Here We Go Again

We are back to the insanity of 2008/9 multiplied by 500% for what was essentially a global shutdown orchestrated by the elites, ie; those at most fear of loosing their lives, billionaires, politicians and the like, while around 6 billion people are left loosing their businesses, livelihoods and putting about 20% of these right back into poverty, reversing the well orchestrated false lifting of the bulk of them out of poverty over the last 30 years... My thoughts are below:

I have been thinking of the last 2 years where our "front line" emergency response people around the country were steadily being supplied Naloxone to keep overdose cases alive and rubber gloves to prevent any skin exposure to the chemicals they ingested that if improperly handled could kill a first responder... Yea, 75,000+ OD's a year by 2018 with a small decrease in 2019 mostly to the emergency response being able to jolt people back in the world of the living... Very little mention of the 70.000 alcohol related deaths ever made the press or the 35,000 gun related deaths 60% self inflicted, ie; suicide.  Oh, then there is the health epidemic where millions suffer digestive issues, diabetes, hypertension etc. directly related to the guinea pig effect of Americans being subjected to the worst quality food on the planet.  The "drug" industry has exploded in riches providing "solutions" to these "diseases".  Hell I get back to the US and see Narcolepsy ads on TV!  Narcolepsy!

Anyway, what is going on now with all that?  We are all chasing a virus that fortunately for most is mildly deadly.  We have shut down the global economy on a dime as the billionaires, global elite and politically powerful run scared and pull all the stops to keep from getting it, putting the livelihood of billions of people at risk.  I just read that it is likely roughly 500,000,000 people will fall back into poverty immediately, yea 1/2 billion people drop to impoverished to save the 1%... We are in dire straights but not from the virus.  We are in dire straits because the US was the only developed nation on the planet that tried for less then 2 years to normalize the Fed balance sheet and bring interest rates back to market levels in a global overly leveraged universe.  But they failed miserably.  By September 2019 the "swaps" market froze.  Underlying interest rates spiked more then during the financial crises and the Fed reversed course on a dime and cut rates rapidly and pumped $500,000,000 into the "financial system" to effectively bail out hedge funds that had been playing a game with increasing leverage to scrape a few pennies out of a system that had to low interest rates for to long and when things went the other way they got caught flat footed and had to be bailed out.  This all happened behind the scenes and almost nobody knows about it.  All they know is from that point forward all the money printing went directly to the stock market which reached all time highs by February.  Stock buyback's by corporations reached nearly $ 1 trillion a year for the last 3 years (following years of records preceding) further pumping up stock prices to enrich the CEO's and "investors" in these companies debt.  Any company could sell debt there was so much money chasing any yield above the Central Bank manipulated low rates that went on for far to long.  Investment was sluggish, regular wages stagnant and we were told there was no inflation.  All the inflation was in asset prices and for average wage earners, "health care", "education" and "rents", which by government accounts are under appreciated.

Why am I mentioning this?  Well because the debt accumulated to buy back that stock and the "off balance sheet" debt accumulated by the Private Equity / Hedge Fund Industry gambling in that same debt dwarfs that which existed in 2008 before the last financial crises and was looming over our economy BEFORE this current crises.  What has been the reaction?  US gov creates over $2 Trillion in additional taxpayer debt (10% increase in total debt in one bill) to further bail out a heavily leveraged corporate world.  Yea the couple hundred billion doled out in checks to citizens takes front and center in the mass media which is desperate to convince Americans "this time is different".

NOTE: Just like the heavy media campaign to glorify the military after 911, glorify entrepreneurs after 2009 and now glorify health care workers after this latest crises, each time no one is held to account, not the military and it's near $10 trillion in pointless wars against people in mud huts since 911, not questioning or convicting any financial firm for the 2009 crises and not one mass media person questioning why in a "developed nation" where more people go into bankruptcy over medical bills and nowhere does any human civilization spend more on medical care then the US with no positive metrics to show for it but wealthy "health care" intermediaries, billionaire CEO's and executives, wealthy on the backs of the American Citizenry.
Yet the Government has to step in to quell a crises!, the same government that claims any interference in the desperately broken health care system is some kind of a socialist... where we have laws on our books that even stop the government from bargaining for medicine and supplies in that they in the end pay for at huge markeup with taxpayer money (debt).

But in reality the Fed is also increasing it's balance sheet by $2.3 trillion immediately on as part of it's 10x leverage of $440 billion handed to them to "replace the banking system" as the banks have all but ceased ALL LENDING outside of the new government programs and they will expand to over $4 trillion over the next 9 months to "re capitalize" already over-levered corporations... Really?  Who is on the hook for all this money printing?  Taxpayers.  Who created the crises?  Billionaires and Elites.  Who gets ultimately crushed, billions of people, including billions who "social distancing" is a joke cause they live on top of each other already! 

You have to watch the short video in this link:

https://www.cnbc.com/2020/04/09/chamath-palihapitiya-us-needs-to-let-hedge-funds-billionaires-fail.html?__source=twitter%7Cmain

It's the part where the answer to the CNBC anchor's question is "yes' when answering whether airlines should be allowed to fail.  Think about what he says... Who is getting bailed out here AGAIN.  This whole thing is as bad.  Capitalism has built an entire set of rules and ways to deal with the natural loss of value during a crises.  Those who hold the debt, those who old the equity, they loose.  That is called risk.  It is how things operate.  As of now, the Fed has jumped in, buying corporate debt directly and through ETF's etc.  They are basically funding credit markets, mortgage markets, off balance sheet debt markets and businesses that have no revenue and who have used all their reserves and taken on incredible amounts of debt to enrich those debt and equity holders over the last decade, since the last crises.  They paid each other back to the tune of trillions, further enriching themselves and stratifying the global income / wealth divide to levels never seen before in human history.  And WE ARE BAILING THEM OUT AGAIN!

Depression? Mental Illness? The US is the most medicated, unhealthy, over levered and overly financialized nation on the planet (well China and Japan and Europe all are competing for who can be the most in debt).  We were already on the edge.  This virus has become nothing more then an excuse to "reset" the debt, extend it further out to the future and to print money to buy votes.  I am so incensed by this whole thing I don't know what to do... I can't believe what I see happening every day to prop up an already failed economic system.. I went back to college to learn more and perhaps gain a voice.  I learned more, but what I learned is they were still teaching late 19th and early 20th century theory that has long become obsolete as the economic system has become several degrees separated from any theory emulating at that time.  We have no models any more.  We most definitely have no model for what to do to rescue an economy that stops on a dime, let alone a simple thing like letting interest rates rise.  Now we have stopped on a dime and we are throwing 20-30% of the population of a "developed" nation into immediate unemployment (look what can happen in less fortunate nations).  Where there is NO cash flow to pay all that debt, none. What are the effects 6 months from now, 1 year from now? The money has to be printed, to re-capitalize.  Just like in 2008, bailouts to re-capitalize all the cash that was taken out of the system, evaporated overnight?  One could do some simple math and see how about $3 trillion was removed from the financial system from 1999-2008 after the deregulation of the banking sector.  It went directly into the hands of the players in the gambling game of financial markets.  It was the largest transfer of wealth since the tech bubble of 1998 and that the largest transfer of wealth since the bond bubble in 1988 and you can trace that back to the international debt crises brewed from the oil shock in 1973 forward.  Where we are now is no-mans land.  God help us.

If you think what I write here is in the right direction, write your congress person / senator and tell them, "All the capitalist system to work as it was designed and stop bankrupting our future.  The money printing  experiment of the last 10 years proves irrevocably, it does not work.

Good Summary of Current Debt Issues

I ran across a rarity, a good summary of the current "sovereign" debt crises. I put "sovereign" in quotes for an important reason. The debt crises is much wider than the current focus on government's problems and calling the current iteration of the debt crises "sovereign" is completely misleading.

The article was on Marketwatch and you can read it here.

It starts out with:

The debt mountain that brought down some of the world's biggest banks and dragged the international financial system to the brink of disaster has simply shifted to governments.

But from then on, it focuses entirely on the debt levels in the hands of governments.

What is desperately missing from EVERYTHING I read about the "credit crises", the "debt crises" the "bailouts" etc. is anything about where all of the "cash" that was "lent" to create all this "debt" went. Wall Street does not "create" money. Lenders lend money based on a fractional reserve system which ultimately "creates" money. However, what really happened over the first decade of this century was the largest wholesale transfer of "cash", "real money" from the legacy banking system, pension funds, 401k's etc. to the unregulated "financial industry" and the pockets of the people who ran / run that industry (which incidentally, after 1999 deregulation included much of the regulated banking industry as well since they were part of larger conglomerate organizations that sought to rape their retail customers with fees that became 1/3 of their profits and steal their savings by transferring their money to the unregulated pyramid schemes and gambling ventures fed by reckless lending) including Private Equity, Hedge Funds and other unregulated financial ventures. Along with the hoarding of cash by countless corporate executives who pull tens of billions of dollars every quarter from both the "publicly traded" companies and those held by "private equity" firms, there was the approximately $5 Trillion in "profits", "bonuses" and "fees" that came out of every transaction over the course of about a decade.. 

This sum of money came to light in a Bloomberg article I read some weeks ago:

The suits provide a window into the offshore structures and secrecy jurisdictions the world’s richest people use to manage, preserve and conceal their assets. According to Tax Justice Network, a U.K.-based organization that campaigns for transparency in the financial system, wealthy individuals were hiding as much as $32 trillion offshore at the end of 2010. Fewer than 100,000 people own $9.8 trillion of offshore assets, according to research compiled by former McKinsey & Co. economist James Henry.

You should read the entire 5 part series.  Very good stuff.

Now, I had another thought when reading this series.  It seems that from France to England to Singapore and Hong Kong that "governments" are getting fed up with tax evasion while the developed world is mired in debt.  Now it is not the fault of the industialists and financiers that so many governments are bankrupt, but they have benefited from the process more than anyone, in fact they are the chief beneficiaries esp as governments seek to keep the bondholders, stockholders and large depositors "whole" while raping the taxpayers (citizens) of their financial futures.  So as we enter the next "phase" of crises, from debt, to Syria to the implosion of N. Africa and the Middle East to Pakastan and the inability of bankrupt "democratic" nations to deal with the fallout, the piper must be paid.  Technology makes it much easier to track all this cash and now the NSA pretty much has a database of all communications since BEFORE the financial crises, it seems it would not be much effort to root out the cash and say to the holders of these $30 Trillion:

The governments of the world that matter (those industrial nations where all the technology is held irrespective of the slaves that actually produce everything) need to deal with a rapidly disintegrating global stability in order to prevent another wholesale globally destructive war, but we don't have any money.  The $30 Trillion held by the industrialist / global rich, spread out amongst the top bankrupt industrial nations, would just about bring us to break even.  In order to ensure a future (read future stability and markets to sell to) for humanity without wholesale destruction, we are going to confiscate your cash.  We will allow you to keep your productive assets as we will need your productive capacity to wage our campaign to stabilize the planet.  So you may loose your current cash, but you will have the capacity to make it all back inside of a generation (15 years +/-).  You may not like this, but you have no choice.  There simply is nowhere left on earth to hide and we need the money.

 Mark my words on this one.  It is going to happen.

Banks Offloading Risk to Who?

Here is another rant inspired by a Bloomberg article I read a couple weeks ago.  Those folks at Bloomberg do some very informative reporting.

Everything in the article is fascinating.  To imagine for an instant, after the absolute crash we had in credit markets such a short time ago and the reality that technically, as I write this post, dozens of very large banks around the globe are insolvent if they were required to be honest about the current market value of the "assets" on their balance sheets, that the monetary "authorities" around the world would even entertain the idea that banks could "buy" credit protection against default of loans on their books is ludicrous, insane, archaic, incomprehensible and absolute madness, yet it is happening!!!

The only question one has to ask is, "Who are these people providing "insurance" on these portfolios of loans banks are buying and what capital do they employ to show that in a crises they could actually provide the "protection" they are offering?"  We are just living Credit Crises 2.0 in the making.  There are still tens of trillions of dollars of "credit protection" out there being bought, sold, securitized, traded, passed off, derivativeized etc. by a completely unregulated global financial "industry" for crying out loud, with no rational capital requirements or other oversight by anyone and being backstopped by governments, who are already ill equipped to do anything to prevent another disaster!!

The fact that institutions still functioning as "banks" with the backing of their activities by "taxpayers" through "insurance" still go about gambling on a global scale is insane to say the least and downright financially apoplectic to put it in real terms.

Now we have the largest "money manager" in the US, Blackstone, orchestrating "insurance" against losses on pools of loans on the books of international financial institutions.  Since when is Blackstone an insurance company?  And what assurances do we have that those who have provided the "insurance" actually have the capability of delivering on this insurance? Are we really going to let a government insured global institution hold less capital against their loan book because they have purchased "insurance" from an unregulated industry?

From what I see of this deal between Blackstone and Citigroup it looks like the same financial engineering that Greece used to hide liabilities and underreport the amount of debt they had on their books when lying to the ECB and European Governments.  It may be a different way going about it, but the effect is the same, and where did it get Greece?

From the article:

“It’s a form of financial engineering,” said Philippe Bodereau, London-based head of European credit research at Pacific Investment Management Co., the world’s largest bond investor.

According to the article, Blackstone was able to do this because of how "regulators are viewing loan exposures".  Hmmm, so regulators are now thinking banks can financially engineer their balance sheets to offload exposure to loans on their books. 

I will never forget when back in 2006 when Bernanke actually said that banks had become sophisticated enough to manage risk and that implied regulation and oversight was not as needed in the past.  This mind think from the Fed, Treasury and our congress (who passed the deregulation at the encouragement of Wall Street firms and the Fed) was the most ignorant and destructive thinking that ever perpetuated our collective attitude towards the financial industry.  These people were all seduced by the same greed that drives the industry and to think for a minute the financial industry in a capitalist system has ANY objective but to create ways to scrape as much cash from the national (now global) till as humanly possible until there simply is no more, is to have a lobotomy!

Without strong and active regulation in a capitalist system is to turn all humanity into slaves.  You might as well just put everyone in a meat grinder and feed them to those who know how to best exploit the system.

Back to the article.  This is a notable quote:

The Blackstone deal is one of the first examples involving a private-equity firm, which traditionally look to take a more active role in managing assets. It demonstrates the extent to which banks are prepared to pay up for capital when other sources, such as issuing shares or unsecured bonds, are closed.

What does this say?  1) Private equity, traditionally having a history of actually managing the firms (assets) they take an interest in (though mostly they find cash rich companies, rape them, load them with debt, then float them again), now are interested in filling a role of "financial engineering" to the banking industry because no real investor will buy the bank's "shares, unsecured bonds" or whatever other shit they can come up with to raise money, cause any real investor knows they are INSOLVENT!!  But it does seem that a bunch of investors in the world of "unregulated finance" are more than willing to take millions of dollars of the bank's money to help the banks further understate their liabilities.  Why not?  There is absolutely NO RISK in doing so because the next time the "shit hits the fan" the unregulated pigs can just go out of business.  They have already banked their millions in fees providing this "service" to the industry and as we all know, NOBODY anywhere in the world was held accountable for anything that happened in 2008-09, NOBODY. So why the hell not take the banks money while they have it.

Thinking this quote though will almost make you laugh:

Private-equity firms have struggled to achieve returns exceeding 10 percent after banks cut off credit in the aftermath of the financial crisis, starving the industry of the leverage required to match previous returns. 

So poor private equity has been cut off from loose credit because the banks are insolvent.  So what to do.  Hmmm, why don't we find a way to make the banks look solvent. Then they can go back to reckless lending to us again.  Genius!

So what is the debt?  Part of a $500 billion book of loans out the "shipping industry", an industry that if you read anything now, is floating on borrowed time.   Commerzbank, an institution everyone knows is technically insolvent, made some risk adjustments to their books and wallah, lowered their reserve requirements by over $9 billion. This is significant. Citi is trying to offload it's reserve requirements to the same industry.  We all know where this is going.

I like this quote to:

Blackstone spent five months to develop a structure that the Financial Services Authority, the U.K.’s financial regulator, would accept, one of the people said.

You know, if it took five months to "develop a structure" that there was another year prior to that with a bunch of computer programs and mathematicians creating "models" and other "engineered" outcomes to ultimately approach regulators with the proposal.  And we all know, the smart people are NOT the regulators.

And how does the article end?

“The government is jumping up and down asking banks to lend more to small and medium-sized businesses at the same time as stricter capital rules come in,” Walsh said. “The banks can either say: ’I’m sorry, we’ll have to wait until people pay off their loans,’ or the regulators could look at sensible ways of releasing those assets from their banks’ balance sheets so as to free-up capital to allow them to lend to more businesses.” 

"The government", yea the same government that deregulated the financial industry while allowing taxpayers to stay on the hook to their activities, and has, in the case of the US, failed to even pass it's own budget for three years; the same government that bought into the idea that they did not need to be involved in the rapidly globalizing financial industry that has become way to large and unwieldy for ANY central bank to bail out; the same government that does not even understand how to manage a balance sheet; that government is now looking for ways to allow their insolvent banking industry to "lend more".  Go figure. 

Wash, Rince, Repeat

I read this article in Bloomberg the other day about the new Private Equity entities buying

thousands of single family homes with bundles of money lent to them for the purpose.   

Since there are no individuals that can get a loan on the massive numbers of foreclosed houses 

sitting on the market regardless of interest rates or valuations (One of the main culprits is 

still trying to figure out the value of the property), the loose fed money floating into the 
banking system has yielded another result; The banks and their gambling clients who STILL 

borrow from them for their casino games just as they did before the crash, take the loose 

Fed cash sitting on the books, lend it to private equity et al, who in turn will buy tens 

of thousands of the houses and convert them to rentals. Then these mega loans can be securitize 

in the same way they used to securitize the sub-prime garbage lent out to individuals during the

real estate bubble, and sell the debt in tranches to "investors" and make a bundle. Then of 

course there are derivatives and other kinds of fun financial "products" you can create from 

the debt instruments. And the beat goes on...

Meanwhile the poor suckers who will never be able to buy a house again (the vanishing home owing 

class, I refuse to call them "middle class" just because they could buy a mass produced, cookie 

cutter poorly built, low quality slap it up stick and press board built plastic siding suburban 

"house"), will rent from these new mega house owning faceless corporations, who will inevitably 

hire "nationally owned" McDonald's quality contractors to do everything from service the HVAC to 

take care of the lawns, turning what is left of the independent trade business owner who makes 

his money (and decent money at that) servicing individual home owners, into a low wage earning 
employee of some mega national home servicing company. This is when the last vestiges of "middle 

class" opportunity vanish from the landscape forever.  Think "Brazil" the movie. 

I gave this "party" we are having with entirely reckless monetary policies until April 2013 about

18 months ago.  Perhaps I was a bit ahead of the curve?  Time will tell.  But either way one looks

at the situation; the continued overly broad and dysfunctional influence of the financial "industry"

over our economy without productive investment happening, along with our ineffectual government, 

over influence by monetary "authorities" over the direction of our economy (to the extent of 

obsession), and lack of wealth creation on the part of individuals or industry, this slow motion

train wreck is likely to stop moving forward soon in a tangle of nearly impossible wreckage to clean

up. 

Open Explanation: Occupy Wall Street

I wrote this letter to Timothy Lavin of Bloomberg after reading this article by Amity Shlaes. It combines two recent ideas of mine in one letter to try and open a dialog on my take of the Occupy Wall Street phenomenon.

Hello Timothy,

As editor of the opinion column at Bloomberg I would like you to think about the Wall Street protesters from a couple angles and perhaps seek understanding of what is going on from these perspectives.

1) From the economic perspective, that the free economic system has at some point over the last 30 years reached a point of diminished returns to the population it "serves". All advanced industrial economies are facing the same "problem" whereas corporate entities have gone through a mass consolidation, using their capital to consolidate verses investment in new productive output. This consolidation has resulted in mega corporate entities that maximize profit by reducing competition and stifling innovation. I would estimate that nearly 70% of consumer dollars are spent on goods and services at companies that operate as oligopolies in their respective industries where two or three (perhaps 4-5 in some areas) companies control any particular industry per geographic area including production, distribution and sales channels. The consolidation of industries has also concentrated wealth in the hands of fewer companies and people and this wealth is not being put to productive use.

The last decade of this wealth concentration played out in the financial industry whereas the money concentrated in the hands of the few was and is being put to "work" in speculative gain through financial instruments. The proliferation of unregulated pools of money like hedge funds and speculative private equity companies provides a real tangible look at what happens when such concentration of wealth proliferates. Unfortunately so much money has flowed into these non productive uses of capital, real investment has all but ceased to exist in mature economies. Unfortunately as well, is the reality that when these speculative uses of capital go haywire in the hands of people who over leveraged their balance sheets, massive amounts of money is "lost" or better put transferred from the "real" savings of the citizens when regulated financial institutions leverage these savings to offer credit to unregulated institutions that imploded due to overly leveraged balanced sheets and speculative practices.

The bail out of regulated financial institutions (and the conversion of speculative financial to regulated financial institutions) so they to could get "bailed out" was nothing short of the largest transfer of "wealth", the savings of the American people (and citizens of other developed nations), to the speculative, unregulated markets, the world has ever seen. The "real" savings that were "lost" were replaced by sovereign debt, basically the people have had their own money "replaced" after the regulated financial institutions had transferred it to the speculative unregulated markets, and been give a big IOU. All people of the advanced industrial world are now paying interest indirectly on their own money that was essentially "stolen" from them through the process of regulated financial institutions lending it to speculators who took pools of capital from the corporate elite and gambled a reckless way by "creating" financial instruments based on real assets and liabilities valued at over 50 times the true underlying assets / liabilities. When this system of reckless gambling failed and the underlying capital that existed was wiped out then replaced on the backs of taxpaying citizens we (the Occupy Wall Street crowd) have the impression, correctly so, that the government is working on behalf of the wealthy and corporations, not it's citizens.

All this evolution in economic activity derives its origins from the premise that "capital" simply found no more productive uses in the advanced nations where it was created and hence it found it's way to speculative uses instead of productive uses. My guess of the point where our vastly unregulated free market system reached a diminished point of returns to the population it "serves" was somewhere in the late 1970's, about the same time that real incomes stagnated in the US and have remained fairly constant or declined since (with the small exception of the latter 1990's when capital was invested in productive use due to the opportunities created by the evolution of the Internet / networks). Any productive use of capital from that point forward was transferred overseas to "developing" economies where production is cheaper and growth in those economies from a basic level of need still attainable, where all basic level of material needs had been satisfied in the advanced economies. (Note: China is currently doing both productive investment and speculation on such an tremendous scale their implosion in the next 12-18 months will rock the globe.)

Europe manages to slow this migration of capital somewhat through stiffer regulation and a later stage of development due to the destruction of WWII. However over that past 15 years or so they have increasingly modeled their economies after the freer economic model of the US and the EU and common currency has escalated that trend. Japan and German and a few island nations are somewhat exceptions in that both nations continued to invest in productive output as they lead in the manufacture of advanced industrial products and machine tools that make production possible elsewhere.

2) The second area is more directly related to the people who are involved in the protest movement. This is the first generation of people to grow up with computers and the Internet in their homes. It only takes 10% of this population of young people, who found the Internet to be an enlightening source of information to create a major national movement. These young people, many of who have completely lost faith in the institutional framework of our political and economic system, have "self educated" via the Internet and have learned to shun the institutional "learning" that is propagated in our public school system, a system that has failed to keep pace with the leaning abilities of our young people and failed to keep pace with the evolution of our economic / political system at hand, instead continuing to focus on the social cohesion aspects of learning that has propagated in our public education since the early to mid 20th Century.

These young people see public education for what it is and seek to acquire "real" knowledge through understanding the world around them as it exist today. They can easily find information on everything from ecology, environment, politics, war, economy, power, industrial processes, history, current events, governments, foreign policy etc. from their home and increasingly share that information with others and through that process develop deeper and more comprehensive understandings of the world around them. Each person is free to focus on the aspects of learning that interest them most and share and communicate with like minded people. All of them ultimately share common goals, though in different areas, that changes need to be made for the common good. You will see issues all over the map, from industrial food process and it's effects on human populations and the lack of regulation and tainted "research" spewed out by universities funded by the companies that exercise such practices to global economic theft and manipulation by pools of capital that seek to turn every resource on the planet into a speculative instrument and exploit these instruments with abandon while answering to no legitimate governmental organization from where these pools of capital originate.

The failure of established institutions to recognize what is going on with these young people is to their detriment. This movement is global. Whether it is 5%, 10% or 15% of the population of young people all over the world that are involved in this movement, have educated themselves and are impassioned to change the world around them is irrelevant. The fact is that this change is coming and failure to recognize it for what it is is dangerous and irresponsible. When one educates themselves, there is a different dynamic that takes place. They feel empowered by their knowledge. This is very different than the indoctrination education received at public schools and higher learning institutions. You have to understand this or you will fail to understand what is going on.

In addition, when one looks at the issues / demands / concerns of these people, they are reasonable, attainable and achievable while protecting a capitalist system of economy and democratic form of government. The establishment will still have it's place and the institutions that exist today will continue to exist. There is no call for their destruction. There is a call for their humanization. This must be recognized. The greed with abandon, reckless capitalistic tendencies of corporations constantly seeking advantage by cheating, deregulation, theft and outright fraud will have to end. Yes, capitalism is ugly, human evolution is ugly, existing on a harsh planet can be ugly, but we humans have not choice, we pick what works best for us and so far capitalism and democracy have served better than any other alternative till now. Yet, in the 21'st century, the practices that have lead to consolidation of power and wealth in the hands of the few by corporate entities that seek to operate irrespective of the well being of the people they serve, the environment they exploit or the policies they extol to their own benefit must change sooner rather than later.

To point a finger at these young people and attempt to understand what they are trying to achieve through any other lens is to fail. The establishment will try to resist change, protect their advantage, protect their profits etc. but until they understand profit is still possible even giving ALL of the demands of these young people, they will fail to get the point and do more harm then good trying to resist them.

Sincerely,

Madagascar’s president steps down

I have been lightly following the turmoil in Madagascar through the FT over the past couple weeks and I would love for someone to do a dissertation on the island country. Economically speaking, they seem to have quit a wealth of natural and land resources and as usual a tiny elite exploiting the resources while most live on about $1.00 equivalent per day.

This quote from the latest FT article is fitting:

While a business elite – of whom Mr Ravalomanana is among the most successful – has grown rich through agriculture and other ventures, the average Malagasy survives on about $330 a year. They have yet to see much benefit from the arrival of foreign investment in biofuels, bitumen and titanium.

The collapse of the vanilla market, and, as the tensions spilled over into violence, the tourist trade, only added to resentment stoked by a agreement last year to lease half the country’s arable land to a conglomerate planning to use it to feed South Korea. That the deal was subsequently halted did not assuage the outrage the Mr Rajoelina was able to harness.

You know, I feel very strongly that this dynamic has been strongly applied to the developed world over the past 10-25 years (depending on when you start the cycle) by private equity and hedge funds who's main objective is to do everything possible to harness all productive capacity and resource production with the use of high degrees of leverage and suck as much of the profit as humanly possible from the enterprises regardless of the plight of the citizens of the planet they squander.

I agree this is nothing new in our short and pathetic experiment with "free economic" models. But I have said and will continue to say, with 6 billion people on a very interconnected planet there simply no longer exist any positive value to trillions of dollars sloshing around in the hands of a few in unregulated markets trading anything and everything to suck as much wealth out of the "economic system" as humanly possible without respect to the plight of the population of the planet.

Blackstone Numbers

I just looked over the Blackstone numbers and although I am no genius in understanding their business model, it looks like they took some hits in their portfolio values and more will come in 2009. This is how the FT presented the story:

Blackstone reveals $827m quarterly loss
By Henny Sender in New York, Published: February 28 2009 02:00 | Last updated: February 28 2009 02:00

Blackstone yesterday revealed a fourth-quarter loss of $827m, reflecting extensive markdowns in the value of its private equity and real estate investments, and told investors it would not pay them a dividend for the quarter...

"Last year was the year investment banks and hedge funds were undressed," says the co-founder of one of Blackstone's peers. "This year, it is the turn of private equity."

Blackstone said its corporate portfolio lost almost $4bn in value for the year, a 29 per cent decline. The value of its property holdings plunged 40 per cent.
Neither the earnings announcement nor remarks on conference calls gave investors reason to believe that earnings growth was likely to pick up soon, given the dramatic downturn in the global economy.

Tony James, Blackstone president, referred to current economic conditions as a depression.

Fascinating to me is Blackstone is a "manager" of the assets they bought hence, their "fee" income will decline if those "assets" they have in their portfolio fail to perform but Blackstone itself seems to have structured itself as a fee earning company while all of the "assets" are off the Blackstone balance sheet.

So, if I have it correctly, Blackstone gets investors together, does a major leveraged buyout (when money was available), pays itself handsome transaction fees, might put a little skin in the game up front, then does a "management contract" with the entity they arranged the buyout of, thus earning more fees, but allows the bought asset to operate "off the books" of Blackstone. I guess it is kind of like the hotel model. Some investors put up some cash and borrow more money and build a hotel then hire a "brand" company to come in and manage the property. The "brand" in this case is Blackstone, carrying a management fee for managing the bought business (hiring CEO and upper management etc.) but the "investors" are "holding" the asset off the Blackstone books.

I am more than fuzzy on where the now $94 billion of assets under management reside. They took something like over $4 billion in write-downs in the 4th quarter with total assets under management declining like $8 billion for the year. But where are these assets?

Interestingly, "fee earning assets" increased by nearly the same amount. So how does this figure? In addition, it looks to me like the "partners" of Blackstone pulled nearly all of their own equity out of their real estate portfolio so Limited Partner Capital Deployed fell from nearly $15 billion to about $5.5 billion.

Well during the buyout hey day I wrote about how these "private equity" funds were literally robbing the banks of the corporate entities they took over, stealing all the cash through all kinds of "fee" transactions, bizarre payouts, "commissions", funding payouts etc. all the while leveraging them to the hilt. I had no idea they were so creative in removing these entities from any liability of Blackstone itself. So, I guess if there are bankruptcies in their assets under management they will figure out how to earn "fees" managing the bankruptcy, financing the bankruptcy, taking huge chunks of assets for pennies and eventually making a killing again when / if the companies emerge from bankruptcy and get floated back on the market. Gotta hand it to these guys.