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Wednesday, February 20, 2013

Volatility Vanishing from Markets: After Neoliberalism

Posted by on Wed, Feb 20, 2013 at 8:02 AM

Where has all the volatility gone? Why has the market become so stable for so long? It's all such a mystery...


Let's get this straight: Volatile markets are not bad for all. The question to ask, then, is: Who thrives in a volatile market? Once this is determined, you can ask: What kind of politics do they represent? It is known for sure that economic growth during capitalism's Keynesian golden age, 1947 to 1973, was very stable. It is only during the neoliberal moment, 1973 to 2008, do markets become highly unstable and prone to crashes. Yet, economic performance under the market orthodoxy of neoliberalism was actually less impressive than under the golden, social democratic moment (see the connection?). With this in mind, we might be able to see what post-neoliberalism looks: It's Keynesian economic stability but sans its social benefits or democratic programs. The rich are getting Keynes and the poor neoliberalism.

 

Comments (11) RSS

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1
I'm not sure why Charles thinks the ascendance of neo-libralism began in 1973. Oh well, it's as good a date as any I suppose.
Posted by Ken Mehlman on February 20, 2013 at 8:49 AM · Report this
2
Another important question is 'what is causing the stability?' It seems to be related to the Fed's quantitative easing policy, which is essentially printing unlimited money and handing it over to major financial institutions with the goal of producing confidence in the economic order. We're talking about massive relative wealth reallocation (because the sum of all money should hypothetically equal the some of all available goods) with the goal of creating stability. It's trickle-down economics, plain and simple.
Posted by Tent_Liberation_Army on February 20, 2013 at 8:53 AM · Report this
3
@1 That was the year Nixon took America completely off the gold standard.
Posted by Tent_Liberation_Army on February 20, 2013 at 8:54 AM · Report this
CATSPAW666 4
I blame whoever tried to teach Charles' son to knit, and the nefarious increase in the number of kitchens, myself.
Posted by CATSPAW666 on February 20, 2013 at 9:25 AM · Report this
pfffter 5
Oh sweet baby Jesus, use spellcheck for the love of all that is holy. It is "volatility," not "volitility."
Posted by pfffter on February 20, 2013 at 10:47 AM · Report this
6
Of course, Mr. Mudede is stating what should be obvious to all, and exactly why Adam Smith (ya know, the author of Wealth of Nations) was thoroughly against market speculation -- as Keynes also became towards the end of his career.

Speculators are all about destroying markets, rigging markets, financial manipulation, making money off of money off of debt, ad infinitum, while producing nothing other than unwarranted economic and social destruction.

The Act of Predation


Once more, as there is a never-ending flow of misinformation and disinformation out there, this is a brief synopsis of the cause behind the global economic meltdown, and the continuing deleveraging against us. All this information is public domain and easily accessible.

The chief two main, interlocking causes are ultra-leveraging and the largest insurance swindle in human history.

Please recall, AIG had to be bailed out or Hank Paulson and the Bush (and later Obama) administration claimed everything would collapse.

Why did AIG have to be bailed out? Because they sold $460 billion of (unregulated) insurance, with the potential payout of from $20 trillion to over $40 trillion --- none of which monies they had on hand, naturally!

Now who were to receive those payouts? JPMorgan Chase, Goldman Sachs, Morgan Stanley, Citigroup, Bank of America, Deutsche Bank, UBS, Credit Suisse FB, etc., etc., etc., and various and sundry hedge funds.

Take for instance John Paulson and his hedge fund, which got together with Goldman Sachs and contrived various fraudulent financial instruments, CDOs, full of the crappiest loans possible, designed to fail, for which Paulson, and Goldman Sachs, purchased tons of unregulated insurance from AIG (credit default swaps) at $1.4 million apiece, with a payout of $100 million apiece, when the CDO failed (or a credit event occurred). The example investigated by the SEC, which fined Goldman Sachs a paltry amount for their financial fraud, was the Abacus CDO.

This was how Paulson "earned" that $3.4 billion --- financial fraud is financial fraud: if some dastardly fellow designed and inserted a "loophole" to make murder legal during the month of May, then proceeded to murder all the people in his neighborhood, that wouldn't be moral or right, no matter how "legal" the newsies and corrupt politicians claimed it to be.

So to this was all contrived and designed financial fraud. That was exactly how the people at Magnetar Capital made billions, while 96% of their deals went bad.

And many, many other hedge funds, banksters, derivatives dealers and traders, etc., profited from this mass financial fraud.

The ultra-leveraging? That was how they pumped up all those credit derivatives --- or securities based upon debt --- but in the past decade they sold credit derivatives, based upon credit derivatives, based upon credit derivatives . . . ., based upon debt. The pyramidal layers were almost endless.

And that was how the various insurance swindles were realized, all those phony layers of leveraging, or ultra-leveraging, had to fail --- were designed to fail --- and the unregulated insurance (or loopholes by design) "legally" had to be paid out, which is where the Federal Reserve and US Treasury came into the picture.

Please understand, that an unlimited amount of unregulated insurance --- or an unlimited number of credit default swaps --- can be purchased by entities having no direct connection to the financial instrument (such as the Abacus CDO) in play --- similar to someone having no connection to your house, purchasing thousands of insurance policies against it --- then burning it down had receiving a colossal fortune from the insurance companies --- from the destruction of your home!

Add to that the use of that ultra-leveraging for massive speculation on energy/oil, food commodities, various other precious metals, etc., ad infinitum, and the market churn, and transfer of wealth, became historically unprecedented: a gargantuan replay of the Great Crash and Great Depression, with far longer and wider-ranging outcomes.

If you don't know what caused the economic meltdown by this time, and are still uncertain of who should be in jail, or executed, consider yourself a complete and total moron!

http://www.occ.gov/publications/publicat…
More...
Posted by sgt_doom on February 20, 2013 at 10:48 AM · Report this
7
Charles makes enough sense that I wonder how he's still at The Stranger. Whatever you do, DON'T get him and Constant into the same room. The reaction would make the Russian meteorite look like a pot of boiling water: "But Obama's plying seventy-eight dimensional checkers...Socializing the costs and privatizing profit...His interesting choice of cabinet hardware and furniture wax...Trillions in bailout money." Poof. No more Sasquatch or Bumbershoot. For the love of Gawd, DON'T DO IT!

@1 Also consider that the peak of American living standards is considered to be 1974, about the same time that Samuel Huntington's "The Crisis of Democracy" appeared to counsel the 1% how to beat it back. Neoliberalism really got started in the last half of the Carter Administration with the deregulation of airlines and trucking, and spiraled out of control from there.

@sgt_doom I don't entirely disagree, but it's a comment thread, not a dissertation committee.
Posted by Che Guava on February 20, 2013 at 11:04 AM · Report this
8
It has been said, never confuse an ever rising DOW with genius, yet that, of course, is what happened in the 00s.

Posted by Supreme Ruler Of The Universe http://_ on February 20, 2013 at 11:31 AM · Report this
9
Sweet! Nice one Charles.

In that spirit, here's a comment on the coming fracking/natural gas bubble:

http://digbysblog.blogspot.com/2013/02/f…
Posted by cracked on February 20, 2013 at 11:32 AM · Report this
Pope Peabrain 10
Oh, yes, let's all believe the markets are too big to fail and invest our futures. That's worked out so well in the past. This is more of "the end of history" delusion.
Posted by Pope Peabrain on February 20, 2013 at 11:43 AM · Report this
12
@7, Che,

The facts aren't concerned with whether you don't entirely disagree or agree, the facts remain the facts, sonny.
Posted by sgt_doom on February 21, 2013 at 10:10 AM · Report this

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