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The Great Unravelling

by Migeru Tue Oct 19th, 2010 at 04:07:22 AM EST

The Peruvian economist Hernando de Soto has been pilloried before here on ET for suggesting (paraphrased, maybe distorted) that all that's necessary for developing countries to pull themselves up by their bootstraps is to give poor people property titles on the houses they occupy and the land they till, and then proceed to monetize all this property in order to kick-start an economic boom. However, leaving aside the suggestion that this is the way to fuel economic development, he does have a point when he says that

In the West, this formal property system begins to process assets into capital by describing and organizing the most economically and socially useful aspects about assets, preserving this information in a recording system--as insertions in a written ledger or a blip on a computer disk--and then embodying it in a title. A set of detailed and precise legal rules governs this entire process. Formal property records and titles thus represent our shared concept of what is economically meaningful about any asset. They capture and organize all the relevant information required to conceptualize the potential value of an asset and so allow us to control it ...

The reason capitalism has triumphed in the West and sputtered in the rest of the world is because most of the assets in Western nations have been integrated into one formal representational system ... By transforming people with real property interests into accountable individuals, formal property created individuals from masses. People no longer needed to rely on neighborhood relationships or make local arrangements to protect their rights to assets. They were thus freed to explore how to generate surplus value from their own assets.

-Hernando de Soto, The Mystery of Capital

(last quoted on ET here)

Another quotation of De Soto on ET is this by Chris Cook

Hernando de Soto Says Toxic Assets Emerged From a Shadow Economy (March 25, 2009) - WSJ.com
Property is much more than a body of norms. It is also a huge information system that processes raw data until it is transformed into facts that can be tested for truth, and thereby destroys the main catalysts of recessions and panics -- ambiguity and opacity. To bring derivatives under the rule of law, governments should ensure that they conform to six longstanding procedures that guarantee the value and legitimacy of any kind of paper purporting to represent an asset:

  • All documents and the assets and transactions they represent or are derived from must be recorded in publicly accessible registries. It is only by recording and continually updating such factual knowledge that we can detect the kind of overly creative financial and contractual instruments that plunged us into this recession.

  • The law has to take into account the "externalities" or side effects of all financial transactions according to the legal principle of erga omnes ("toward all"), which was originally developed to protect third parties from the negative consequences of secret deals carried out by aristocracies accountable to no one but themselves.

...

- Governments can no longer tolerate the use of opaque and confusing language in drafting financial instruments. Clarity and precision are indispensable for the creation of credit and capital through paper. Western politicians must not forget what their greatest thinkers have been saying for centuries: All obligations and commitments that stick are derived from words recorded on paper with great precision.

Above all, governments should stop clinging to the hope that the existing market will eventually sort things out. "Let the market do its work" has come to mean, "let the shadow economy do its work." But modern markets only work if the paper is reliable.

The importance of the rule of law has also been emphasised by Jérôme repeatedly (sorry, no links) when he dismissed suggestions that the dollar would be dropped for other currencies or that alternative markets spearheaded by Russia, Venezuela, China or Iran could take off. The rhetorical question goes "would you trust contracts that defer to the Russian or Iranian courts for dispute resolution rather than English or US courts?", and the answer is "of course not", as Krugman reminded us in his recent NY Times op-ed The Mortgage Morass
American officials used to lecture other countries about their economic failings and tell them that they needed to emulate the United States model. The Asian financial crisis of the late 1990s, in particular, led to a lot of self-satisfied moralizing. Thus, in 2000, Lawrence Summers, then the Treasury secretary, declared that the keys to avoiding financial crisis were "well-capitalized and supervised banks, effective corporate governance and bankruptcy codes, and credible means of contract enforcement." By implication, these were things the Asians lacked but we had.
However, the financial crisis threatens to undermine that perception. Krugman continues
The accounting scandals at Enron and WorldCom dispelled the myth of effective corporate governance. These days, the idea that our banks were well capitalized and supervised sounds like a sick joke. And now the mortgage mess is making nonsense of claims that we have effective contract enforcement -- in fact, the question is whether our economy is governed by any kind of rule of law.
As I wrote earlier this week, if you take the view that the rule of law and a functioning property register are some of the key institutional factors explaining the success of capitalism in the last couple hundred years, you're potentially looking at the end of capitalism as we know it in the US. The alternative is a complete rout of the US financial system, which is another way for capitalism as we know it in the US to, if not end, at least get reset to a tabula rasa.

Follow me below the fold for a summary of the "mortgage mess" situation, how it got to be this way, and what might happen in the near future.


Fraudulent mortgages

Update [2010-10-17 4:47:47 by Migeru]: It all started with fraud at mortgage origination. Recall The Two Documents Everyone Should Read to Better Understand the Crisis (by William K. Black in the Huffington Post on February 25, 2009)
As a white-collar criminologist and former financial regulator much of my research studies what causes financial markets to become profoundly dysfunctional. The FBI has been warning of an "epidemic" of mortgage fraud since September 2004. It also reports that lenders initiated 80% of these frauds. When the person that controls a seemingly legitimate business or government agency uses it as a "weapon" to defraud we categorize it as a "control fraud" ("The Organization as 'Weapon' in White Collar Crime." Wheeler & Rothman 1982; The Best Way to Rob a Bank is to Own One. Black 2005). Financial control frauds' "weapon of choice" is accounting. Control frauds cause greater financial losses than all other forms of property crime -- combined. Control fraud epidemics can arise when financial deregulation and desupervision and perverse compensation systems create a "criminogenic environment" (Big Money Crime. Calavita, Pontell & Tillman 1997.)

...

The widespread claim that nonprime loan originators that sold their loans caused the crisis because they "had no skin in the game" ignores the fundamental causes. The ultra sophisticated buyers knew the originators had no skin in the game. Neoclassical economics and finance predicts that because they know that the nonprime originators have perverse incentives to sell them toxic loans they will take particular care in their due diligence to detect and block any such sales. They assuredly would never buy assets that the trade openly labeled as fraudulent, after receiving FBI warnings of a fraud epidemic, without the taking exceptional due diligence precautions. The rating agencies' concerns for their reputations would make them even more cautious. Real markets, however, became perverse -- "due diligence" and "private market discipline" became oxymoronic. These two documents are enough to begin to understand:

  • the FBI accurately described mortgage fraud as "epidemic"
  • nonprime lenders are overwhelmingly responsible for the epidemic
  • the fraud was so endemic that it would have been easy to spot if anyone looked
  • the lenders, the banks that created nonprime derivatives, the rating agencies, and the buyers all operated on a "don't ask; don't tell" policy
  • willful blindness was essential to originate, sell, pool and resell the loans
  • willful blindness was the pretext for not posting loss reserves
  • both forms of blindness made high (fictional) profits certain when the bubble was expanding rapidly and massive (real) losses certain when it collapsed
  • the worse the nonprime loan quality the higher the fees and interest rates, and the faster the growth in nonprime lending and pooling the greater the immediate fictional profits and (eventual) real losses
  • the greater the destruction of wealth, the greater the (fictional) profits, bonuses, and stock appreciation
  • many of the big banks are deeply insolvent due to severe credit losses
  • those big banks and Treasury don't know how insolvent they are because they didn't even have the loan files
  • a "stress test" can't remedy the banks' problem -- they do not have the loan files
We have known this for 18 months (even Hernando de Soto could see that in his ESJ op-ed), but we have suspected it for a lot longer. At about the same time that this article came out Gaianne, in an ET thread on whether there was "fraud in the legal sense" in the mortgage bust, linked to a post at the blog Cryptogon about "Wall Street Chop Shops". The post dates from September 2006
Cover of Business Week: How Toxic Is Your Mortgage?

...

The firm's strategy was to acquire fly-by-night companies who were dealing in these dodgy (sub-prime) loans and making impossible to imagine amounts of money at it. The outward public appearances of these acquired companies did not change. Some of the fly-by-night, fast-and-loose, make-it-up-as-you-go and illegal activities were transformed into probably-no-jail-time best-practices. The CFO had a habit of putting me on hold without muting the headset. He always seemed to be talking about "scratch and dent deals" with someone else in his office. "Oh sh*t. They're not going to like this. *rhetorical chuckle* What's a few million dollars between friends..."

...

I noticed that the scam seemed very similar to the way the CIA runs cut outs. Except with this, the firm was only concerned with its public image; it's no secret who owns whom in this game, if you know where to look, and everything had been done according to federal regulations that this firm probably wrote, so it's not a question of legal or illegal. When it comes time to shut down offices and roll up the operations, they want it to go smoothly. And if Joe and Jane Six pack start to wonder who actually sold them their dodgy loan, it won't be immediately apparent. And, if Joe and Jane Six pack read the fine print, they will find that they screwed themselves by signing on the dotted line anyway. When the press interviews these people, they will talk about how "Bob's-Dodgy-Loans-While-You-Wait" screwed them over, and how they didn't know, this, that and the other thing, etc...

...

See, I also handled issues for the used-car-salesman-type 'account executives'. Just before I left, the company switched loan origination systems. The people writing these loans were pissed because they were no longer able to get loans approved for people with fraudulent social security numbers. They would actually complain because the system was telling them that the would-be borrower was using a false/fake/invalid SSN.

...

So, anyway, by late 2006 the general public knew (or could have known) via BusinessWeek that the banks were engaging in predatory lending by giving people toxic "Option ARM" mortgages. As William K. Black reminds us, in predatory lending the lender engages in "control fraud". And Fitch, the rating agency, was disconcerted to find "fraud in almost every file" when doing a back-check of mortgage pools it had itself rated fraudulently by not bothering to check the original documentation. We also know the FBI knew about an "epidemic of mortgage fraud" by at least 2004.

There was fraud on a massive scale, it was clearly intentional and run by people who knew what they were doing, and it could have been stopped by law enforcement but wasn't.

But, in addition, the monetary authorities aided and abetted the fraud by doing their best to convince financially unsophisticated people that a toxic mortgage made sense. "ARM" above stands for "Adjustable-Rate Mortgage", and this is what none other than Alan Greenspan had to say about those in February 2004:

One way homeowners attempt to manage their payment risk is to use fixed-rate mortgages, which typically allow homeowners to prepay their debt when interest rates fall but do not involve an increase in payments when interest rates rise. Homeowners pay a lot of money for the right to refinance and for the insurance against increasing mortgage payments. Calculations by market analysts of the "option adjusted spread" on mortgages suggest that the cost of these benefits conferred by fixed-rate mortgages can range from 0.5 percent to 1.2 percent, raising homeowners' annual after-tax mortgage payments by several thousand dollars. Indeed, recent research within the Federal Reserve suggests that many homeowners might have saved tens of thousands of dollars had they held adjustable-rate mortgages rather than fixed-rate mortgages during the past decade, though this would not have been the case, of course, had interest rates trended sharply upward.

American homeowners clearly like the certainty of fixed mortgage payments. This preference is in striking contrast to the situation in some other countries, where adjustable-rate mortgages are far more common and where efforts to introduce American-type fixed-rate mortgages generally have not been successful. Fixed-rate mortgages seem unduly expensive to households in other countries. One possible reason is that these mortgages effectively charge homeowners high fees for protection against rising interest rates and for the right to refinance.

American consumers might benefit if lenders provided greater mortgage product alternatives to the traditional fixed-rate mortgage. To the degree that households are driven by fears of payment shocks but are willing to manage their own interest rate risks, the traditional fixed-rate mortgage may be an expensive method of financing a home.

He was saying this when the interest rates were at historical lows. When interest rates are at a low one would want to lock in the low rates, not gamble that rates are going to go even lower. So, while it was true in 2004 that mortgagees would have benefitted if they had entered into a variable rate mortgage years earlier, it was not true that the right thing in 2004 was to offer (and accept) variable rates. People who were paying attention were not amused
There are already numerous variable and short-term instruments available for the sophisticated (or naive) homeowners. Greenspan's speech is an encouragement to use these short-term instruments. As the Wall Street Journal comments, "It is almost unheard of for an official of the central bank to offer advice on interest rates, over which it has enormous influence."

We would go much further than this: unless Greenspan clarifies his comments, he must resign. Calling on homeowners to leverage their personal finances using short-term debt is a financial distress call. Greenspan must be desperate to get consumers to take ever more money out of their homes, to inflate home prices. He can only make such a statement if he knows short-term rates will stay low for years to come, at any cost. The "cost" will be sharply higher long-term rates and a faltering dollar.

We very much hope that Greenspan will put his words into perspective. It is our view, however, that Greenspan is indeed desperate and means exactly as he said. Greenspan's entire monetary policy has been based on wealth creation through higher real estate prices; he is taking this concept to new levels thereby risking an unprecedented real estate bubble, and a subsequent collapse of unprecedented proportions.

Update [2010-10-17 7:18:47 by Migeru]:

Fraudulent foreclosures

Now, from reading the above you might get the impression (and I did at the time) that, while mortgage applicants may have lied on their applications, or fly-by-night mortgage brokers may have used false data (such as fake Social Security Numbers) to enter into the systems, or even that mortgages may have been given to non-qualifying borrowers, at least the mortgage actually existed. After all, Fitch was able to find fraud "in almost every file" which means they at least were able to look at the files (which S&P wasn't allowing its analysts to request to do).

However, since people in the US started defaulting on their mortgages en masse (and we're not talking just about subprime borrowers but about prime borrowers exploiting "strategic default" as a possibility to get out form under a negative-equity mortgage), there has been a trickle of reports that some foreclosures were hitting the minor obstacle that it wasn't clear who actually held the mortgage and so had standing to foreclose. We'll get into how it was possible to lose track of the notes when we talk about securitization, but what's important now is that, in the drive to recover some of the asset value lost to default, corners have been cut (again) resulting in massive foreclosure fraud. But the really worrisome bit is the collusion of the powers of the state by setting up Kangaroo foreclosure courts, or proposing legislation to allow foreclosures to proceed without the proper documentation. This is what Krugman above refers to when he writes the question is whether [the US] economy is governed by any kind of rule of law. Update [2010-10-17 18:6:20 by Migeru]:

The level of impunity involved in the foreclosure "industry" is perhaps best illustrated by the banks changing the locks on the doors of properties they haven't obtained a foreclosure on. This from Naked Capitalism

It turns out that banks in [Florida] are so confident of their above the law status that they’ve also taken to casually changing the locks on and entering homes they don’t own, meaning haven’t foreclosed upon. This has become sufficiently common that the local press has taken notice. From the Sarasota Herald Tribune:
It is illegal for any bank representative to enter a property if they have not yet retaken it at a foreclosure sale, especially if there is any sign the home is occupied, foreclosure experts say.

The process of banks hiring people to break into homes, even when occupied, is just the latest oddity of the messy foreclosure crisis in Florida.

Some property owners are reporting the break-ins to law enforcement as burglaries. Yet investigators consider the disputes a civil matter because the contractors do not display criminal intent.

Breaking the law (destroying private property, namely the locks, to prevent consumer access to their property) isn’t criminal intent? What about “harassment”and “extortion” don’t these investigators understand? This looks to be more a matter of local law enforcement officials being unwilling to deploy resources.
So that was law enforcement potentially being lazy or willfully indifferent. Now here's the court system being subverted in the interest of speedy foreclosures. From Naked Capitalism
Given the success that local attorneys are having (it has reached the point where the state attorney general’s office has opened an investigation into three so-called foreclosure mills operating in the state), pushback by the mortgage industrial complex was inevitable. The old saw about “best government money can buy” now looks to apply to the courts, the one area most people assume to be relatively free from tampering by well funded interests.

...

These new foreclosure-only courts are special creations of the Florida legislature, funded separately from the usual court system. They are manned by retired judges, which means in many cases they are not familiar with real estate law.

...

Moreover in Florida, the public is being barred from observing these trials. In Duval County, Palm Beach County, and Hillsborough County (and this is not a full list), police are refusing entry, claiming safety issues (overcrowding) when lawyers and defendants report there are plenty of open seats. The First Amendment Foundation has urged concerned parties to write letters of protest to judges denying access, including camera access. That battle has not yet been escalated.

That article contains egregious examples of these specially created and separately funded foreclosure-only courts running roughshod over due process. Go and read it.

Note the implication that these foreclosure courts are a manoeuvre by the banks' rent-a-legislators in response to the relative success people are having in challenging foreclosures when the putative lender doesn't have the proper documentation to prove they have standing to foreclose. Other strategies include Counterfeit court summons (via Zero Hedge)

Today, courtesy of Alan Grayson's office we discover that not only are servicers foreclosing on mortgages to which nobody apparently owns the title, but that servicers, representing such reputable firms as Deutsche Bank National Trust Company, are willing to counterfeit court summons in their pursuit of a clean and efficient foreclosure mill. As Grayson's office points out: "Apparently what’s happening is that private process servicer companies may not be serving people with summons, and are simply counterfeiting the documents so they can keep the fees without doing the work. That means that you could theoretically be foreclosed on without ever knowing there was even a foreclosure case against you." What it also means, is that banks may have been participants in this outright criminal judicial fraud, which we are confident will be uncovered in many more cases, as this is highly unlikely to be an isolated case.
But it gets better:
In Florida, a suspiciously large number of Affidavits of Lost Summons have been filed in foreclosure cases. In only three counties so far in 2010 over 9,000 summons have been “lost”. These are the documents that are legally required to be served to homeowners notifying them of impending foreclosure and eviction. Many of the Affidavits of Lost Summons do not even identify the party that was supposedly served with the original summons. How could a legal summons be served to a homeowner, then lost, and suddenly no one can remember who the homeowner is? Could this possibly be the reason for persistent stories of homeowners being evicted without being aware they were in foreclosure? Are many of these Affidavits of Lost Summons actually just covering for the fact that was no original summons?

Florida stays in the foreclosure fraud news spotlight with a fired employee from one of the law firms under investigation by the State Attorney General’s Office. The woman has given the Attorney General a statement, under oath and with her attorney present, going into great detail how the law firm set up production lines to produce up to 2,000 fraudulent documents each day. Lawyers at the firm were reportedly worried about breaking the law and being disbarred but even more worried about being fired for refusing to cooperate. Other employees were required to practice the CFO’s signature so they could replicate it on documents while the CFO supervised. Notary stamps were casually passed around and piles of blank documents were notarized so they could be filled in at a later time. This is very damaging information, to put it mildly.

Update [2010-10-18 6:1:2 by Migeru]: In fact, there is a whole industry dedicated to forging documents, as related by Naked Capitalism
We finally have concrete proof of how widespread document fabrication was. For some reason the ScribD embeds aren’t working correctly, you can view the entire Lender Processing Services price sheet here, and here are the germane sections.

Not only are there prices up for creating, which means fabricating documents out of whole cloth, and look at the extent of the offerings. The collateral file is ALL the documents the trustee (or the custodian as an agent of the trustee) needs to have pursuant to its obligations under the pooling and servicing agreement on behalf of the mortgage backed security holder. This means most importantly the original of the note (the borrower IOU), copies of the mortgage (the lien on the property), the securitization agreement, and title insurance.

Also notice that there is a price for creating allonges. We discussed earlier that phony allonges have become the preferred fix for the failure to convey notes properly:

The cure for the mortgage documents puts the loan out of eligibility for the trust. In order to cure, on a current basis, they have to argue that the loan goes retroactively back into the trust. This is the cure that the banks have been unwilling to do, because it is a big problem for the MBS. So instead they forge and fabricate documents.

The letter in particular mentions an allonge. An allonge is a separate sheet of paper which is attached to a note to allow for more signatures, in this case, endorsements, to be added. Allonges have had a way of magically appearing in collateral files while trails are in progress (I’ve seen it happen in cases I was tracking; it’s gotten so common that some attorneys warn judges to be on the alert for “ta dah” moments).

The wee problem with an allonge miraculously being discovered is that the allonges that show up are inherently in violation of UCC (Uniform Commercial Code) provisions (UCC has been adopted by all states, a few states have minor quirks, but the broad provisions are very similar).

An allonge is NOT to be used unless all the space on the original note, including the margins and the back side of pages, has been used up. This is never the case. Second, an allonge has to be so firmly attached to the original document as to be inseparable. Thus an allonge suddenly being discovered is an impossibility (well impossible if it were legit), yet it seems to happen all the time.

This revelation touches every major servicer and RMBS trustee in the US. DocX is a part of of Lender Processing Services. Lender Processing Services has three lines of business, the biggest of which is “default services”, representing close to half its revenues of this over $2 billion in revenues company. DocX is its technology platform it uses to manage its national network of foreclosure mills. Note that DocX closed one of its offices in Alpharatta, Georgia earlier this year, per StopForeclosures:

As Ellen Brown puts it, you can't recover what doesn't exist.

Fraudulent securitizations

The judicial fraud detailed in above became "necessary" as soon as it is clear to the banks that "recovery" of any value from a delinquent loan is impossible because of faulty documentation. As Naked Capitalism wrote:
The admission by GMAC that it produced improper affidavits, followed by suspension of foreclosures by GMAC, Chase, and Bank of America in 23 judicial foreclosures states, is the tip of the iceberg of widespread foreclosure abuses. Yet comparatively few members of the media have asked the right question: why would servicers and law firms engage in fraudulent activity on such a widespread basis?

The ugly answer, as we have detailed long form in earlier posts (see here and here for more detail) is just as the front end of the mortgage securitization pipeline broke down, with originators increasingly simply pumping any deal through in the interest of pulling out fees, the same behavior spread to the back end.

Evidence is mounting that the various parties responsible for getting the notes (the borrower IOU into the securitization trust, failed to perform a series of tasks that were clearly set forth in the governing contract, the pooling and servicing agreement. These procedures were designed to thread a path through a complex thicket of multiple legal considerations (state real estate statutes, federal securities law, trust law, IRS provisions, to name a few). The failure to do it right means any retrospective fixes run afoul of multiple boundary conditions. Thus to industry participants, fraud, bizarrely, looks to be less bad than admitting to their colossal failures to respect contractual obligations and legal requirements.

(emphasis added in the last paragraph)

Now, the reason why the proper documention to prove standing to foreclose is not there is that the mortgage securitization process (the process whereby a pool of mortgage loans is sliced and diced into a bond that can be rated and sold to investors) was run just as shoddily as the mortgage origination. The following just boggles the mind: FUBAR Mortgage Behavior: Florida Banks Destroyed Notes; Others Never Transferred Them

But to give readers the latest report of modern FUBAR, mortgage edition, let us continue with the sorry saga of “Where’s My Note?” For the benefit of newbies, what everyone calls a mortgage actually has two components: the note, which is the borrower IOU, and the mortgage (in some states, it’s called a deed of trust) which is the lien on the property. In 45 states, the mortgage is a mere accessory to the note; you must be the real party of interest in the note in order to foreclose.

The pooling and servicing agreement, which governs who does what when in a mortgage securitization, requires the note to be endorsed (just like a check, signed by one party over to the next), showing the full chain of title, and the minimum conveyance chain is A (originator) => B (sponsor) => C (depositor) => D (trust). The endorsements also have to be wet ink; no electronic signatures permitted.

I’ve had a lot of anecdotal evidence to support the idea that these procedures, which were created in the early days of mortgage securitizations, were simply not observed on a widespread, if not a universal basis. My sense is that the breakdown in practice was well underway by 2004, but it may have taken place earlier. For instance, a group of over 100 lawyers in a loose network around Max Garndner, a North Carolina bankruptcy lawyer who has taken a serious interest in this area, now has a standing joke that the first one that finds a deal where the note was correctly endorsed must bronze it and hang it on their wall. In other words, in none of the cases this large group has seen were the notes transferred to the trust properly.

The link between securitization and foreclosure is explained in this blog post (h/t Millman)
(This is a series giving a basic explanation of the current foreclosure fraud crisis: This is Part One. Here is Part Two, Part Three, Part Four, and Part Five.)

...

Update [2010-10-19 4:7:22 by Migeru]: Some people are going as far as to allege (in a 124-page racketeering lawsuit filing!) conspiracy to commit fraud... MERS/MBS/Foreclosure Goes RICO - MarketTicker Forums
This is a rather lengthy filing, 124 pages worth.  It asserts virtually everything that I've written about for the last three years related to REMICs and MBS (that the notes were not conveyed and now can't be under the law), and alleges Racketeering.

I've read the whole thing, and want to present just a few short cites, but am embedding the entire document as well for those who "want it all".

REMICS were newly invented in 1987 as a tax avoidance measure by Investment Banks. To file as a REMIC, and in order to avoid one hundred percent (100%) taxation by the IRS and the Kentucky Revenue Cabinet, an MBS REMIC could not engage in any prohibited action. The "Trustee" can not own the assets of the REMIC. A REMIC Trustee could never claim it owned a mortgage loan. Hence, it can never be the owner of a mortgage loan.

57. Additionally, and important to the issues presented with this particular action, is the fact that in order to keep its tax status and to fund the "Trust" and legally collect money from investors, who bought into the REMIC, the "Trustee" or the more properly named, Custodian of the REMIC, had to have possession of ALL the original blue ink Promissory Notes and original allonges and assignments of the Notes, showing a complete paper chain of title.

58. Most importantly for this action, the "Trustee"/Custodian MUST have the mortgages recorded in the investors name as the beneficiaries of a MBS in the year the MBS "closed." Every mortgage in the MBS should have been publicly recorded in the Kentucky County where the property was located with a mortgage in the name similar to "2006 ABC REMIC Trust on behalf of the beneficiaries of the 2006 ABC REMIC Trust." The mortgages in the referenced example would all have had to been publicly recorded in the year 2006.

59. As previously pointed out, the ¡°Trusts¡± were never set up or registered as Trusts. The Promissory Notes were never obtained and the mortgages never obtained or recorded.

60. The "Trust" engaged in a plethora of "prohibited activities" and sold the investors certificates and Bonds with phantom mortgage backed assets. There are now nationwide, numerous Class actions filed by the beneficiaries (the owners/investors) of the "Trusts" against the entities who sold the investments as REMICS based on a bogus prospectus.

61. In the above scenario, even if the attorney for the servicer who is foreclosing on behalf of the Trustee (who is in turn acting for the securitized trust) produces a copy of a note, or even an alleged original, the mortgage loan was not conveyed into the trust under the requirements of the prospectus for the trust or the REMIC requirements of the IRS.

62. As applied to the Class Members in this action, the end result would be that the required MBS asset, or any part thereof (mortgage note or security interest), would not have been legally transferred to the trust to allow the trust to ever even be considered a "holder" of a mortgage loan. Neither the "Trust" or the Servicer would ever be entitled to bring a foreclosure or declaratory action. The Trust will never have standing or be a real party in interest. They will never be the proper party to appear before the Court.

63. The transfer of mortgage loans into the trust after the "cut off date" (in the example 2006), destroys the trust's REMIC tax exempt status, and these "Trusts" (and potentially the financial entities who created them) would owe millions of dollars to the IRS and the Kentucky Revenue Cabinet as the income would be taxed at of one hundred percent (100%).

Yep.  And this is just the first key into the circle of Hell where these folks are headed. 

See, without standing they can't foreclose, but then we get back to "who can?"  And what we find is that the originator was paid, and thus they can't either.  Worse, for those originators that are bankrupt, their "assets", such as they are, can't go anywhere without a bankruptcy trustee's signature, and further, even if someone was to acquire that, which nobody has, THE REMICs CAN'T TAKE THE PAPER ANYWAY AS THEIR CLOSING DATE HAS EXPIRED. 

So we have a bankrupt originator who was paid in full and can't foreclose, and we have a note that can't be transferred into the REMIC without destroying its tax preference (retroactively, incidentally), which instantaneously trashes the value of the MBS - probably by more than they could hope to recover if they were going to take the note anyway. 

At the very least what I think happened is that the people running the mortgage securitization pipeline figured a default rate of maybe 1% and put that down to "cost of doing business". So it's possible that, contrary to claims that the intent was from the very beginning that the subprime mortgages would lead to foreclosures, the intent was never to worry about foreclosures. The money to be made was in the transaction volume and in selling the residential mortgage-backed securities to investors speculators. Not doing the paperwork properly meant that the RMBS were marketed on misrepresentation, but without a wave of defaults nobody would have noticed. So, as Drew puts it in order to save a billion on paperwork they created a 14 trillion hole (and that's not even counting leverage). In addition, there was some tax arbitrage involved via these REMICs, and that may also have been improperly done, so things might get interesting if there is a tax audit of these entities. But I think the foreclosure fraud is just the attempted coverup of the securitization fraud. Whether this all amounts to a conspiracy in the eyes of the court system remains to be seen, but apart from class-action lawsuits from foreclosure victims, one should be expecting class-action lawsuits from RMBS speculators investors.

[editor's note, by Migeru] Work in progress...

Display:
ooooh, you tease

keep to the Fen Causeway
by Helen (lareinagal at yahoo dot co dot uk) on Sat Oct 16th, 2010 at 02:50:51 PM EST
The 'Rule of Law' as envisaged here relates to the two 'Anglo' forms of law:

(a) Government enactments -'Statute Law'; and

(b) Judge-made 'Common Law' aka 'Equity'.

These 'contrats de mandat' - as the French term them - are 'one way' contractual relationships enforced, ultimately, through threat of violence.

Now, in my early days at ET I waxed lyrical about the  possibilities arising out of the use of 'two-way' protocols - ie mutual/reciprocal and interactive agreements - that the French term 'Contrats de Société'.

European Tribune - Dawn of the Open Corporate

Pothier defines a contrat de société as follows:

"Le Contrat de Société est un contract, par lequel deux ou plusieurs personnes mettent ou s'obligent de mettre en commun quelque chose, pour faire en commun un profit honnête, dont ils s'obligent réciproquement de se rendre compte".

Pothier sets out four characteristics that are essential to a contrat de société:

(i) that each of the parties brings or obliges itself to bring something to the arrangement;

(ii) that the arrangement is established for the common benefit of each of the parties;

(iii) that the parties propose, by the arrangement, to make a gain or profit in which each of the contracting parties can hope to have a share by virtue of what it has brought to the arrangement; and

(iv) that the business which is the object of the arrangement and for which the contracting parties entered into the arrangement should be something lawful and that the profit which they propose to withdraw should be an honest profit.

The interesting thing....at least to me :-).....about essentially voluntary interactive agreements like these is that they are able to cross borders with no problem at all, and I look upon them as analogous to 'legal XML' linking disparate legal persons and jurisdictions rather than hardware and software.

Law Is Code.

Now, the key point to understand about 'Property' is, as Bentham pointed out in his inimitable way, that it is not an object - which most people are accustomed to think - but is in fact the relationship between subjects (legal persons) and objects eg land (Real Property rights) or knowledge (Intellectual Property rights).

Property is in fact the bundle of rights and obligations which together comprises the relationship between the owner and the owned, and the user and the used.

The innovation which I have been working on these last few years is to encapsulate the property relationship within an 'open corporate' agreement I call a 'Capital Partnership'. In doing so we may, among other things, thereby create simple but radical new types of 'co-ownership' tenure, and the possibility of basing undated credits ('Units') directly upon the use value of productive assets held in common by a custodian.

Such 'co-ownership' is not a million miles away from the legal innovation known as the Condominium which has its roots in French civil law, it appears.

The first condominium law passed in the United States was in the Commonwealth of Puerto Rico in 1958.[1]  English Common law tradition holds that real property ownership must involve land, whereas the French civil law tradition recognized condominium ownership as early as the 1804 Napoleonic Code; thus, it is notable that condominiums evolved in the United States via a Caribbean government with a hybrid common-civil legal system.

So the point I am getting to is that the rhetorical question you pose below is a red herring, because it is quite straightforward to propose a globally valid protocol and specify any jurisdiction which is mutually acceptable to the subscribers to the consensual agreement.

European Tribune - Comments - The Great Unravelling

The importance of the rule of law has also been emphasised by Jerome repeatedly when he dismissed suggestions that the dollar would be dropped for other currencies or that alternative markets spearheaded by Russia, Venezuela, China or Iran could take off. The rhetorical question goes "would you trust contracts that defer to the Russian or Iranian courts for dispute resolution rather than English or US courts?", and the answer is "of course not", as Krugman reminded us in his recent NY Times op-ed

Note here that I am merely observing the emergence in use of a new generation of partnership entities - such as the US LLC and UK (Qatar; Dubai; Japan and now India) LLP - which are now in such pervasive use that even the 'Economist' recently picked up on the fact.

The markets and mechanisms I propose will not be alternative market mechanisms, but rather complementary mechanisms. ie  both/and rather than either/or.

So the adoption of a global unit of currency consisting of a Unit redeemable in payment for natural gas, or of an 'Energy Standard' unit as a pricing reference, or both, are achievable simply by market participants' consent to a partnership framework agreement which incorporates these elements and sets out a suitable framework of trust and market mechanism for their use.

The key is the participation of a critical mass of users. In the case of natural gas, Qatar, Russia and Iran have between them maybe two thirds of global reserves, so if they were to convince (say) China that Units redeemable in payment for natural gas supplied by members of the Gas Clearing Union are superior to dollars as a store of value - and backed by a suitable framework of trust with (say) a Swiss custodian and English arbitration - then a global 'gas pool' and gas-based currency might well be possible.

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

by ChrisCook (cojockathotmaildotcom) on Sat Oct 16th, 2010 at 08:01:43 PM EST
Of course, a method to sort out the mortgage mess would be more relevant to this Diary, but before suggesting how that may be achieved, I eagerly await Mig's update.....

"The future is already here -- it's just not very evenly distributed" William Gibson
by ChrisCook (cojockathotmaildotcom) on Sat Oct 16th, 2010 at 08:10:19 PM EST
[ Parent ]
It seems almost forgotten that the USA was forced, by default of the Colonies, to forge a FEDERAL CONSTITUTION that gave the central government the FORCE necessary to make contracts viable across state borders, and across the borders between states and the Federal government.

We're still fighting for honorable contracts; absent that, enforceable ones, and we're losing the fight to (crooked) corporations. [But I repeat myself... ]

I often rave about Honda quality, and when people ask me how that is accomplished, I tell them an apocryphal story: when an engineering flaw is found in a Honda product, everyone goes outside and they SHOOT the engineer at fault.

It makes the point: mistakes have to hurt the mistaker.

REAL accountability, which we have not got.

Align culture with our nature. Ot else!

by ormondotvos (ormond.otvosnospamgmialcon) on Mon Oct 18th, 2010 at 04:25:02 AM EST
[ Parent ]
when an engineering flaw is found in a Honda product, everyone goes outside and they SHOOT the engineer at fault.

No such thing is done by Honda. In Japan the death penalty is imposed only for multiple murders and they have rule of law. Summary executions of employees by a corporation would be unthinkable. Further, such a punitive mindset would make impossible the open collaboration of the production chain in factories that makes possible their continual improvement of process that is foundational.

In China there have been executions of CEOs who presided over highly damaging frauds, such as the melamine tainted milk scandal, but Honda would not dare execute a Chinese national at one of its Chinese plants. Too many echoes of WW II.

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

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Oct 18th, 2010 at 11:15:50 AM EST
[ Parent ]
I understood the quoted bit was a joke...

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 Migeru (migeru at eurotrib dot com) on Mon Oct 18th, 2010 at 11:47:48 AM EST
[ Parent ]
A rather tasteless one, then.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Oct 18th, 2010 at 01:26:03 PM EST
[ Parent ]
That might have been the intent. He called it "an apocryphal story" but it seems more a mislabeled blatant fabrication. There are enough corporations who "have their own security" as it was put in The China Syndrome and who have been shown to have grossly abused that function that I don't want baseless and ludicrous accusations of that sort on ET. Reality is bad enough. Let's not blur the lines needlessly.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Oct 18th, 2010 at 05:52:16 PM EST
[ Parent ]
Chris, I think your ideas have a lot of promise, but what we have to think about in all of this is what happens when someone tries to rip someone else off in your framework? Is it really any less likely than the current way of doing things, and if it does occur, who wins and who loses?

Law is code, but code for what?  I argue, following a number of other thinkers on that subject, that it's code for power, and nothing else. This means that at the end of the day, even if laws, contracts, or other social arrangements for trust fail, trust ultimately belongs to the powerful.

So, is your framework sensitive enough to the different levels of power that various parties have when entering into what appear to be pretty complicated arrangements, and who (and don't say the Swiss) can really guarantee such arrangements if not a powerful state?

by santiago on Sat Oct 16th, 2010 at 10:11:18 PM EST
[ Parent ]
It's not a question of whether the framework is sensitive enough - the framework agreement is entirely open and may be written in any way the parties consensually agree. But you are quite right that you have to take power relationships into account.

I believe that the 'capital partnership' protocol I advocate - whether writ large or small, because if you link micro you get macro - actually works because it makes it more 'profitable' for even the most powerful to co-operate rather than to compete on unequal terms or impose their will.

I don't think I am being 'Utopian' here either, although some here will disagree, because I am basing my work on observation of what people are actually doing right now with partnership-based protocols and enterprise models simply because 'they work'.

The Swiss would not guarantee anything - the members would do so collectively - but they have a long history of neutrality and of being a good place to put valuable things. In this case they would be the 'custodian' of the transaction and title registries (aka accounts) and the flows of value and collateral documented therein which would underpin the global market platform.

Dispute resolution would take place in whatever  jurisdiction and forum members prefer. Here the market in base metals is a good example, where almost all transactions - whether or not they take place on the  London Metal Exchange - will almost invariably have an clause specifying LME arbitration, because it is perceived to be the fairest and most expert.

This title/transaction registration is de Soto's main thrust - as it was mine when I set up a dot com (OilClear) twelve years ago doing precisely that in the oil market - and what the 2007 thread of mine was concerned with.

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

by ChrisCook (cojockathotmaildotcom) on Sun Oct 17th, 2010 at 06:39:27 AM EST
[ Parent ]
It seems to me that this is somewhat tangential to where Mig is going. You can contractually share or dispose of ownership or usufruct in any conceivable contractual manner, but in the long run it can't work unless

  • property and ownership are clearly explicated, with no gaps or blank spots, and
  • contracts are enforceable (i.e. all parties have recourse to a consistent rule of law).

This is all the more important for cross-border arrangements.

Novel partnership arrangements by no means obviate these needs, simply because <voice_of_experience>partnerships can go terribly bad</voice_of_experience>.

The fact is that what we're experiencing right now is a top-down disaster. -Paul Krugman

by dvx (dvx.clt ät gmail dotcom) on Sun Oct 17th, 2010 at 04:59:48 AM EST
[ Parent ]
Nothing wrong with tangential, in my book.

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 Migeru (migeru at eurotrib dot com) on Sun Oct 17th, 2010 at 05:01:34 AM EST
[ Parent ]
And if a partnership goes terribly bad, will not the law of land of the partners be a big factor? It is all good and well to say in a contract that disagreements shall be settled in Switzerland, but if you disagree on that, then as I see it, eventually the law of the land where the property happens to be can become very important.

Intellectual property - or rather the rather different beasts of copyright, patents, trademarks, design patents, etc - is even messier because despite attempts to steamroll the worlds states with TRIPS (and ACTA, and many more), there are still different legal traditions, making something that has monopoly protections in one country, possibly lacking in another. To use an example, the copyright of Mein Kampf is in Germany owned by the state of Bavaria, in Sweden it is owned, but not by the state of Bavaria (by courtcase, who actually owns it is unsettled), and in Algeria it is in the public domain.

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se

by A swedish kind of death on Sun Oct 17th, 2010 at 05:40:11 AM EST
[ Parent ]
A swedish kind of death:
And if a partnership goes terribly bad, will not the law of land of the partners be a big factor? It is all good and well to say in a contract that disagreements shall be settled in Switzerland, but if you disagree on that, then as I see it, eventually the law of the land where the property happens to be can become very important.

There would be custodians of different types of property in each jurisdiction, but purely national law could only restrict use of that property in that country - they need international agreements to police use across borders.

When it comes down to the use value of land/location it is the case that national laws, custom and practice will always - by definition - apply.

Knowledge and energy is more footloose of course, and therefore property rights may be susceptible to international, rather than domestic, dispute resolution particularly if such rights (and the Units I propose are essentially a new class) are adequately, securely and transparently registered with a trusted third party.

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

by ChrisCook (cojockathotmaildotcom) on Sun Oct 17th, 2010 at 07:41:47 AM EST
[ Parent ]
dvx:
partnerships can go terribly bad

Of course they can, and that is my experience, too.

But then as I wrote here years ago, an 'open' corporate (like any corporate) is not legally a partnership at all - since it has a collective 'joint' responsibility insofar as the members consensually agree (the good bit of partnerships) - but without the 'several' individual responsibility of partners for each other (the bad bit).

Moreover, if you add to an Open Corporate the semi-permeable protective membrane of limited liability (as with the UK LLP) then you get rid of the other nasty part of partnership, to wit, unlimited liability for the actions of your partners.

So I prefer to talk about partnership-based framework agreements, but am also careful to make the crucial - indeed, game-changing - distinction which makes an open corporate protocol potentially so powerful.

As for the tangent, I agree, but felt I had to correct Mig on the necessity for the sort of 'rule of law' he referred to.

When Mig has done his update, I propose to rejoin from the tangent, and demonstrate that it is possible to package up all of the terminally buggered up contractual relationships of the US real property system (and ours come to that) into a simple but radical and complementary new system.

I made a presentation to the top 20 UK housing associations last week on precisely that subject.

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

by ChrisCook (cojockathotmaildotcom) on Sun Oct 17th, 2010 at 06:17:23 AM EST
[ Parent ]
As for the tangent, I agree, but felt I had to correct Mig on the necessity for the sort of 'rule of law' he referred to.

Chris, you clearly haven't played enough Junta or Twilight Imperium if you think that rule of law is optional in contract enforcement.

The benefit that rule of law brings - the one benefit that only consistent external enforcement can bring - is the ability to enter into intertemporal contracts (as in "I give you X today, you give me Y tomorrow"). Absent a consistent external enforcement framework, nobody ever has an incentive to hand over information, goods or other resources without immediately receiving something of equal value in return. Because absent external enforcement of obligations, having someone owe you a favour is an incentive for them to sell you out, rip you off or otherwise screw you over (if I owe you a debt, the cost of you becoming my enemy is reduced by the value of the debt I owe you. Even worse, if you weakened your position and strengthened mine by whatever action placed me in debt to you originally, you reduce your ability to enforce the debt yourself).

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Oct 17th, 2010 at 07:40:17 AM EST
[ Parent ]
I confess I have not played either game.

Comrade Stalin it was who said 'Trust: but Validate'.

So the framework of trust I advocate is for the performance guarantees which are given by market participants to be backed mutually - eg by provisions or collateral - in a way agreeable to all.

I see no reason why a market service provider should not provide the necessary risk management and quality control in such a 'Guarantee Society' architecture in accordance with the protocols laid down in the agreement. This is in fact pretty much the way that P & I clubs currently operate for mutual insurance of shipping etc.

UK P&I Club - What is P&I?

The Advantages of Mutuals over Fixed Premium Insurers

Not for profit
  • The P&I Clubs provide at cost insurance without profit. Fixed premium insurers aim to make a profit for their shareholders.
Control
  • Ultimate control of P&I Clubs is in the hands of the shipowner assureds, through elected shipowner boards/committees which decide policies on eg., scope of cover, claims payments, premium calling etc. Ultimate control of a commercial insurer is in the hands of the insurance company, and not the shipowners.
"Dividends"
  • P&I Clubs regularly pass back to the shipowner the benefit of a good underwriting year through reduced or returned premiums. Fixed premium insurers are most unlikely to do so.
Commitment
  • P&I Clubs have existed continuously for more than 140 years. Fixed premium insurers have no convincing track record of commitment to P&I insurance.
Scope of Cover
  • P&I Clubs provide the most comprehensive cover available including the right of the board to cover "omnibus" claims. Fixed premium insurers provide less cover than P&I Clubs.
Letters of Undertaking
  • P&I Clubs' cost-free letters of undertaking are generally accepted worldwide and can be provided without delay. Fixed premium insurers usually require bank guarantees to free ships from arrest, with resulting costs and delays.
Service Philosophy
  • In a P&I Club, the managers are the servants of the Club, dedicated to the provision and development of the service the Club's shipowner members require. Fixed premium insurers are insurance suppliers to shipowner customers.

At the end of the day, the ultimate sanction in the networked 'Market 3.0' I advocate is that a market participant will be excluded from the market temporarily or permanently.

In this context, I'm reminded of an anecdote from someone I know who provides barter software and runs several successful barter exchanges. He had a complaint from a user that there was virtually no liquidity on the system, but the fact was - my friend tactfully explained - that this guy had pissed off so many other users that there was merely no liquidity visible to him.

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

by ChrisCook (cojockathotmaildotcom) on Sun Oct 17th, 2010 at 07:59:19 AM EST
[ Parent ]
So the framework of trust I advocate is for the performance guarantees which are given by market participants to be backed mutually - eg by provisions or collateral - in a way agreeable to all.

Holding collateral in escrow is always possible, of course, but that will be a decidedly non-trivial expense. One benefit from consistent rule of law is the ability to dispense with such expensive insurance policies.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Oct 17th, 2010 at 08:12:07 AM EST
[ Parent ]
Withn the right data architecture (Hong Kong's clearing system - where there is real-time settlement and no central counterparty - comes close) the cost is pretty trivial.

"The future is already here -- it's just not very evenly distributed" William Gibson
by ChrisCook (cojockathotmaildotcom) on Sun Oct 17th, 2010 at 09:04:24 AM EST
[ Parent ]
Yes, if you have simultaneous exchange, then you don't need escrow services.

If, however, I give you a shipyard, Mig gives you steel, you build a ship and Jerome sails it to some place where Nomad has a container of stuff... then, unless we can rely on external enforcement of Jerome's obligation, you, I, Mig and Nomad will have to hold Jerome's collateral in escrow for months, while the cargo is physically shipped. This restricts Jerome's ability to put that stuff to productive use in the meantime, which is a very real (though not immediately apparent) cost.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Oct 17th, 2010 at 10:00:54 AM EST
[ Parent ]
Yet international letters of credit have long been used to facilitate just such intertemporal problems. Banks provide a significant access to the money contained in the letter of credit based on the agreements themselves and the history of compliance of the parties involved. The importance of this mechanism was clearly revealed in the fall of '08 when its continued operation was threatened by the financial collapse. Unless remedied, mass starvation could have ensued.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun Oct 17th, 2010 at 10:26:56 AM EST
[ Parent ]
that the problem was not solved by letters of credit, it was solved by having around banks which could credibly provide such letters of credit.

The intermediaries ARE the solution, not the tools.

Wind power

by Jerome a Paris (etg@eurotrib.com) on Sun Oct 17th, 2010 at 10:36:30 AM EST
[ Parent ]
Can you explain why a P & I Club - which is managed by s service provider - would not be a solution that would work just as well?

"The future is already here -- it's just not very evenly distributed" William Gibson
by ChrisCook (cojockathotmaildotcom) on Sun Oct 17th, 2010 at 11:24:24 AM EST
[ Parent ]
JaP
it was solved by having around banks which could credibly provide such letters of credit.

Part of the solution was governments providing increased guarantees to existing banks to make their offerings more credible. They could have offered the same guarantees to new banks or to different institutions. It was the credibility that was key and the credibility of the banks was impaired.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun Oct 17th, 2010 at 03:17:18 PM EST
[ Parent ]
but you'd still need banks to provide the L/Cs.

Wind power
by Jerome a Paris (etg@eurotrib.com) on Sun Oct 17th, 2010 at 03:43:18 PM EST
[ Parent ]
Correct.

The intermediary banks (and other institutions) stopped intermediating, and the system froze.

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

by ChrisCook (cojockathotmaildotcom) on Sun Oct 17th, 2010 at 11:26:10 AM EST
[ Parent ]
Chris's theories are like communism (or libertarianism): great in theory, unworkable in practice. More specifically, they require, to work, that people behave in ways that are totally different from what real life suggests. With such an hypothesis, even current capitalism would work.

Wind power
by Jerome a Paris (etg@eurotrib.com) on Sun Oct 17th, 2010 at 08:20:16 AM EST
[ Parent ]
With respect Jerome, I have 35 years of experience of market and enterprise regulation and development and have a fairly clear idea of what will work (and more to the point IS working) in practice and what won't.

Firstly, how do you account for the fact that partnership working - and new enterprise models enabling it - are emerging at such a phenomenal rate (even the Economist has written about it)? In my view this is because these structures harness self-interest and turn it to mutually beneficial purposes.

Secondly, there is the matter of the trend to dis-intermediation. You are yourself - and I congratulate you for taking the plunge - an example of this trend, being now a member of a niche service provider, rather than an employee of a credit intermediary.

It is in the interests of the credit institutions themselves that they should transition to service provision, because this will minimise their capital requirement to the level necessary to cover operating costs.

The fact is that payments to 'unproductive' rentier management and shareholders are unnecessary in a directly connected world, and in my (you think, Utopian) view capitalism will (indeed it already is) eat itself and will re-emerge in a networked; dis-intermediated and non-toxic form operating 'not for loss' rather than 'for rentier profit'.

As for theories: I believe in getting to practical applications, and that is precisely what I am doing.

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

by ChrisCook (cojockathotmaildotcom) on Sun Oct 17th, 2010 at 09:01:48 AM EST
[ Parent ]
What I do is a  job that needs to be done in any case between a project developer and its lenders. In normal times, that competence is required within the developer and within the banks, and they don't need to hire external help (developers may outsource this occasionally).

The market I jumped to work in is quite unusual in that the sector-specific competence is still very scarce (it's a new industry, and precedents are few) and the syndication market being still dead, you need to have it in many banks simultaneously to get a deal to happen (as you need many lenders upfront, instead of the usual practice of negotiating just with one, which syndicates later on). And not many banks have it today. So what I do is work on the sponsor side to structure a deal that enough banks can accept, because the banks are, today, not able to structure a deal together on their own.

This will not last. Banks will build up the experience and internalize the competence. The coordination role will become less necessary as underwriting capacity comes back on the market.

In any case, banks are needed just as before to do the actual lending - the money is not found elsewhere.

Wind power

by Jerome a Paris (etg@eurotrib.com) on Sun Oct 17th, 2010 at 10:44:28 AM EST
[ Parent ]
Jerome a Paris:
This will not last. Banks will build up the experience and internalize the competence.

I think you may be overly pessimistic here. There are an increasing number of niche banking service providers who will IMHO continue to thrive, and I suspect banks may often prefer to use them, rather than training new boys, and then losing them to the next new market entrant with a big cheque book....

Jerome a Paris:

In any case, banks are needed just as before to do the actual lending - the money is not found elsewhere.

I find very useful the distinction - made by the Scottish Futures Trust in their submission to the Scottish Government's recent Independent Budget Review - between high risk; short/medium term financing of development of productive assets; and low risk; medium/long term funding of completed assets.

I believe - in my Utopian way - that there are literally trillions of dollars currently earning negative real returns on T-Bills, Gilts etc, and whose owners would be only too pleased to fund energy assets by direct investment in their pools of production, were the means available.

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

by ChrisCook (cojockathotmaildotcom) on Sun Oct 17th, 2010 at 11:48:24 AM EST
[ Parent ]
between entities willing to finance operating assets, and those willing to take the construction risk by providing funding prior to completion of the project.

And indeed, like in onshore wind, you will see pension funds and other low risk, long term investors coming to hold offshore wind assets, which provide stable revenues over very long periods. But they are not here yet (apart form a couple of deals) because the industry is in its infancy and cannot yet demonstrate the risk profile these investors need.

Even construction risk, which will be borne by project finance banks (and of course, by equity investors) is still difficult to finance, because the risk is so little understood.

And banks cannot externalise the risk analysis - and they shouldn't, as that is what is their core business. And in project finance, they take the job seriously and do it well. But these are conservative times, and it is difficult to get banks to commit to new sectors with no track record, especially as they are asked to take more risk than in other industries (other project finance sector either have construction guarantees by strong sponsors like oil companies, or turnkey construction contracts with very large contractors; here you have multiple contracts with no sponsor guarantees, and higher intrinsic risk due to the weather complication of building offshore).

So yes, there will be room for advisors on the project side, but banks are indispensable, and they need to have the competence in-house, otherwise they cannot approve the loans, and nobody else will provide them

Wind power

by Jerome a Paris (etg@eurotrib.com) on Sun Oct 17th, 2010 at 11:59:27 AM EST
[ Parent ]
With such an hypothesis, even current capitalism would work.
 

:D

The Fates are kind.

by Gaianne on Sun Oct 17th, 2010 at 08:23:36 PM EST
[ Parent ]
JakeS:
Absent a consistent external enforcement framework, nobody ever has an incentive to hand over information, goods or other resources without immediately receiving something of equal value in return.

That's much too general. A system based on personal or in-group trust is perfectly workable. An externally enforced framework only becomes necessary in relationships that go beyond that.

by generic on Sun Oct 17th, 2010 at 08:32:57 AM EST
[ Parent ]
generic:
A system based on personal or in-group trust is perfectly workable.

Especially with transparency among members.

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

by ChrisCook (cojockathotmaildotcom) on Sun Oct 17th, 2010 at 09:05:36 AM EST
[ Parent ]
A system based on personal or in-group trust only works if you know everybody in the in-group in question personally. Which is a rather restrictive sort of clause to place on economic activity.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Oct 17th, 2010 at 10:01:03 AM EST
[ Parent ]
I don't think you quite have to know all members personally, but membership in the group would still be very restrictive. At least I don't see how you could scale such an arrangement to society size.
by generic on Sun Oct 17th, 2010 at 10:19:54 AM EST
[ Parent ]
ChrisCook:
When Mig has done his update, I propose to rejoin from the tangent, and demonstrate that it is possible to package up all of the terminally buggered up contractual relationships of the US real property system (and ours come to that) into a simple but radical and complementary new system.

I'll look forward to it with interest.

... But first, it will have to be shown that contractual relationships actually exist.

The fact is that what we're experiencing right now is a top-down disaster. -Paul Krugman

by dvx (dvx.clt ät gmail dotcom) on Sun Oct 17th, 2010 at 10:51:47 AM EST
[ Parent ]
dvx:
.. But first, it will have to be shown that contractual relationships actually exist.

Indeed it will have to be shown, but not necessarily 'first'.

When a 'Rental Pool' - which is the solution I advocate - is put together prior to the creation and issue to stakeholders of Units in the Pool, then it will be for the existing stakeholders in the relevant properties to prove they actually do have a right to become members of the Pool, and an entitlement to 'Units' in the usufruct of the stream of rental payments by Occupiers.

In the case of the Occupier, that membership is usually not in doubt, possession being - as it is said - 'nine tenths of the law'.


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

by ChrisCook (cojockathotmaildotcom) on Sun Oct 17th, 2010 at 12:01:26 PM EST
[ Parent ]
I say "first" because if no contractual relationships exist, there will be less incentive to move toward any kind of alternative structure (absent external compulsion).

Before any solution can be reached, it has to be established who holds the notes.

The fact is that what we're experiencing right now is a top-down disaster. -Paul Krugman

by dvx (dvx.clt ät gmail dotcom) on Sun Oct 17th, 2010 at 05:14:02 PM EST
[ Parent ]
the point I am getting to is that the rhetorical question you pose below is a red herring, because it is quite straightforward to propose a globally valid protocol and specify any jurisdiction which is mutually acceptable to the subscribers to the consensual agreement

And up to now, that mutually acceptable jurisdiction used to be either the US or London. A lot of developing countries issue bonds under English law to reduce the political risk perceived by investors. Companies list on the London Stock Exchange for precisely the same reason, having to do with trusting the legal system to protect their rights in case the clearinghouse's credit guarantees have to be executed.

In fact, the perception that the US markets were better regulated than other influences this choice. Non-US companies had such a hard time satisfying SEC requirements (or did not want to subject themselves to the transparency requirements the SEC imposed) that they preferred the London markets which were perceived as more lax. And in the case of Hedge Funds, unless they wanted to cater to a US clientele, the SEC requirements were simply too stringent.

But if the perception is damaged that the US has a functioning legal system and the rule of law is upheld, all of this goes away.

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 Migeru (migeru at eurotrib dot com) on Sun Oct 17th, 2010 at 07:30:45 AM EST
[ Parent ]
... how contractants are protected from fraud.

Here we are in a thread on the subject of fraudulent mortgages, where it is demonstrated that in the absence of appropriate regulation and active enforcement thereof, the less-informed contractants get ripped off systematically.

If we are talking about "peer to peer" financial arrangements, available to everyone, then there is necessarily a huge public of the naive and the vulnerable who are available to be exploited by the unscrupulous. Add the international dimension, and you've got an interesting can of worms.

It is necessarily incumbent on national governments to protect their populations as they see fit.

Or is there some hidden virtue that will protect contractants?

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

by eurogreen on Sun Oct 17th, 2010 at 11:10:55 AM EST
[ Parent ]
Whatever framework of trust is used - whether it is intermediated or not - you still have to address the same risks, and there is a requirement both for transparency, which is one of the best anti-fraud tools, and a service provider providing a 'quality control' function in respect of membership standards.

"The future is already here -- it's just not very evenly distributed" William Gibson
by ChrisCook (cojockathotmaildotcom) on Sun Oct 17th, 2010 at 06:04:42 PM EST
[ Parent ]
You tease indeed. First, with your Work in Progress tag -- and with Hernando de Soto.

Tangentially, his big thesis is that the legal system should adapt to the economic activities of the poor in order to nurture them, and not impede them by requiring to abide by laws which they cannot abide by. Fine. What's the link with shadow economics in the U.S.? I'm at loss to find him here.

Rien n'est gratuit en ce bas monde. Tout s'expie, le bien comme le mal, se paie tot ou tard. Le bien c'est beaucoup plus cher, forcement. Celine

by UnEstranAvecVueSurMer (holopherne ahem gmail) on Sun Oct 17th, 2010 at 05:23:33 AM EST
... his thesis, regarding the ineffectiveness of systems without clear property title in supporting economic development, and linking that into the development of underdevelopment.

While he argues it in the positive direction ~ what the benefit may be of providing that system of broad and secure title to property ~ the logic also applies in the negative direction, in that the rise of crony capitalism in the US and collapse of the system of secure property title implies the US economy may be losing one of the support pillars of economic development, and stumbling into the development of underdevelopment in its place.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Sun Oct 17th, 2010 at 12:59:52 PM EST
[ Parent ]
Another tangential comment, perhaps.

De Soto has also appeared in a number of books on developmental studies for (southern) Africa, so I've chewed a bit over his ideas past summer. Even when these ideas may hold merit (won't go there), I suspect that the strategy as advocated goes against the cultural norm of doing things. At least, I believe it so for southern Africa, where property is a highly interconnected communal affair, topped by a chieftain and a Traditional Authority. In most African countries I now have visited there is a parallel system of power in place - the official (Western?) political system, all too often rife with corruption, and the traditional structures, still operating in a world that is changing fast.

Once again, De Soto suggests a mechanism which for Africa neglects a dominant value system at work, while the modern, political system of power has already shown its setbacks, as many are riddled with possibilities for scams and self-enrichment.

So. Do we really want to endorse a system that potentially allows even more chances for plunder by the rich political elite in developmental countries, while running across traditional values? I don't think I've seen a proper rebuttal of these worries I have...

by Nomad on Sun Oct 17th, 2010 at 06:13:52 AM EST
Indeed, the system we have now in place (with variations) in The West™ also represents a break with the cultural norms of the past. Readers of Polanyi will correct me if I'm wrong, but I think this interplay between cultural norms and legal norms and the way that cultural norms have been changed over the past 200 years is what he was referring to in The Great Transformation.

So, while I agree De Soto's policy suggestion to achieve economic development in other cultures should be suspect, I also think that he correctly describes the institutional system underpinning Western™ economies, or at least the conventional wisdom about same... And that is what is arguably breaking down (or being exposed as having already broken down, at least in the US).

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 Migeru (migeru at eurotrib dot com) on Sun Oct 17th, 2010 at 06:25:46 AM EST
[ Parent ]
... a common fallacy is the Stages of Growth fallacy, that there is a single feasible growth path, so that successful development hinges on the success of attempts to impose a development regime from another society.

However, economies do not exist in the abstract, but as an aspect of society, and the premise that what more or less worked for one society can be transplanted directly to another and work in the same way is absurd. While elements may be adapted and adopted, each effective development regime will be a unique individual.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Sun Oct 17th, 2010 at 01:18:36 PM EST
[ Parent ]
Not just strategies, but core values.

The Ultimatum Game works like this: You are given $100 and asked to share it with someone else. You can offer that person any amount and if he accepts the offer, you each get to keep your share. If he rejects your offer, you both walk away empty-handed.

How much would you offer? If it's close to half the loot, you're a typical North American. Studies show educated Americans will make an average offer of $48, whether in the interest of fairness or in the knowledge that too low an offer to their counterpart could be rejected as unfair. If you're on the other side of the table, you're likely to reject offers right up to $40.

It seems most of humanity would play the game differently. Joseph Henrich of the University of British Columbia took the Ultimatum Game into the Peruvian Amazon as part of his work on understanding human co-operation in the mid-1990s and found that the Machiguenga considered the idea of offering half your money downright weird -- and rejecting an insultingly low offer even weirder.

More here: Westerners vs ROW

This seems to be the fundamental problem: many Westerners, especially Anglo Westerners, have little concept of 'more for you means more for me.'

It doesn't matter what structures, systems, technologies, models or institutions you build - if the core ethic isn't 'more for you means more for me' the structures etc will include a feedback loop that rewards selfishness, and they'll be inherently explosive and unstable over periods of half a century or so.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Sun Oct 17th, 2010 at 01:27:19 PM EST
[ Parent ]
... but formal "institutions we build" are quite often not as critical as the informal institutions with which we understand what it is we are trying to accomplish when we build formal institutions.

An economic development regime is far more than a mere development strategy. It is the whole complex of behavior within systems of institutions that results in an expansion of the material provisioning capacities of a society.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Sun Oct 17th, 2010 at 01:37:54 PM EST
[ Parent ]
Your comment seems to be that the Westerners are too selfish, but the link you provide shows the exact opposite: that Westerners care about fairness more than others.

Wind power
by Jerome a Paris (etg@eurotrib.com) on Sun Oct 17th, 2010 at 03:40:41 PM EST
[ Parent ]
Nah, it shows that we are more likely to choose the loose-loose option, which enforces a certain kind of fairness in a game like this one.

If choosing a loose-loose option is a bad thing, then the party making the offering can safely offer a lower part, secure in the knowledge that the other person will not turn down free money. And indeed why should anyone turn down free money just because someone else would benefit more from it?

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se

by A swedish kind of death on Sun Oct 17th, 2010 at 04:30:01 PM EST
[ Parent ]
Westerners care about fairness more than others.

What is shows is that Westerners care more about western concepts of fairness than non-westerners -- not too surprisingly. Those who find western concepts of fairness incomprehensible would very likely highly value their own concepts of fairness.


"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun Oct 17th, 2010 at 05:36:10 PM EST
[ Parent ]
Ethics, values, evolutionary strategies depend on ongoing evolutionary dynamics. The Non-Westerners may have lived for centuries without experiencing sharp fairness questions. So when you come up with a hypothetical scenario like the Ultimatum Game, they relate it to a simple context, like receiving or giving an occasional gift. They either do not relate the situation to fair distribution, or are not aware much of social injustice problems at all. That, of course, may mean a spectrum of social structures. There are reasons to be skeptical of universal comparisons.

The West has much richer (recent) history of rational reflection and behavior modeling, as well as more involved and intense economic activity. The test question immediately suggests to Westerners a market context, with (most often probably) a vague ethical reference. So they are looking then for a real deal. The West has also more intense flow of changing social structures. The Western structures might be intrinsically less stable and therefore "forced" to change, develop constantly. For example, the current organizations of democracy and free market may look (or presented) like the end of the history - as perhaps often in the West - but those model structures are obviously corrupted by now beyond pale.

by das monde on Mon Oct 18th, 2010 at 05:05:52 AM EST
[ Parent ]
This confirms my instinct - from a good few discussions - that the 'Anglo' legal protocols are completely alien to African nations and that a different set of consensual protocols is necessary to frame the Property relationship consistently with cultural norms.

In the same way, Anglo protocols are also alien to the Islamic world - where the partnership-based protocols I advocate in fact pre-date Islam but were incorporated by it. In that context, I met in Qom, Iran the pre-eminent Iranian sharia'h scholar in matters of finance - a lovely man of great spirituality and wisdom. When I asked him about the partnership frameworks I have been working on, he said that their Sharia'h compliance was 'self evident',and indeed I almost lose count of the number of people, Muslims and otherwise, who have gratuitously pointed this out when the structure is first presented to them.

In countries like Japan, trust is assumed, and to be in public dispute involves loss of face and so, to borrow a saying - there are as many attorneys in Japan as there are Sumo wrestlers in the US.

In a nutshell, the Anglo system of property rights is fucked, but there is IMHO a complementary approach already emerging, and capable of spreading virally.

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

by ChrisCook (cojockathotmaildotcom) on Sun Oct 17th, 2010 at 08:36:22 AM EST
[ Parent ]
In most African countries I now have visited there is a parallel system of power in place - the official (Western?) political system, all too often rife with corruption, and the traditional structures, still operating in a world that is changing fast.

When traditional rules of conduct and power relations operate within the "liberal" system, they are characterised as "corruption". This happens also in The West™ so it is not specific to, say, African countries, though the problems may be more apparent there.

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 Migeru (migeru at eurotrib dot com) on Sun Oct 17th, 2010 at 08:43:44 AM EST
[ Parent ]
Nomad:
In most African countries I now have visited there is a parallel system of power in place - the official (Western?) political system, all too often rife with corruption, and the traditional structures, still operating in a world that is changing fast.

What the westerner calls corruption the traditionalist calls tradition. The normal course of events is that the introduction of western market organization renders irrelevant the core functions of the traditional society, an example being that subsidized US agribusiness undercut in price and quality the traditional market for corn in Mexico. That gutted the functioning of the traditional system and resulted in increased migration of people to cities or to the USA.

Likewise, the introduction of individual land tenure to Native American societies accustomed to seeing their territory held in common usually quickly resulted in the loss of that territory as it was sold under invidious terms to the dominant members of the society represented by the State. This left those who were unwilling or unable to adapt to white norms to starve or rely on "charity". Introducing western concepts of property ownership into societies based on holding land in common is like offering mice cheese, but only when placed on the trigger of armed traps.

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

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun Oct 17th, 2010 at 10:43:27 AM EST
[ Parent ]
What the westerner calls corruption the traditionalist calls tradition.

Unless I misunderstand you, I think you and Migeru echo the same sentiments. Yet it looks like your own examples underline how the introduction of "western" based (or "liberal" based) politics are corrosive to traditional structures and the traditional balance of power. So, even from the traditional POV, self-enriching politicians can be perfectly described as "corrupt" (even if this is a western-based concept) and plenty of Africans do so.

Despite many calls by African politicians to defend the development of "African democracy" I've seen nary that actually represents a mix of traditional values coated with western-style political accountability and which is fail-proof of grand and individual self-enrichment by the political class...

As argued down-thread - to me it seems a bit rash to introduce individual property rights as a means to lift countries out of poverty for as long as an effective rule of law hasn't been institutionalized...

by Nomad on Mon Oct 18th, 2010 at 06:37:23 AM EST
[ Parent ]
Recall this fascinating thread on how
Those who appropriate them create wealth by so doing. The essential attribute of wealth is "appropriability," to create which "the rights of property must be recognized and enforced Whoever makes, interprets, or enforces law produces wealth".


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 Migeru (migeru at eurotrib dot com) on Mon Oct 18th, 2010 at 07:05:28 AM EST
[ Parent ]

link from February 2004

Greenspan's entire monetary policy has been based on wealth creation through higher real estate prices; he is taking this concept to new levels thereby risking an unprecedented real estate bubble, and a subsequent collapse of unprecedented proportions.

But nobody knew and nobody could have predicted...

Wind power

by Jerome a Paris (etg@eurotrib.com) on Sun Oct 17th, 2010 at 08:17:24 AM EST
... Got it right project.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
by BruceMcF (agila61 at netscape dot net) on Sun Oct 17th, 2010 at 01:20:36 PM EST
[ Parent ]
Forming and Dissolving the Myth of Capitalism

One thing that is being revealed rather clearly is the extent to which "sanctity of contracts" and "rule of law" are, in fact, simply tools of dominant capital, at least to the dominant capitalists, to use Nitzan & Bichler's terminology. But the operations of these tools are not commutative between the capitalists and the masses. What is seen as a "technical problem" when found in the work of the hirelings of the big banks would clearly be grounds for foreclosure were similar lapses committed by mere mortgage holders. It is just like the presumption of US courts in favor of police officers when it is only the word of the officer against the word of the person being charged. De jure there is a presumption of innocence for the accused, de facto the burden of proof is on the accused when the only evidence is the word of the officer, who is a sworn officer of the court, de jure. A mere oath to tell the truth, the whole truth, etc. does not measure up to an oath to protect and defend.

We have come full circle since the Enlightenment. Then, in the twilight of the feudal order, the word of the noble was law and local justice could be quite arbitrary. The effort to create a market society involved making justice transparent so that businessmen and nobles would be treated equally under law, not unequally under feudal privilege. That struggle succeeded in Europe,  the USA and Canada and other countries that transformed themselves into "modern" "market societies". But with the rise of financialization and the ascendancy of  large corporations in the late 20th century, the executives of these corporations have come to feel every bit as entitled to arbitrary justice as did the nobles under the ancien regime. They feel every bit as entitled to a presumption of merit for their claims in the inner workings of their business, how ever outrageous the facts may be, as did nobles of old.

But this is not the end of capitalism. Competitive entrepreneurial capitalism has not existed for a century. The only space for entrepreneurs is in emerging industries and technologies or in niche markets. And if a new corporation emerges from either environment with sufficient size and power it just joins the existing net of cartels and starts purchasing favorable regulations and treatment from governments just like the existing corporations. I have no idea how long crony capitalism might endure, so long as it can keep the vast majority of the population convinced it is doing the best that can be done.

But when the demands for returns needed to pay the interest on ever larger investments drives the large corporations to seek returns in foreign markets, and when the government and the central bank of the societies in which those corporations are based start to manipulate the foreign exchange rates to their favor, as the USA has done for a half century and as China has done for two decades, then the stage is set for a Clash of the Titans scenario, such as is shaping up and described by Michael Hudson in his recent article in Counterpunch.  

When large countries such as China, India, Brazil and Russia see that their abilities to continue to satisfy the needs of their peoples is being compromised by the manipulations of currencies by the USA, or possibly, by the EMU, they are going to attempt to act in their own interests. To the extent possible they will try to conduct transactions in currencies other than the US$ and, perhaps, the Euro. The EU really has a choice as to how to react. it can try to establish the Euro as the alternative currency, it can align its policies with the USA, it can align with emerging markets or it can try to position itself as an honest broker. To date it has been aligned with the USA.

I am still trying to work through how this can and how it likely will play out. I agree that things are unraveling, and I think that Nitzan and Bichler are right in that the capitalists have lost their mojo and are not forward looking and haven't been since 2000. They have some interesting arguments and figures to support that thesis. See this.  Whether the loss of confidence is sufficient to cause a loss of  the ability to command the obedience of the masses of people remains to be seen.

One of Nitzan and Bichler's main points is that, while there are many crises over the course of a form of government, the ones that are dangerous to that form of government are those where the ruling class loses confidence in their ruling paradigm and their ability to command the obedience of the people. The failure of capitalism to be truly forward looking is shown in charts of stock valuation vs. earnings per share. Over most of the period since 1917, when the concept of forward looking finance came to be established, the twelve month trailing average of earnings per share came to have a loose association with stock prices. Graham and Dodd taught that stocks should be priced according to their perceived future earnings, not their past performance. There are two times when this relationship was broken and price closely followed earnings per share. The first of these was from 1929 through 1938, when the future of capitalism was in doubt. The second has been since 2000, when similar doubts have come to dominate the minds of the capitalists. In such times businessmen come to question the future of how they do business. Faith in the future is essential to forward looking finance, and when it breaks down, prices follow earnings closely, as that is the only guide remaining.

This is why the foreclosure scandal in the USA is so important. It does two things. First, it calls into question the value  of the largest asset class in the world, Residential Mortgage Backed Securities and all of the derivatives written around them. This will certainly increase the operating costs of the TBTFs, as Chris Whalen indicated in his talk before the American Enterprise Institute. See also here and here.

This fiasco has now begun to affect the stock prices of the TBTFs. Second, it causes the middle classes to openly question the legitimacy of the power wielded by  the TBTFs. The financial sector comes to be seen as acting as though it is above the law and can do what ever it wants. The fact of Federal Government backing for the financial sector in its lawless behavior starts to call into question the legitimacy of that government. And the middle classes come to feel threatened in the security of their own property, both by the arbitrary and lawless self-interested actions of the TBTFs and by the actions of the government in support of the needs of the TBTFs over the needs of the "real economy" and by perceptions that the methods being employed by the government attempting to save the TBTFs are threatening the viability of the economy and the monetary system while failing to save the TBTFs.

This is why the continuing demonstrations in France are so important. They directly challenge the power of dominant capital to command the loyalty and obedience of the people. Such opposition coupled with increased awareness by more people of just how hollow, self serving and illegitimate are the claims of the dominant capitalist to the loyalty and obedience of the people, in an environment where even dominant capital has lost faith in its own rituals, has a real potential to bring down the existing order.

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

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun Oct 17th, 2010 at 10:09:05 AM EST
on the same side of the currency wars.

The Fed is engaging in massive quantitative easing, while the ECB, rightly or wrongly, is much more measured in such policies.

Then there is China, which is using blunt tools to keep the yuan tied to the dollar (ie effectively waging war on everybody else alongside the dollar as it falls, plus waging war against the US by not allowing reevaluation against the dollar itself).

So one could say that the biggest warmonger is the US, and the worst China, as it grabs US "victories" for itself and adds an additional layer on top.

Other countries are, if anything, only using defensive measures against the active ones wielded by the US and China.

Wind power

by Jerome a Paris (etg@eurotrib.com) on Sun Oct 17th, 2010 at 10:35:00 AM EST
[ Parent ]
I did not put the US and the EU on the same side in the currency wars. In some respects they are inherently aligned, in others inherently opposed. This is why I suggested that the EU has a choice. From a national point of view I agree that the biggest conflict is between the US and China.

But the national point of view obscures vision here. The real conflict, both in the USA, Canada and the EU is between the interests of the financial sectors and those of the rest of society. In the "Anglo" societies of the US and UK, the financial sectors have pillaged the manufacturing sectors and sent the manufacturing to low labor cost countries. In Germany the financial sector is more coterminous with manufacturing and has worked with big business to sacrifice the interests of workers to the profitability of the manufacturers. France, at present, is trying to follow suit.

The real problem for both the US and the EU is that the direction of policy in both areas is unsustainable, even without considering resource constraints. In the US and UK there is more blatant local looting by finance. In Europe it is more a conflict between Germany and all others. Perhaps you see a way for this to end well in Europe. I don't.

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

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun Oct 17th, 2010 at 10:59:53 AM EST
[ Parent ]
... "not allow" the ¥RMB to fall against the US$ by the consent of the US Federal Reserve.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
by BruceMcF (agila61 at netscape dot net) on Sun Oct 17th, 2010 at 01:21:52 PM EST
[ Parent ]
And the Fed acts predominantly in the interests of the top end of the financial sector, who are the ones who arranged for manufacturing to be done in China and who continue to profit, though probably not as much as WallMart, et al. This is why I describe the situation as one of the US financial sector against all comers, though most of them were happy to achieve greater legitimacy by getting buy in from other nations, especially if, by so doing, they got access to those markets and that capital, especially in Europe.

But as we get towards the end game of this cycle the individual players and separate nations come to be pitted against one another. Europe, especially the UK, was complicit in the early phases of the process and even the technocrats in the EU have largely bought into the political economy that underpins the US approach. Elements of the US polity continue to profit from the arrangements with China, even while the self protective actions of the Chinese authorities threaten the stability of the world wide system, according to the conventional wisdom in the USA.

The threat is real, whether you fob blame off onto the Chinese or consider the USA the primary culprit. But that is just one of the foundation stones of the current system that is cracking and starting to shift. The evaporation of confidence in the security of the US RMBS asset class is another large chunk of the foundation, and China owns a large part of that chunk.

It will be interesting to see who cuts deals with whom and who aligns with whom as this mess continues to spread. In the continuing attempt to kick the can down the road and avoid having to acknowledge fraud and insolvency the financial sectors of many nations have taken large hits. Debts that can't be paid won't be paid. But how do the authorities in various countries deal with this when the large defaults begin?

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

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun Oct 17th, 2010 at 03:10:50 PM EST
[ Parent ]
... to protect itself from effective government control, its hard to see it acting in the interests of manufacturing and more robust employment markets and against the interests of the vultures that are circling around dead and dying industries.

Unless, that is, there was a governing coalition that was appointing the Board of Governors that was determined to appoint it in service of the productive sector. That would take seven years to occupy a majority of the FOMC, but only four to occupy a majority of the Board of Governors itself.

And consider the impact on election of individual FRB Presidents if Credit Unions could become direct member institutions, rather than being forced to work through wholesale commercial banks. The face of the "small bank" voting tier would see a massive change.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Sun Oct 17th, 2010 at 04:29:03 PM EST
[ Parent ]
So a brief rundown of the prominent sides in the quote-unquote "currency wars:"

The US: Maintains an overvalued currency to get free stuff from the rest of the world at the expense of their industrial base and current accounts. Is betting that the rest of the world will not be sending gunships up the Potomac to collect said external debts. Which is probably a safe bet.

China: Maintains an undervalued currency in order to loot the American industrial base, and obtain the US$ they need to procure raw materials from the US' colonies.

The UK: Wants to keep the Pound high to salve their imperial phantom limb pain, rather than for any particular economic reason. Isn't having a whole hell of a lot of success, though.

The Bundesbank EU wants to reinstate the Gold Standard. Is unfortunately having rather a lot of success with that project.

Can we despair yet?

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Oct 17th, 2010 at 03:51:01 PM EST
[ Parent ]
... is just a side effect. The US is complicit in the maintenance of an overvalued currency (the automatic flip side of the discounted exchange rate it is allowing China to pursue, all the while engaged in a kabuki-theater pretense of objecting), in order to increase the economic power of those multinational corporations that raise finance in US$ financial markets.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
by BruceMcF (agila61 at netscape dot net) on Sun Oct 17th, 2010 at 04:31:23 PM EST
[ Parent ]
Doesn't that come to the same thing, though? It just happens to be the US-based transnats who get most of the free stuff, while the rest of the US gets fobbed off with a little baksheesh.

Though I'm not altogether convinced that the baksheesh is wholly irrelevant to the story: It is somewhat doubtful whether the looting of the American industrial plant could have continued at the pace it did for as long as it did if it had not been obfuscated by allowing the commoners to dip into the free stuff from China. After all, it gets a little hard to sustain the fiction that Chinese products are simply more competitive if people never actually see Chinese stuff being cheaper than American stuff...

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Oct 17th, 2010 at 04:58:29 PM EST
[ Parent ]
But the power is not about being able to buy cheap electronic crap from China, its about being able to dictate the structure of the economy and the accumulation of wealth and therefore more power.

The difference in standard of living between an income of $250K and an income of $1b is, after all, not likely to be 4,000 fold ... there comes a point where the money is primarily about who has the chips in the game being played.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Sun Oct 17th, 2010 at 09:06:50 PM EST
[ Parent ]
and as a US unemployed person, you assume a great deal by assuming the US person has a $250K income. Very small percentage do. Means the entire rest of the population gets to do what the hedge fund manager wants, looks like to me ... and re this entire fascinating discussion, if it is unraveling, the HFMs in US are not going to hurt for a long time if at all. I don't want to think about the rest of us. sorry to intrude but thought a real-life person should jump in somewhere. the discussion of failing ec systems and hopeful reorganizations above, while exciting, won't restore homes or jobs. and all we get to hear about from US media is how rentier class needs permanent tax cuts ..."Here's how it is. You go to a harbor, there are three steamers waiting. You want to travel, you want to move, you want to be at one with the world, you want to live. One of the steamers says To Hell, another one says Exploitation, Trickery, Capital, and the other says Social Revolution. You either stay in the harbor, watch the ships steam away with your baggage on one of them--you don't know which--or you make up your mind and get on board."
Paco Ignacio Taibo II
by lachatte (stormydogger at yahoo dot com) on Tue Oct 19th, 2010 at 07:43:19 PM EST
[ Parent ]
... unusual assumption that the CEO of a large company would have an income of $250K, since the comment is clearly about the power that the people at the top of the corporate ladder wield.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
by BruceMcF (agila61 at netscape dot net) on Tue Oct 19th, 2010 at 08:48:31 PM EST
[ Parent ]
The US: Maintains an overvalued currency to get free stuff from the rest of the world at the expense of their industrial base and current accounts.

This implies intention and relations that I find questionable. First, it implies that the policies are those of the USA as a country. Formally, they are, but in point of details, they were put in place by elements that had gained control of the country's policy direction for their own narrow interests and to the detriment of the majority of the citizens -- rather like the relationship between a tinpot despot and the population of a banana republic. And these policies might be viewed similar to the way "odious debt" is seen, though I would never absolve the citizenry or myself of responsibility for our collective stupidity in allowing this situation to develop. So it is important to keep in mind the interests of the effective actors are not those of the vast majority of the country, regardless of the extent to which that is understood by the citizens. This also maximizes any chance for beneficially influencing the situation.

And I do not know that these policies were put in place for the purpose of sacrificing our industrial base and damaging our current accounts balance, though that certainly has been the result and there certainly was reckless indifference to the consequences of the policies. The manufacturing was sent to China, Mexico, and elsewhere piece at a time because individual actors could make money. While this was happening we have been under the influence of self serving propaganda spread by those who have benefited from looting the society. Through their activities they insured that no one remained who could see and stop what was happening because of the potential for damage to the entire country, though Ross Perot tried, in his way, to do so.

It is rather as though the owners and officers of a merchant marine fleet cut a deal with a cabal of pirates to allow the pirates to seize the ships and all would share the proceeds. This happens and the official story is that the crews of the ships were derelict in their duties, though they were taken by surprise and deprived of access to weapons with which to defend themselves and, in fact, though they had been told by uniformed police officers that these seizures were legal foreclosures and that they were obliged to cooperate.

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

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun Oct 17th, 2010 at 04:42:33 PM EST
[ Parent ]
First, it implies that the policies are those of the USA as a country. Formally, they are, but in point of details, they were put in place by elements that had gained control of the country's policy direction for their own narrow interests

Of course. I take that as a given when discussing international policy. If countries were always and everywhere responsive to the best interests of the bulk of their population, then most of human history could not have occurred. Yet it has, so they aren't.

And I do not know that these policies were put in place for the purpose of sacrificing our industrial base and damaging our current accounts balance,

Of course not. They were put in place to get free stuff. That they happened to dismantle the American industrial plant was viewed as a not wholly undesirable side effect (because it relocated production to countries where slave labour was considered socially acceptable, and the usual response to labour unions involved liberal use of machine guns).

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Oct 17th, 2010 at 05:22:06 PM EST
[ Parent ]
... common and direct interest of those transnational corporations that primarily raise finance in US$ markets, since a stronger dollar is greater power when they direct that financial capacity into foreign direct investment.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
by BruceMcF (agila61 at netscape dot net) on Sun Oct 17th, 2010 at 09:08:43 PM EST
[ Parent ]
"Strong Dollar Policy", according to Paul O'Neil, Bush 43's first Sec. of Treasury, meant "Stock market up, bond market up, gold down" and a willingness to intervene as necessary to accomplish those goals. Candor did not become the Secretary.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Oct 18th, 2010 at 11:31:02 AM EST
[ Parent ]
Yes, while discounted dollar policy means labor market up, capacity utilization up, real investment up, market for productive equipment up. Boy would that suck, for those with paper as opposed to real wealth.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
by BruceMcF (agila61 at netscape dot net) on Mon Oct 18th, 2010 at 02:05:06 PM EST
[ Parent ]
That would only happen if there was surplus productive capacity AND it actually did become cheaper to inshore rather than off shore.

Off shoring is so cheap this seems unlikely, without an epic dollar crash.

And surplus capacity may not physically exist. It may exist in the future after it's been rebuilt, but in the mean time it's still going cheaper to off shore to another country like (say) Vietnam than it is to build plant in the US.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Mon Oct 18th, 2010 at 03:02:39 PM EST
[ Parent ]
A lot of that depends on the particulars of the industry and the product -- for instance, heavy and/or bulky products are more sensitive to transportation costs and fashion items are sensitive to quick turn around. There are reasons why a foreign manufacture from India has set up a steel pipe plant in Little Rock, on the Arkansas River where barge transport is available. Same for wind mill manufacturing.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Oct 18th, 2010 at 06:03:41 PM EST
[ Parent ]
And, in any case, there is certainly no reason, at least from the viewpoint of 99% of the US population, to provide tax subsidies to companies for their off-shore manufacturing operations. Paul Craig Roberts has suggested taxing them on their foreign content.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Oct 18th, 2010 at 06:05:56 PM EST
[ Parent ]
I thought transportation was effectively free. ;)

But one manufacturer doesn't make a recovery. Surplus capacity will remain unless off-shoring is made so expensive that the cost/benefit shifts back to manufacturing in the US.

Even then wages will remain low, because the competitive baseline will be a semi-industrialised country elsewhere that can offer slave labour rates. Without wages fountaining up into the rest of the economy, activity remains depressed.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Mon Oct 18th, 2010 at 06:56:33 PM EST
[ Parent ]
The exchange rate that will increase the US share of semi-peripheral demand for machines tools is much higher than the exchange rate that will allow simple textiles to compete in Wal-mart without a quota or steep tariff.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
by BruceMcF (agila61 at netscape dot net) on Tue Oct 19th, 2010 at 04:46:59 PM EST
[ Parent ]
only against the Chinese yuan and a couple other Asian currencies.

It's certainly not overvalued against the euro or the rest of the West's currencies, or against those of raw material suppliers like Brazil or Russia.

Wind power

by Jerome a Paris (etg@eurotrib.com) on Mon Oct 18th, 2010 at 05:47:21 AM EST
[ Parent ]
... financial capital transactions are the dog in the exchange rate markets and the trade transactions the tail, I'd not look to purchasing power parity to evaluate the value. From the inside looking out, it ought to be trading at a steeper discount than it is.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
by BruceMcF (agila61 at netscape dot net) on Mon Oct 18th, 2010 at 02:09:32 PM EST
[ Parent ]
financial capital transactions are the dog in the exchange rate markets and the trade transactions the tail

Does this statement mean what I think it means? Namely that the dogs in the ForEx markets are foreign direct investment and financial transfers between different parts of transnational entities and/or central banks?

(One tail with two dogs... I guess it must be Cerberus's mean baby brother.)

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue Oct 19th, 2010 at 08:45:19 PM EST
[ Parent ]
... like US$/€ in the so-called "capital" accounts. People focus so much on the net balances that they lose track of the total flows, and so many mainstream economists argue as if trade flows dominate, missing the whole point of "globalization" being about finance flows across national boundaries.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
by BruceMcF (agila61 at netscape dot net) on Wed Oct 20th, 2010 at 10:31:15 AM EST
[ Parent ]
So you're saying that a net surplus of direct investment by US residents in China, over and above the direct investment of Chinese residents in the US, causes the excess of US importation of Chinese goods over Chinese importation of US goods? Or that the two processes have no causal relationship (and some third process - such as central bank intervention - makes up the residual, which is then caused by both the two former), and it just so happens that the capital flows are larger?

(I'm asking dumb questions here because all my textbooks blithely assume away foreign direct investment, and pretend that all cross-border investment is mediated by some sort of transnational money market, without ever quite describing the mechanics of this supposed transnational money market.)

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Oct 20th, 2010 at 10:54:17 AM EST
[ Parent ]
I think he's saying that the exchange rate movements are dominated by capital flows and that the effect on the exchange rate doesn't just depend on the net flow. Also, I think the argument was about the exchange rate of the dollar with other OECD currencies where exchange rates are freely-floating, and not to the Yuan exchange rate.

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 Migeru (migeru at eurotrib dot com) on Wed Oct 20th, 2010 at 11:23:21 AM EST
[ Parent ]
Yes, capital flows ~ financial market transactions (IOW shorter term) and financial capital transactions (IOW longer term) are the dominate flows, so the demand and supply of US$ for capital flows dominates the exchange rate in the floating exchange rate markets.

Whether the US$ is propped up against the € ¥, A$, £, etc. by the Chinese discounting of its exchange rate (which is in any event nowhere near as strong now as it was in the middle of the last decade, because the sagging world economy cuts Chinese exports while the Chinese domestic stimulus increases Chinese imports) depends not so much on whether the Chinese are pegging with reference to the ¥RMB/US$ exchange rate, but on whether the Chinese are pegging using US$.

If they are pegging using € ¥, &pound, A$ and etc. but targeting the ¥RMB/US$ exchange rate, it would indeed not prop up the US$, and the peg against the US$ would be a means of distracting from a de facto increases of the discount against the €, ¥ and etc.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Wed Oct 20th, 2010 at 02:41:28 PM EST
[ Parent ]
Working link:

Michael Hudson: Why the U.S. Has Launched a New Financial World World War

Why the U.S. has Launched a New Financial World War -- And How the the Rest of the World Will Fight Back

By MICHAEL HUDSON



Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se
by A swedish kind of death on Sun Oct 17th, 2010 at 04:00:57 PM EST
[ Parent ]
ARGeezer:
One thing that is being revealed rather clearly is the extent to which "sanctity of contracts" and "rule of law" are, in fact, simply tools of dominant capital, at least to the dominant capitalists, to use Nitzan & Bichler's terminology. But the operations of these tools are not commutative between the capitalists and the masses. What is seen as a "technical problem" when found in the work of the hirelings of the big banks would clearly be grounds for foreclosure were similar lapses committed by mere mortgage holders. It is just like the presumption of US courts in favor of police officers when it is only the word of the officer against the word of the person being charged. De jure there is a presumption of innocence for the accused, de facto the burden of proof is on the accused when the only evidence is the word of the officer, who is a sworn officer of the court, de jure. A mere oath to tell the truth, the whole truth, etc. does not measure up to an oath to protect and defend.
I have a lot of problems with this. For starters, the analogy that it is just like the presumption of US courts in favor of police officers when it is only the word of the officer against the word of the person being charged. Police officers are law-enforcement agents of the state, whereas the bankers are the bankers.

A better analogy would be as if the word of a private security contractor were given higher credence than that of a private citizen.

That the operations of the legal system are "not commutative between the capitalists and the masses" is a perversion of the rule of law and the sanctity of contracts, not a feature.

And if police officers or judges are corrupt it's a whole different ball of wax from private banks playing for advantage.

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 Migeru (migeru at eurotrib dot com) on Mon Oct 18th, 2010 at 10:10:52 AM EST
[ Parent ]
For starters, the analogy that it is just like the presumption of US courts in favor of police officers...

Perhaps "similar to" would have been more appropriate. But the analogy only holds when those who own the banks also, effectively, "own" the legislatures, chief executives and judiciary. At the federal level this is true for the legislative and executive branches and too often true for the judicial. Similar in many local jurisdictions. But an independent judiciary was clearly the motive for the Florida Legislature creating the special kangaroo forcelosure courts.

Separation of Powers is a joke when one group of people effectively "own" all three branches.

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

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Oct 18th, 2010 at 11:40:26 AM EST
[ Parent ]
ARGeezer:
But an independent judiciary was clearly the motive for the Florida Legislature creating the special kangaroo forcelosure courts.
That is evident. What is amazing is that this passed the legislature. Who wrote the bill? Who sponsored it? Who voted for it? Who didn't veto it? Who implemented it? Can they be tarred and feathered?

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 Migeru (migeru at eurotrib dot com) on Mon Oct 18th, 2010 at 11:45:58 AM EST
[ Parent ]
Can they be tarred and feathered?

By the Tea Party, perhaps?  :-)

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Oct 18th, 2010 at 01:24:17 PM EST
[ Parent ]
The complicity of both Republicans and Democrats in these sorts of outrages and the obvious way in which they have been co-opted and suborned by the financial sector is why the opportunity for a political realignment exists in the USA. The problem will be getting one that is not co-opted by some astro-turfing billionaire, such as David Koch has done with the current Tea Party. But the people he has financed don't really share his goals and could defect en mass and/or turn on him and his goals.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Oct 18th, 2010 at 01:28:25 PM EST
[ Parent ]
that'd be rich.. a right koch-up!

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty
by melo (melometa4(at)gmail.com) on Tue Oct 19th, 2010 at 10:09:04 AM EST
[ Parent ]
..to give poor people property titles on the houses they occupy and the land they till, and then proceed to monetize all this property in order to kick-start an economic boom.

Sounds reasonable, the problem just is that this property is not, from the start, private property at all. Land rents are public property. If we privatise land we still need public funding.. from private labour and private capital. And nothing has changed. Population will soon be where they started, most likely within one generation.
Private land in the hands of everyone, needs a socialist resource allocation.. by politicians. And who believes THAT will work?

by kjr63 on Sun Oct 17th, 2010 at 03:13:42 PM EST
People no longer needed to rely on neighborhood relationships or make local arrangements  (De Soto)

hmmm.  I don't feel like doing an extensive rant on this, but isn't this one of the fundamental problems afflicting the house that corporate capitalism has built?  many of the scams, shams, and flim-flams being practised so ubiquitously would not work in a scenario where parties to the deal actually knew one another, one another's parents, children, reputation, history, etc.  the sheer impersonality of large-scale finance capitalism enables all kinds of cons which couldn't be got away with in a reciprocity-based smaller-scale community.  just a thought.

certainly, in face of the astonishing corruption of large institutions in our time, my own strategy is to invest more in my neighbours, community relationships, face2face dealings, personal reputation and reliability, networks of trust, etc. -- in other words, local arrangements.  I do not trust any bank at the moment, but am confidently considering the purchase of some land from someone I personally know;  land I have seen and walked over, the current owner being known for over 30 years in the community I inhabit and "related" to me by various friendships.  this web of reputation and probity seems sounder and more reliable to me than bond ratings or "guarantees" proffered by faceless, distant transnational institutions of financial speculation.

the values deSoto touts as some kind of progress here -- individualised persons becoming unembedded from their community and mediating their personal relationships with generic rule-based capital transactions -- seem to me like contributing factors in the unravelling;  there's a big enough literature on social capital [ aside:  it frustrates me that we cannot even discuss values external to the marketplace w/o using the language of the marketplace;  truly we have become nations of shopkeepers!] that I don't think I have to cite it all...  Polanyi comes to mind for starters.

it also seems to me that deSoto is suggesting that the financial empowerment of the world's poor starts with getting them safely into debt :-)  surely the "monetising" of their homes and hearths means mortgaging?  but perhaps I am misreading his intent.  giving bankers ownership of the roofs over our heads does not, to me, feel like empowerment...

The difference between theory and practise in practise ...

by DeAnander (de_at_daclarke_dot_org) on Sun Oct 17th, 2010 at 09:58:13 PM EST
We discussed this at the London meet a few years ago.

The whole point of capitalism is disconnection. If you have enough money you can isolate yourself from the consequences of your actions. The more money you have, the more power you have to expand and manage the contents of your narcissistic bubble, irrespective of the effects it has on others.

This isn't a design flaw, it's the primary aim of capitalist ethics. Reducing capitalism to a stable abstract symbol system is a necessary step in the process.

When some ivy league jack ass sits in a board room and demands a return of 20% or else, they can only do that because they have no personal connection to the unemployment and poverty that results. The vanished opportunities, ruined relationships and stress-related illnesses that result remain hidden - and purposefully so.

If capitalism was an addictive substance you could score from a dealer, its social and personal consequences would have forced its ban decades ago.

It's not impossible to find an ivy league jack ass who wouldn't care even if they experienced the consequences. There are creatures who not only don't care, they seem to thrive on the personal degradation of others.

But when there's an intermediate symbol system that hides the carnage behind numbers on a spreadsheet, indifference is a trick anyone can pull - even benign, concerned investors who donate generously to charity and don't torture their pets, or their domestic staff.

As I've suggested before, one way to create a change in direction is to personalise the suffering. Go find someone in the investment class with a conscience, get them out on a lecture with graphic descriptions of what 20% ROI really means in practice, and you'll soon get a counter-movement of concern growing, with some danger of real political influence.

This is more or less how socialism began in the 19th century. It's past time for a repeat.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Sun Oct 17th, 2010 at 10:46:53 PM EST
[ Parent ]
When some ivy league jack ass sits in a board room and demands a return of 20% or else, they can only do that because they have no personal connection to the unemployment and poverty that results.

And he can only do that because of the efforts since Mill, Ricardo, Bentham and Malthus to convince all who matter in society that their is no alternative to the subordination of all values to the necessities of the market. Of course this selectively ignores all of the successful efforts to protect society from the ravages of an unregulated market, which efforts are, at best, only grudgingly acknowledged by some of their modern day descendants.

A Henry George or a J.M. Keynes can bring sanity to the arrangements for a time, but society is always vulnerable to a fundamentalist revival such as has been provided by Hayek, Freedman and the advocates for a return to the gold standard.

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

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Oct 18th, 2010 at 01:08:00 PM EST
[ Parent ]
capitalism came into existence in a certain set of cultural conditions, which included the notion of private title to land. The hypothesis is that this is a prerequisite to capitalism, and that the absence of this prerequisite precludes economic development.

Just as there is no proof that liquid water is required in order for life to evolve, there is no proof that private title to land is required in order for capitalism to produce economic development. But (challenge?) there is no counter-example either.

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

by eurogreen on Mon Oct 18th, 2010 at 03:15:39 AM EST
[ Parent ]
We could go back to the Code of Hammurabi...

Community relations do break down, and then what? An impartial court system and enforceable contracts. If know your neighbour were sufficient, we wouldn't have been running this "rule of law" experiment for the past 5 thousand years.

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 Migeru (migeru at eurotrib dot com) on Mon Oct 18th, 2010 at 04:10:46 AM EST
[ Parent ]
Rule of law has only really extended to personal and commercial transactions on occasion for most of history.  For good chunks of history, especially in the West, the government was too understaffed, too poor, and too disinterested in legal matters to bother settling disputes between tradespeople.  Thus, guilds and commercial societies, which enforced the rules for themselves, and dealt with wrong-doers by expelling them from the society, and thus the trade.  These were alive and well into the 1700's, both in the West and in Japan, the other real non-Western capitalist society.
by Zwackus on Mon Oct 18th, 2010 at 05:58:27 AM EST
[ Parent ]
Zwackus:
Thus, guilds and commercial societies, which enforced the rules for themselves, and dealt with wrong-doers by expelling them from the society, and thus the trade.  These were alive and well into the 1700's, both in the West and in Japan, the other real non-Western capitalist society.
In that connection, it is interesting to recall how blisteringly critical Adam Smith was of the Guilds (which he called Corporations).

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 Migeru (migeru at eurotrib dot com) on Mon Oct 18th, 2010 at 06:03:17 AM EST
[ Parent ]
Zwackus:
the government was too understaffed, too poor, and too disinterested in legal matters to bother settling disputes between tradespeople.

this is how the mafia was born in the rural south of italy. when the government's justice is slow, spotty, capricious, indifferent, uneven or plain non-existent, then the temptation to employ rougher justice became nigh irresistible.

with ultimately the same pernicious consequences as too much power concentrating at the peak of any historical social system.

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

by melo (melometa4(at)gmail.com) on Tue Oct 19th, 2010 at 10:25:49 AM EST
[ Parent ]
capitalism came into existence in a certain set of cultural conditions, which included the notion of private title to land. The hypothesis is that this is a prerequisite to capitalism, and that the absence of this prerequisite precludes economic development.

Not really. If we consider Adam Smith as a "capitalist," he opposed strongly feudal practises. And feudals were/Are "private land titles."
Perhaps "capitalism" and "market economy" are two different things? In a market economy, Adam Smithian sense, private land title is hold by the one who uses that land, like people who live there. Not an outsider rent collector (real estate speculator).

by kjr63 on Mon Oct 18th, 2010 at 06:11:53 AM EST
[ Parent ]
Yes, but - er - what does Adam Smith have to do with capitalism?

Smith is a statue the rent collectors bow before to make themselves look liberal (in the 19th century sense) and entrepreneurial.

Modern capitalism is feudalism with computers and better health care. (For some, for now.)

by ThatBritGuy (thatbritguy (at) googlemail.com) on Mon Oct 18th, 2010 at 06:29:27 AM EST
[ Parent ]
Perhaps "capitalism" and "market economy" are two different things? In a market economy, Adam Smithian sense, private land title is hold by the one who uses that land, like people who live there. Not an outsider rent collector (real estate speculator).

I'm not quite sure where you got that idea... but it's not from Wealth of Nations.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Oct 18th, 2010 at 06:45:04 AM EST
[ Parent ]
Sure it is. It was not allowed to distribute feudal land to inheritors. So most of the offspring of a feudal lord ended up as renters. Smith criticises this very strongly in "Wealth of Nations." And writes a lot about how rents then destroy development.

Smith was contradictory. He still saw the british "lords" performing something useful function in a society.

by kjr63 on Mon Oct 18th, 2010 at 07:17:43 AM EST
[ Parent ]
Have we been reading the same book?

Smith discusses, at some length, the traditional process of passing down land to only the eldest son, and the prohibitions (legal or cultural) on subdividing land. Smith objects to this on two grounds: First, it means that those who inherit land typically inherit enough to live comfortably off it, and therefore have no particular need to improve upon it. And second, that such large land holdings encourage serfdom, which Smith considered a form of slavery (Smith considered slavery inefficient, because slaves have no incentive to improve their workmanship once they reach the productivity that spares them the whip).

Smith displays no problem with absentee landlords anywhere - indeed he devotes a considerable part of the first book of Wealth of Nations to an exposition on the function and causes of land rents. He also notes, with no particular approval or disapproval, that it is important for the purpose of economic analysis to distinguish between a freeholder in the role of landlord and in the role of businessman.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Oct 18th, 2010 at 07:54:27 AM EST
[ Parent ]
Smith displays no problem with absentee landlords anywhere

Yes. But, he has a serious problem with the prohibitions on subdividing the land? I don't have the book and i don't remember details. But there is no real difference between "non-inheritance" and born landlessness. In Finland the renters were all more or less distant relatives to the landlords.

..slaves have no incentive to improve their workmanship once they reach the productivity that spares them the whip

If i recall correctly, Smith said that the increased productivity is added to the rent paid and so the renter does not benefit anything from his/hers capital investment. At least this was how the feudals worked. So the land stays undeveloped and capital formation is prevented as a result.

IMO Smith contradicts himself. Why he has this sympathy for relatives, but nothing for the born landless?

by kjr63 on Mon Oct 18th, 2010 at 08:47:57 AM EST
[ Parent ]
It is not (only) that he has particular sympathy for the relatives of the firstborn son. It is that he views great concentration of land in the hands of a few people as inherently damaging, because then they will have no need to continually improve the land in order to improve their rents.

On a meta level, he was agitating against the landed, feudal aristocracy, which was the dominant social group in his day. Naturally, appealing to the third son of a minor noble is more appealing to an agitator in that environment than appealing to the serfs. The serfs were not, and never really became, an effective political force.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Oct 18th, 2010 at 01:23:20 PM EST
[ Parent ]
... for the Labour Party.

It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II
by eurogreen on Mon Oct 18th, 2010 at 03:42:04 PM EST
[ Parent ]
Labour is not serfs.

Labour is originally the urban industrial proletariat. A wholly different kind of beast that didn't even exist at Adam Smith's time.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Oct 18th, 2010 at 07:29:00 PM EST
[ Parent ]
became the working class during the Industrial Revolution, and the rural rump remained effectively disenfranchised.

There is just the linguistic marker : a labourer is originally a landless ploughman. I suppose it's that which set me off.

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

by eurogreen on Tue Oct 19th, 2010 at 06:46:00 AM EST
[ Parent ]
Not serfs, but neither were the landless, at least "officially."
The idea of "industrial proletariat" being different from feudal peasantry is not really credible. It does not matter whether you work for a feudal or a corporation. In both cases rentier incomes prevent labours' capital investments, the savings, and, wealth creation.
by kjr63 on Tue Oct 19th, 2010 at 09:15:40 AM EST
[ Parent ]
The industrial proletariat is more geographically concentrated, and so is the capital they work with. This means that they are both easier to organise and better able to block the capitalists' access to their capital via blockades and sabotage.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue Oct 19th, 2010 at 10:13:37 AM EST
[ Parent ]
Literally speaking, "a capitalist" suffers, from "rentiers" as much as labour. Labour just suffers from both.
by kjr63 on Wed Oct 20th, 2010 at 09:57:19 AM EST
[ Parent ]
Many self-styled capitalists are in fact rent-seekers...

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 Migeru (migeru at eurotrib dot com) on Wed Oct 20th, 2010 at 11:24:09 AM EST
[ Parent ]
Just to be explicit: renter is someone who rents a property, for instance -- yearly or monthly, or weekly money paid for the use of the property. The term rentier has been used by economists to describe someone 'is an individual who depends on income derived from rents, which are defined as "a reward for ownership of all natural resources"', per wiki, or who extracts what are considered exorbitant profits from the use of an asset, whether physical, such as a key location, as with a local potentate who sets up a toll booth at a key pass or a financier who purchases the right to do so. So who is a rentier depends on ones concept of what is exorbitant.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Wed Oct 20th, 2010 at 02:15:51 PM EST
[ Parent ]
It should be noted that the capacity to extract rents is not inherently connected to land - it accrues to the socially and politically dominant factor of production, which has at times been land, at other times been capital and at yet other times been financial assets (labour never really obtained the position of being able to extract rents across the board, griping about greedy unions notwithstanding - the best they ever got was countervailing power against rent seeking by the holders of financial assets).

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Oct 20th, 2010 at 03:00:08 PM EST
[ Parent ]
Marx, i guess, coined a term "Rentier Capitalism":

http://en.wikipedia.org/wiki/Rentier_capitalism

Property, whatever it is, always provides a claim to a revenue stream. That makes one think that, can the "rentier capitalist" really monopolise, on top of the 'natural monopoly,' land, also credit, technologies, health care etc.???

Also interesting is Marx's "Fictitious capital:"

http://en.wikipedia.org/wiki/Fictitious_capital

by kjr63 on Thu Oct 21st, 2010 at 03:49:20 PM EST
[ Parent ]
Marx's "Fictitious capital:"

Nitzan and Bichler have an excellent discussion of the various concepts of capital and their development, including those of Marx, in Capital as Power Marx was prescient, as he was writing as financial capitalism was just starting to emerge, yet still got many aspects very well. They claim and, in fact, seem to have resolved many of the problems with Marx's analysis by treating capital AS power. You might enjoy the book.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Thu Oct 21st, 2010 at 05:50:29 PM EST
[ Parent ]
But it was just the very feudal concepts of land tenure that capitalism needed to revise in order to function. Under feudalism, the holder of the land really didn't have the right to sell or sub-divide the land. He held the land as a grant from his feudal lord and in return for military and other obligations in return. The long path out of feudal land tenure largely consisted of monetizing feudal obligations, which, when done in return for specific amounts of money, reduced their relative costs as the money supply and velocity of circulation increased. Until 1832 in England the landed gentry were legally responsible for providing poor relief. That was seen as a grievous burden and the self serving manner in which it was implemented greatly impeded the development of a labor market.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Oct 18th, 2010 at 01:17:13 PM EST
[ Parent ]
I think all that really did was abstracted 'land' into 'money' and 'lords' into 'banks.'

Money is still entirely feudal. It's loaned to the people who use it, but ultimately owned by the banks and the sovereign, who can destroy or undermine its value at any time, without notice.

They can also - as we're seeing now - confiscate property solely on the fraudulent basis of a claim on (non-existent) money that they allege was involved in a property transaction.

'Borrowing' money and paying 'interest' on it is hardly different to paying tithes. What's changed is the concept of reciprocal obligation - there is no reciprocal obligation on the part of a bank to respond to the needs of its clients, or to protect them financial attack.

Banks will tell you they have to protect themselves from 'risk', but most of the time the only risk comes from other banks.

Meanwhile the hedge funds and investment houses have become the monasteries of the day, owing vast amounts of financial real estate they never visit and have no personal interest in, as long as it keeps producing a regular tithe for them.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Mon Oct 18th, 2010 at 03:13:46 PM EST
[ Parent ]
Tithes are for pikers. Real financiers want quintiles.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Oct 18th, 2010 at 05:55:18 PM EST
[ Parent ]
People no longer needed to rely on neighborhood relationships or make local arrangements  (De Soto)

hmmm.  I don't feel like doing an extensive rant on this, but isn't this one of the fundamental problems afflicting the house that corporate capitalism has built?

No. Neighbourhood relationships and local arrangements can be exceedingly brutal and repressive if there is no viable opt-out available. One of the most emancipating social innovations of the industrial state was breaking the family/clan/neighbourhood/tribe's power over the individual by providing a viable alternative, in the form of employment away from the home, state-supported social safety nets, independent access to education and so on.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Oct 18th, 2010 at 05:09:37 AM EST
[ Parent ]
abounds. These indigenous folk seem to get along pretty well together. Except when they don't.

When you hold no title to your house, or farm, then when push comes to shove, you can find yourself homeless and landless, and you have no recourse.

Of course, the process of introducing property title where none existed generally turns out to be favourable to the local oligarchies, and it turns out that the folks that live there have no claim to title. This seems to be rampant in Africa, and Indonesia, for example.

So establishing the effective rule of law, and an independent judiciary, would seem to be a prerequisite to introducing individual property titles.

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

by eurogreen on Mon Oct 18th, 2010 at 05:55:51 AM EST
[ Parent ]
So establishing the effective rule of law, and an independent judiciary, would seem to be a prerequisite to introducing individual property titles.

Indeed. This is one important lesson that should have been learned from the Russian debacle in the '90s, where it was assumed that if you introduced individual property rights, then rule of law would follow automatically...

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Oct 18th, 2010 at 06:04:49 AM EST
[ Parent ]
And the mortgage fraud scandal shows that, when the rule of law withers, individual property rights become the source of much trouble.

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 Migeru (migeru at eurotrib dot com) on Mon Oct 18th, 2010 at 06:16:03 AM EST
[ Parent ]
It's not a good idea to compare feudal Europe to indigenous cultures.

But it's not a good to get noble-savage-y either. Indigenous cultures have never been homogenous. Some were relatively peaceful and pleasant, others were as nasty and violent as any fascist war machine.

The point is to decide what we do next, not what we used to do then.

I'm not a believer in return-to-Eden narratives.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Mon Oct 18th, 2010 at 06:33:08 AM EST
[ Parent ]
ThatBritGuy:
I'm not a believer in return-to-Eden narratives.

even if instead of eating an apple, eve buys a mac?

i think we do need a journey to eden narrative, and there would be an element of return, in the purely nostalgic sense of re-achieving a sense of balance with one's ecosystem, but with the wisdom of hindsight.

and an ipony...

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

by melo (melometa4(at)gmail.com) on Tue Oct 19th, 2010 at 10:20:12 AM EST
[ Parent ]
Another factor--also perhaps tangential--is that it is not required that a home-buyer enter into a mortgage arrangement, nor is it required that a mortgage arrangement be open to re-selling.
  • You can pay cash, which is a realistic option for a family unit with two professional members making upwards of $100k per year, if they are willing to live on $50 for a year and then buy a $150k property.
  • Also, many credit unions hold their mortgages...
by asdf on Mon Oct 18th, 2010 at 10:40:59 AM EST
European Tribune - The Great Unravelling
they created a 14 trillion hole (and that's not even counting leverage).

The leverage is an aspect that didn't occur to me at all. And wouldn't take a totally ridiculous amount of leverage to put the total amount about to go down the tubes on a par with global GDP.

Congratulations. You've finally made my head explode.

The fact is that what we're experiencing right now is a top-down disaster. -Paul Krugman

by dvx (dvx.clt ät gmail dotcom) on Wed Oct 20th, 2010 at 03:26:42 AM EST
European Tribune - The Great Unravelling
So it's possible that, contrary to claims that the intent was from the very beginning that the subprime mortgages would lead to foreclosures, the intent was never to worry about foreclosures.

Sounds about right. The board rooms at Goldman Sachs may (or may not) have discussed what to do after the boom, but the smaller operators down on the ladder were in all likelihood trying to make a quick fortune while it lasted. And less paperwork means quicker fortune.

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se

by A swedish kind of death on Wed Oct 20th, 2010 at 04:45:33 AM EST
[ Parent ]
This Land is My Land? - Maxine Udall (girl economist)

De Soto's chapter makes the point that the US system of property rights evolved as a combination of precedent from British jurisprudence and populist pressure to accommodate what the small landholders and their various voluntary associations viewed as fair and equitable. The latter formed the basis for an evolving common law. It filled a legal void on the frontier of our new nation and most likely also sated early settlers' desires for justice

De Soto makes the point that these extralegal institutions supported property rights among the poorest of Americans (unless, of course, they were indigenous). This is very different from how property rights tend to evolve in, say, a feudal or semi-feudal system or in a country dominated by powerful and wealthy interest groups. It placed land (capital) in the hands of many and allowed them to keep it as long as they improved it, i.e., they produced from it. It unleashed productive power at the bottom of the economic pyramid. It almost certainly accounts for what I regard as one of the true sources of any US exceptionalism: the unfailing ambition, creativity, and productivity of its poor and its working and middle classes.

Now, those evolved property rights, rights that tended to favor those with little, may be about to be trampled by those with a lot. I'm willing to bet that, even as I type, the laws and the rights they codify are in danger of being dismantled by Congress out of fear that otherwise bankers will act like spoiled children and trash the economy and the country that made them rich and bailed them out.

by Bernard on Wed Oct 20th, 2010 at 09:17:18 AM EST
It is almost certain that proper coverage of the foreclosure mess in the USA is being inhibited by the corporate media, both print and electronic. Very few reports describe the "problems" with documentation in foreclosure cases as the products of an organized conspiracy to defraud the courts and the defendants. This may be, in part, due to fear of lawsuits, but those concerns could be addressed with appropriate caveats in the coverage. It seems to me more likely that editors have given instructions on what will and won't get published and who will and won't remain employed.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Wed Oct 20th, 2010 at 02:25:04 PM EST
[ Parent ]
Explicit instructions of that sort are unlikely, and because they are unnecessary. Just knowing that your outlet is "pro-business," that "fraud" is "controversial" and that journalism is a declining profession will be more than sufficient.

Only the outlets organised along the most overtly top-down models - such as FOX and ClearChannel - are going to leave memos like that floating around. All the Wolf Blitzers Quislings in the "Liberal Media" are going to want to maintain plausible deniability. Just like Vietraq, and just like torture, just like every other breakdown in democracy we've seen since Watergate stopped being interesting.

And if the midden impacts upon the rotating air pusher, then "nobody could have predicted."

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Oct 20th, 2010 at 03:06:20 PM EST
[ Parent ]
The editor's instructions I contemplated included raise eyebrows, scowls, etc. up to verbal rebukes, if necessary.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Wed Oct 20th, 2010 at 05:42:41 PM EST
[ Parent ]


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