#OccupyWallStreet

The BBQ Pit
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That’s inspiring.

You’ve made my point for me. That was a pretty simple issue, and a pretty big injustice. Such a problem calls for a big general sledgehammer of a tool… which is what they used.

2008 is much more of an engineering problem. It’s not an issue with a clear bad guy no matter how much some want to blame “corporate america,” or “rogue traders.” You might as well blame the IPU while you’re at it.

Well yes, my mind is made up. Give me new evidence how these people are actually the second coming of einstein and I’ll listen. So far, I’ve seen fungus more purposeful.

Are you referring to the mortgage crisis? It’s really not a problem anymore.

You don’t run a marathon by starting off thinking about the finish line. You run it by thinking about the next 100 yards, the next mile.

And actually, if all the assholes would stop their bitching about cosmic issues and how bad the “world” is fucked up, and instead focus on the quality of their immediate surroundings, their little piece of the world and the system that runs it, and got to work with their screwdrivers, than the world would get better.

But, if your part of the world is a small backyard without an audience, and a job doing data entry, than it is a lot more glamorous and fun to hang out with a whole bunch of people, make noise, and pretend to save the world.

I read it. “They” are responsible for torturing puppies, polluting the planet, stealing housing etc etc etc.

It is an incredibly immature statement of generic blame aimed at generic corporate america, without a single useful item for action.

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I nominate this for Best gonzomax Sentence of the Week.

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It’s not that terrible. Realize that 15 years ago, if you were interested in the markets, you had one tv show you could watch. And, that was 1/2 hour on Friday nights.

Now we have no fewer than 3 networks dedicated to financial markets and they are competing to sell news. Everything gets sensationalized, even and especially if it is of fleeting importance. So, I think a lot of panic has beens sold.

The euro already has failed in terms of a collective currency, and I don’t think it is ever going to be the same, and I think that is essentially a good thing.

What I am most concerned about aren’t really the disasters that occured in the past. I am worried about what’s brewing now, and in economics and market economies it is the nature of the beast that the problems that you are actually worried about never end being a big deal while you end up getting sucker-punched by things you aren’t worried about.

The three things I am most scared of right now are the the bond, market, inflation, and quantized behavioral financing (animal spirits) effect on program trading.

The following is Scylla’s manifesto of fear, things to be worried about (oversimplified)

The 32 major economies make up essentially 99.99% of the world. 31 out of 32 of those countries are recognizing and taking steps to deal with inflation. The largest, the U.S. claims we do not have inflation. This is like living with 32 close friends in a closet and having 31 of your friends get fleas. It begs plausibility to suggest the 32nd doesn’t have them?

So, do we actually have inflation, and if so why do we say we don’t?

To answer the first question, we changed the way we measure inflation twice, in recent history. During the 90s we took into account value added. That is, you might buy a computer today for 2k, and the computer you bought 10 years ago was also 2k. However, even though the price is the same computers, in terms of computing power, have gotten significantly cheaper.

Perhaps you buy that concept, perhaps you don’t.

However, we’ve changed it again. Now we engage in free substitution. What this means basically is that if you usually buy a $7 tbone at the grocery store, and one day it costs $12 what you will do is buy $7 worth of ground beef instead.

As fishy as this sounds, there is actually some sort of germ of rationale for this, but it’s quite a stretch to think that it is a ubiquitous effect, or, that tbones and ground beef are fungible with each other.

Anyway, if we take that last piece out of the equation, inflation is north of 6% or so in the US, right now.

If this free substitution seems like a bullshit way of hiding inflation to you, than you are probably on the right track. Why hide it, though? Why would the government wish to understate it?

Well, if you take a look at classic entitlements (I’m not being political, they all having something tangible in common,) welfare, social security, medicare, medicaid, government pensions, and how much they cost the government each year and then you look at how much the government takes in each year in income, you realize that they are almost the same number. Everything else, the department of Defense, agriculture, etc we finance through deficit spending. But, we pay for the entitlements cash out of hand.

If you choose to look at it this way. You are free to look at things other ways, but bear with me before, and let me show you where I am going with this.

What these entitlement all have in common, is that they have COLAs or other adjustments in them for inflation. So, if he admit inflation we have to give raises with cash we don’t have.

Think about this a little further. Let’s say I want to reform social security, say the hard truths and run for congress. “Ladies and gentleman, if you vote for me what I will do is take SS payments away from everybody with over a 250k net worth, oh, and when SS started the average payout was about 3 years but people are living longer so we are going to have to move the beginning age for minimal benefits up to 75. Vote for me!”

Like that will work.

But, you can have inflation and deny the COLA and then somebody’s 1200 payment becomes 1000 over time. That appears to be the way they are trying to fix it.

Another interesting feature of this situation is the US. debt. If you issue 10 year treasuries at 1.7% or so, and inflation is 6% than the government is actually borrowing money at -4.3% isn’t it? How much money is too much money to borrow if the rate is -4.3%?

So no, I don’t care about the debt. It ain’t a problem under this scenario. Everybody was afraid of the size of the debt in 1979, but we inflated our way out of the problem. What then looked like an insurmountable sum, now, thanks to inflation, looks like a car payment.

If you’ve heard that the chinese are pissed at us over our monetary policy but really weren’t sure what they meant, now you know. Imagine somebody was holding onto you money and charging you 4.3% annually to do so.

Anyway, that in a nutshell is basically the gist of our current situation vis a vis monetary policy and inflation.

Now, once you get past the disbelief and shock of the whole situation, you may start to notice that this is actually a really clever and cynical but effective way to solve a lot of problems, while assfucking the poor (they are the ones who will be hurt most by the denial of the COLA,) and the Chinese.

You almost have to kind of admire the intelligence of it.
The more you think about it, the more you may realize that the situation is not particularly tenable long term. It’s sort of like the guy, trapped on a desert island, starving who cuts off his leg and eats it.
The bond market right now is as high as it’s ever been and rates are as low as they have ever been. We already have a bubble in the bond market that needs to correct. We will eventually have to recognize the inflation he wave been sweeping under the rug the last few years and when we do that will likely be the second barrel of the shotgun to bondholders. You don’t have much margin for error if you are making 1% or so. A third barrel of the shotgun might be what happens to our currency in such a scenario, but I’m not really worried because we are still the tallest dwarf in this regard.

So, it looks a lot like Armegeddon for the bond market is in the cards.

You would think some smart people would be heading to the stock market, buying big blue chip dividend payers like Kimberly Clark (they make toilet paper, huggies, depends, scott tissues, shit like that,) that will basically survive anything, be an inflation hedge and pay you more than bonds, but…

The stock market is being held hostage by robot animal spirits.

But that’s a story for another post.

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ok, apology accepted.

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So, tell me, Scylla, with all your vast, hard won knowledge and experience, when did you catch on? I recall at one point you opined that some of these companies were operating at a leverage of thirty to one and you thought that…rather too enthusiastic. I don’t have your depth of knowledge, I just thought it was insane.

The problem is greed and arrogance. Simple. Problem with Enron was greed and arrogance, probelm with the Keating Five was greed and arrogance. The problem here was greed and arrogance.

The answer is regulation, regulation that stifles the “creative” energies of the financial sector, that forces them to a staid, dull, and boring entity, that returns only modest profit, but is reliable and trustworthy. Unleash Elizabeth Warren!

Now, the nagative consequence here is probably unemployment for those creative geniuses who designed the shit sandwhich, and the salesmen who sold it. However, we will need some such people to serve on the regulating entities. Civil service, I’m afraid, not many opportunities for hookers and blow, or a nice cottage in the Hamptons. I know, baby with the bathwater, perhaps, but it can’t be helped.

That answer is radical, go to the root. Change the culture of investment from casino to dull, staid, and reliable. Then, perhaps, this will be the last time we are witness to trusting souls who looked forward to a modest but contented, secure retirement and now compete for jobs as Wal Mart greeters.

Is that a tall order? Yes. Does it involve struggle with powerful and well monied interests, who wouid very much prefer otherwise? Yes. Can we do this without Scylla’s wise and experienced counsel and assistance? Well, we’ll have to, won’t we?

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The fundamental operating principle of modern portfolio theory, market economics and market analysis used to be something called the efficient market hypothesis. What this states is that good news moves markets up, and bad news moves them down. Further, that it moves them up or down proportionately based on gravity of the news.
That is, if news comes out that XYZ stock was building a plant and found a pot of gold in a hole they dug, and that pot of gold was worth a billion dollars, than xyz stock would increase by a billion dollars in market cap pretty quickly.
Seems simple enough but there are several versions depending on how efficient you thought the market was.

Anyway the gist of this theory is that overall markets behave rationally. This belief has a self-fulfilling component.
The efficient market hypothesis was extremely and descriptive of the market about 90% of the time. The other 10% of the time it failed miserably to describe what has happening and anybody that followed it lost all their money and got sold into slavery.

Well, several years ago, books came out and nobel prizes were won because of advances in quantized behaviorial finance and animal spirits (a keynesian term for consumer confidence)

The gist of these things were as follows:

  1. The efficient market hypothesis is total bullshit

  2. Human beings have a set of behaviors and instincts that evolved over billions of years in a hunter/gatherer situation and those behavior and instincts are adapted remarkably well to gathering berries, fishing, and avoiding saber-toothed tigers, but they totally suck at helping humans navigate modern markets. For example:

A. You are supposed to buy low and sell high, right? But if the market goes up 30% a year for three years in a row the average investor will feel very comfortable investing more into it, and if it goes down 50% the average investor will than want to sell.

B. If you are playing a game and you start with 10 dollars and lose 5 but then win two you will feel as if you are doing well and will want to keep playing, but if you play another game and start with 10 dollars, turn it into 20 and then lose 5 you will think you are doing badly and want to stop playing. What this means is that tend to want to keep playing games that are not in our favor and stop playing ones that are. (It’s a little more complex than I’m describing here, but the basic concept is proved by the existence of… las vegas for example.)

  1. It is these instincts and behavior that control markets, not some abstract a priori notion of intrinsic value.
    Well this became very fashionable, and very useful and everybody started using behavioral finance and animal spirits to describe predict and analyze the stock market.
    Then, the program traders programmed their computers with these animal spirit algorithms and ripped out the old efficient market algorithms, then set them to trading, hundred of trades a minute, milliions of dollars a trade, more than 50% of average daily trading volume.
    Things got interesting, fast.

When the computers were programmed to think the markets made sense that had the effect of making the markets look like they made sense. It was a self fulfilling tendency towards efficiency and it had a stabilizing effect to a certain degree.

Now the computers are programmed to expect that the markets are crazy and react to fear and greed. This has also become a self-fulfilling prophecy.

This to a large extend is the stock market has been so incredibly volatile lately, not because of the news.

The news works like this. If the market goes up 300 points the talking heads look at the biggest piece of good news and say that’s why. If it goes down 300 points, they look at the biggest piece of bad news and say that’s why. In any case, there’s plenty of news, good and bad for whatever happens on any given day. The news just assigns the reason after the fact. We are really moving around based on the volatility generated by these computer trading programs, and nothing else.

Now, at some point some investors and some other computer traders are going to get wise and they are going to invent some algorithms of their own that are going to take advantage of the volatility generating animal spirit type programs and make them their bitch and that will stabilize the market and it will go up suddenly.

Unfortunately, for the time being, this volatility is scaring everybody away and into the percieved safety of the bond market which, as we’ve already discussed is a big trap that will destroy anybody in it at some point, kind of like a game of hot potato with a grenade.

Now, if you took the time to read all this, you will probably find plenty of ways to blame corporations, if that is what you want to do, or blame government, if that is what you want to do, or conservatives, or liberals, or what have you.

However, if you are sophisticated enough to look than you will realize that these situations are actually the culminations of trends that have been occuring and growing for decades.

It is not Obama’s fault that the government is in the situation it is in playing the cynical game it is playing with its own populace and trading partners. This is something that occured over decades.

The 2008 problems were also like this, they grew out of some pretty laudable initiatives both from government and from the private sector that worked wonders on our economy and our standard of living for decades before we pushed them too hard and it blew up in our face. it wasn;t traders who did this, or corporations, or government, or individuals wanting to live in homes they couldn’t afford. It was systemic, and protesting this or that simplistic but satisfying scapegoat will not accurately describe what happened, stop it from happening again, or even prevent the next disaster from occuring.

I hope I’ve described the situation enough that you can see that the seeds of the next disaster have not just been planted, they are positively sprouting, and now is no time to act like an asshole and protest things we don’t understand.

Careful recognition and navigation of these issues can help us avoid the coming disaster which is really also a recipe for great prosperity if we take the opportunity and behave wisesly.

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The COLA in Social Security has been rejected the last 3 years. It is not built in. The government can declare there is no inflation . That is what they have been doing.

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Nitpick: his criticism’s rationale was obsequious, its architecture purple, and its ad hominems clairvoyant.

Regards,
Shodan (who is all excited, and on his way to a yawning festival)

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Actually, if you want to know who the biggest asshole in the whole thing was, if you wish to lay it at the feet of a single individual, than the best candidate is Barney Frank. He was the one that insisted Fannie Mae and Freddie Mac were solvent and that the securitization of subprime mortgages was not only absolutely safe and responsible, it was the only thing that was keeping poor people in their homes, and the economy growing and that any attempts to interfere or regulate or slow down this activity would be both socially and fiscally irresponsible.

He made the same speech like 50 times. It’s all over youtube. When Bush and others raised concerns I think he even called them Chicken Little. Anyway, if it wasn’t for him, the problem probably would have begun to have been addressed sometime in 2002 and it would have been much less severe, or might not even have happened.

So yes, it was arrogance, but in BFs case, it is more stupidity than greed. But make no mistake, this is his disaster more than anybody else’s.

If you want to take to the street and blame somebody, Jeff Skilling was already in jail. Barney Frank was out ruining the world.

Maybe, I don’t think you’re far off. You really don’t even need new regulation though. What I really think you need to do is make the banks much smaller. This whole too big to fail thing is bullshit.

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Admittedly that was a lot more succinct than my version, but I think that’s what I said.

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That’s funny. I started off the first sentence of my first giant mega post by saying that things weren’t really all that bad, and then described an absolutely terrifying scenario.

Ooops.

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Well, I’m liking the occupywallstreet folks and their movement seems to be spreading to some other cities. I got an email about Dallas, Austin, and Houston for Thursday the 6th. Being a loose organization, they have been meeting in the city park and have set the date, but the time is flexible.

Sometimes movements just happen. This may be one of those. If they do nothing else, they are making news and letting other people who feel disempowered and abused know that they are not alone. This a the kind of thing that lets people connect to other like minded people and from numbers grows strenght.

How is occupywallstreet much different in theory to the tea party (aside from the tp being a bogus grass roots movement, and occupywallstreet seeming to be a real, organic happening)?

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Oh, fuck that shit. It’s all about who has the money, and the fundamental fact that political power follows money.

The more lopsided the distribution of wealth, the fewer restrictions there will be on the games the wealthy play, even if they involve the rest of us whether we like it or not. And when the whole thing comes crashing down, the more the benefits of any fixes will accrue to them rather than the rest of us.

Yeah, there’s an engineering problem or three in our financial system somewhere, but the engineering problems arose because of rich people having far more political power than the rest of us, and that’s the reason they won’t go away.

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The website ‘occupytogether.org’ lists many cities. Maybe there is one in your town or city. Maybe Scylla can go and report back on what happened.

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Scylla:

I can’t imagine why they would. 6% inflation would be very useful for justifying the austerity programs most governments are pursuing these days. I’ve never heard anything about “free substitution” before, and most of the economist I read claim that both Europe and the US are essentially inflation free atm. Do you really believe that the US government is pretending there’s no inflation so as not to have to pay COLA on Social Security?

This is what the Wall Street occupiers are protesting. It’s not particularly nebulous when you spell it out, or hard to understand.

Yeah.

Ha ha. So funny.

So what, specifically, do you find to be ridiculous in the Declaration?

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Ok. Go take your nine volt intellect, hang Barney Frank in effigy, and feel free that you’ve safely destroyed the evil overlord things will magically be happy.

You know, I get it. You’re not rich. Maybe you don’t want to be rich and you have other priorities to chasing dollars. Maybe you want to be, but your not good at it, or your lazy or whatever. Anyway, somebody else is richer than you and they have it better than you, and that pisses you off, so generally you just fucking blame them for everything.

But this problem does not have its genesis in reach people fucking over people, no matter how much you like the meme, no matter how much it assuages your bitterness and jealousy.

The idea here was to put poor people into houses and give them mortgages at the same low rates as rich people. And, it was a fucking good idea, and it worked for a long time. The main reason why it stopped working is that the government set an artificial market in the rates at which they were guaranteeing those mortgages that everybody else had to follow to compete in the sector. In spite of signs that things were overheating they continued to set the market low for another five years despite repeated warning from more responsible minds, and the person that reacted most strenuously against those objections was Barney Frank. He defended intolerable practices by Fannie Mae and Freddie Mac, and insisted on the solvency and responsibility of those firms and their actions. He insisted that anybody that thought differently didn’t care about poor people keeping their houses.

So, you want to blame a rich white guy, blame Barney Frank. The fact is that your usual scapegoats for all evil in the world happen to be on record years in advance claiming these were bad practices.

Because of this incompetance and stupidity a lot of people lost their homes, everybody at Lehman and Bear Stearns lost their jobs. An entire industry instantaneously ceased to exist, and industry that had Frank acted responsibility could still be in existence, providing jobs and putting people in houses.

Oh, and he almost destroyed the entire global economy, set the world into recession, and it still may turn in to depression.

So, stop being a fucking idiot. You can make nebulous statements of blame directed at “greed” “they” or “corporations.”

But, if you want to blame somebody, blame Barney Frank.

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Its why everybody thinks of you as Mr. Sunshine.

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No. I think it’s more about the treasuries. The Cola is a bonus.

I really didn’t get that out of their manifesto.

We can start with this sentence:

“As one people, united, we acknowledge the reality: that the future of the human race requires the cooperation of its members; that our system must protect our rights, and upon corruption of that system, it is up to the individuals to protect their own rights, and those of their neighbors; that a democratic government derives its just power from the people, but corporations do not seek consent to extract wealth from the people and the Earth; and that no true democracy is attainable when the process is determined by economic power.”

That bitch has one one colon, three semicolons and six commas. It’s supposed to be a professional document and they can’t even write a coherent sentence.

Than there is the whole thing where they blame corporations for… pretty much everything bad that they could come up, including torturing puppies. Than they throw in that shit about not wanting to pay for their college educations.

I’m not being obtuse, but I find the entire thing ridiculous.

And then… and I swear I’m laughing now, after clearly brainstorming for hours with diverse individuals and listing every ill and grievance they could come up with and lay at the feet of corporations…
than, they put a fucking asterisk disclaimer that this is not a complete list of grievances and they reserve the right to come up with more shit to be unhappy about.
I mean, they were concerned that they left something.

It is the most defocussed generalized piece of bullshit I’ve ever seen.
They didn’t really get good value for the education dollar, these folks. I mean if you are going to be a leader of a cause you have to know that you can focus on maybe three things at once max.

Look at MLK, what did he want? He wanted people of all races to be treated equally.

Simple right?
What do these people want?

Clue me in. Give me a sentence or to describing the change they wish to effect.

Can you? Are they saying anything coherent?

Oh, they should add saving the whales to their manifesto. They forgot that one.

Dude, it is totally stupid on every level.

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Okay, starting with that sentence, I agree that “the future of the human race requires the cooperation of its members”. If we don’t start finding ways to cooperate effectively with each other, we’re doomed. We’re going to have to cooperate not only with our next-door neighbors, we’re going to have cooperate globally. Personally, I don’t see it happening, but that’s a different kettle of fish.

“…that our system must protect our rights, and upon corruption of that system, it is up to the individuals to protect their own rights, and those of their neighbors…”
This is really self-evident, but provides the basic rational behind the protest: the system is corrupt, and it is now incumbent upon us as individuals to put a stop to it. It’s a call to arms, if you will.

“…that a democratic government derives its just power from the people…” is lifted from the Declaration of Independence, isn’t it?

“…but corporations do not seek consent to extract wealth from the people and the Earth”. Extraction of wealth is the whole purpose behind a corporation, isn’t it? Corporations aren’t democratic institutions, at least not in the sense we usually mean when we speak of “democracy,” yet they wield an inordinate amount of power in the current political system, yes?

“…and that no true democracy is attainable when the process is determined by economic power.” Corporate interests have taken over the government, and this threatens true democracy.

You keep pointing out that this is an incredibly complex problem, that it is difficult to understand and can’t be easily solved, while simultaneously complaining that the protesters don’t have a simple, cohesive motto or solution to this complex problem. You realize these two positions contradict each other, yes?

But one change they obviously wish to effect is to reduce the power and influence of corporations in the American political system. Is that simple enough for you?

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Can you provide specific details around this Barney Frank narrative? I know he wasn’t head of the Finance committee until 2007, and I also know that overside of Fannie/Freddie didn’t reside in Congress at all. So even if he vigorously defended them, can you explain the actual causality?

Thanks in advance.