The nature of modern capitalism is very clearly revealed this morning, in this chart:
Most of Friday's stock exchange losses have been recovered this morning. And why? Because the markets believe that the coronavirus scare has now got to government, and that they will now bail out markets in the event of it developing further, meaning that it's time for stock exchanges to take private profit at public cost yet again.
I was preparing a talk on capitalism on Friday. In it I noted that capitalism is claimed to be a system for organising the economy that prioritises:
- The private ownership of the means of production;
- The market as a mechanism for allocating resources;
- The upholding of private property rights;
- A minimal role for the state consistent with the above.
Except, as I went on to note, that is not what modern capitalism is. Modern capitalism is a system for extracting value from others, and most especially the state, which it captures for this specific purpose.
We really should not be doing this again.
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I’ve pointed this out previously. A number of the disaster capital hedgies co-ordinated to choose their moment to generate a bit of panic and then profited handsomely. The question is: how can they be brought to heel? And effective transnational governance seems to be only answer – and it may require some form of capital controls. But those who most need it, don’t realise they need it and, as a result, don’t demand it. And the captured governments most certainly won’t supply it.
The ‘success’ of QE in further enriching the already wealthy with close to zero public interest in the process and minimal media coverage guarantees that it will be repeated over and over until it becomes politically damaging.
Short, sweet and DEADLY accurate.
Money for the rich.
‘Eff all for the rest of us.
This is how sovereign states end.
What alternative system do you propose?
State-regulated markets
I have no problem with markets
But let’s not pretend that they self regulate or produce optimal outcomes
They don’t
OK, ‘Liddle towers’ ask yourself this.
How can a system that allows a financial instrument/derivative such as a ‘credit default swap’ (CDS) exist be expected to regulate itself?
CDS’ work like insurance, except in legal and ethical high street insurance you can only insure what you own; in terms of derivatives in the financial sector ANYONE can take a CDS out on someone else’s financial investment and get a pay out if it fails. Investment bankers will make one for you. True, you have to pay the premiums until it pays out. But there is way around that.
Crispin Odey (a financier) has apparently taken out CDS’ on firms that face disruption from BREXIT. He also financed Boris Johnson’s leadership contest. The ‘unseen hand of the market’ is now reified. Basically the pay out is actually being engineered by hard BREXIT and nobody seems to give a shit. What sort of society allows this?
Who is to say that there aren’t people in the financial sector right now this very minute betting on the country going to the dogs now because of Coronavirus or flooding by using CDS’? And what of a Government that has received campaign contributions of millions of pounds – who might be reluctant to alter the prospects of some of their donors making huge amounts of money out of other’s misfortune by helping people?
Impossible you say? No – it’s the awful truth. This is part of what happened in 2008.
I tell you what, I’m not going to be legitimising our politicians by voting anymore until stuff like this is dealt with and made illegal. This is madness. People making money out of misery. It’s gone too fucking far.
The derivative market is regulated..
the derivatives market is indeed used for hedging/ insurance (so protecting what you own) and for speculation. Akin to the 2.30 at Newmarket and joe public punts on this without being the owner of a racehorse.
Not defending or criticising the world of derivatives, it is what it is, just straightening things out.
“True, you have to pay the premiums until it pays out. But there is way around that.”..No idea what you mean by this..if you know how to avoid paying premiums, akin to a free bet, then you’re on to a good thing!
The derivative market is regulated….
That depends on how you define regulation
I guess the major problem is the galactic stupidity of the argument that because there are times when markets do not produce optimal results (although someone of amoeba level intelligence would then ask “optimal for whom?”) therefore markets never produce optimal results. So I am unhappy about the pound of oranges I bought from a stallholder this morning? I feel diddled? What happens when “State regulates markets” don’t produce “optimal” results?? Or don’t tell me they always will..
Have you ever encountered an unregulated market?
And don’t tell me drugs – because their very illegality frames the market
And your oranges are, of course, regulated too
Surely the best example of state regulated markets was Cuba. Price controls and all sales through the co-operatives, and nobody starved to death or got rich from exploiting shortages. I think it’s changed a bit now since I lived there and I think you’re no longer punished for growing vegetables and selling to your friends.
Peter
You know that is crass
The UK only has state regulated markets – but many of them need better regulation than they have
Richard
Arif
Sorry – I wrote badly.
In order to stop paying the CDS premiums and get the result you are after (a huge profitable pay out), you do exactly what the like of Crispin Odey does – you make the calamity you stand to make money out of happen sooner, before the CDS premiums eat all your capital. He has done this by backing and supporting Johnson’s BREXIT administration. That to me is going too far and shows that derivatives are still too under regulated.
It is now well know that when Goldman Sachs and other investment banks sold what they knew were toxic assets to investors, after the sale they took out CDS’ on them so they would get payout when they knew they would go wrong.
The CEO of GS at a congressional hearing said that he did not see anything wrong in this and called it simply ‘market making’.
It’s the equivalent of someone selling you a ropey old car, and then betting on it breaking down because they know it will.
C’mon Arif! Find you humanity!! It’s just not on. Why should it be any different for the financial sector?
It’s straightforward insider market manipulation. ‘Free market’ – my arse!!
The FTSE 100 may have rallied a bit this morning but it fell away in the afternoon. Closed at 6655, up 75 on the day, but still well down on the 7400-7600 post-election plateau from 13 December to 21 February. I would not be surprised to see it slide again later this week as the bad news continues, as it must for at least a week or two, but probably longer.
I agree
So if you agree, then your whole article is just bait? Which way is it old ‘I’m too good to get an article peer reviewed’ boy?!?!
What sort of nonsense are you talking?
For a start, have you noticed how many peer reviewed articles I have had in the past year?
If you’re going to be rude, do keep up
The Dow Jones rose substantially yesterday but is still significantly below where it was just a couple of weeks ago. That said, there are still large gains over the last 3 or 4 years.
The FTSE also rose this morning but has a long way to go to recover the losses in the last few weeks.
The warm words (and the reappearance of some semblance of government) are obviously helping to calm the markets, but this is going to get worse before it gets better. The next test will be “show me the money”.
Richard
Investors are struggling to interpret what the changing news flow about coronavirus, and about policy responses to it. mean for future corporate profits. The result is financial market volatility (as I write this the FTSE is at about 6810, which as you point out is a long way off the bottom, but also a long way below where it was a couple of weeks ago).
there’s no doubt that after the fact, it will be clear that at various stages the market got it ‘wrong’, and that some investors will regret the trades they did.
It seems to me that while I’m sure it’s difficult, if you can see your way through the market noise to the eventual ‘optimal’ outcome, this offers you a double opportunity! By trading in the markets yourself, and making money off the less farsighted investors, you would demonstrate the truth of your assertion in the most compelling way; and the money that you made would allow you, rather like Mike Bloomberg, to pursue your wider policy objectives, without the need to raise money from other sources with all the compromises that that inevitably entails.
How about it?
Any concern for those who might suffer?
Is this just a trading opportunity?
Really?
Richard
Coronavirus is/will be unpleasant for many, and lethal for some. I hope that we’ll all do our best to help out as we can.
But your focus here is on markets getting things wrong, and I was suggesting a way for you to demonstrate the truth of this, and your greater insight.
If your concern is for those investors who might suffer as a result of dealing with you at the ‘wrong’ price, you shouldn’t worry. In practice many of them would be investment banks etc, who can afford it. In any case you will be doing all investors on the other side of the trade a (small) favour by getting involved. (If someone’s decided to sell, at what will eventually prove to have been too low a price, at least you will be buying from them, rather than forcing them to take an even worse price from someone else.)
Hope this helps.
Not a lot
Hmmm. seems this post seems to have attracted a couple of smirking idiots that don’t seem to get the point – with the point being that their precious market is casino of parasitic, rent-seeking idiots that produce nothing, clip the tickets of those that do, fall to pieces at the slightest reason for panic and then expect a bail out.
In the absence reason for panic their house of cards will fall to pieces of its own accord every 10-15 years regardless.
And then expect a bailout.
Did I miss something?
You missed nothing
Has anyone mentioned hedge funds investing in social care for older & vulnerable people?
no
But I know they do