Four proposals to kill the financial vampires

I never face my fears
Runaway

So, the establishment is coming to think that it will live to fight another day. And the zona has been cooked. No more to worry about!
This pause in the panic is like unto the six months between Bear Stearns stroke and the demise of Lehman, swinging dick banker for the stars. I should say, it is like unto it in as much as during this time, the establishment goes through the rituals of self assurance. These will include defending the institutions it has made its money on, patting itself on the back for being so smart, and finding heroes. Apparently, WAPO has discovered that Bernanke is our Achilles.

Predictable songs waft out of the Gated Community. Meanwhile, I’m with the guy who said: “Son of man, what is the vine tree more than any tree, or than a branch which is among the trees of the forest? Shall wood be taken thereof to do any work? or will men take a pin of it to hang any vessel thereon? Behold, it is cast into the fire for fuel; the fire devoureth both the ends of it, and the midst of it is burned. Is it meet for any work? Behold, when it was whole, it was meet for no work: how much less shall it be meet yet for any work, when the fire hath devoured it, and it is burned?
In the meantime, four points for a legislative program.

1. All interstate companies must incorporate on the Federal level, with the Commerce department. Break the tyranny of Delaware and North Dakota,
2. The amount of all stock issued by a company must equal and be worth no more than the company’s real gross value.
3. Repeal the exemption for 401(k)s and 401(k) like programs.
4. Put in place Therese Ghilarducci’s much better retirement money fund scheme. To quote her testimony from last year: “…since 401(k) accounts and the like are financial
institutions -- the bank about where 38% of the workforce2 can intend to save for their
retirement – Congress [should] let workers trade their 401(k) and 401(k) - type plan assets (perhaps valued at mid-August prices) for a Guaranteed Retirement Account composedof governm ent bonds (earning a 3% return, adjusted for inflation). When the worker collects Social Security, the Guaranteed Retirement Account will pay an inflation adjusted annuity, based on the accumulated funds."

No. 2, by the way, is the most important. Eventually, we will have to come to grips with the fact that a speculative sector requires limits. In the progressive era, there was quite a lot of worry about watered stock. Now we watch calmly as stock prices normalize around 14-20 times earnings. This is watered stock. In actuality, if there were some speculative leaway – 2 times earnings – this could actually be of benefit in the capital hoho system we live and breathe in. But what is not of benefit is allowing the amount of stock and prices to discover itself.

the oligarch's song

I am not a Black Swan fan. Taleb’s faith in Popper is definitely not my faith. On the other hand, nobody can doubt that a rigged risk assessment system has just blown up, and – if it were properly accounted for – taken down the global elite that were amassing real power with fictitious fortunes. Here, he presses the right buttons. How do I know? Read The Economist’s blog response to him: it is a full court oligarch’s defense, containing some beautiful zombie lines. In the zona, the second tier, the people who specialize in the kind of patter that picks your pocket, often consists of people who are not cynical at all: they are sincerely, blessedly stupid.

This is my favorite bit:

“While limits on leverage are necessary and tax policy which encourages firms to issue debt rather than equity is misguided, the villain here is not complexity. Perhaps Mr Taleb and lawyers hired as regulators do not understand complex derivatives, but many people do. Should we outlaw innovation for the benefit of people who lack quantitative skills? These products do indeed provide a means to hedge risk. The crisis may have been much worse without some of the financial products that did pay off.”

Innovation. One can only laugh. There are innovations of all kinds in the world. For instance, off the coast of Somalia at the moment, an innovation in piracy is being launched – Piracy 2.0. Yippee! The second tier has a Pavlovian instinct for wrapping a motive and an instrument (greed/robbery) in the appalling banalities of bizspeak. If this was simply a throatclearing defense of rentseeking behavior by the richest, at least it would be honest. But innovation simply means finding more cockamamie combinations, whose only use is to enrich the inventor by creating non-productive risk (and no, when you create a risk, you don’t get extra points for creating insurance for that risk ). A commenter, obviously from the financial services industry, remarked piously that these “innovations” freed up capital. They did indeed. They freed up capital to find other non-productive innovations to pour into. Fiction attracts fiction, which is how a nominal 400 trillion dollars worth of derivatives piled up from 2001-2008.

However, the best is: “The crisis may have been much worse without some of the financial products that did pay off.”

Now, in one sense this is true, just as it is true that, when a fire is sweeping through a forest, the best fire-fighting formula may be to set a counter-fire. But before a fire sweeps through a forest, one can do preventive work – for instance, don’t douse every living thing in the forest with gasoline and then throw about lighted matches.

There is an ant’s nest blindness to the oligarchy. They have learned, over the past 30 years, that they can loot, and that their looting will be rewarded with huzzas in the press. The secondary market in sycophancy has boomed. And it will continue to plug along during the zona, as the new line will be that the crisis proved how splendidly the slicers and dicers worked things out.

At least the Somalian pirates are honest. So far, they don’t slice a throat and talk about the wondrous innovations they are foisting upon the world in the matter of throat-slicing.

why I always find the selfishness/altruism controversy rather bogus

I’m working on a review of Jeffrey Abramson’s Minerva’s Owl for the Statesman this week. It is a pretty entertaining book. The section on Hobbes made me sit up a bit. Hobbes, as is well known, constructed a politics from his view of the fundamental motives that animate the human heart. Those motives were self-aggrandizing. Abramson gives a standard gloss on Hobbes’ psychology: … “all seemingly altruistic and other-regarding acts start when the imagination sets in motion before the mind’s eye a re-visioning of someone else’s suffering as if it were our own suffering. Only because the imagination can perform this work of translation can our limbs be set in motion in altruistic or charitable ways.”

What made me sit up is how implausible this account seems. It involves an act of seeing someone else’s suffering, taking that vision in, somehow revisioning it as suffering that we have (how exactly does this work?) and then having sympathy for the other insofar as we can complete the analogy, meaning that we are really sympathizing with ourselves.

But this whole process doesn’t really seem to have an Other in it at all. In fact, in modern terms, there may be no other in all of Hobbes. But if there were an Other, then surely the revisioning (if such a fantastic thing happened) would consist, as the translating process is going on, of treating oneself as an Other. Unless I am myself in pain, to imagine myself in pain is to imagine myself as an Other. No matter if I call up memories of myself in pain in the past, or if I project pain in the future – the translation business must do what translation does – take the terms of one language and put them in another language. If I, say, sympathize with the discomfort of a pregnant woman, am I seriously to suppose that what is happening here is I am imagining myself pregnant? And if this was part, or even all, of the sympathy, what does this amount to but imagining myself other than I am? To call this self-interested is to extend the term “self” to the point where it means self-as-other, or: the other-as-self. In fact, the principle elements in this translation process seem to be laid down by the other – I sympathize with a pregnant woman, myself being male, by reconstructing my self-as-other image to make it analogous to her experience. She as the other doesn’t exist as a variable into which I can project anything – such as self-as-suffering-from-malaria. She defines the term, so to speak, that requires translation into the self language.

The surface plausibility of Hobbes account comes from the way in which it does capture a significant phase of sympathy. I hear the account of some calamity by X, and I respond to it by telling of a similar calamity that happened to me. By doing so, I think I am sympathizing with X. Yet the template for my story is still shaped by X’s story. And it is not just the broad outline of X’s story that evokes the broad outline of my story, but the very mood, the emotional tenor. There is a process of learning here – when such exchanges of stories occur, it might happen that the sympathizer tells a story about him or herself wildly at variance with the story told by the sufferer. And this would be a sign that the translation that is going on has only reached a Hobbesian stage. That is, it is only raw projection, the self-as-other-as-self.

I was made to sit up and think about these (rather elementary) things from Abramson’s example of Hobbes’s account of laughter: Sudden Glory is the passion which maketh those Grimaces called Laughter; and is caused by either some sudden act of their own, that pleaseth them, or by the apprehension of some deformed things in another, by comparison whereof they suddenly applaud themselves.”

Now if Hobbes were right about the re-translating of the suffering of the other, than surely that retranslating would go on with the apprehension of some deformed things. But two instances of perception bring about two different translatings in the perceiver – of pity or of laughter. What makes the difference here? While it may be that there are tendencies in the perceiver to cause some of this difference, I don’t think anyone would make the case that there are pitiers and there are laughers, and that never the twain shall meet – although there is something to this. Temperament can come into play, here. But still, suffering or deformity does not lead the self to automatically project itself as deformed or suffering. There’s room for different responses, and this room is unaccounted for in the notion of the sequence from perception to interpretation. One can project one’s self on the other, or one can project oneself beside the other – the latter being a ‘comparison”. Since Hobbes is accounting for traits in terms of motions, here are two motions that are unaccountably different. Yet, if we give the slightest credit to the other in creating a response, then we have ruined the self-interested account we begin with.

more pablum from Robert Frank

Robert Frank, a Cornell economist and well respected theologian to the country club circuit, reminds us in his Newsweek column of last week to beware of killing our best and brightest goose, laying our best and brightest golden eggs:

“We are such a rich country in part because our corporations hire the right people most of the time. In managerial jobs, an increment in talent has more impact in a big corporation than in a small one. That's why it's in everyone's interest that the most talented managers run large corporations rather than children's shoe stores. And that's what happens under current arrangements. But those managers would have little reason to seek the most important positions if salaries were the same elsewhere.”

The word has come down from the mountain! Now, of course, the second sentence is a little less than divine. What it seems to mean is that managers at big corporations make decisions that have bigger impacts than the managers at children’s shoe stores. Wow, such wisdom. And the man is one of Cornell’s best and brightest – I believe he is holds the Lickspittle Chair there, named for Arthur C. Lickspittle, who came up with the “rich work harder than you and me’ doctrine. An excellent doctrine! We all saw it unfolding at Bear Stearns, when the management was working hard at a bridge tournament while the company went down.

But those other talents – and Frank can point to how talented they have been in the last year! – have been putting in their years of brightness, and they certainly don’t want their perks cut at such an ugly time. That would be, well, like scaring the vultures away just as they were having a tasty feast. This feast is, of course, on the global working class.

Michael Perelman, an economist who publishes in Challenge, Jeff Madrick’s magazine, reprises an article by David Yermack, Flights of Fancy. It was about the increment of talent getting at little relief from their terrifying work loads and the non-stop brilliance in their heads by being able to relax at their favorite golf courses. Unlike your children’s shoe store, many of them work for corporations that are more than delighted to roll out the private corporate jet, so they can take their incrementally more talented asses to places where they would be appreciated as good putters, too:

Yermack’s paper reported that “more than 30 percent of Fortune 500 CEOs in 2002 were permitted to use company planes for personal travel, up from a frequency below 10 percent a decade earlier.” Since Yermack’s study, the problem has continued to escalate. Between 2004 and 2005, the reported value of personal use of corporate aircraft increased 45 percent, according to government filings of the 100 largest public companies (Fabrikant 2006).

Not surprisingly, Raghuram Rajan, the chief economist of the International Monetary Fund, gallantly came to the defense of the corporations. He suggested, without the slightest hint of humor, that these expenditures may have actually been justified because they encouraged executives to be more efficient (Rajan and Wulf 2004). This justification does not seem particularly credible since Rajan’s study did not bother to distinguish between planes used for business or personal purposes, including use by retired executives.

In fact, the personal use of corporate jets does not seem to be correlated with profitability at all. Of course, some of the firms that supply their executives with corporate jets for personal use are successful, despite such wasteful excesses, but the use of corporate jets is correlated with poor performance. According to Yermack: “Firms that permit personal aircraft use by the CEO under﷓perform market benchmarks by about 4 percent or 400 basis points per year, after controlling for a standard range of risk, size and other factors” (Yermack 2004).”

But never fear – such cruel barbs do not penetrate the establishment, which is just sure that a man making, say, 40 million in compensation per is a mighty, mighty hard worker – 99 percent perspiration, these guys.

Myself, I’m not absolutely convinced about the level of brightness of our oligarchy, in spite of Frank’s vision of their increments of talent making the country (although not the average reader of Newsweek) rich. In fact, I think corporations should be taxed at a phenomenally high rate if they pay their management more than some ratio over the lowest salaried worker. Right now, the average is 300 times. I think 9 times, the 70s average, is about right. As for the money saved – it can go to the lucky workers.

How to make sure it goes to the workers? Crush the speculative market in equities. I’m more and more convinced that Theodore Roosevelt was right – the price of a share of stock should have a one to one ratio with the assets of the company. No more. If you want to buy and trade stock, it would not be in a word in which “market capitalization” differs so wildly from real value.

Want to do a quick x ray of who owns congress? I have a simple test. Find some senator or congressman to introduce a bill federalizing the incorporation of interstate businesses. Watch the bill get shot down pronto by the wholly owned hacks. Bring popcorn. Zona fun for the whole family!

And this, from the NYT story on corporate boards:

“In the absence of fraud or self-dealing, it’s hard for shareholders to make a legal argument that boards have failed at their job. State law in Delaware, where most big public entities are incorporated, simply requires companies to have boards that direct or manage their affairs, and it affords broad legal protection to board members so long as they act in good faith and in a manner “believed to be in or not opposed to the best interests of the corporation.”

That was the basis for the recent ruling of a Delaware judge who threw out most of the claims in a shareholder lawsuit seeking to hold Citigroup directors and officers liable for big losses tied to subprime mortgages. But the judge did allow the plaintiffs to pursue one of their claims, which alleged corporate waste stemming from a multimillion-dollar parting pay package that Citigroup’s board awarded Charles O. Prince III, the former C.E.O., in 2007.”

Capital is an excellent sides player. It finds the tax haven. It finds the state with the pro-biz laws. It finds the state with the no-usury law. It spreads its dark wings over the world, and there is no countering internationale, no labor group, to dance with it. Consequently, it wins. It wins. It wins. The more it atomizes, the better it globalizes.

Ludwig Hohl and me

“The conversion before the Fish

This is about an experience I had about a year ago (in my thirtieth year) and was exactly the opposite of Lenin’s when he sat through one of Beethoven’s sonatas. – It was a small tropical fish in an aquarium in a zoo, of the most unheard of, unnameable colors. Colors, at the sight of which I could have howled, I mean, given my life – and that each time made me understand, that I would always forget everything before such glory. – Lenin, at the time, said about his sonata, this sonata is glorious – and it is not for us – for us right now, it is a question of knocking together heads (i.e., broadening a way on which many persons could find a way to this beautiful entrance). Bur here, standing before the fish (and similar to the fish had I felt the same many times before certain visions of Balzac: the Grenadiere, Colonel Chabert, the Medecin de Campagne), I believed that I knew, down to my deepest foundation, that I could never my whole life long become political (that is, overwhelmingly so). Not for instance that I deluded myself into thinking I was thereby assuming a higher standpoint! It was simply a question of belonging, conditioned through the person. One cannot be more and will as Lenin, only other and other.” – Ludwig Hohl

the old boys are dead - not that they know it

When I was a child
I toyed with dirt and I fought
As a child
I killed the slugs, I bored with a bough
In their spiracle

So many childish things – but aren’t we the apocalyptic children, children of the decaying atmosphere, children of the clotted ocean, children who cover their faces and believe that they are hidden? The aging, senile and sclerotic children who sit in the Senate and in the House, those bought and paid for children, heavy with the death that has been fucking them, those in-dealing dealers of the cards that make up our misery (here’s the college loan, here’s the car loan, here’s the mortgage, here’s the health bill, here’s the years of the cancer at sitting in a chair you do not own doing work in the cancer of a cubicle you do not care for, here are the invisible pyramids of sacrifice and on them we sacrifice the bird migrations, the poetry, the novels, the spirit twitching beneath the scalpel, I killed the slugs), they have come up with another plan, this one involving waving the magic wand over the defunct “assets” in banks:

“Under intense political pressure, the board that sets accounting rules in the United States will meet on Thursday to complete changes in accounting rules that are aimed at reducing the losses banks have been forced to report as the values of their mortgage-backed securities have crumbled.

The changes, proposed two weeks ago after a Congressional hearing in which Robert H. Herz, the chairman of the Financial Accounting Standards Board, was essentially ordered to change the rules or face Congressional action, are generally supported by banks, although some want the board to go even further.”

What a sanitized world our sclerotic Congress children are urging upon us! In this world, soldiers who die, pow, in a war in the Middle East get shipped home to the most private of landings and dumpings; in this world, those who come home with head injuries or that wound to the spirit that comes from watching a two year old pop – pop! – apart, like a blood filled balloon, because you have shot the child, and that’s a real reel that you aren’t going to be able to play backwards, are tucked safely away, in the same place that they keep the statistics on how many dead Iraqis it takes to make for a great Victory in Mesopotamia. Hide and seek among the shadows, it is our Great American zona style.

And if the shadows infect the accounts held by the banks, and if the columns are full of shadows that no reality corresponds to, the only thing to do, children, is to pretend it never happened.

“It seems highly unlikely that FASB will make major changes to the proposals that it rushed out only two weeks ago, but it may be willing to consider additional steps. And it will have to face the important decision of when to make the new rule take effect.

Some banks have requested that the board issue further guidance to make it easier for them to avoid writing down the value of assets, while some investors have asked for detailed disclosures to help them assess how far the newly reported values are from current market value.”

“Use of Soviet supplied economic information in such studies can be compared to playing Three Card Trick with a cardsharp on the street. The cardsharp will allow his mark to win enough times to feel the game is fair, but will palm the winning card so that it is not even on the table when the bets reach a critical point. Similarly, economic analysts have generally found enough plausible data to convince them that the Soviets provided figures with at least enough relation to reality to enable the analysts to compensate and correct for any distortions – but ultimately they have to accept information concerning many of the critical factors on faith…” U.S. Intelligence Perceptions of Soviet Power, 1921-1946 by Leonard Leshuk.

Run for the shadows…

I had to laugh at this, from the NYT story about the smoke and mirrors rise past 8,000 on the NYSE today:

"Even a stark rise in weekly first-time unemployment claims barely dented the upward trajectory.

The Labor Department said that initial jobless claims rose to a seasonally adjusted 669,000 from the previous week’s revised figure of 657,000.

Investors are bracing for a bleak report when the government announces the March unemployment rate on Friday, but Steve Sachs, director of trading at Rydex Investments, said the newly optimistic market dynamic might be able to withstand the shock.

“I think the shock value of the employment numbers is starting to wear off,” he said. “We all know employment’s a lagging indicator.”