Moving home....

This blog now lives at http://www.rjr.me/blog.   See you there.

Jamie Dimon - For sale, one petard, hardly used

Today JPMorgan, America's biggest bank and one of the monsters of the 2008 bailout season ($25 billion), 'revealed a surprise trading loss of $2bn (£1.2bn) on complex investments made by its traders' (BBC, today)

Fortunately JPMorgan's CEO, Jamie Dimon (for whose name Microsoft's spellchecker corrects to 'Demon'), is a man of principle. To be precise, his principle is this:

I don't think just because someone's underwater they say I don't have to stay there. But they're supposed to pay the mortgage, and we should teach the American people, you're supposed to meet your obligations, not run from them. Because you have a mortgage doesn't mean you should run away as it goes down. (quoted in the Huffington Post online, 21/03/09)

Well, that seems clear enough - not only will Mr Dimon not be looking for yet another bailout, but he would apparently recommend that no one gives him one if he did. And given his status as one of the financial luminaries of our day, who are we to gainsay his wisdom?

He's pretty stiff with the authors of the bank's distress - well, with some of them:

There were many errors, sloppiness and bad judgement. These were egregious mistakes... They were self-inflicted and this is not how we want to run a business. (quoted by the BBC)

And again, speaking to NBC's Meet the Press last Sunday, the Great Man said:

We made a terrible, egregious mistake. There's almost no excuse for it.

('Almost' no excuse? I wonder who he thinking of excusing.)

Only one omission, really - the man who led them to all this, the man whose capacity to control his bank is so feeble that he has been exposed yet again, the man who in April described concerns about the bank's problems as a 'tempest in a teapot', and the man whose hypocrisy is so vast that he could, without the least sign of a blush, say the above about American mortgage-holders after being bailed out on a truly staggering scale by those very same mortgage-holders.

So what is the solution? The Beeb also quotes Mark Williams, a professor at Boston University and a former regulator at the Fed, who observed that:

Taxpayers ultimately have to bail out these 'too big to fail' banks. And that's what JPMorgan is - it is too big to fail.

Given that these banks are structurally integral to the US and global economies, this is probably true. But there is nothing in the need to protect the integrity of the banking and economic systems that obliges us to let the likes of Mr Dimon and the many colleagues who were also party to this and previous disasters continue running our major economic institutions. Or the shareholders to own it, for that matter - they are supposed to carry the can when the bank fails. We just need the institution, its employees and its deposits and contracts.

Way to go, Jamie, as they say on your side of the Pond. And the way to go is - out. Bye...

How do open source projects survive?

I spent a very pleasant and interesting Friday evening last week with some acquaintances of my son’s – a left group consisting mainly of under-30s – and they were discussing the open source movement.  It was an informative meeting, not only by virtue of the well-informed presentation by Martin and Lambert, our German hosts, but also the contributions from the floor. Some were interestingly informed, not least by direct experience of open source development, but also in some cases because of the misunderstandings.

One issue that occurred to me is why, once they have reached a certain level of maturity, the employers of the individuals who actually create open source products like Linux or WordPress do not claim their property rights over the result. After all, who would not want to own Linux or WordPress as a commercial property?

So is there a legal basis for claiming rights over open source systems? I have no idea really, but some years ago, when I was working for a large consultancy, the partnership forced one of its own members to relinquish rights to a very successful book he had written on the grounds that, although he had written it in his own time, they still owned the IPR in anything he developed. This may be a peculiarity of American law, but they certainly won.

So why not Linux or WordPress, or any other open source system? Given that pretty much all such products are probably made by employees of existing companies, presumably they would have the same claim on the end-product as the consultancy I mentioned above. Given the maturity and value of such systems, it is surely time for them to insist on their (piratical, exploitative, deeply immoral) ‘rights’.

When I raised this issue with Martin and Lambert, they replied that it is still in these companies interests to leave these systems under open source control, and point out that many of them actually assign staff to working on open source systems. But I am not convinced that they have any such interests: these are now very mature products, there is a vast market of current and prospective users, and all the risk involved in creating a popular, industrial-strength system has already been taken by unpaid volunteers. And if employers are funding this even more directly, by paying individuals to work on open source projects, I cannot believe that this is for any reason but their own self-interest. In most cases (I would guess) the products are indirectly beneficial to them, as valuable auxiliaries and conduits to their own products and services.

So why aren’t WordPress & Linux and all the rest being claimed as the rightful property of the big corporates? Primarily, I would guess, because they are not easily fitted not their current business models, or even more simply, because it is impossible to divided them up between the various claimants – we simply have no idea who contributed what. It’s not a very good model for a more libertarian approach to development – the result escapes corporate control only because the wolves can’t work out which parts they can rightfully carry off.

(Incidentally, this gives the lie to the idea that open source systems are free or that they represent what could be done if a free community were to set to work on a give problem. Open source projects are funded by companies, whether or not they want to be. It’s just that the funding consists of paying people so much that they are still willing and able to carry out yet more serious development outside work. So open source remains a radically dependent model of development, not a genuine breakthrough from capitalist property rights.)

The absurdity of modern economics

Any rational economics would be about how economic activity plays a part in the wider social system. Modern economics is doubly divorced from that. Firstly, it treats economics as an abstraction from social life, as though it could be judged solely on its own terms. And within that, economic activity is presented as revolving around money, rather than money being kept in its proper place as a means to our real social (or even economic) ends. Even if we accept the former abstraction, within economics itself one would expect the making, distribution, exchange and consumption of goods and services to predominate - that is after all how people actually live - but we have succeeded in making all that secondary to the circulation and augmentation of money itself.

This peculiar displacement and inversion that places money first and last - the perspective of the miser, that most wretched of human beings, who is, as someone-or-other once said, as much in need of what he has as of what he has not - is not the fault of economists, of course. Or at least they are no more than ghost-writers to the real culprit. This is after all a perfectly valid description of an advanced capitalist society, in which finance capital (and its unacknowledged bastard-and-then-master, fictional capital) has deposed real goods and services from the pinnacle of profitability to such as extent that the classic model of capitalist economic activity in which money is augmented through the creation and sale of goods and services - summarised by that nice Dr Marx as M-C-M1 - has started to run an increasingly poor second to the more direct creation of money through speculation, the creation of fictional capital and all the rest - M-M1.

It’s a distasteful state of affairs and creates the impression that economics has fallen into a sort of fantastic black hole, from which the introversion into which it has fallen ensures that it cannot escape. But even from the most radical point of view we can't just switch economics off. The economy is after all where we create all the means to our various ends, our economy is a capitalist economy, and so we must at least try to understand capitalism's view of itself. On the other hand, surely we are capable of constructing an economics that starts and ends with people, and so with goods and services. (Even this ignores the deeper significance of economic activity, of course - the way the very process of participating in economic activity shapes the way we experience existence, and the way we define what is real and what is not, what is normal and natural, what is right, wrong and indifferent. But at least it would wrench us away from this hypnotic fantasy that money must rule.)

An example of what I mean. In economic theory money is rightly assigned many functions. It is a store of value: people can use it to hold their savings. It is a medium of exchange, enabling us to buy and sell without having to wait for someone possessing exactly what we want and wanting exactly what we have. As an instrument for expressing the value (or at least the price) of goods and services, it’s a unit of account. Finally (as the list usually goes), money provides a standard of deferred payment (which is one important reason why we are always so concerned about inflation).

So far so ordinary. But since the creation of money by means of speculation, manipulation and downright fraud has come more to the fore (and nothing in recent economic policy has reversed this), this has made another, perhaps previously too obvious function of money more visible. For money is also a claim on goods and services. In a market that responds only to money, anyone with money has a right (or at least an access that will only be challenged in exceptional circumstances) to the goods and services created by society as a whole. As a result, those who specialise in creating money can corner a correspondingly volume goods and services (i.e., get rich) even though they create none themselves. Of course, financial activity does have its value - not only managing the supply and circulation of money and directing investment (though still conceived of in narrowly financial rather than social terms) but also rationalising and smoothing various aspects of markets themselves. But once financialisation gets out of hand and the generation of money through bubbles, absurd risk and outright crime starts to predominate over real economic activity - the creation of goods and services -then the financial sector starts to achieve stupid levels of wealth (i.e., a huge proportion of the money in circulation) even though it is adding very little of social value. On the other hand, as I have argued elsewhere, once finance capital starts to predominate, bubbles, speculation, crashes and monopolisation are inevitable - yet 'investment' banks, hedge funds and the rest are left in greater control over the real economy than ever.

Hence the significance of money's function as a claim to goods and service. It allows an otherwise parasitical class of financial specialists to distort and undermine the socially valuable part of the economy, not only making them richer and richer even though they produce very little of value themselves, but by this very process strengthening their position in the economy - and so society and politics - as a whole.

The flight of capital from China

Well, if the Chinese government was under the impression that creating a wealthy capitalist class would serve the future of China, I hope they have noted that 'Close to two-thirds (60%) of wealthy Chinese with assets of RMB 10m ($1.53m) or more are either considering emigration through investment overseas or have already done so (China Merchants Bank/Bain & Co). Further, the tendency to move abroad moves in line with wealth levels meaning the wealthiest group are the most inclined to emigrate. Of those with assets of more than RMB 100m for example, close to half (47%) are considering leaving while almost one-third (27%) have done so already' (Ledbury Research's High Net Worth, July/August 2011). Perhaps that's why, as Reuters reports, they are cutting taxes on luxury items.

Why we should never rely on philanthropy

Speaking of hedge fund-based donors, the July/August 2011 edition of Ledbury Research's High Net Worth reports that 'Overall philanthropy levels in the US were negatively impacted by the financial crisis and last year the total amount donated by the top 50 donors fell to the lowest levels since 2000'. In other words, just when things are at their worst, philanthropy dries up. But equally absurd, there is a strong correlation between philanthropy and hedge fund bonuses. In other words, the level of generosity is directly tied to one of the most pernicious features of the economic system!

What Happens When The Riots Reach Mayfair?

That's the headline from Wealth Briefing, an online magazine for bankers to the obscenely rich. Perhaps a more pointed question might be, Why doesn't it happen?

Perhaps we should answer that question with another one? If you had the plague, would you treat it by squeezing the spots?

Spot the connection? Well, maybe it's not that obvious. Perhaps another question will make things a little clearer. What happens when you decide to stop governing society and hand it over to 'the markets', the police and the tabloids? Feed everyone with a constant diet of titillation, exploitation and deceptions? Encourage everyone to jump on every get-rich-quick bandwagon? Has this led to the advertised tidal wave of liberation, creativity and 'wealth-creation'? Well, it's easy to find out - just leave this potent recipe to ferment for three decades, and - suddenly it explodes. Slapping down the rising mass and thinking you are getting at the underlying cause will only make a still bigger mess.

This is something we have spent 30 years preparing. On the one hand, we have created a culture of false promises, fantasy expectations and entitlement, and on the other bred a generation of politicians who have long since abandoned any pretence at managing society in favour of handing every problem over to their business pals, cowering before red-top newspapers and abandoning every serious political concept and programme as 'ideological' in favour of 'common sense'. (But as Gramsci once said - I think - common sense is the practical ideology of the ruling class.)

How about a little history? In 1981, we had the Brixton riot in London, the Handsworth riot in Birmingham, the Chapeltown riot in Leeds and the Toxteth riots in Liverpool. Although initially popularly denounced as race riots or 'mindless' violence' and 'copycat' events, it soon became clear that brutal conditions in the inner city, maintained by heavy-handed policing, were the real cause. But it never went further than riots - the victims of social brutalisation turning on their immediate neighbours. Now, 30 years on, things are perhaps taking a marginally different turn. As Wealth Briefing put it, 'Last night the King’s Road in Chelsea, Notting Hill and the iconic Sloane Square were all targeted of terrifying indiscriminate violence.'

Indiscriminate? I suspect not - and certainly no more so than the occupation of Fortnum and Mason by anti-cut's demonstrators (in which, I am proud to say, my son took part) earlier this year. It's just that today's rioters - unintentional demonstrators - are a lot less politically conscious, but a lot more ready to use violence to express themselves, even though their lack of political consciousness means that they are incapable of expressing themselves through anything else. To quote Wealth Briefing again, 'The events may be characterized by mindless so-called “rioting-meets-shopping”, but the last three days have exposed serious undertones. According to a report on the BBC, two 17-year-olds told police that they were rioting because they were "showing police and rich people they could do whatever they wanted".'

Interesting turn of phrase - apparently rioting isn't serious to the rich - just as long as it's happening to the poor. But as for these 'serious undertones', Wealth Briefing can breathe a sigh of relief: only when the rioters are more politically conscious and organised will they prove a threat to their rich readers. As long as that is the case, it will be possible to denounce them as looters and feral youth - because, in many cases, that's what they are. But how much more would it take to move them a little farther along towards informed political action?