Bankers and Politicians a threat to society

Democracy and Capitalism share a common trait that is turning them into a problem and a threat to society. And the common thread is their short term focus which itself is a function of the prevailing world-view and the systems, laws and institutions that represent it.

This short term perspective allows both politicians, banks and other corporations to profit in the short term by “legally” stealing from the future. The losers are the general public.

If you wonder why Governments around the world have been bailing out banks rather than bailing out tax payers the relationship between Goldman Sachs and the Greek government is a good case study.

In 2001 Goldman is purported to have made a $300m profit on a deal it structured for the the Greek Government that allowed it to legally side step European Union rules on debt and deficit ratios. And as late as November 2009 a team from Goldman apparently arrived in Athens with another similar deal.

The New York Times has a good story with more details titled – Wall Street Helped to Mask Debts Shaking Europe

Gikas A. Hardouvelis, an economist and former government official who helped write a recent report on Greece’s accounting policies encapsulates this succinctly – “Politicians want to pass the ball forward, and if a banker can show them a way to pass a problem to the future, they will fall for it”

Where does this leave the average citizen? Neo-classical economists are in denial of the fact that economic growth is dependant of new debt rising faster than GDP. They are even in denial of the role that credit plays in economic growth.

With the general public and business at debt saturation levels the reality of the bankruptcy of the the capitalist model and many states has been hidden temporarily by governments who have taken up the role of providing the new debt required for economic growth. This is simply putting of the day of reckoning and setting us up for an even harder landing.

And you probably don’t have to guess to hard to work out that their accomplices that are facilitating this – and making big bonuses for doing it – are none other than the banks.

It is no wonder that the Tea baggers in the USA are a growing movement. I expect that similar movements will gain is strength across the world as the economic situation inevitably declines. The public is losing trust in its politicians – democracy is under threat.

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Our debt time bomb is ready to go ka-boom Paul B. Farrell – MarketWatch

Our debt time bomb is ready to go ka-boom Paul B. Farrell – MarketWatch

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Bad news – 20 reasons why Depression 2 is just around the Corner – Good News from Carlota Parez is that it is part of a cycle which ends in a “golden age”

If you think we are going to escape another great depression I suggest you take a read of  Paul Farrell’s article at Market Watch titled “20 Reasons Global Debt Bomb explodes soon -which trigger will ignite Great Depression 11”

Yes, 20. And yes, any one can destroy your retirement because all 20 are inexorably linked, a house-of-cards, a circular firing squad destined to self-destruct, triggering the third great Wall Street meltdown of the 21st century, igniting the Great Depression II that George W. Bush, Ben Bernanke, Henry Paulson and now President Obama have simply delayed with their endless knee-jerk, debt-laden wars, stimulus bonanzas and bailouts.

So how do we make sense of this and what can we hope for after the meltdown?

One of the best pieces of analysis I have seen – and without a doubt the most positive – comes from Carlota Parez – Author of  Technological Revolutions and Financial Capital: The Dynamics of Bubbles and the Golden Age.

She has seen this all before – the financialisation of the economy, asset price inflation bubbles fuelled by speculative debt and ultimate crash – not once but 4 times since 1770. In her opinion we are half way through a 5th cycle that is following the same dynamics as the previous four cycles.

If she is right – and we have sufficient energy and an ecosystem to support us – we should emerge from this in what she calls a “golden age” of wealth redistribution off the fruits of the infrastructure investments made since 1971.

But we need the crash first and we will need to see re-regulation of finance and the end of the belief that the value of the stock market equates to economic growth. And by the by – for all of us in Australia who still believe that house prices will continue to go up for ever – and its somehow different here – she predicts that house prices will once again become affordable.

Apart from her though leadership interview, there is an excellent slide presentation of her ideas of the golden future of growth after the crisis at slideshare .

You can also listen to an mp3’s of her talks and videos – there are links to these at her website

Carlota Perez: The Thought Leader Interview

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The Common root causes of sickness in Bees and Humans – are we both headed towards the same early human caused extinction?

The BBC has an interesting article today that links the decline in bees in many countries to the decline in biodiversity. I agree with the article and have a further take on the subject.

Shock horror – bees are getting sick for exactly the same reasons as humans – they are eating a diet and getting stressed in ways that their systems weren’t evolved for – and the cause is the modern human environment, diet and lifestyle.

Just as we are increasingly eating a diet of processed sugars and carbohydrates – that come from fewer and fewer food sources so are the bees.

Note: Processed and reconstructed variations of corn and soy make up an increasing component of the diet of humans and animals, and this includes bees. One of the ironies is that bees have access to a more diverse diet in cities than they do in the country side – there is now more plant diversity in cities than in the modern farming countryside.

Bees no longer live in stable environments. The bee industry has been commercialised. Bees are now dragged all around the country in trucks to service different farms. This constant change and travel causes stress in much the same way as we humans are stressed by changing jobs, work environments and constant travel. And it should be no surprise that chronic stress weakens their immune systems in the same way as it does ours.

And, to supplement their bland diets and increased workloads, commercial bees are fed simple sugars in much the same way as we feed ourselves sweets, sugary drinks and coffee to keep ourselves going.

The problem for the bees, and poor humans, is that they don’t have choices like the well off humans do. Their environmental choices are set and limited by the environmental conditions created by the wealthy humans who own the businesses that create these environmental conditions and employ the less well off.

The bad news for the wealthy humans is that they are shooting themselves in the foot. If the bees die off the human species will die off too.

The downside of being at the top of the food chain is that we humans are dependent on the survival of the species lower down the food chain for our survival.

While the wealthy have the option of escaping climate change and environmental damage in the short run, by moving location and putting on the air con, the species on which our survival depends do not have this luxury.

99.9% of species that have been on this planet are extinct and we are now in the midst of the 6th great extinction. And this extinction is being caused by us humans.

Alan McCrindle

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One Structural systemic cause of the GFC – a shift of share ownership from individuals to institutions

I am a great believer that if you know how a system is structured you will be able to predict how it performs in different environmental conditions.

As the chart below indicates there has been a fundamental shift in who owns shares in the USA over the last 50 years.

Prior to the start of financial deregulation – which really started with the removal of the constraints of the gold standard in 1971 -shares were predominantly owned by individuals.

There has been a large structural Shift in share ownership in the last 50 years

The majority of shares are now owned by institutions who hold them on behalf on individuals. These institutions compete with each other to deliver the highest returns. Performance is measured by the quarter and Funds managers are similarly rewarded for short term performance – but with zero claw back of performance pay if performance subsequently declines.

This leads to herd like behaviour by the institutional funds managers. If the market starts going up – like right now in December 2009 – they need to be in the rising market otherwise they will be left behind in the performance tables.

It does not matter if these funds managers know that the markets are overvalued and likely to collapse some time soon. If and when the markets collapse they will once again be able to claim deniability – “we couldn’t see it coming” will be the cry. Fund managers will point to the fact that all the other funds were doing the same – how can they be blamed for not seeing when they are doing the same as everyone else. There is safety in the herd.

If you want to know where high CEO pay came from, part of the answer lies in institutional share ownership.

As for the gambling behaviour of the Banks – this too took a jump when Investment banks shifted from partnership to public ownership. Who in their right mind would risk leveraging 40:1 with their own money?

And right now the situation is even worse. Banks like Goldmans are reporting big profits but these are coming only from trading. The same pattern is in the other banks. The only place they are making money is by high frequency trading – leveraged trading using other peoples money. This in itself is driving up the share market.

And when the markets crash and the banks suddenly look sick again it will be high street on the hook again to bail them out. They have now become too big to fail and they know it. They can do anything they want and get away with it.

And this is supposed to be Democracy.

Alan McCrindle

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A person or system that avoids making mistakes avoids learning

In today’s online Economist there is an article titled “Analysis Catalysis – Designers think that they can teach MBA’s and philanthropists a thing or two”.

While design or systems thinkers could try to teach MBA’s and philanthropists a thing or two it is unlikely that they will learn or act on it.


Well, why do we still have so many M&A’s when research shows that more than half of them destroy value? Could it be that the incentives for both CEO’s and Investment bankers reward this sort of short term activity irrespective of its long term efficacy?

On Balance research shows that M&A destroys Value more than it creates it

We live in a world where the systems that we use to measure the performance of our economy and our institutions is short term focused and reductive. For example, GDP increases when we destroy value. We destroy between $1.5 and $5 Trillion of forestry ecosystem services every year – more than the banks lost in the GFC – but none of this is factored into the way that we measure success.

There is little to no recognition of the inverse relationship between efficiency and resilience. As a result we run down our resilience and destroy our future prospects for short term efficiency gains. And that is what people go to business school to learn how to do – how to extract short term gains out of the system given the prevailing rules. In addition an MBA provides a badge that proves that they are compliant “in-the-box” thinkers that know these rules that define the box.

Systems thinking only really works when we factor in the unmeasured relationships and linkages between things that reductive analysis can’t objectively measure or ignores because it isn’t part of the prevailing “rule system”.

Systems or design thinking is therefore not only a qualitatively more complex and integrative way of seeing the world that of the dominant reductive scientific paradigm – but it also has neural correlates – the brain is wired differently. The neurons have more connections with each other.

Using the Keirsey interpretation of Myers Briggs Type Indicators  for example, Designers are “perceptive and Intuitive” types (ENTP or INTPs) who are comfortable with uncertainty and complexity . People who do MBA’s are more likely to be “judgement and intuitive (ENTJ or INTJ) or sensory types (ENSJ)“.

Systems thinkers are relative misfits in our modern world. Their world view is too complex and integrative to be valued by our dominant reductive measurement systems. While they might be able to come up with ways to save humanity from itself, these ideas will wither until society comes up with feedback systems that include the “hidden” linkages and support that the enlightenment world view is ignoring or destroying.

The Economist wrote a great piece titled “How to Change the System – in praise of Russ Ackoff” on the 3rd November 2009.

One of Russell’s key insights is that our schooling system – with its focus on avoiding mistakes – ensures that we minimise our chances of learning and being creative. After all we can’t learn from repeating what we already know. We learn from mistakes. A person or system that avoids making mistakes avoids learning.

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