would involve abandoning or re-thinking some of the more unsavoury aspects of modern capitalism.
In order to deal with the crisis, Europe will have to change its constitution to allow Greece (and anyone else) to withdraw from the EU, and also alter the charter of the central bank to be able to cope with the crisis.
Good luck with that. (Which sounds flip, but I mean it sincerely.)
No. Unfortunately, at this stage it’s not a problem than can be solved by merely ‘abandoning or re-thinking some of the more unsavoury aspects of modern capitalism.’ Walter’s point above is very relevant, but only one factor in the overall potential for global socioeconomic failure.
Basically, we’re looking at a global, massively n-player Prisoner’s Dilemma where every player, acting to maximize their own chances of survival and of retaining as much of their own assets as possible, will make rational choices that are ultimately likely to produce a worse outcome for themselves — and for almost everybody else — than if they’d cooperated to accept their losses earlier on.
Let me see if I can offer a simplified, American-centric sequence of potential events ….
[1] Essentially, as in 2008 with Lehman and AIG it again comes down to debt, leverage, CDSes and counterparty risk. The problem of Greece’s default shouldn’t be considered only in the context of Europe. The exposure of Wall Street to the big French and German banks — which are exposed to Greece and the other PIIGs — has also to be reckoned with.
[2] Just Morgan Stanley, for instance, may lose as much as $30 billion if some French and German banks fail, according to the Federal Financial Institutions Examination Council, which tracks all cross-border exposure of major banks. $30 billion is roughly $2 billion more than Morgan Stanley’s current assets. And yet Morgan claims its exposure to the French banks is zero.
[3] That’s because Morgan has, of course, taken out insurance against its loans to European banks. The TBTFs in the U.S. hold 85 percent (maybe at a minimum) of each others’ counterparty risks in derivatives. This is the core of the MAD-style deterrent the banks used against the U.S. as a whole in 2008 in order to get bailed out.
This time, though, all this will be happening in a politically charged, perhaps impossible, context in the U.S. That’s because ….
[5] A vast shitstorm of mortgage and foreclosure-related fraud litigation is also headed towards the TBTFs from the state level — pay particular attention to New York attorney general Eric Schneiderman and California AG Kamila Harris — where for various reasons the banksters simply can’t buy all the the necessary politicians to change the laws as they have in Washington.
Indeed, the banks have committed massive fraud — just for one instance, the 62 million mortgages that went through the MERS system may have questionable chain of title now. So, as the states, counties and municipalities pack on to the banks, all the bondholders who bought MBSs will also start filing suit. http://www.mersinc.org/
[6] All this as Occupy Wall Street is finally providing a focus for average U.S. citizens to express their opposition to the looting by the financial overclass. To see those responsible for the biggest white-collar crime again bailed out will not be acceptable among the OWS folks.
[7] Simultaneously, the traditional Republicans have co-opted the Tea Party, but at a cost they haven’t begun to reckon with.
More specifically, the U.S. ‘Super-Committee’ to resolve the debt crisis has a November 23 deadline to vote on a plan for $1.5 trillion in deficit reductions, which they’ll then have to present to the Congress and the President on Dec 2. All this to avoid triggering ‘automatic cuts’ of $1.2 trillion in 2013.
[8] Of course, November will also be the real kick-off for the 2012 presidential elections. Of course, the politics of that will factor in to the pols’ games. Tea Party congress members may re-enact the same tactics they used over the debt ceiling debate.
And don’t buy totally into Democrat propaganda about the Tea Party: yes, it may now be co-opted by Koch Bros. money and such, but it began as a dissent by conservatives against the bank bailout in 2008. Don’t underestimate the possibility that Tea Party congresspersons may have deeply-felt, principled motives for opposing Fed bailouts of the TBTFs. The road to hell is paved with good intentions.
[9] All this will be occuring in a larger context where the reaction of most of us — the 99 percent — is increasingly also to say ‘burn it all down’ since we assume that it’s the super-wealthy — the 1 percent — who’ll be stripped when the current financial system comes down, not us. We believe — reasonably enough — in the possibility of a better system after this one’s collapse. We think we have nothing left to lose — and there we might be wrong.
[10] The U.S. recession, which was expected to be shallow, will take on an ugly new dimension as unemployment rates rise further. As the U.S. economy follows Europe into recession, Chinese exports — which may be even more dependent on exports now than it was in 2008 –will drop and the Chinese economy will suffer due to the situation in Europe and the U.S.
[11] Trying to protect what they have and deleverage, the U.S. and China and sovereign states across the world will impose protective tariffs and devalue their currencies. As each country thus races towards the bottom, the currency wars will get serious.
There are other factors. But is the talk of ‘inevitability’ starting to sound more plausible?
I’ve learned to grow suspicious whenever I hear the words “a perfect storm” uttered in connection with financial matters (note its use in the video), as if collapse wasn’t the inevitable result of unchecked greed, fraud and vanity.
A “perfect storm” makes it all seem so coincidental…
Listening to all of the politicians, pundits, financial (not so-) wizards and bankers one would think that we were facing some sort of unavoidable natural disaster – such as a comet or asteroid impact, or a deadly tectonic event involving trillions of tons of molten lava! Perhaps they need to be reminded that what we are actually up against is an entirely man-made ‘cock-up’ and human beings should be able to sort it out – although that, of course, would involve abandoning or re-thinking some of the more unsavoury aspects of modern capitalism.
In order to deal with the crisis, Europe will have to change its constitution to allow Greece (and anyone else) to withdraw from the EU, and also alter the charter of the central bank to be able to cope with the crisis.
Good luck with that. (Which sounds flip, but I mean it sincerely.)
@ Dave Bishop & WJW —
No. Unfortunately, at this stage it’s not a problem than can be solved by merely ‘abandoning or re-thinking some of the more unsavoury aspects of modern capitalism.’ Walter’s point above is very relevant, but only one factor in the overall potential for global socioeconomic failure.
Basically, we’re looking at a global, massively n-player Prisoner’s Dilemma where every player, acting to maximize their own chances of survival and of retaining as much of their own assets as possible, will make rational choices that are ultimately likely to produce a worse outcome for themselves — and for almost everybody else — than if they’d cooperated to accept their losses earlier on.
Let me see if I can offer a simplified, American-centric sequence of potential events ….
[1] Essentially, as in 2008 with Lehman and AIG it again comes down to debt, leverage, CDSes and counterparty risk. The problem of Greece’s default shouldn’t be considered only in the context of Europe. The exposure of Wall Street to the big French and German banks — which are exposed to Greece and the other PIIGs — has also to be reckoned with.
[2] Just Morgan Stanley, for instance, may lose as much as $30 billion if some French and German banks fail, according to the Federal Financial Institutions Examination Council, which tracks all cross-border exposure of major banks. $30 billion is roughly $2 billion more than Morgan Stanley’s current assets. And yet Morgan claims its exposure to the French banks is zero.
[3] That’s because Morgan has, of course, taken out insurance against its loans to European banks. The TBTFs in the U.S. hold 85 percent (maybe at a minimum) of each others’ counterparty risks in derivatives. This is the core of the MAD-style deterrent the banks used against the U.S. as a whole in 2008 in order to get bailed out.
[4] So Bernanke and the other central bankers will run the printing presses and recapitalize/bail out the banksters again. In fact, in the U.K. they’ve already begun —
http://www.bloomberg.com/news/2011-10-06/king-loses-faith-in-europe-as-bank-of-england-responds-to-region-s-virus-.html
This time, though, all this will be happening in a politically charged, perhaps impossible, context in the U.S. That’s because ….
[5] A vast shitstorm of mortgage and foreclosure-related fraud litigation is also headed towards the TBTFs from the state level — pay particular attention to New York attorney general Eric Schneiderman and California AG Kamila Harris — where for various reasons the banksters simply can’t buy all the the necessary politicians to change the laws as they have in Washington.
Indeed, the banks have committed massive fraud — just for one instance, the 62 million mortgages that went through the MERS system may have questionable chain of title now. So, as the states, counties and municipalities pack on to the banks, all the bondholders who bought MBSs will also start filing suit.
http://www.mersinc.org/
[6] All this as Occupy Wall Street is finally providing a focus for average U.S. citizens to express their opposition to the looting by the financial overclass. To see those responsible for the biggest white-collar crime again bailed out will not be acceptable among the OWS folks.
[7] Simultaneously, the traditional Republicans have co-opted the Tea Party, but at a cost they haven’t begun to reckon with.
More specifically, the U.S. ‘Super-Committee’ to resolve the debt crisis has a November 23 deadline to vote on a plan for $1.5 trillion in deficit reductions, which they’ll then have to present to the Congress and the President on Dec 2. All this to avoid triggering ‘automatic cuts’ of $1.2 trillion in 2013.
[8] Of course, November will also be the real kick-off for the 2012 presidential elections. Of course, the politics of that will factor in to the pols’ games. Tea Party congress members may re-enact the same tactics they used over the debt ceiling debate.
And don’t buy totally into Democrat propaganda about the Tea Party: yes, it may now be co-opted by Koch Bros. money and such, but it began as a dissent by conservatives against the bank bailout in 2008. Don’t underestimate the possibility that Tea Party congresspersons may have deeply-felt, principled motives for opposing Fed bailouts of the TBTFs. The road to hell is paved with good intentions.
[9] All this will be occuring in a larger context where the reaction of most of us — the 99 percent — is increasingly also to say ‘burn it all down’ since we assume that it’s the super-wealthy — the 1 percent — who’ll be stripped when the current financial system comes down, not us. We believe — reasonably enough — in the possibility of a better system after this one’s collapse. We think we have nothing left to lose — and there we might be wrong.
[10] The U.S. recession, which was expected to be shallow, will take on an ugly new dimension as unemployment rates rise further. As the U.S. economy follows Europe into recession, Chinese exports — which may be even more dependent on exports now than it was in 2008 –will drop and the Chinese economy will suffer due to the situation in Europe and the U.S.
[11] Trying to protect what they have and deleverage, the U.S. and China and sovereign states across the world will impose protective tariffs and devalue their currencies. As each country thus races towards the bottom, the currency wars will get serious.
There are other factors. But is the talk of ‘inevitability’ starting to sound more plausible?
michael,
I think the term for that is après moi le déluge politics.
Well yeah. What Michael said.
Sometimes a swarm of rational actors will produce a result that is far from rational.
I’ve learned to grow suspicious whenever I hear the words “a perfect storm” uttered in connection with financial matters (note its use in the video), as if collapse wasn’t the inevitable result of unchecked greed, fraud and vanity.
A “perfect storm” makes it all seem so coincidental…
I’m with you, TC/TWU! I suppose that I was trying to say something similar.
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