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?

Tough at the top

Compared to us mere mortals who are faced with the Consumer Price Index (CPI), an alternative index adjusted for the rich - the SALLI (Stonehage Affluent Luxury Living Index). It's based on a basket of 50 items such as central London rental costs for a family property, private education, a day’s grouse shooting and fine wine and cigars and so on. And a new one is out now, and shows that things are getting tough at the top. The poor dears are facing a mighty 6% rise in the 12 months to April 2011, compared with our measly 4.5%. How will they get by?

This, apparently, “reinforces findings that UHNW [ultra-high net worth - i.e., obscenely rich] inflation is much more volatile than CPI, tending to exceed standard inflation in good times and significantly fall short in times of downturn”. Rents on 'high-end' London property rose by 6.7%. But apparently this trend is driven by higher demand, which is to say, the fact that rich people are actually queuing up even more than usual to rent London property - not exactly a problem of impoverishment, then. Consumables for the rich jumped 18% - fine wines rocketed up 27.6%, but fortunately champagne limited itself to a mere manageable 8%. Culture/entertainment were up an average of 10.3%, including a rise in art prices by 10.5%. But again the problem was high auction prices, so it really only shows that the rich still have plenty of money. They also cover 'investments of passion' - a wonderful phrase, betrayed by the fact that it refers to things like luxury cars, not, for example, the cost of paying their accountants extra to work how much tax they really owe and then paying it - rose a mere 4.7%. Yacht hire is up 5.1% on a year back, and sports and recreation as a whole up by 5.4% overall.

I don't wish to seem ungrateful, but looking at some of the creatures that figure in the world's rich lists (especially the realistic lists that include the dictators - Mubarak was wealthier than Bill Gates - and other corrupt plunderers of their own people), what exactly have most of these people done to deserve this pampering? Conversely, is there really so little understanding of what it means to have an economic system that is ultimately geared to the interests of these groups - does anyone really believe in trickle-down economics any more?

Big fleas have little fleas...

The FSA is currently sending out a letter (http://www.fsa.gov.uk/pubs/ceo/dear_ceo_wealth_management.pdf) to the CEOs of 'wealth management' firms - organisations whose sole function is to pander to individuals of 'high net worth' (i.e., the rich) and even 'ultra-high net worth' (i.e., the obscenely rich). The letter describes research that suggests that quite a few of these organisations are busily doing their clients a large collective disservice. In fact their review found that 14 out of 16 UK firms pose a substantial threat to their own customers. According to the FSA, two-thirds of the files they reviewed were “not consistent with one or more of the following: the firm’s house models; the client’s documented attitude to risk; and the client’s investment objectives”. As the firms investigated ranged from small independent advisers to global banks, plainly the problem is endemic to the industry. The FSA has concluded that many firms are either ignoring or not properly taking into account their clients' concerns, knowledge or wishes (The Independent, 15 June 2011).

In other words, they are either massively incompetent or pursuing their own agendas.

It is a familiar enough scenario:

Big fleas have little fleas,
Upon their backs to bite 'em,
And little fleas have lesser fleas,
and so, ad infinitum.
(The Siphonaptera, by Augustus De Morgan, 1872, after Jonathan Swift's On Poetry: a Rhapsody, 1733)

At the same time, it exposes yet another dimension of the general corruptness of the financial sector. The fact that this time it is the rich and super-rich who are being bitten also suggests that no one is safe - not even the individuals standing at the pinnacle of the system as a whole. And if even those in whose interests the system ultimately operate are not immune, that in turn suggests that it is the system itself that is the problem. In other words, it is not just that the system is plagued with fleas; the system itself spawns the fleas directly.

The financial sector occupies a doubly powerful position capitalism as a whole. Firstly, given that the point of capitalism is the maximisation of profit, the sector that specialises in the management of money is surely the functional axis of that system. Secondly, as the single greatest source of credit, it sets the terms and makes possible the opportunities for investments. Indeed, the financial sector is the ultimate arbiter of what an investment is, and what priority should be attached to any particular course of action.

And curiously enough the financial sector is also unique to capitalism in that, unlike any other part of the economy, it makes money without producing a good or service that is of any value to anyone.

At its most basic, you can't eat money. But money is the ultimate commodity - in fact the only commodity whose sole use value is to embody exchange value. It is the ultimate means (as Byron remarked, 'Ready money is Aladdin's lamp'), as it can command any product and, owing to the increasingly obsessive commercialisation of capitalist societies), it is rapidly elbowing out every other factor mediating social relationships. So a sector that specialises in creating money out of money cannot lose: it stands at the heart of the system, it controls both the one indispensible means and ultimate end of the system as a whole, and it is the irreducible goal and need of every other sector to feed it.

And, it turns out, it is corrupt.

But it must be understood that this is not a kind of corruption of which the system can be cleansed by the vigorous application of righteous indignation, and that's that. This corruption is built into the system in much more profound ways than that. As capitalism is driven by its own tumbling profitability to absorb larger and larger segments of civil society, living on capitalist terms becomes a greater and greater part of life as a whole. In that respect capitalist relationships increasingly become the very definition of normality. With that, not only does more and more power (direct or indirect) flow to its financial core but the central myth of capitalism - that pursuing self-interest is the Royal Road to the Common Good - comes increasingly to define how we all think about how to live our lives. Given a combination of increasing pressure on profits, an increasing illusion (among our bankers at least) of selfishness and greed as the supreme social virtues and more and more opportunity for a little 'financial engineering', we can only expect this tendency towards corruption to grow.

And who is going to stop them? Not our governments, that's for sure. The economy is by definition the source of the material means to all our ends, so politicians can hardly be immune to the same temptations as their business allies - business controls the economy, so they must be pandered to at all costs. As history makes very plain, governments quickly realise that they have to pursue business's agenda if they are to realise their own, so hospitals, schools and even armies start to be designed, planned and funded in ways that ensure that the businesses involved profit to the maximum possible extent. On the other hand, if business interest and party policy come into conflict, it is not long before the one starts to undermine and overwhelm the other, as the sordid picture of the Labour Party's ideological striptease during the 1990s illustrated only too repulsively.

But all this is looking at the problem as though it were a possibly interesting theoretical problem, but with little relevance to the rest of us. But as De Morgan's ditty adds:

And the great fleas, themselves, in turn
Have greater fleas to go on;
While these again have greater still,
And greater still, and so on.

And where does this all stop? Where is the great beast on which all these tiers and tiers of fleas are finally feeding? It is us. Our governments won't be able to avoid it. To have the tax base to fund their own schemes, business must be provided with every opportunity to profit from the public purse. In other words, we have to bribe them to get them to pay tax. Ironically enough, one of the main ways we do this is by letting them off their tax bills. Not very clever. The only limit to this process - and absolutely the main target of contemporary capitalist expansion - is society as a whole. The systems we have spent so long building - health, education, welfare - are increasingly being set up as the Next Big Thing for exploitation.

And it's not only a matter of Coke machines in our schools and privatising the health service (gruesome though such prospects may be). Our security and military services - police, army and all - will also be handed over as opportunities for profit. That is, following our recent adventures in militarism, absolutely the other main target of contemporary capitalist expansion. So apart from the privatisation of pubic services, right now I fully expect the next big thing in capitalism to be the security state. Oh dear oh dear.

Quote of the week

A fascinating insight into the world of serious money from one of its architects:

The wealth management business will not run out of business but will be impacted if it starts asking questions about whose money this is. (John Sfakianakis, chief economist at Banque Saudi Fransi, 'Quote of the Week' at www.WealthBriefing.com, on 17 June 2011)

Given the number of dictators, generals, 'entrepreneurs' and assorted hangers-on stashing away their country's money in truly staggering amounts, much of it going straight into the coffers of the 'wealth management business', how different is this from a fence protesting that, if he started asking whose property he was so discretely buying, he'd be out of business in no time?

Of course, as I have argued elsewhere. this is simply the obverse of a world in which powerful people and perfectly serious intellectuals fantasize that the ruthless pursuit of self-interest is for the greater good.

Shakespeare on bubbles

Banquo
The earth hath bubbles, as the water has,
And these are of them.Whither are they vanish'd?

Macbeth
Into the air; and what seem'd corporal melted
As breath into the wind.
Would they had stay'd!

Banquo
Were such things here as we do speak about?
Or have we eaten on the insane root
That takes the reason prisoner?

Macbeth, Act 1 Sc.3

The witches of investment banking and market ideology provided the insane root with which our masters - and our systems - were poisoned, and the rest is as malevolent and illusory as any witch could devise.

National budgets and global economies

George Osborne delivers his first budget and insists that it is fair. I’m not sure what he means by this, but it is hard to see how it can be. Regardless of what Mr Osborne wants, he simply lacks the political levers needed to control the economy or to decide who bears the burden of the recovery. Of the three key controls, he has access to (and by no means full control over) just one: the UK public sector, including the livelihoods of millions who not only did not cause this recession but also are the main victims.

As for the other two areas - the private sector and the global economy - what can he say? But, being a mainstream politician who therefore cannot confess that the social system he works in is profoundly dysfunctional, he has no power over the UK private sector, especially the banks. I know from my one personal experience that the banks are doing very well at the moment, thank you, and despite a piffling bank tax, will do even better in future. But George cannot do anything about them, because they are his mates in the City – not exactly the Tories’ targets of choice - and because faith in the beneficence of untrammeled markets and big business is in the very the bedrock of Tory thought. Indeed, I suspect that most Tories cannot imagine what taking the City to task would even mean (and I doubt that many Labour or Liberal politicians would do any better).

But even that is a relatively small problem. The real reason why the private sector is free from political action is not that it is sacrosanct but that it invulnerable. Capital will simply go somewhere else. The reason it is free to do this is not that this is some sort of natural phenomenon – the mysterious workings of the market – but because we lack a political system with the span of control, the competence and the willingness to take action on a global scale. There are no true global or inter-governmental political institutions, and such economic institutions as do exist at that level – the WTO, IMF, etc. – have effective power only over the weak (and therefore, like the poor in this country, the very people who require support, not budget cuts), and remain committed to the market ideology that got us into this mess in the first place.

At the moment this gap can be filled only when the politicians of all the major economies can agree on a common policy. But that is extremely unlikely, because the very mobility of capital that allows banks and others to flout local economic controls also creates a bidding war between struggling national economies that forces national politicians to make their own economies as attractive as possible to global capital.

Tough luck, George. But you can do something about it. You can start to admit that the global economy requires direction, not only to escape from the present recession but also avoid future problems with the environment, with global development, and so on. Secondly, you can agree that that direction must be active - not just ‘market forces’ and more than regulation but positive organisation (or at least active alignment) of its basic forces with the world’s basic needs. And finally, you can start to campaign for the truly global political system, without which any aspirations to a coherent economic system are completely forlorn.

You won’t, of course, and neither will your Liberal or Labour counterparts. Because you are, after all, a mainstream politician for whom the present system is so all-encompassing that you cannot even imagine what it is. Asking you to grasp the nature of global society is like asking a fish to point at the sea it is swimming in – obviously everywhere, but so pervasive that it cannot be conceived by any run-of-the-mill fish like you. So we all limp along, with little hope for anything but the weasel words of a well-intentioned bloke who is unable to solve the problem he is confronted with, but too immodest to concede that there is nothing he can - or will - do.

Margaret Thatcher – a re-evaluation

Driving home this morning I catch Woman’s Hour, the excellent Radio 4 programme, where they are conducting a balloon debate. The question is, ‘Who has done the most to put women on the political map in the UK?’, and the four individuals in the balloon are Mary Wollstonecraft (author in 1792 of the Vindication of the Rights of Women), Emmeline Pankhurst (the great heroine of suffragette activism), Barbara Castle (who gave British women the Equal Pay Act and ensured that the contraceptive pill would be readily available for all – perhaps the two most important changes to women’s position in a century), and finally Margaret Thatcher, Britain’s only woman prime minister.

By an overwhelming majority and to the audience’s obvious delight, Margret Thatcher is the first to be tossed out. And I think, a good thing too – it is just a pity we did not have such simple, practical solutions to her presence when she was PM. She had the unique knack of correctly identifying every important political problem the country faced, and then choosing a solution that actually made things worse. Her period in office began with her quickly becoming the most unpopular PM in British history, and ended with the British middle classes rioting in the streets of London about her wretched poll tax. By the time she was finally ejected from office (by her own party), I could no longer listen to her voice without feeling something between enraged and physically sick. Had it not been for the Falklands War, she would have been out on her ear in one of the shortest premierships ever recorded.

I must admit that the Falklands was the one subject on which I actually agreed with Thatcher. Only the worst charlatan or the greatest fool could imagine that handing over 1400 innocent people to the truly vicious Argentine military dictatorship could possibly be justified by either an 18th-century treaty with Spain or the desire to harm her government by any means possible.

Nowadays, however, I find myself increasingly agreeing with another of her ideas – and in this case, perhaps as central an idea to Thatcherism as there ever was. Am I undergoing a conversion?

The idea in question is Thatcher’s notorious dictum that there is no such thing as society. Or, more fully:

there is no such thing as society. There are individual men and women, and there are families. [Interview 23 September 1987]

At the time I had quite grand ideas about the reality of society, and regarded Thatcher as simply another Tory fool with absolutely no understanding about how society really works – definitely a candidate for a GCSE Sociology course.

Now I am less confident. And again I have Margaret Thatcher (and her associates) to thank for this. For there really is very little left of society - now that, for three decades, the other great social force Thatcher was willing to acknowledge – the market – has had its way. What really is left of society? So well done Margaret, I’m finally persuaded: there is no such thing as society. There’s just the desert you and your kind left behind. Thanks.

Are Boomers to blame?

An interesting article over at the Burning Platform site - a nicely expressed summary of the widespread sense in the USA that our current crisis is caused by Boomer fecklessness, corporate greed and other cultural and psychological failings. This is the comment I posted:

Nice article but still just a footnote to the culture-wars debate. No real analysis of capitalism as an economic system, so not likely to get to the real nub of the matter. Just as your car is ultimately driven by its underlying engineering and your driving style only affects what it is capable of in relatively small ways, so the basic rules of a capitalist system are clear and simple and all this anger about corporate greed and reckless Boomers is secondary. So are complaints about CEOs offshoring America’s jobs: if you don’t get the basic fact that globalisation is the natural expression of capitalism and completely indifferent to American interests then you are just going to be reduced to another branch of the Tea Party any day now. A capitalist economy pursues the maximum possible ROI – and that is necessarily greater than any sustainable return from the real economy. So this structural requirement for ever-increasing profit will soon cease to be met by any conceivable real economy, especially in peace-time, and the unreal economy, where imaginary values can be made to look real just long enough to cash the cheques, will start to take over. But even the financial sector is only the pure form of capitalism: _all_ sectors of a capitalist economy – including the real economy – will eventually be forced to resort to the same tricks – short-termism, unsustainable debt, insane risks, creative accounting, illusory economics, perpetual motion machines, ridiculous leverage, subsidies to the biggest and richest companies, the constant destruction of (and forced demand for more) goods and services to fight imaginary security threats, and finally just plain dishonesty. Where else are the profits in a mature, free and open economy going to come from? Well, you could try being less mature, free and open, but I don’t think that’s a policy direction any of the subscribers to this site would like much – being cheap labour and having a security-obsessed state isn’t much of a future. None of which has anything to do with Boomers or greed or other cultural or psychological explanations. They are the symptoms – along with environmental devastation, the looting of developing countries, the appalling levels of poverty within America itself, the absurd dishonesty of so much of the media and government, and much else. But they are not the disease.

Not, I suspect, very congenial to most of the readers on that site, nor likely to be responded to, but what the hell.

Dear Lloyd

Mr L. Blankfein
CEO Suite
Goldman Sachs
Tuesday, 18 May 2010

Dear Lloyd

How are you? Well, I hope. I appreciate that you must be busy these days, what with the SEC investigating you and so on, but I thought I’d write anyway – perhaps, like me, you find that a little personal news can brighten up a dull day.

It’s a lovely day here in England. Spring is well on the way, and I’m spending a lot more time in the garden these days – I can’t say I envy you all the time you must be spending in dreary board rooms!

Not that it’s been exactly a bed of roses here lately. In fact we’ve been having one or two domestic problems. I don’t think I’ve mentioned it before, but I had to stop working last November, and I’m still looking for a new job. As you can imagine, it’s been a strain, but I can’t say there’s anything special about us – several of our friends are in the same boat. I’m not sure it’s a boat any of us want to be in, but at least we are all in it together. Bit short of oars, though!

On the other hand, it helps me to sympathise with your own plight – what a shock it must have been, having your pay cut so savagely last year – from $42.9 million to under $10 million! I hope you aren’t having to make too many difficult choices. Anyway, I’m sure it won’t last - once people really appreciate what you and your colleagues in the financial services sector have done for us all over the last few years, hopefully you’ll get what you truly deserve.

And here at home, I’m sure everything will be OK in the end. My wife is looking a bit stressed these days but assures me that she’s not too worried. I’m not sure how worried ‘too worried’ is – at least she isn’t on pills yet! - but we’re OK for the moment. Our savings run out next month, but we’ve still got the children’s savings. One of her usual brilliant twenty-year plans was to put aside their child benefit each month since they were born, to make sure they wouldn’t start their working lives with huge debts from university. We had hoped to have enough put aside to get them all the way through, but I guess we’ll have to make other plans. It’s a pity – neither of them look like potential investment bankers (I guess we’ve brought them up wrong) so it will be many years before they’re out of debt.

Still, it can’t be helped. I’m only glad my wife had such foresight and we have something to fall back on now, even if it is only by accident. Otherwise we’d have to start thinking about selling the house. Now that can wait for a few months, thank heavens.

Of course, we count our blessings. I saw the other day that millions of your compatriots have lost their homes (all those sub-prime mortgages, I believe), and 31 million are now either out of work or ‘underemployed’ – a very ugly word, don’t you think? Unemployment is up here too, though not so sharply, I believe. You must be relieved that it didn’t hit the financial sector as hard as the rest of the country – it must be hard finding a good investment banker at the best of times.

It’s been a strain in other ways too. You won’t know our niece, but we’ve been trying to support her through school. She’s a lovely girl, and really benefits from being able to continue her education. But I’m afraid that that’s had to stop now, at least until I can get another job. I hope it isn’t too late – perhaps we can find some more cuts to see her through.

But the real pity is that we’ve had to stop pretty much all our regular charity contributions too. I hope you’ve been able to keep up your charity work – it’s the Robin Hood Foundation your work for, isn’t it? But what an irony – all the wonderful work you do for the poor of New York, and then to be accused of leading the rich in robbing the poor. How unfair is that?

Most of our contributions go to charities working in developing countries. They used to send us newsletters and reports from time to time, and it was great seeing how much good they do. They also made us more than grateful that we live in such wealthy countries. You probably recall the UN saying a while back that 100 million more people will be living on less than $2 a day because of this recession, and recently I read somewhere that the World Bank is saying that 50,000 more babies will die in Africa. (Perhaps you could ask your fellow investment bankers to make a small contribution there – I don’t know whether you are a religious man, but it’s doing God’s work, isn’t it?)

It must be especially galling to see the company you have devoted your whole life to being vilified so. If it were me, I’d be wondering what sense it makes to be an investment banker, when people just think you’re a con man. Look how vigorously Goldman Sachs staff are contributing to the recovery – so many of your best people right there at the top, advising your government and the banks and doing so much else.

Yet people are still ungrateful – for example, why would anyone give a book a hurtful title like Chasing Goldman Sachs: How the Masters of the Universe Melted Wall Street Down… And Why They'll Take Us to the Brink Again? There are even people who suggest that you plan to exploit the carbon trading markets to make billions – surely they can’t think you’d be so irresponsible?

By the way, we were all very impressed by the clever way your people arranged to borrow government money at 0.5% and then use it to buy government bonds that pay 3%-4% - a healthy profit for doing nothing at all! How ingenious! As that cheeky Matt Taibbi puts it, it’s ‘no different than attaching an ATM to the side of the Federal Reserve’. You must be so proud.

Well, I’m sure that’s enough from me for one day, but I’ll write again soon. Please feel free to pass my letter around to all your friends on Wall Street – we’re all thinking of them.

Best wishes

Richard

Herbert Marcuse speaks from the grave!

Having recently quoted Huxley's Brave New World on consumerism, here's an equally compelling statement of the situation, from the German philosopher Herbert Marcuse:

Tolerance toward that which is radically evil now appears as good because it serves the cohesion of the whole on the road to affluence or more affluence. The toleration of the systematic moronization of children and adults alike by publicity and propaganda, the release of destructiveness in aggressive driving, the recruitment for and training of special forces, the impotent and benevolent tolerance toward outright deception in merchandizing, waste, and planned obsolescence are not distortions and aberrations, they are the essence of a system which fosters tolerance as a means for perpetuating the struggle for existence and suppressing the alternatives.

From Marcuse's Repressive Tolerance.

Well, for people of my generation it's an interesting quote. Marcuse was one of the intellectual stars of the Left during the Sixties, so for old times' sake...

Was it caused by fractional reserve banking? Not really.

Almost a year ago, I wrote an entry in my parallel environmental blog entitled Why capitalism must expand - whatever the environmental consequences. Rather surprisingly, yesterday I received a comment, from Jerry Fox, an American engineer and blogger. His comment ran as follows:

Capitalism supported by fractional reserve banking and the artificial support of governmental bailouts does require constant expansion both to pay off the inherent interest and to delay the inflationary effects of the money supply. I hope that you are not trying to lump the great system of free enterprise which has helped to make America the envy of the world, being linked to a Constitutionally maintained money supply, to this travesty that has come to be called "Capitalism". Under the former, there is no need for constant expansion to support a healthy thriving economy along with proper concern for any environmental issues.

I repeat Jerry’s comment here because it is equally relevant to a point I have recently been considering. There is a striking difference between the diagnoses and remedies offered by American and non-American bloggers and other commentators, which, quite by chance, Jerry’s comments expresses very well.

Here is my reply, which is equally relevant to this blog:

Thanks for your comment, Jerry. I sympathise strongly with the view that fractional reserve banking has played a terrible role in the current crisis, and my impression from tracking a number of American blogs is that this is widely held to blame for the crisis as a whole. However, I remain sceptical of the idea that this is a distinct phenomenon from capitalism proper, for two reasons.

Firstly, fractional reserve banking has been a feature of financial capitalism ever since the first capitalist banks came into existence – far earlier than the fist Europeans arrived in the Americas, let alone anything specific to the US economy or constitution. It is simply a matter of risk management: although I don’t have enough reserves to cover all my commitments, I take a chance that all the chickens won’t come home to roost at the same time. And by and large this has proved a good and familiar bet – to the point where one of Shakespeare’s best known tragedies, The Merchant of Venice, which was first performed around 1596-1597, depends entirely on a situation in which this bet on fractional reserves fails.

And it was essentially the recurring failure of this bet that led to regulations specifying exactly how much reserves were required for various kinds of transaction. In other words, there was no pure capitalist system with non-fractional reserves, which was then polluted by the creation of fractional reserve banking. Rather, capitalism was always a system of fractional reserve banking, which governments, sick the regular crises, eventually normalised with formal requirements for banking licenses, specified capital requirements, the 1933 Glass-Steagal Act, and so on.

As I understand it, the issue with the recent collapses was two-fold. When markets have been massively aligned (as they were, for many reasons, over the last few years), a boom that had looked fantastic turned into a bust proved that it was all just a fantasy, because everything went up and down at once. But even more importantly, the problem with many speculations (it’s hard to describe credit default swaps as investments) was that they were not required to be backed by any reserves at all. I have seen of what would have been a large enough reserve to cover most defaults and so forestall this crisis, and none of them were very different from the standard fractional reserve requirements for more conventional loans and obligations.

You can blame a number of technical features for this – the rise of ‘mark to market’ accounting, for example. In my own view, a more profound explanation lies in the process of systematic deregulation. This seems to have been a pretty universal phenomenon – certainly rife in London, where the absence of effective capital requirements made it the most popular financial centre in the world. Other centres tended to be more reserved (as it were) than London and the various US exchanges, but unfortunately they are collectively large enough to push the planet into a financial nosedive.

So fractional reserve banking played a role in the current crisis, but primarily because it did not extend to the specific types of transaction that actually brought the system down. Not much to do with the corruption of free enterprise or Constitutionally-protected monetary system.

Al Gore, Kurt Vonnegut and the siren voices

At the very start of his 2009 book, Our Choice, Al Gore, Nobel Prize winner and darling of so much of the environmental movement, quotes the message Kurt Vonnegut suggested we should leave behind for any passing aliens who may happen upon the wreckage of planet Earth. ‘Carved in great big letters on a Grand Canyon wall’, it would read:

We probably could have saved ourselves, but were too damned lazy to try very hard… and too damned cheap.

When you have stared at our current environmental problems for long enough and marvelled at how little we seem to be willing to do to save ourselves or our children, it is tempting to go along with Vonnegut. But both he and Gore are wrong. We are not too lazy or too cheap and the solutions on offer from Mr Gore will not solve our problems. Neither the problems we face nor the solutions that will deliver us have much to do with technology or making business and governments account for the true cost of energy, manufacturing, agriculture, transport, etc., mass individual action, or any of the other things Gore advocates. Yet it is in many ways a very good book.

The real problem is not our inability to understand or act upon our present problems. It is rather that we are already committed to another way of doing things that prevents us from taking up any of the credible solutions to our environmental problems. Perhaps it’s worth quoting Aldous Huxley again here:

In the nurseries, … the voices were adapting future demand to future industrial supply. ‘I do love flying’, they whispered, ‘I do love flying, I do love having new clothes, I do love…’

The siren voices of growth, consumption, free markets, entrepreneurship and all the rest are busily pointing us in quite the wrong direction. The resources and system needed to fix our problems are under the control of processes, systems and institutions and in the hands iof nterests that would be completely undone by actually carrying the solution.

So the political powers-that-be, who have spent the last three decades abandoning the idea that the world could be a better place only if it were a different place, would have to perpetrate a genuine revolution to get us onto the right track.

Perhaps the single most important thing is to stop thinking of the problem as primarily reflecting personal selfishness (even of investment bankers). Personal actions are certainly part of both the problem and the solution, but it will only have a peripheral effect so long as we fail to also think of both problem and solution in systemic terms. Vonnegut was writing as a novelist and entitled not to be read too literally. But those who fail to understand the nature of our economic system, and the necessities and pressures it places on individuals, institutions and other systems (e.g., the entire social and political systems) are merely standing on the beach trying to bail out the ocean while the tide is coming in faster and faster.

Remember, Odysseus was forced to listen to the Sirens only because there were no other options open to him. Likewise we have few options that will in any way improve our environmental predicament - unless we change our ship and the ocean we sail. Likewise, even our most venal bankers were only following the system. Given a different system, they might not have had the option of running the ship onto the rocks (oops, different part of the Odyssey).

Danny Chivers - Poet Laureate for the Environment

If you haven't already heard of him, take a listen to Danny Chivers. His poems on the environment and on business are brilliant, enthralling, funny and biting. He also knows his stuff, being (according to azclimatechange.com) a professional carbon footprinting consultant based in Oxford with two environmental Masters degrees.

For more on Danny, go to his blog, at A Daisy Through Concrete or his MySpace page. Or watch him on YouTube. And buy his new CD. We did, and it's excellent.

Get him to your children's school, to your local climate change event, to your front room. And pay him lots - we need more people like him.

Yesterday the Financial Times reported that many wealthy countries have failed to fulfil their aid pledges, given only a few years back at the G8 summit at Gleneagles (‘Wealthy countries fail to hit aid target’, FT 17/02/10).

‘The Organisation for Economic Co-operation and Development … publishes a report on Wednesday predicting that its rich member countries will collectively give a net $107bn in aid this year... But promises made in 2005 … implied a pledge of almost $130bn by this time.’

No one familiar with the sorry history of aid can be much surprised at this outcome: we practically never do do what we promise, we take back most of what we give, and people die as a result. In fact it is more surprising that we got so close to our targets, and that so many countries are likely to fulfil their individual commitments.

More interesting was the reaction of Max Lawson of campaign Oxfam, who is quoted as saying that: ‘This is a damning indictment of rich nations, who can find plenty of money to save banks but precious little to save lives’.

Obvious enough, of course. But in what sense is this really a ‘damning indictment’? Why have governments found it so easy (relatively speaking) to save the bankers and not the poor? Is it because they are so callow that their priorities are utterly wrong-headed? Quite possibly, and we should not doubt the extent to which the largesse to bankers was the product of very deliberate political manipulation (on which, see Matt Taibbi’s excellent articles here and here).

But that does not explain why the response was quite so immediate and unqualified. That takes us to the question of the relative roles played in our own societies of aid and the banks. Aid is still perceived as a matter of charity, whereas the banking system is the very core of the global economy. If we disregard the interests of the global poor and of under-developed countries, the results are likely to be seen as ‘regrettable’; but if our banking system falls, that takes the economy with it, and the economy is the system through which we produce, distribution, exchange and consume pretty much everything we need to do anything at all – from our daily bread to all that aid, of course.

Yet it is by no means obvious that this is the full answer. In particular:

1. Why is it that the centre of ‘the system’ lies in finance, which produces only money, and not the ‘real’ economy, which produces the goods and services needed to actually do anything for real people?


2. The phrase ‘the system’ implies a neutral mechanism that somehow serves us all – as does the way I described it above. But is the economy really neutral, even at that level? Or does it in fact serve on be special set of interests, even when apparently just going about its day-to-day operations?

Answer these questions and a completely different picture emerges – a picture that makes it clear not only that we will never address the problems of developing countries with any sincerity but also that that very economic system will worsen the economic and environmental plight not only of the global poor and of under-developed countries but, in quite short order, the rest of us too.

The bad guys and the worse guys

I’m looking for a new job. Yesterday evening, sitting in a local café, I shocked my wife by suggesting that I would consider working for an investment bank (in IT, not their signature skullduggery). If you have been reading this blog for any length of time, you may will be as astonished as she was – after all this ranting and raving about the causes of the recent crisis and recession, how could I possibly be thinking of working for such dreadful people! What a hypocrite!

Maybe. But the answer is, the investment banks are indisputably the bad guys, but where are the good guys? Haven’t you ever worked for someone who was doing some good, my wife replied? Someone who treated their staff well and was doing something socially useful (as opposed to the irredeemable social parasitism of the contemporary investment bank)?

Not really, I answered. Well, it’s not that they are all relentlessly evil, but rather that all their benevolence seems to stem from the single-minded desire to maximise profits. And if you had to be nice to people to achieve that, then you were damned well nice to them. And when it becomes more profitable to treat them like dirt, that too will come to pass.

Nor are personnel policies the only issue.

• Some years ago I was working for a major testing consultancy. It collapsed as a result of the .dotcom debacle. And then the fun began. Within a few months we were hearing fascinating tales about the board being investigated by the FBI and our own ex-CEO being highly sought by some quite undesirable company that wanted a word about their relationship.
• More recently, I spent some time with a major UK supermarket. Their employees told me that they were pretty good to work for – but as soon as you found out anything about how they exploited their suppliers, you’d realise that this was not out of unqualified benevolence. And so on. It’s the norm – companies are indeed becoming more benevolent, but only a) where they have to, and b) it’s the price they pay for extracting more and more high-level value from the employees – you only give potted plants to the ones who need a comfortable environment in which to work effectively.
• Or going right back into ancient history, when the creative accounting practices used by Arthur Andersen at Enron came to light, I seem to recall that the reaction of many people in the City was ‘Why couldn’t you do that for us?’

So in a sense they are all the bad guys – that’s what it means to be in business. True, some are truly beyond the pale – the tobacco companies, for example, or arms dealers. But investment bankers? Given how the average company uses its ‘treasury’ operations (i.e., lending cash, buying and selling derivatives, etc.) to boost its profits, they were colluding with Morgan Stanley, Lehman and a rest. They weren’t very clever about it – most of them were caught out – but that doesn’t make them less culpable.

Conversely, the investment bankers aren't breaking the system - on the contrary, they represent its apotheosis.

So perhaps I’m making the wrong distinction – there are bad guys, and there are worse guys. The worse guys seem only to be a little smarter and little more determined than the not-quite-so-bad guys, but fundamentally? I’m not sure I can really tell the difference anymore. I’d love a job with the good guys, but I have no idea who they are.