The Florilegium

"No...Stop...Don't" - Hussman Weekly Market Comment

Mon, 16 Apr 2012 13:00:00 -0400

"No...Stop...Don't" - Hussman Weekly Market Comment:

We remain defensive on the basis of an army of hostile syndromes (typified by the “overvalued, overbought, overbullish, rising yields” combination, but coupled with several others), now joined by a breakdown in market internals - not greatly observable on the basis of depth, but of high concern on the basis of uniformity. We also observe clear evidence of economic softening and recession around the world, and an early deterioration in U.S. indicators as well (though these data points are still dismissed as noise). In short, our concern about market risk persists. Our concern about the risk of an oncoming recession persists. Nothing in the recent data has removed my impression that the period ahead may become an unmanageable Goat Rodeo of market volatility, economic disappointments, sovereign debt concerns, and European banking strains. Our risk measures have been less extreme in about 99% of history, so even if they are incorrect in this instance, we are not likely to persist with such a strongly defensive view for long. I expect that we’ll have good opportunities to accept a constructive investment stance at better valuations and without such extensive headwinds. But with the recent deterioration in market internals, we can’t even see a speculative case for market risk here.

In the classic version of Charlie and the Chocolate Factory, Gene Wilder watches one child after another ignoring every cautionary warning, with predictably bad consequences. His deadpan appeals become increasingly halfhearted and emotionless because he knows they won’t listen anyway. We’re strongly defensive based on historical evidence that is in the most negative 0.5-1.5% of all historical observations, but it’s clear that others are willing to take significant market risk and to chase wildly enamored stocks here, not as part of a long-term investment discipline or as part of a balanced portfolio strategy, but simply as a speculation - in the belief that they’ll be able to take their profits before other speculators do. Our only response to these speculators is to quote Willy Wonka: “I wouldn’t do that. I really wouldn’t. No… Stop… Don’t.”

Incarceration Rate to Murder Rate Ratios Around the World Which...

Sun, 25 Mar 2012 04:10:33 -0400

Incarceration Rate to Murder Rate Ratios Around the World

Which ones are the police states?

Is It Greek Or Deja Vu All Over Again?: Neoliberalism and Winners and Losers of International Debt Crises

Fri, 16 Mar 2012 10:40:17 -0400

Is It Greek Or Deja Vu All Over Again?: Neoliberalism and Winners and Losers of International Debt Crises:

by Tayyab Mahmud

The global financial meltdown and the Great Recession of 2007– 2009 have brought into sharp relief the uneven distribution of gain and pain during economic crises. The 2009–2010 debt crisis in Greece resulted in a windfall for financial institutions at the expense of taxpayers, a rollback of welfare systems, and the impoverishment of the working classes. This outcome is consistent with the pattern that has emerged in the international debt crises of the last three decades, including the Latin American crisis during the 1980s and the Asian crisis during the 1990s. The recurrent international debt crises of the last three decades and the resulting transfers of wealth from the poor to the rich are the products of the neoliberal restructuring of economies that aims to rollback the gains made by the working classes under the Keynesian welfare compromise and to establish the hegemony of finance capital. These neoliberal objectives have been facilitated by an extensive refashioning of the U.S. and international regulatory regimes resulting in financialization of the global economy and unbridled international mobility of finance capital. Global financial institutions channeled excess global liquidity in ways that created unsustainable international debts, which consistently resulted in international debt crises. These crises were then managed to further advance neoliberal prescriptions for global finance and national economies. The end result of this refashioning of regulatory regime is the transfer of wealth from the poor to the rich, further impoverishment of working classes, and enhanced power of finance capital. A collective moratorium on debt servicing by the Global South is a viable path towards a new global financial order that is sustainable and gives human beings priority over capital.

"Do I Feel Lucky?"

Fri, 16 Mar 2012 02:50:30 -0400

"Do I Feel Lucky?":

Investors Intelligence notes that corporate insiders are now selling shares at levels associated with “near panic action.” Since corporate insiders typically receive stock as part of their compensation, it is normal for insiders to sell about 2 shares on the open market for every share they purchase outright. Recently, however, insider sales have been running at a pace of more than 8-to-1. The dollar amounts are even more lopsided, as Trim Tabs reports a recent pace of $13 of insider sales for every $1 of purchases. Indeed, some of the weekly spikes have been to levels that are associated almost exclusively with intermediate market peaks, the most recent being the run-up to the 2007 market peak, the early 2010 peak, and the 2011 peak, all of which resulted in significant intermediate corrections or worse. Of course, it’s sometimes the case that insiders are early, and therefore miss part of the tail of a market advance. So it might be worth ignoring the heavy pace of insider selling for a little while. But you have to ask yourself one question. Do I feel lucky?

Rehypothecation and Risk

Fri, 16 Mar 2012 02:44:00 -0400

Unfortunately for individual investors, the last decade of stock returns has been incredibly dismal. Depending on where you entered the market you would have seen large gains in your portfolio followed by even larger losses. As a whole, the broad markets indices including the S&P 500 and the Dow Jones have had no gains over the preceding 10 years. The traditional wisdom which prevailed during the late 20th century in the 1980’s and 90’s: that buying and holding stocks will net investors profitable returns, has been proven false. Whereas the late 20th century was marked by extreme credit expansion, rapid growth, and sizable investing returns, the next decades will not present the same opportunities.

Investors are going to have to diligently pay attention to their investing portfolios to avoid devastating losses to capital. Of course the next decades will likely see growth in the stock market and in the world economy, but the risks associated with these returns are numerous. The years ahead are not a black hole, and unless investors are willing to persevere through environments of extreme loss before seeing returns on their investments, the years ahead promise to be difficult for individual investors.

Although buy and hold seems like a fail proof strategy when looking back to the recent future—and when looking at charts of the stock market—what many fail to realize is that painful losses often precede eventual gains. Unless one has the discipline to ride the market through both the good and bad, it is impossible to realize the gains that buy and hold strategies seem to promise.

Evidence shows that most investors do not have this discipline. During periods of extremely negative sentiment and huge losses in the market—periods such as the financial crisis of 2008 or the tech bubble collapse of 2001—investors capitulate to the panic in the markets and sell their stocks even as they should be holding fast or adding to their positions. Because of this, evidence shows that most individual investors rarely experience meaningfully positive returns on their investments.

Those who do not manage their own finances, but instead have traditional money managers making investment decisions for them, often do not fare much better than individual investors. The institutional investing field has become characterized by a predatory style. One only has to look back to the financial crisis of 2008 to understand how large investment institutions protect their own interests at the expense of their clients. As recently as last year, the collapse of firm MF Global resulted in an estimated $1,200,000,000 loss of customer funds (Bloomberg News, Jan 6).

The most recent news has shown a strengthening of the US economy; unfortunately, these ‘data points’ of economic information have been taking precedence over the ‘data set’ of economic information that is strongly forecasting an economic downturn. Today, the downside risk in the market far outweighs the potential for positive returns.Despite the stream of positive economic news coming out of the United States and the growth of positive sentiment regarding the economy, hidden risk exists in gigantic proportions in today’s market conditions.

The world is saturated with debt, and until the level of debt decreases, the world will not be able to return to a path towards stable growth. Until this period of deleveraging passes, I expect volatile expansions and contractions to characterize the market environment. We are unlikely to escape this period of deleveraging without further market shocks in the vein of the financial crisis of 2008. Currently, market conditions exhibit the potential for a crisis similar to that of ‘08.

Rehypothecation—the process by which brokers can repledge assets as collateral—allows the transformation of “$2.45 trillion of assets into $5.8 trillion of collateral at the 14 largest securities dealers” (Bloomberg News, Dec 21). Rehypothecation is a practice that occurs principally in the financial markets, where a bank or other broker-dealer reuses the collateral pledged by its clients as collateral for its own borrowing. The ‘daisy chain’ of pledged and repledged assets can collapse if one member becomes insolvent or bankrupt.

“By their very definition, rehypothecated assets are those pledged as collateral against borrowings. That means they support not one, but two separate borrowing transactions - one of the originating firm’s tally and one on the borrower’s tally - perhaps even more if the broker in question takes its activities offshore to other jurisdictions not bound by the same rules.” Collateralized Debt Obligations on mortgages, one of the ‘08 crisis’ weapons of mass destruction, represent only one part of the rehypothecation market. At the large investment banks, huge amounts (relative to total assets) of assets are available and repledged as collateral to finance further borrowing that is then deployed to increase yield for the various investment products the banks offer. If the delicate chain of pledged and repledged collateral is broken at any part, we could face a cascade of selling leading to a market crash of a similar nature to 08’s. As with the crisis of ‘08, the effect of a financial sector crisis caused by shady investment practices will spread beyond the financial institutions engaging in the risky behavior. Pension funds and other public investment avenues are heavily invested in the various banks’ funds and instruments which rely on rehypothecation for yield. If the chain of rehypothecation collapses, so will these yields.

Although the financial sector continues with rehypothecation’s delicate balancing act, the conditions for the collapse of this system are converging. Europe and its banks are the most important parts of the rehypothecation daisy chain because whereas rehpyothecation is limited to 140% of available assets in the US, in Europe banks can rehypothecate assets indefinitely. For this reason, most investment banks in the United States route a large part of their business through their European subsidiaries, avoiding the rehypothecation limit set in the United States. As the debt crisis in Europe escalates and comes to a head, can we count on financial machine to continue to operate at peak efficiency? Unfortunately for the world economy, anything less than peak efficiency will collapse the system. Already European banks are depositing ever increasing amounts of collateral at the European Central Bank from which assets cannot be repledged and added back to the chain of collateral. A banking shock in Europe will damage the United States economy because of the US financial sector’s reliance on European banks for an inflated asset base through rehypothecation and the shock from its disappearance.

The next decade in investing will not be one where you can buy any basket of stocks and expect meaningful positive returns. Instead, avoiding extreme market downturns and portfolio volatility while protecting capital will produce the best returns. A financial adviser who can identify and protect against the debilitating market risks—those that crashed the economy in ‘08 and those that face us today—will be an invaluable asset for maintaining and growing your wealth in the next decade.

"Doublethink: The power of holding two contradictory beliefs in one’s mind simultaneously, and..."

Fri, 16 Mar 2012 02:30:26 -0400

“Doublethink:
The power of holding two contradictory beliefs in one’s mind simultaneously, and accepting both of them.”

- George Orwell

I Was a Warehouse Wage Slave | Mother Jones

Fri, 16 Mar 2012 01:58:00 -0400

I Was a Warehouse Wage Slave | Mother Jones:

“The days blend into each other. But it’s near the end of my third day that I get written up. I sent two of some product down the conveyor line when my scanner was only asking for one; the product was boxed in twos, so I should’ve opened the box and separated them, but I didn’t notice because I was in a hurry. With an hour left in the day, I’ve already picked 800 items. Despite moving fast enough to get sloppy, my scanner tells me that means I’m fulfilling only 52 percent of my goal. A supervisor who is a genuinely nice person comes by with a clipboard listing my numbers. Like the rest of the supervisors, she tries to create a friendly work environment and doesn’t want to enforce the policies that make this job so unpleasant. But her hands are tied. She needs this job, too, so she has no choice but to tell me something I have never been told in 19 years of school or at any of some dozen workplaces.”You’re doing really bad,” she says.

I’ll admit that I did start crying a little. Not at work, thankfully, since that’s evidently frowned upon, but later, when I explained to someone over Skype that it hurts, oh, how my body hurts after failing to make my goals despite speed-walking or flat-out jogging and pausing every 20 or 30 seconds to reach on my tiptoes or bend or drop to the floor for 10.5 hours, and isn’t it awful that they fired Brian because he had a baby, and, in fact, when I was hired I signed off on something acknowledging that anyone who leaves without at least a week’s notice—whether because they’re a journalist who will just walk off or because they miss a day for having a baby and are terminated—has their hours paid out not at their hired rate but at the legal minimum. Which in this state, like in lots of states, is about $7 an hour. Thank God that I (unlike Brian, probably) didn’t need to pay for opting into Amalgamated’s “limited” health insurance program. Because in my 10.5-hour day I’ll make about $60 after taxes.”

"“Le rire joue en ton visage/Comme un vent frais dans un ciel clair.” “Laughter..."

Fri, 17 Feb 2012 01:22:01 -0500

“

“Le rire joue en ton visage/Comme un vent frais dans un ciel clair.”

“Laughter plays on your face/Like a cool wind in a clear sky.”

”

- -Charles Baudelaire

"Please could you stay awhile to share my grief For its such a lovely day To have to always feel this..."

Wed, 08 Feb 2012 18:18:39 -0500

“

Please could you stay awhile to share my grief
For its such a lovely day
To have to always feel this way
And the time that I will suffer less
Is when I never have to wake

Wandering stars, for whom it is reserved
The blackness of darkness forever
Wandering stars, for whom it is reserved
The blackness of darkness forever

… Those who have seen the needles eye, now tread
Like a husk, from which all that was, now has fled
And the masks, that the monsters wear
To feed, upon their prey

Wandering stars, for whom it is reserved
The blackness of darkness forever
Wandering stars, for whom it is reserved
The blackness of darkness forever

(always) doubled up inside
Take awhile to shed my grief
(always) doubled up inside
Taunted, cruel…. …

Wandering stars, for whom it is reserved
The blackness of darkness forever
Wandering stars, for whom it is reserved
The blackness of darkness forever

”

- -Portishead

Here is a chart of some of the major tri-party collateral...

Wed, 08 Feb 2012 13:01:13 -0500

Here is a chart of some of the major tri-party collateral managers in the US and Europe.

Why are they important? Why have their stocks been hammered in the last year?

When a net creditor in a deal receives marketable collateral from the debtor counterparty, the creditor may then turn around and pledge that collateral for another transaction with a second counterparty. This is known as “rehypothecation”, an odd word meaning the secondary re-use of collateral.

The basic function of rehypothecation is to provide counterparties with a broader array of collateral availability and the ability to enter into a wider breadth of trade types. In certain transactions with credit risk such as credit default swaps, the quality and marketability of collateral is essential to be able to enter into and maintain a deal over its life. A trader who is able to access different types of collateral from other transaction has a greater ability to get into trades where collateral security is required, and to obtain and post additional collateral as needed by leveraging other profitable deals. The trader may also earn an interest rate spread between the haircut charged and the haircut paid to two different counterparties.

Rehypothecation has been traditionally used in bi-lateral trading relationships. However, to rehypothecate collateral efficiently and on a larger scale is very complex and requires dedicated staff, inventory and accounting systems, and legal support unavailable to many smaller institutions such as hedge funds. Without the proper systems and procedures, there is a risk of double-committing collateral or not being able to obtain the collateral back when needed. These factors have led to the rapid growth of the tri-party collateral business.

Tri-Party Collateral Management

Tri-Party or multi-party collateral managers provide a central service to manage, clear, and rehypothecate collateral among many different OTC counterparties in the market. With tri-party management, collateralization can be done at a net portfolio leveland rolled up into a single statement in near real time. Collateral agreements are standardized in ISDA format across the entire pool of trading counterparties, eliminating inefficiencies caused by differences in contractual interpretations.

Collateral rehypothecation is the foundation of tri-party collateral management services. In exchange for providing access to different markets and collateral types to the service membership, the tri-party manager acts as a central broker, taking a small portion of each collateral transaction as a fee or trading spread. Usually this is in the form of a haircut differential between the haircut paid to the collateral giver (lower), and the haircut received from the collateral taker (higher). Facilitation of tri-party repos and total return swaps provides access to a common pool of collateral posted by a wide variety of market participants from different locations around the world, across a broad array of products. For this valuable service, the tri-party manager takes a small cut of each collateral movement.

The European crisis has thrown a wrench into the rehyptohecation machine’s very fragile innards.

"On average, she said it’d take about twenty years to condition an entire population for the..."

Sun, 05 Feb 2012 16:16:31 -0500

““On average, she said it’d take about twenty years to condition an entire population for the better or (the more popular option) for the worse. The best active example she could think of that was applicable to the First World was consumerism. She said we’ve been taught to spend money on fruitless things for the sake of “entertainment” and “culture” so that two weeks later, that money will need to be made back. Then it clicked in my head, and I mumbled, ‘So, on goes the machine.’ And she replied, ‘Further and furthur.’””

- Pawncho - Further

The Storytellers of Empire

Fri, 03 Feb 2012 19:26:00 -0500

The Storytellers of Empire:

“The moment you say, a male American writer can’t write about a female Pakistani, you are saying, Don’t tell those stories. Worse, you’re saying, as an American male you can’t understand a Pakistani woman. She is enigmatic, inscrutable, unknowable. She’s other. Leave her and her nation to its Otherness. Write them out of your history.”

basileia: دیگران را ببخش، نه به خاطر اینکه لایق بخششند، به خاطر...

Fri, 27 Jan 2012 01:42:31 -0500

basileia:

دیگران را ببخش، نه به خاطر اینکه لایق بخششند، به خاطر اینکه تو لایق آرامشی: “Forgive others, not because they deserve forgiveness, but because you deserve peace.”

Almost 1 In 3 US Warplanes Is a Drone

Wed, 11 Jan 2012 13:32:54 -0500

Almost 1 In 3 US Warplanes Is a Drone:

A recent Congressional Research Service report,titled U.S. Unmanned Aerial Systems, looks at the more-prominent role being played by drones. In 2005, drones made up just 5 percent of the military’s aircraft. Today one in three American military aircraft is a drone. The upsides of drones being they are cheaper and safer — the military spent 92% of the aircraft procurement money on manned aircraft. The downside — they’re bandwidth hogs: a single Global Hawk drone requires 500 megabytes per second worth of bandwidth, the report finds, which is 500 percent of the total bandwidth of the entire U.S. military used during the 1991 Gulf War.

the other downside is that it has turn killing into a cold calculation done by operators thousands of miles away

Good Muslim Bad Muslim - An African Perspective

Wed, 11 Jan 2012 13:17:32 -0500

Good Muslim Bad Muslim - An African Perspective:

Essay by Mahmood Mamdani on Culture Talk and the divisions of society.

What Mamdani describes is ‘Fear of the Mob:’

When I read this, or something like this, I wonder if this world of ours is after all divided into two: on the one hand, savages who must be saved before they destroy us all and, on the other, the civilized whose burden it is to save all?

Mamdani’s essay reminded me of the concept from George Orwell’s Down and Out Chapter 22:

I believe that this instinct to perpetuate useless work is, at bottom, simply fear of the mob. The mob (the thought runs) are such low animals that they would be dangerous if they had leisure; it is safer to keep them too busy to think.

CH XXII Down and Out in London and Paris by George Orwell

Tue, 10 Jan 2012 01:19:53 -0500

XXII

For what they are worth I want to give my opinions about the life of a Paris plongeur. When one comes to think of it, it is strange that thousands of people in a great modem city should spend their waking hours swabbing dishes in hot dens underground. The question I am raising is why this life goes on — what purpose it serves, and who wants it to continue, and why I am not taking the merely rebellious, fainéant attitude. I am trying to consider the social significance of a plongeur’s life.

I think one should start by saying that a plongeur is one of the slaves of the modem world. Not that there is any need to whine over him, for he is better off than many manual workers, but still, he is no freer than if he were bought and sold. His work is servile and without art; he is paid just enough to keep him alive; his only holiday is the sack. He is cut off from marriage, or, if he marries, his wife must work too. Except by a lucky chance, he has no escape from this life, save into prison. At this moment there are men with university degrees scrubbing dishes in Paris for ten or fifteen hours a day. One cannot say that it is mere idleness on their part, for an idle man cannot be a plongeur; they have simply been trapped by a routine which makes thought impossible. If plongeurs thought at all, they would long ago have formed a union and gone on strike for better treatment. But they do not think, because they have no leisure for it; their life has made slaves of them.

The question is, why does this slavery continue? People have a way of taking it for granted that all work is done for a sound purpose. They see somebody else doing a disagreeable job, and think that they have solved things by saying that the job is necessary. Coal-mining, for example, is hard work, but it is necessary — we must have coal. Working in the sewers is unpleasant, but somebody must work in the sewers. And similarly with a plongeur’s work. Some people must feed in restaurants, and so other people must swab dishes for eighty hours a week. It is the work of civilization, therefore unquestionable. This point is worth considering.

Is a plongeur’s work really necessary to civilization? We have a feeling that it must be ‘honest’ work, because it is hard and disagreeable, and we have made a sort of fetish of manual work. We see a man cutting down a tree, and we make sure that he is filling a social need, just because he uses his muscles; it does not occur to us that he may only be cutting down a beautiful tree to make room for a hideous statue. I believe it is the same with a plongeur. He earns his bread in the sweat of his brow, but it does not follow that he is doing anything useful; he may be only supplying a luxury which, very often, is not a luxury.

As an example of what I mean by luxuries which are not luxuries, take an extreme case, such as one hardly sees in Europe. Take an Indian rickshaw puller, or a gharry pony. In any Far Eastern town there are rickshaw pullers by the hundred, black wretches weighing eight stone, clad in loin-cloths. Some of them are diseased; some of them are fifty years old. For miles on end they trot in the sun or rain, head down, dragging at the shafts, with the sweat dripping from their grey moustaches. When they go too slowly the passenger calls them bahinchut. They earn thirty or forty rupees a month, and cough their lungs out after a few years. The gharry ponies are gaunt, vicious things that have been sold cheap as having a few years’ work left in them. Their master looks on the whip as a substitute for food. Their work expresses itself in a sort of equation — whip plus food equals energy; generally it is about sixty per cent whip and forty per cent food. Sometimes their necks are encircled by one vast sore, so that they drag all day on raw flesh. It is still possible to make them work, however; it is just a question of thrashing them so hard that the pain behind outweighs the pain in front. After a few years even the whip loses its virtue, and the pony goes to the knacker. These are instances of unnecessary work, for there is no real need for gharries and rickshaws; they only exist because Orientals consider it vulgar to walk. They are luxuries, and, as anyone who has ridden in them knows, very poor luxuries. They afford a small amount of convenience, which cannot possibly balance the suffering of the men and animals.

Similarly with the plongeur. He is a king compared with a rickshaw puller or a gharry pony, but his case is analogous. He is the slave of a hotel or a restaurant, and his slavery is more or less useless. For, after all, where is the real need of big hotels and smart restaurants? They are supposed to provide luxury, but in reality they provide only a cheap, shoddy imitation of it. Nearly everyone hates hotels. Some restaurants are better than others, but it is impossible to get as good a meal in a restaurant as one can get, for the same expense, in a private house. No doubt hotels and restaurants must exist, but there is no need that they should enslave hundreds of people. What makes the work in them is not the essentials; it is the shams that are supposed to represent luxury. Smartness, as it is called, means, in effect, merely that the staff work more and the customers pay more; no one benefits except the proprietor, who will presently buy himself a striped villa at Deauville. Essentially, a ‘smart’ hotel is a place where a hundred people toil like devils in order that two hundred may pay through the nose for things they do not really want. If the nonsense were cut out of hotels and restaurants, and the work done with simple efficiency, plongeurs might work six or eight hours a day instead often or fifteen.

Suppose it is granted that a plongeur’s work is more or less useless. Then the question follows, Why does anyone want him to go on working? I am trying to go beyond the immediate economic cause, and to consider what pleasure it can give anyone to think of men swabbing dishes for life. For there is no doubt that people — comfortably situated people — do find a pleasure in such thoughts. A slave, Marcus Gato said, should be working when he is not sleeping. It does not matter whether his work is needed or not, he must work, because work in itself is good — for slaves, at least. This sentiment still survives, and it has piled up mountains of useless drudgery.

I believe that this instinct to perpetuate useless work is, at bottom, simply fear of the mob. The mob (the thought runs) are such low animals that they would be dangerous if they had leisure; it is safer to keep them too busy to think. A rich man who happens to be intellectually honest, if he is questioned about the improvement of working conditions, usually says something like this:

‘We know that poverty is unpleasant; in fact, since it is so remote, we rather enjoy harrowing ourselves with the thought of its unpleasantness. But don’t expect us to do anything about it. We are sorry for you lower classes, just as we are sorry for a cat with the mange, but we will fight like devils against any improvement of your condition. We feel that you are much safer as you are. The present state of affairs suits us, and we are not going to take the risk of setting you free, even by an extra hour a day. So, dear brothers, since evidently you must sweat to pay for our trips to Italy, sweat and be damned to you.’

This is particularly the attitude of intelligent, cultivated people; one can read the substance of it in a hundred essays. Very few cultivated people have less than (say) four hundred pounds a year, and naturally they side with the rich, because they imagine that any liberty conceded to the poor is a threat to their own liberty. Foreseeing some dismal Marxian Utopia as the alternative, the educated man prefers to keep things as they are. Possibly he does not like his fellow-rich very much, but he supposes that even the vulgarest of them are less inimical to his pleasures, more his kind of people, than the poor, and that he had better stand by them. It is this fear of a supposedly dangerous mob that makes nearly all intelligent people conservative in their opinions.

Fear of the mob is a superstitious fear. It is based on the idea that there is some mysterious, fundamental difference between rich and poor, as though they were two different races, like negroes and white men. But in reality there is no such difference. The mass of the rich and the poor are differentiated by their incomes and nothing else, and the. average millionaire is only the average dishwasher dressed in a new suit. Change places, and handy dandy, which is the justice, which is the thief? Everyone who has mixed on equal terms with the poor knows this quite well. But the trouble is that intelligent, cultivated people, the very people who might be expected to have liberal opinions, never do mix with the poor. For what do the majority of educated people know about poverty? In my copy of Villon’s poems the editor has actually thought it necessary to explain the line ‘Ne pain ne voyent qu’aux fenestres’ by a footnote; so remote is even hunger from the educated man’s experience.

From this ignorance a superstitious fear of the mob results quite naturally. The educated man pictures a horde of submen, wanting only a day’s liberty to loot his house, burn his books, and set him to work minding a machine or sweeping out a lavatory. ‘Anything,’ he thinks, ‘any injustice, sooner than let that mob loose.’ He does not see that since there is no difference between the mass of rich and poor, there is no question of setting the mob loose. The mob is in fact loose now, and — in the shape of rich men — is using its power to set up enormous treadmills of boredom, such as ‘smart’ hotels.

To sum up. A plongeur is a slave, and a wasted slave, doing stupid and largely unnecessary work. He is kept at work, ultimately, because of a vague feeling that he would be dangerous if he had leisure. And educated people, who should be on his side, acquiesce in the process, because they know nothing about him and consequently are afraid of him. I say this of the plongeur because it is his case I have been considering; it would apply equally to numberless other types of worker. These are only my own ideas about the basic facts of a plongeur’s life, made without reference to immediate economic questions, and no doubt largely platitudes. I present them as a sample of the thoughts that are put into one’s head by working in an hotel.

Bonds Stop Flowing as Collateral Gets Stuck at ECB: Euro Credit

Tue, 10 Jan 2012 01:06:54 -0500

Bonds Stop Flowing as Collateral Gets Stuck at ECB: Euro Credit:

Bloomberg News on ‘rehypothecation’:

The chains of loaned securities being pledged and re-pledged in the so-called wholesale money markets are growing shorter, as collateral piles up at central banks where it can’t generate additional borrowing.

Rehypothecation is the financial alchemy that transmutes $2.45 trillion of assets into $5.8 trillion of collateral at the 14 largest securities dealers, down from a peak of $10 trillion in 2007, according toManmohan Singh, senior financial economist at the International Monetary Fund in Washington. Once collateral is parked at the central bank, it can’t be recycled, and may become hard to find in times of need.

European banks are parking their money at the ECB, ending the chain of rehypothecated assets.

Repo trading volumes in Europe are sliding, according to ICAP Plc (IAP), the largest interdealer broker and the owner of BrokerTec, the biggest platform for repo trading, where securities such as government bonds are loaned for a fee.

“We’ve seen quite a significant fallback in the past two to three months, and most of that’s driven by Germany,” said Don Smith, an ICAP economist, who puts the decline at as much as 20 percent. “The German repo market has been getting very, very tight,” forcing borrowers to use larger amounts of lower- quality collateral and pushing up borrowing costs, he said.

Rehypothecation can occur unlimitedly in the UK, the financial center of Europe, but the US is more stringently regulated and banks have to limit rehypothecation to %140 of pledged assets. However, many US institutions have established large European divisions and have basic brokerage agreements which allow them to transfer funds to these European divisions to increase their leverage. The question is whether US institutions are going to be able to get those funds back if the rest of the European banking system experiences a sudden stop.

“Once you engage in a repo with me, you no longer have the assets, you have a credit claim against me,” said Gleeson at Clifford Chance. “A wise counterparty doesn’t do repo with someone in a deep hole.”

MF Global U.K. Unit Has 4,500 Claims for $1.2 Billion in Cash, KPMG Says

Sat, 07 Jan 2012 14:40:00 -0500

MF Global U.K. Unit Has 4,500 Claims for $1.2 Billion in Cash, KPMG Says:

“On its own behalf:”

MF Global Holdings, once run by former New Jersey Governor and Goldman Sachs Group Inc. (GS) co-chairman Jon Corzine, filed the eighth-largest U.S. bankruptcy on Oct. 31 after a wrong-way $6.3 billion trade on its own behalf on bonds of some of Europe’s most indebted nations.

As for the customers:

An estimated $1.2 billion is missing from MF Global’s segregated accounts, according to Giddens. In the U.K. proceeding, KPMG has said it’s seeking to return some money to the broker’s clients by March.

Giddens is in talks with KPMG as he tries to recover about $700 million from the U.K. unit to distribute to U.S. customers. He already has returned more than $4 billion to U.S. customers, leaving them short about 28 percent of their assets.

The Street Light: When the Euro Was Good for Germany

Fri, 06 Jan 2012 17:03:01 -0500

The Street Light: When the Euro Was Good for Germany:

(via Instapaper)

Why Greece, Spain, and Ireland Aren’t to Blame for Europe’s Woes

Fri, 06 Jan 2012 17:03:00 -0500

Why Greece, Spain, and Ireland Aren’t to Blame for Europe’s Woes:

(via Instapaper)