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Archive for October 2008

“Market” Failure

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One of the most predictable charges caused by the current banking failures is that the crisis is due to unregulated markets and “market fundamentalism”. Because of lax government oversight, investment banks were able to design nefarious scary financial instruments, filling the pockets of overpaid bankers while endangering everyone of us with their financial alchemy. Therefore, these practices should be banned and this was a clear case of the market coming up with stuff that is dangerous for all, thus: market failure.

This charge is understandable. However, it is false, because it assumes the current system was a “free market” system. Certainly it wasn’t. The non-market factors that lead to the crisis:

– The existence of a federal reserve with government mandated currency, the fiat dollar.

– The existence of a banking system based upon rules set by the government, handling this government created fiat dollar. The existence of fractional reserve banking, whereby deposits and withdrawals are hugely amplified in times of crisis is key here. However, presumably that’s why we have a Federal Reserve in the first place: to prevent a crisis of withdrawals occurring in a system that inherently gives rise to these withdrawals. Interesting.

-The existence of financial institutions besides the regulated banking sector coming up with legitimate innovations, but misused by the REGULATED banking sector. They used these instruments while they were supposed to have minimal capital requirements. Rating agencies who provide these ratings (which only the government regulated sector cares a damn about, to satisfy their regulatory requirements) hugely misjudged these instruments.

– Fannie <ae, Freddie Mac. Government forced loans to people who cannot afford them, on a tremendous scale . A federal reserve printing money, providing cheap loans, causing a boom in the asset where these cheap loans went (housing), accelerating the bubble, and worsening the eventual bust.

– The existence of a government happy to put tax-payer money in any place of the above, because the whole ridiculous system is now “too big to fail”.

Finally: A bunch of socialists calling this system the “free market”, calling the failure of this grotesque sick government mandated horribly unstable system “market failure”, and basically calling any classical liberal a fascist and profiteer and ideologue.


We now live in the USSA, where there is socialism under the name of capitalism, which is happily blamed by the left-wing university indoctrinated population, and with the defenders of liberty unable to explain the difficult mess, leading to even worse socialism. Lenin and Marx couldn’t have designed a better Orwellian paradox themselves.

What is the alternative then? The seventeenth century Dutch Republic, the United Provinces, provide some lessons.

The foundation of the new system should consist of heavily regulated and controlled 100% reserve “deposit” banks that serve as “girobanks” to transfer money. The money should be a commodity-money, perhaps best a commodity-basket of Gold, Platinum, or what have you. This would be a risk free storage and transfer facility. At market rates this bank will provide currency-exchange at cost.

Whatever springs up besides this core is irrelevant. There will always be risk and uncertainty, since we are mortal human beings proceeding through time and an unpredictable changing space, giving rise to an uncertain future. This uncertain future people will try to anticipate and people will make financial (amongst other) bets on this. The total of this future-market will make us adjust our current behavior as least worst as possible to future predicted circumstances.

There will be investment institutions that should be forced to display the amount of value in their vaults or wherever it is. Accounting takes care of that. People will serve as a check on whether to put their money in these institutions, and will bear their own risk. These investment institutions can do deals with each other in any way they want — the public will choose investment institutions that match their risk/reward ratios. These institutions will in no way have anything to do with the central bank. Calling them an investment “bank” would be very very wrong.

There will be lend-borrow institutions that simply match lenders and borrowers, who will assume their own risk. Nothing fancy here.

There will still be mistakes made, and money lost, and there might still be huge systemic misjudgements. But there is no way to improve upon that. If there was, if someone somehow knows better than individuals doing what they think is best for them, it would be a dictatorship. Regardless, people will know where their money is, the tax payer will never be used in a bailout, and systemic risk will be as low as is possible.

There will be market “failures”, as humans are fallible. But having people bear their own risk will minimize failure.

We need to separate the two functions of financial institutions. 1)Transfering, storing and safekeeping of value. and 2)placing value in a risk/reward position that you prefer over the safety of 1).

Mixing these two up, with a nice big government hugging us to death from behind, (too big to fail?) will mess us up< REAL GOOD.

Even better when it’s left-wing obama-buddies Franklin Raines and James A. Johnson timing the revealing of information to coincide with the election-campaign’s last stretch.

Written by cultured ape

October 21, 2008 at 2:58 am

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Wisdom from the Soviet Union

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Written by cultured ape

October 19, 2008 at 5:49 am

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Nassim Taleb.

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Down with the tie-wearing economists, the overpaid liars and charlatans of wall street, the jargon using peabrains, the “policy” makers, those talking about “institutions and the global economy”, and stay OUT of our lives, get RID of the federal reserve and all its offshoots, 100% backed gold standard, out with fractional reserve banking, get RID of 90% of the federal government, and get back to the job of protecting us from barbarians within and without our borders. That especially includes Ben “crashed helicopter” Bernanke and Demented Paulson.

Down with the regulators, corporatist crooks, socialists, and other traitors to American liberty. Recall the military and give the socialist/corporatist cities a good clean wiping with our honorable combat brigades.

Written by cultured ape

October 12, 2008 at 10:30 pm

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Our shield against nature.

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Taking a look at the world’s largest companies one thing hits home. This is it. This is all that stands between us, the defiant and determined shapers and creators, and violent attacks upon us by nature and superstitious, destructive, and jealous man. These are oil companies that extract and provide the fuel to propel our bodies through space and transport our foods and tools to each other. These are pharmaceutical companies that invent complex medicines in lifelong projects to prevent our bodies from decay and constant attacks by a violent nature, to heal wounds sustained by attacks of enemy humans and natural catastrophes, or perhaps even halt the process of natural aging. These are engineering companies, that design and construct the rolling, flying and floating vehicles that safely transport us and our tools through our hostile environment, while lighting our environment in the dark night. These are food companies, that produce the foods that sustain our bodies and give us our vital energies, that experiment with the foods to make them as pleasant to us as possible. And yes, these are also financial companies, that direct our currency units of abstract value around and coordinate and search for the highest possible values through space and time. These last companies are currently our weakest, because they are inherently extra unstable, since not only the value units are manipulated through fractional reserve banking, government fiat money, and a central bank with regulators, but also they are still stumbling along, discovering optimal processes as we advance through time adapting to an ever-changing environment.

The financial sector should be our ultimate tool, where value is directed toward optimal risk-return projects, trying to predict the small invisible hands of the consumers and using a firmer, stronger hand to guide the flows of value to where they are best situated to deal with future demands. The best brains take accumulated wealth, and guide and handle it in such a manner that they will profit from it and through their profits serve to stabilize and secure our larger system of emergent order. Now, however, this system is driven to collapses by its inherent instability because of government meddling. The system would occasionaly fail in its predictions if left alone by government, and on a stable commodity currency with consumers keeping a check on the value of the deposits and loans, which would also be separate functions clearly delineated in contracts, but currently because of the immense added uncertainties because of government enterprise upon, within and flanking the system that is most vulnerable to it, because of the natural interconnectedness of the now unpredictable value-units, the sheer size of failures taking place threaten to undermine the larger culture of property rights, production and invention within a larger order of competing and enterprising human animals.

Our tribal striving for recognition, our attraction to combat and physical competition, our world of scarcity, our superstitious universe-views, our jealousies and group-tendencies, our lack of knowledge in the face of the immense uncertainty we daily confront, and ultimately our nature as mortal animals requires that we channel this violent internal and external nature into a relatively benign quest for progress driven by a process of creative destruction and competition.

This is the promise of Western Individualism. Keeping our independence within a highly interconnected and evolving system we barely understand, emerging out of a ruleset we did not design, and maintaining our spirit of continuous, coordinated attempts to conquer our vulnerabilities and temporarily fortify and expand our position as cooperating individuals untill we eventually all succumb to the never-ending entropy of our hostile universe.

Written by cultured ape

October 7, 2008 at 10:19 pm

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The “market failure”

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Says Sarkozy:

The idea of an all-powerful market without any rules and any political intervention is mad. Self-regulation is finished. Laissez faire is finished. The all-powerful market that is always right is finished.

Socialists of all stripes are of course rejoicing at the current bail-out antics. Unfortunately for them, it is yet another nail in the coffin not of the market, but of the idea of a “third way”. There is no third way. Central Banks + Fiat Money + Fractional Reserve Banking + Government Regulating + Government Subsidizing + Socialist Redistributionism through semi-market Institutions = recurring financial crises.

It is beyond me how anyone could call government-controlled money supply and a heavily regulated fractional reserve banking system with unregulated investment banks jumping in the gaps “laissez faire”. Unless you call letting government fuckups continue indefinitely “laissez-faire”, or perhaps, the unfolding of events in the world without ever increasing government power “laissez faire”.

The market does fail in one regard though: It does not understand itself and it is unable to defend itself. It is too decentralized to present a powerful defense, and the government-bureaucrat union members of the academic world nor the big business crooks are up to the task. The playing field is open for left-wing demagogues to take control. The 21st century USSA are one step closer.

Written by cultured ape

October 1, 2008 at 2:21 am

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