TDOC: Silly Season

I both love and hate Facebook. Love it because it lets me keep in touch with friends. Hate it because it provides editors with another route through which to hassle me about my shameless intransigence.

I really can’t help it folks. I am a writer after all. In my opinion a big part of the bargain I struck with the world is that I’ll agree to never be financially secure in exchange for having a life. Which is a long-winded way of saying I found this comment recently on my FB page from our beloved editor Stephen Whitworth:

“Hey whatever happened to your column The Death Of Capitalism??? It died as soon as it got a logo.”

Umm… yeah… right. TDOC. I have sort of been neglecting that ugly, basement dwelling redheaded step child (I kid, I kid… I’m a ginger myself) haven’t I? But I have a list of great reasons as long as my arm! (Did I mention I’m a writer?)

I was recovering from two broken legs and the baby learned to walk before I did. Then she turned into a toddler that required me to learn to run in my own hobbling fashion. (All while shrieking “Don’t eat that!”) Then my editors at the day job what pays my mortgage informed me that they actually expected me to complete some work for them after my vacation in hospital. Apparently when they say “Gord will be working from home” they really mean that “work” part…

And of course there’s that quietly unacknowledged reality… I was already at risk of becoming that weird guy who never left his house and always wore sweats… did I really need to elevate my risk factors by fixating on the economy, monetary policy, banking cabals and other tinfoil hat territory?

But despite my ability to generate excuses that even I’m ready to believe, I have to be honest with myself. I just didn’t feel like it. Nothing had been inspiring me, it was the summer and all the financial types were out at the seashore, preening in front of others of their ilk, and nothing was happening.

I’m told that watching a financial crisis is about as boring as watching a yacht race (Not that I’d know, I’m from Carrot River. I don’t think drinking in a rubber raft qualifies.) so for someone who’s personally more into hockey fights, it was time to ignore the whole thing.

But now summer’s over. The seersucker suits and white linen trousers are safely in storage. The summer place at the Cape is shuttered tight. All the bankers are back in their boxes in the sky. And the whole thing appears, to the uninformed observer, to be gathering speed in a sickeningly sudden fashion –- which again is how I’m told these things often go.

Continue reading “TDOC: Silly Season”

TDOC: Containing A Greece Fire

The Death of CapitalismA few trillion here and a trillion there and the next thing you know it adds up to real money.

The Death of Capitalism apologizes to the late Senator Everett Dirksen who it turns out may or may not have actually said those words that are so often attributed to him, but you have to wonder just what he’d have made of the super-sized public bailouts of today.

The latest instalment of course is a near-trillion dollar “backstop” fund announced by the Euro-zone countries in an attempt to deal with the fallout of the debt issues of Greece and the potential for a “contagion” that would sideswipe their unified currency and project for an economically and politically united Europe.

Amid all the hyperbole about those shiftless Hellenic socialists and their gold-plated social programs that led the country to the brink of bankruptcy, however, I think it’s important to note that this whole episode is fundamentally a failure of capitalism, not “socialism”… whatever that means these days.

To understand this we have to take a quick back-of-the-envelope look at what actually happened. Which appears to be that the main centre-right party colluded with the largest investment bank in the world to pull an Enron and dump the country’s debts off the books using a bunch of fishy instruments that made it impossible to see what was actually going on with the country’s finances. That allowed Greece to qualify for membership in the European shared currency.

Make no mistake, like any trade agreement or currency union, it was definitely the country’s business and political class that was behind this move, not the average Greek citizen. Now taxpayers across the Eurozone find themselves on the hook to backstop these fishy business deals and it’s beginning to look a lot like austerity measures (and the accompanying street riots) are the order of business for the foreseeable future as – irony of ironies – Greece’s main left-of-centre party cleans up the mess. Can someone please explain to me again exactly why the right always gets to claim to be better at running an economy?

And you’d better believe this entire exercise is about bailing out a bunch of European bankers and their interconnected web of debt who made lousy business decisions without doing proper due diligence — though in fairness one of their own was gaming the books, making that a tall order.

But the crisis seems to be contained – for now. But given the success of central bankers and their ilk in the past when it comes to forecasting containment you can colour me skeptical. More likely they’ve just papered over the problem for a few more months, and by kicking the can a bit further down the road, thus making the problem even bigger when the day of reckoning finally comes. My gut instinct tells me that when it does, that 1000 point drop in the Dow Jones Industrial Average is going to look like a bit of light turbulence.

And finally… a brief explanation for my prolonged absence…

As I noted in one of my last posts, about two months ago, I managed to break an ankle that required some surgery. Well, my own natural clumsiness managed to compound an already bad situation.

About three or four days after my release I wound up falling off my crutches and severing the quad tendon from the kneecap on my other leg, thus rendering me a paperweight for much of the past two months — albeit a mouthy paperweight with no shortage of opinions.

I wound up going through another even more serious surgery and spending nearly a month incommunicado in hospital confined to either a bed or a wheelchair while things healed. I’m back home now, hobbling around on a walker, as things rehab, and I’m really looking forward to getting back to making regular contributions again.

The Death of Capitalism: I’m Feeling a Bit Sick

I broke my ankle last week and had to have surgery to put a plate and a series of screws into it to hold it together while it heals.

It was a very, um, rude experience. Painful, without much dignity and completely out of my control. But I’m feeling much better now. The surgery is a couple of days in the past, the pain has receded far enough that I’m able to put away the codeine pills they sent me home with and I’m generally on the mend.

But I’m not seeking sympathy here – well, OK, you can send Whitworth over to fluff my pillow if you insist. Eww. I just reread that. I sounds more than vaguely unwholesome. Seriously though, just wanted to explain the absence of new posts over the past few days.

But I’m back and the boredom is really setting in, so I’m sure I’ll remedy that over the next six weeks or so, where all I’m allowed to do is sit around with my foot elevated.

Allow me to start with something that might be a bit of a boring economics lecture, except it captures perfectly the death spiral that the western economies, led by the US and UK, are stuck in. Perverse incentives are causing loathsome, self-interested (reptilian some… OK… I… would say) investment bankers to pile on the risk knowing that the government will bail them out because their banks are too large to fail without total chaos following – as the death of Lehman Brothers proved just a year-and-a-half ago.

The INVESTMENT banker distinction is very important here, because we’re not talking about the more-or-less friendly banker next door that you talk to about your mortgage or RRSPs, nor the risk-adverse dweebs that most entrepreneurs encounter. These guys are the libertarian/anarchist minded cowboys with quantum mathematics degrees. The “Greed is Good” set who appear to have no moral compass whatsoever.

Here author, blogger and former International Monetary Fund chief economist Simon Johnson sums it up better than I ever could – the economic and political system is broken, stuck in an endless feedback loop courtesy of St. Ronnie’s financial deregulation (though to be fair Jimmy Carter had a hand in it too) and unless this concentrated power bloc can be broken up, they’ll milk the public purse ’til it all flies apart.

I gagged a little bit when I watched this – and I never even did that when I heard the bone break.

http://vimeo.com/9953346

Friday Afternoon Puppy

Cats? Really? You know that if you die, they’ll eat you, right?

Dogs. Now there are noble, brave and loyal creatures. As witnessed by this video from a highway security camera in Chile several months ago.

Warning: I’m a grouchy, crusty old man. I cried a little bit the first time I saw this.

Cats. They’re OK. But give me a dog any day.

The Death Of Capitalism: Back To The Future?

Economist, blogger and former IMF head economist Simon Johnson makes a compelling case here (originally from the NY Times) that what we have  is a failure to regulate, moderate or in any way impose meaningful rules. Let me ask… do  any of the following key points, borrowed more-or-less directly from Johnson’s post, sound even vaguely familiar when talking about truly mammoth companies?

     ● In many cases big firms did well because they used unfair tactics to crush their competition

     ● Even well-run businesses became immensely powerful politically as they grew.

     ● There was a blatant attempt to use the political power of big banks to shape the financial playing field in ways that would help them

And by now I’m sure that the most common reaction might be something along the lines of “No kiddin’ Pollyanna. Welcome to 2010. There’s no getting anything past you, is there?”

Well, the neat little trick here is that Johnson’s talking about the last Gilded Age, about a century ago, rather than the current Gilded Age that’s just wrapping up… oh… right about now…

So I’m curious – what do you suppose the likelihood is that we might be able to find a reformer willing to take on this sort of concentrated power? A modern-day Teddy Roosevelt, as it were? Because make no mistake – if our experiment with a free market economy is going to continue, perhaps the biggest single requirement is a more-or-less open and fair market – and a champion to lead the charge for one.

The great shame, of course, is that we might have already had just such an individual warming up in the wings.

Except, of course, he appears to have fallen victim to his inability to keep it in his pants – possibly combined with a truly excellent frame job.

The Death of Capitalism: A grifter’s delight

The always-entertaining Matt Taibbi lays into Wall Street again in his latest missive for Rolling Stone magazine.

Taibbi has been relentless in his criticism of the banking community and his comparisons to the grifters, schemers and con artists are, largely, valid ones.

I’d also like to take the opportunity to respond to reader TS, and TS’s comment on the first TDOC post last week. Thanks for taking the time to read and comment. I’m sure it will come as no surprise that I don’t exactly agree with you, but I’d love to explore this a bit further. A portion of TS’s criticism:

“In the mean time, it’s a gross over generalization to say capitalism failed. I would argue in fact, we have really just realize its faults.”

TS goes on to say that if better regulation were possible, capitalism would do a better job of accounting for external costs, and therefore capitalism would work, since the true value of a tree left standing, for example, would be known.

It’s true that there have been some halting moves towards this – most notably WalMart’s sustainability index, for example.

But where TS and I differ, I expect, is in our varying levels of confidence that such transformative changes in the way we do business are possible. I suspect that any meaningful reform will be blocked before it truly has a chance to affect the needed changes, and that therefore we are in fact seeing the early stages of the death of capitalism.

To understand how that works, we need to understand a bit about the process of sausage-making in a democracy. These days that’s almost entirely left up to well-connected and well-funded lobbyists, even more so directly south of us. These folks are well paid, each and every day, to monitor political activity, lobby the ‘right’ people and generally have their way with the democratic process.

And this is where the issue of better and ‘smarter’ regulation goes off the rails each and every time. Let’s return again to the issue of Wall Street bankers, since it’s the most instructive example in recent years.

These guys screwed up royally. All the major US investment banks should be broke. They only survive because they were able to engineer a bailout of AIG who was a ‘counterparty’ in a bunch of credit default swaps, and that organization was then able to pay off the policies it wrote – policies covering the most egregious excesses of the US housing bubble.

But rather than face their medicine, these folks then turned around and began actively lobbying against regulations of these sorts of black arts financial instruments and instead tried to pin the blame on the US’s CMHC-like bodies like Fannie Mae and Freddie Mac. Now there’s no arguing these quasi-public institutions caused their own problems – but in this case they were following Wall Street’s lead and were responsible for less than one per cent of the bad mortgages.

But of course the real villans will never be held accountable because of the great sway they hold in the corridors of power.

Without this accountability they’re about to suffer from a powerful case of moral hazard — they now know with absolute certainty that if they make these outrageous bets again and win, they pocket a huge bonus. But if they lose? Well, then the taxpayer is on the hook.

The Death of Capitalism: Reality sets in

I’m not exactly sure when the realization first struck me.

Perhaps it was when I was stuck in voice-mail hell for the umpteenth time, waiting to talk to a real live human being to resolve a problem, all the while being bombarded with pre-canned propaganda about the company’s commitment to meeting the needs of ME the customer.

Or perhaps it was when I went looking for a pair of gloves in March a couple of years ago, only to be informed that the store was out of them and wouldn’t be getting another shipment from Asia until next fall.

It was certainly well before it became apparent that the Masters of the Universe ™ on Wall Street are nothing more than glorified grifters bellying up to the government trough whenever they mess up.

But it has become apparent to me that, barring substantial reformation, market capitalism as we have all known it for our lifetimes, is as surely broken as Soviet socialism ever was. It’s the early days yet, but I am quite certain that when you privatize gains and publicize losses, refuse to deal with the pernicious effect of corporate lobbying on democracy and generally stick our collective heads in the sand, we’ve got a big problem.

And before I get the predictable flood of comments from Libertarian types claiming “You can’t say capitalism failed, it’s never really been tried,” let me just point out that there were Marxists throughout North America saying “You can’t say socialism failed, it’s never really been tried” long and loud circa  1993.

The truth is that the largest “market” economy in the world is now apparently being run by a banking oligarchy, according to the former IMF chief economist, who says if IMF staff were given the raw numbers with the name of the country redacted, they’d currently be proscribing exactly the same kind of “shock therapy” that’s been long-inflicted on Latin America, Asia and a ton of other places.

Here in western Canada we have, so far, been mercifully spared the worst of this meltdown. We have a small population base, lots of resources and we’re pretty far from banking centres. But make no mistake, we will eventually feel it. And when we do, there’s a pretty good chance that what we’re going to be feeling are the effects of The Death of Capitalism.

Here on TDOC, we’ll be exploring this theme, occasionally engaging in a bit of schadenfreude, and, most importantly, looking for the truth amidst all of the happy talk about how recovery is just around the corner.