What a surprise

Financial workers at Wall Street's top banks are to receive pay deals worth more than $70bn (£40bn), a substantial proportion of which is expected to be paid in discretionary bonuses, for their work so far this year - despite plunging the global financial system into its worst crisis since the 1929 stock market crash, the Guardian has learned.
Staff at six banks including Goldman Sachs and Citigroup are in line to pick up the payouts despite being the beneficiaries of a $700bn bail-out from the US government that has already prompted criticism. The government's cash has been poured in on the condition that excessive executive pay would be curbed.
Pay plans for bankers have been disclosed in recent corporate statements. Pressure on the US firms to review preparations for annual bonuses increased yesterday when Germany's Deutsche Bank said many of its leading traders would join Josef Ackermann, its chief executive, in waiving millions of euros in annual payouts.
The sums that continue to be spent by Wall Street firms on payroll, payoffs and, most controversially, bonuses appear to bear no relation to the losses incurred by investors in the banks. Shares in Citigroup and Goldman Sachs have declined by more than 45% since the start of the year. Merrill Lynch and Morgan Stanley have fallen by more than 60%. JP MorganChase fell 6.4% and Lehman Brothers has collapsed.
At one point last week the Morgan Stanley $10.7bn pay pot for the year to date was greater than the entire stock market value of the business. In effect, staff, on receiving their remuneration, could club together and buy the bank.

http://www.guardian.co.uk/business/2008/oct/17/executivesalaries-banking

PC

I've just been reading an article elsewhere about how the word "gay" is used perjorativeley in certain situations.
I get the point completely but language changes through time and it's the attitudes behind it that are the problem rather than the words themselves.We use all sorts of words in situations that have no connection whatsoever to other uses of the phrase in question.In the UK - the epitome of the boorish, homophobic asshole can often be found at soccer games. Ironically, my local team play at "Pride Park" - that one hasn't been turned round.
Conversely, the gay community for example have taken "queer" and made that a positive statement. Poltical correctness has been shown to be counter productive - it defines such behaviour as an easy way to rebel so people, especially the young, are given meanings that they often aren't aware of and use them more. It publicises "bad language" and gives it a wider audience.

The Return of Marx

In the United Kingdom we have let finance become the primary mode of production. The new bourgoisie have been the bankers and financiers. The proletariat their "customers".
We have entred into contracts with these instititions in the form of mortgages, loans etc which they have then sold on as "assets". They do not extract the full benefit of the asset but it has become the accepted wisdom that money now is better than money later. They have also transferred the risk, which also helps to justify the reduced premium earned on their initial investment.
This is an intrinsically short term model which seeks to extract capital for the benefit of the bourgoisie as close to the point of investment as possible.
The financial proletariat get no benefit from this model - in fact the poorer you are, the more you are exploited through penal interest rates, and riskier personal financial models.
The mythology of consumption has led people to believe that money and investment in "things" (themselves transient or highly depreciating assets) is a way to achive status.
Furthermore, the idols of the proletariat, those who are considered "special" are not those who can help develop lives but those who merely exemplify this self-destructive lifstyle and achieve sufficient media coverage to attain celebrity.

It's war

Gordon Brown last night branded Iceland's failure to guarantee British savings in its failed banks as "totally unacceptable and illegal", amid warnings that more than 100 local councils, police authorities and fire services have up to £1bn lost in its bankrupted system.Charities, including children's hospices, warned they were at risk of losing £25m. In unusually aggressive terms, the prime minister said he was willing to use anti-terrorism legislation to freeze the assets of other Icelandic companies operating in Britain in an effort to recoup the lost money. The extent of the potential difficulties for councils and other bodies began to emerge yesterday as more and more said they had invested money in Iceland's high-yielding savers' accounts. By yesterday evening, the Local Government Association (LGA) had accumulated reports showing that 108 councils in England, Scotland and Wales had deposited £798.95m in Icelandic banks.egTransport for London £40mNottingham city council £42mMetropolitan police £30mThe government wants councils to deal with the consequences, although there are signs that it is ready to offer essential help. Private savers took risks too, yet ministers have protected them. A situation where bankers get billions, but keep their jobs, while councils take the hit, cannot be justified.

From the Guardian 9 October 2008

The Hidden Hand of History

“Wave after wave of selling again moved down prices on the Stock Exchange today and billions of dollars were clipped from values. “Traders surged about brokerage offices watching their holdings wiped out.... It was one of the worst breaks in history.... “For a time, in the morning, the market was showing signs of rallying power.... Then new waves of selling out of poorly margined accounts started another reaction...”

Minneapolis Star account of “Black Tuesday” (October 29, 1929)

Am I safe?

Our industry has been in recession since the beginning of 2007 at least. I think as the biggest player we are far better placed than the myriad of smaller dealers out there, for all sorts of reasons financially and structurally.Like I was saying the car market is ahead of the general market in that respect - the market has been contracting on big-ticket items since late 2006. It just didn¡¦t become noticeable on the general market until the credit crunch hit mid-2007. If you will recall we were suffering round about then because the manufacturers were continuing to produce, despite slackening demand, which was pushing down the profit that we could make on car sales. I think however now that it is a general recession - production is falling back, demand for service and parts will rise and that area of the business will grow. It is higher margin traditionally than sales so I think we can do well - this business is to a certain extent self-diversifying in these conditions. I'm fortunate that people still need trucks and cars and the people that provide those services need accountants!

Where it's at

This business is at the luxury end (to a certain extent), and as we are the biggest in our market by some size I would say we are a bellwether for the economy as a whole. As a shareholder I follow the stock market but I do not have the confience at the moment to invest further. Why not? Well the one thing an investor needs is confidence - even if the direction of the market is downwards. Then we can direct our funds in a particular direction and gain the desired return.Not all investors are looking to get rich quick and to this extent I look at the long-term trends as well as the short term rises and falls in the market of the past few weeks, which really tell me little of any interest.The Dow Jones and the FTSE map each other closely over the long term - that is the market trend. In fact the FTSE before the credit crunch rose higher but has since fallen faster than it's New York counterpart which indicates over-inflation in the UK stock market.My company's stock and that of our closest rival map each other almost exactly over the medium term - that is the industry trend.My industry has in fact shown a downturn since January 2007 - that predates the start of the downturn in the market trend which dates to mid-2007 (the onset of the credit crunch).The concern for me is that our industry does not yet show sign of development, of beating the overarching market conditions. With this in mind I think market diminution will continue until the second half of 2009 at least. That is the situation viewed from here conservatively, realistically I'm sorry to say I think it will roll on until well into 2010, probably 2011. That is when a recession (an expected contraction in the market equivalent to the "bust" of "boom and bust") becomes a depression - a sustained slump.What will be the effects of this, beyond the obvious economic hardship? Well Britain will see a reduced status on the international stage - the City was our big player and that has been humbled, as has our position on the coat-tails of the United States. Britain will become a bit-player, I would say like Austria - a diminished and peripheral nation. This will create its own social tensions. While I see a structural move to the left to counteract the liberal and permissive policies which precipitated this situation, there will become an obvious tension with those who cling to a desire to maintain the Great Britain that they have been used to. With this is in mind I can see a place, rightly or wrongly, for the Far Right as an increased voice of disenfranchised Britain.

Over the edge

Debt is seen as one of the causes of the Great Depression, particularly in the United States. American consumers and businesses relied on cheap credit, the former to purchase consumer goods such as cars and furniture, and the latter for capital investment. This fuelled strong short-term growth but created consumer and commercial debt. People and businesses who were deeply in debt when price deflation occurred or demand for their product decreased often risked default. Many drastically cut current spending to keep up payments, thus lowering demand for new products. Businesses began to fail as construction work and factory orders plunged.
Massive layoffs occurred, resulting in US unemployment rates of over 25% by 1933. Banks which had financed this debt began to fail as debtors defaulted on debt and depositors attempted to withdraw their deposits en mass, triggering multiple bank runs. Government guarantees and Federal Reserve banking regulations to prevent such panics were ineffective or not used.
Bank failures snowballed as desperate bankers called in loans which the borrowers did not have time or money to repay. With future profits looking poor, capital investment and construction slowed or completely ceased. In the face of bad loans and worsening future prospects, the surviving banks became even more conservative in their lending.Banks built up their capital reserves and made fewer loans, which intensified deflationary pressures. A vicious cycle developed and the downward spiral accelerated. This kind of self-aggravating process may have turned a 1930 recession into a 1933 great depression. Nicked from Wikipedia.

Production and Reproduction

The main threat so we are led to believe of the current market turmoil is that we will enter a "recession" or worse a "depression" - the implication being that the economy will stagnate or contract and not just for a short period of time.So what? I think part of the issue here is that the capitalist model has failed, because one of its central assumptions is simply wrong. That is, we should expect and indeed demand that economies "grow". Why do they need to grow, beyond organic growth attached to the population size?The people of the world do not exist to grow economies - they exist to re-produce and in doing so, we make the best of what we have. If you have less you make more of it.Reliance on economic "growth" is in fact a flawed and degenerative existential strategy. You become intoxicated with false wealth which prevents you from seeing the real issues.It also allows us to support unsustainable models that are allowed to develop within the gentler framework that general capital growth facilitates. These shouldn't be a "lifestyle" choice.

The Economy

People were talking about this being like the 1970s but again that was being blase - that was due to inevitable inflationary pressures of Keynesian demand policies and an over-inflated public sector (which up to a point had been necessary in the post-war reconstruction period) It's not that complicated -the conditions that precipitated the Great Depression have been in place for several years now. It is just that governments have been too weak/neutered/blase to do anything about it Banks over-lending on the back of a property bubble, lack of compartmentalisation in the financial markets...and off it goes This is a crisis of liberal rather than interventionist policies and will need the return of the latter to repair it, just as it needed Roosevelt in the 1930s. And yes it will need tax-payers money (and that is a misnomer anyway) Noting the rise of the Far Right in Austria, I pray it doesnt need any more war to resolve it fully