Friday, April 30, 2010

Whither Financial Reform ?

Sulla's cram-down tactics failed as the Republicans showed solidarity, hence the financial reform bill will hit the Senate floor completely open to amendments of any relevant kind. All this should have been settled in committee in good faith negotiations, but Dodd & Sulla thought they could jam the R's again, as in health care, by buying one vote. They failed. Now we get a free for all and plenty of "populist" amendments are being planned to be offered. Anything can happen.

[FYI: Sulla = Barry = Obama]

My dog, Sky would never have let this happened to a flock under his power. He keeps the sheep in a tight formation and doesn't cause them to burst or splinter. They understand and respect his power, and thus he can be gentle in guiding them through gates and to the pen. Sulla is arrogant - what would you expect from one with such a nickname ?

Enough bashing of Sulla. What is being considered ?

***various quotes follow***

WSJ: Sens. Maria Cantwell (D., Wash.) and John McCain (R., Ariz.) have worked on an amendment that would force commercial banks to separate from investment banks—revisiting the Glass-Steagall Act of the 1930s.

Sens. Ted Kaufman (D., Del.) and Sherrod Brown (D., Ohio) plan an amendment that would prohibit any bank from ever holding more than 10% of the country's deposits and put strict caps on the debt banks issue.

Big banks are already lobbying to kill parts of the bill. One provision would make them spin off derivatives-dealing operations

If adopted, the amendments would change the banking industry far more than the current version of the bill that aims to overhaul financial-sector regulations. The provisions would make companies smaller, simpler and less likely to take risks.

***quotes end***

To me, those amendments would be good if made in workable forms. The financial industry has grown to be dominated by huge, interconnected conglomerates. Deposits of the common man are being sucked out of cities and towns to Wall Street to fund trading and speculation. Loans to business are far too hard to get as a result.

What would be a good result ?

Make banks be banks, securities firms be securities firms and hedge funds be hedge funds. Return brokerage to brokerage. All this would simply the industry and prevent a future collapse as was threatened in the Panic of 2008. That occurred because of the interconnectedness that excessive trading and derivatives brought on. Failure of one firm was linked to all others because of the huge counterparty risks. Get rid of that.

Break up the big "banks".

Bring back Glass-Steagall and make it even tougher.

Derivative operations go to the securities industry with tough capital requirements for any derivative not cleared on exchanges..

Deposits are to fund loans, not trading. Those loans can go directly to business or consumers or to specialized finance companies (which in turn lend to business and consumers). Regulators should enforce this.

Stop securities firms from trading against customers.

Impose the Volcker rule in a strong form: banks - get rid of proprietary trading.

Insurance companies and pension funds should make long term investments, not make "trades" (directly or via hedge funds).

I could go on and one, but I think you get the picture: regulate the big boys, let the common man and small business - including small financial intermediaries - have near total freedom. Return industry participants to their natural state from the Frankenstein monsters they have become - pieces of all sorts of businesses sown together.

What else would you expect form a Fraternal Libertarian ?

Word of the Day

"Anomie" - noun [$10] also "anomy"
Anomie means lack of the usual social or ethical standards.
Sentence: A good financial reform bill should curb the anomie on Wall Street and the big banks. We need a clean, simple, moral financial industry. Financial Vikings should be crushed.

Thursday, April 29, 2010

The Principal Source of Wealth

That is the skills, knowledge and motivation of the human beings in the community or nation, or on the planet. Human beings create wealth. Period. There is no other causal source of it. This is proven by so many examples, but it should be self-evident and obvious with minimal thought. The earth existed for billions of years, but where was the wealth in it ? That wealth did not exist. Until modern humans walked the earth, likely first about 100,000 years ago, there was almost no wealth on the planet.

Another example: The New World. For many thousands of years after the first modern human walked on the Earth, the New World was void of people. When people came, wealth was slowly created. But when human beings with more skills and knowledge arrived after 1492, the wealth of the New World increased at a much greater rate. What was the difference ? The knowledge, skills and motivation of the humans beings living there had increased by a quantum leap with the new arrivals.

Singapore has little land or natural resources, yet its people are relatively wealthy. That's because of their own skills, knowledge and motivations. Ditto Hong Kong.

Culture is part of the skills, knowledge and motivation that produces wealth. A nation with a culture that oppresses and effectively enslaves its women and /or certain castes automatically, ipso facto, loses that same proportion of its potential for wealth. Cultural institutions like slavery and serfdom impeded the growth of national wealth, as do special privileges for aristocratic classes.

Greece has problems. What is the solution ? Re-examine the sources and uses of human capital in Greece. All Greece possesses to increase its wealth - to solve its debt problems - are its people and its sole source of wealth is its people. What is debt ? Debt is simply a transfer in time for the rights to use goods or services: debt neither creates nor destroys wealth. Too much debt means simply that the nation (or community) is consuming too much wealth now versus what it can produce in the future.

Early retirements at high pay DOES reduce national wealth. The nation or community loses the productive capacity of the retiree for those years when he/she would other wise be able to work productively. That's a lot. Many, many other state activities reduce wealth of a community. If one focuses on the human source of wealth, these become apparent very, very quickly.

To solve a nation's debt problems, look to its people. To restore a community, look to its people. That's where all its wealth inherently comes from - the skills, knowledge and motivation of its people.

Word of the Day

"Canaille" - noun [$10] pronounced kuh 'ni with a long 'i' - loan word from French
Canaille means the rabble, the populace.
Sentence: Around 100 B. C., Gaius Marius saved Rome by recognizing the potential for, and using Rome's canaille in the legions. And in doing so, he likely preserved the future path of the modern world to that which we now have.

Wednesday, April 28, 2010

Affolement !!!

That means Panic !!! in French.

Remarkably, the headlines in Le Monde are about panic in the markets, while the US financial press seems like a typical boring Wednesday.

From Le Monde ->

La Grèce et le Portugal affolent les marchés. Les Bourses d'Asie plongaient, mercredi, dans le sillage des places européennes. Les craintes que d'autres pays, comme l'Espagne et l'Italie, soient à leur tour touchés se multiplient.

Greece and Portugal panic the markets. The Asian markets were plunging Wednesday, in the wake of the European markets. The fears that other nations, like Spain and Italy, might be touched in their turn multiply.

And what are the headlines in the foolishly US-centric American financial press ?

IMF may increase loan to Greece. Yawn.
Finance bill is blocked again. a broken record.
Goldman bruised, defiant in Senate. more denials.

Is there any wonder why more, a lot more, education in foreign languages is important ? The US press is so lazy and myopic, that I'm almost unable to take it seriously anymore. The "reporters" all want to be "journalists", yet can't even do the hard work of reporting.

Sigh ........ One gets better news coverage in the European press. After my current break from languages, I need to hit them hard again and turn this blog into a true septalingual center of fresh opinion [ i. e., mine ;) ] about world events.

Italian is now on a firm footing. I need to turn up the dial on German - Frankfurter Allgemeine covers these events rather well. Polish is doing well. Next to do: restart Spanish as now the confusion with Italian will be lessened. French needs vocabulary work. I'm halfway through Latin. I think all my languages need an intensive vocabulary review, though. How many new words can one cram into one's head over a year's time ?

The keys for the future: learn languages, read books !


Krypto has no new orders for me. Interestingly, after yesterday's drop, Mrs. B's Sky Fund is still at new highs, well over its 2007 all time high level. I guess Mrs. B is the new investment boss. They are both crushing the performance of my old 1-2-3 Fund, which I now declare to be closed. I need a new name & new ideas.

I suppose retiring and turning my portfolios over to my wife & dog is OK. [joke]

Word of the Day

"Natiform" - adjective [$1000]
Natiform means resembling of having the form of buttocks.
Sentence: Sycophants for Goug'em Sachs might be wary that a natiform vision approaches as they to avoid the clear, simply truth that GS is dirty. In other words, they are sticking their heads up their butts in denial. I wonder how one says, "Butthead" in Polish or German ?

Tuesday, April 27, 2010

Recess is Over.

I gave Goug'em Sachs a day off yesterday from the regular flogging that I've been giving them lately. But now, fresh news arrives.

***various quotes follow***

WSJ: The subcommittee said Goldman's strategy of "shorting" the mortgage market—betting on its decline—was so extensive that, at one point in mid-2007, its mortgage business made up more than half its value at risk, a measure of the firm's overall exposure. "By early 2007 the company blew right past a neutral position and began betting heavily on [the market's] decline," Mr. Levin said. Goldman was "not hedging but betting heavily against the market," he added, accusing the firm of being "misleading to the country...and not fair to their customers." ...

The subcommittee released excerpts from a raft of internal Goldman emails and other materials providing further insight into what some Goldman executives called a "big short" strategy.
"I concluded that we should not only get flat, but get VERY short," executive Joshua Birnbaum wrote in reviewing his own performance in 2007. "Much of the plan began working by February ...and our very profitable year was underway." ...

One transaction called Timberwolf was a $1 billion package of complex securities rated AAA. The head of Goldman's mortgage department sent a mass email promising the sales force "ginormous credits" for selling it. The package was downgraded to junk status in just over a year.
"[B]oy, that timberwo[l]f was one s— deal," an unnamed Goldman official wrote in June 2007, according to documents released by the subcommittee.

Goldman "sold to its clients products that it clearly no longer believed in," said Mr. Levin ...

In early 2007, Mr. Blankfein referred dismissively to Goldman products being readied for sale. "[Y]ou refer to losses stemming from residual positions in old deals," he wrote in an email. "Could/should we have cleaned up these books before and are we doing enough right now to sell off cats and dogs in other books throughout the division."

The subcommittee released excerpts of emails and performance reviews where executives boasted about their prowess in making money on short positions, and overriding customer objections when Goldman allowed some securities to sink in value without pumping in more cash.

One, Michael Swenson, described 2007 as the year "that I am most proud of to date" because of his efforts to steer the firm off the subprime rocks through "efficient shorts."
Mr. Swenson also noted that he "said 'no' to clients" who wanted Goldman to shore up some of the failing securities it had marketed.

Another message from an unnamed executive says that some of Goldman's aggressive shorting left hard feelings among clients in October 2007. "Real bad feeling across European sales about some of the trades we did with clients," the email says. "The damage this has done to our franchise is very significant. Aggregate loss of our clients on just these 5 trades along [sic] is 1bln+."

*** end of quotes ***

I guess this is plenty of proof that Goug'em Sach guts its own clients and feeds off them. This is no surprise to me or to anyone paying attention. ANY investment bank with a large proprietary trading operation or large principal investment book does that. We saw this in the 1980s at Saloman Bros. Doubters: read Liar's Poker.

I personally saw disgustingly corrupt behavior of this sort when I was working at a large investment bank in the early 1990s.

And now we see proof of this despicable behavior at Goug'em Sachs. But it should be no surprise to anyone, except the gullible who believe the self-serving lies that Wall Street executives put out.

I hope the Democrats will negotiate in good faith with the Republicans to get financial reform moving again. They are electioneering now, but need to put the good of the common man to the forefront.

Word of the Day

"Maquillage" - noun [$10] French, used in "The First Man in Rome"
Maquillage means 1. make-up, cosmetics; 2. the application of make-up.
Sentence: A sophisticate at Goug'em Sachs might say, "Let's put maquillage on this pig", but that's just a fancy way of saying "Let's put lipstick on this pig" as they sell garbage bonds to their own clients.

Monday, April 26, 2010


Understanding the nature and beliefs of the civilization of ancient Rome is a crucial building block for understanding the modern world. This is not only because so many modern institutions trace elements of their structure to Roman institutions, but also cultural and behavioral dimensions of modern human beings do (or should) draw on the early Roman models. For the former, I'm talking about law, courts a Senate and assembly of the People, a Republic versus kings, an army drawn from the middle class (in the Republic); for the later I'm referring to honor, duty, integrity, rhetoric, family.

From Roman examples we learn about greatness and honor in real people: Julius and Augustus Caesar for the former; and Cato and Cicero for the latter.

From Rome we also learn about tyranny and depravity: Sulla and Caligula.

Stories one reads learning Latin are very uplifting. The language brings this out with its simple, inflected forms and sparsity of fluff and adjectives. A Latin epigram or proverb is beautifully precise. Of course, few people learn Latin nowadays. I'm re-learning Latin and am enjoying it immensely, but if you didn't have it in high school, I can't recommend that path to learn from Rome.

Instead, I recommend the combination of books and CD courses.

From antiquity: Plutarch, Lives, and Suetonius, Twelve Caesars, Julius Caesar, Gallic Wars (aka Commentaries).

The Teaching Company courses on Rome: Famous Romans, History of Ancient Rome.

And now I can recommend a historical novel as a Book of the Week: The First Man in Rome, by Colleen McCullough. This is a fine book, very well researched. The author builds from a foundations of facts about Rome and its culture, then adds the human side in dialog and thoughts very, very plausibly. I started reading it on Saturday and am enjoying it immensely. Nothing yet contradicts my own understanding of Roman culture and history. The book through its characters is an excellent learning tool for one to better understand Rome and the Romans.

NOTE: The First Man in Rome is a first of a series of seven books which were well received by the public and critics. I plan to read the first two, then perhaps over time more.

MORE: The book is pleasantly written in a fine style and includes a few $10 words; it's definitely not dumbed down. I've found four good $10 words already - three new ones and one old one in the file I had forgotten.

Word of the Day

"Ken" - noun and verb [$10] from The First Man in Rome. Not Barbie's boyfriend !
Ken means (noun) a range of sight or knowledge (it's beyond my ken); (verb) 1. recognize at sight; 2. know [past & participle: kenning; kenned or kent]
Sentence: One's ken expands greatly with more understanding of Rome and the Romans.

Friday, April 23, 2010

More GS Subterfuge

Goldman, Sachs seems incapable of conducting an above-boards, clean business. I think the greed for more money & power led them from being the fine, quality firm of the 1970s and 1980s to become a big hog at the trough. Do they perform simple fee for advisory service business ? Nope, they want a piece of the action via their proprietary desk, and they want terms to enhance its profits. Do they do simple underwritings and distributions ? Nope ... gotta get that proprietary desk into the deal. Do they shop orders and take a clean commission ? Nope, again, gotta get the proprietary desk's snout into that trough, too.

***beginning of quotes***

[WSJ] "BERLIN—Goldman Sachs Group Inc. brought investment banking to Germany 20 years ago. Now, many here say it is giving the business a bad name. Goldman's approach to winning business is coming under fire from German officials, companies and banks. The firm's latest headache: A dispute with the city of Berlin, which has accused Goldman of trying to intimidate it with legal threats in order to make more profit from a housing sale. Goldman denies the accusation

"I would not deal with this bank again unless I couldn't avoid it," said Ulrich Nussbaum, the city of Berlin's finance chief, after months of negotiations over Goldman's wish to take public a company that owns municipal housing in Berlin.

"Under its current head, Alexander Dibelius, Goldman's German unit has diversified its business, becoming a major investor in German businesses as well as a financial adviser. That has led to accusations of a conflict of interest from German companies, which have complained privately that Goldman is both their adviser and competitor in bidding for assets.

Here's another example of conflict of interest, from FT:
"Goldman Sachs was both an underwriter and an investor in Lloyds Banking Group's vast refinancing deal late last year, the FT has learned, highlighting the potential conflicts of interest at the heart of the investment bank’s business model. According to four people involved in the capital raising, Goldman – a dealer manager on the debt portion of the £23.5bn transaction – demanded last-minute changes to the structure of a deal it was underwriting. This had the effect of benefiting its position as a bond investor.

"Goldman bankers stress that its Chinese walls bar underwriters from knowing anything about the investment activity of its proprietary traders and say the exposure of the affair reveals rivals’ opportunism in besmirching its reputation.

***end of quotes***

Chinese walls ? How laughable.

All these issues are clear as crystal to anyone with a moral backbone. GS doesn't have that. Simple, honest fees & commissions don't make enough money, so they wrap them all up with the proprietary trading desk. Gouge as much as possible from the client.

Why not just rename the firm, Goug'em Sachs.

Word of the Day

"Eructation" - noun [$10]; "Eruct" - verb [$10]
Eruct means to belch.
Eructation means the act or instance of belching.
Sentence: Is Goug'em Sachs anything other than huge, greedy hog eructing after every big feed from the trough ?

Thursday, April 22, 2010

Why Ban Credit Default Swaps ?

Why ? Because that are unnatural instruments whose sole purpose is leveraged speculation, and the counterparty obligations entangle and propagate one financial institution's troubles to other.

What is a Credit Default Swap ("CDS") ?

In simple terms, it's a contract on possible future default by X providing for small ongoing and/or a upfront payment by the Buyer to the Seller. Then if X defaults (as defined in the contract) during the term of the CD swap (say, 5 years), then Seller must pay Buyer a large amount. For example, a credit default swap for $100 million on company X might require annual payments of 0.5% of that amount by Buyer to Seller, or $500,000 per year. If company X defaults within the specified time, Seller must pay Buyer for losses on $100 million of company X debt. That loss amount is settled at an auction, where the value of company X debt after defaults compared to its face amount determined the loss. If company X debt is worth 20% of face amount, then the loss is 80% making the CDS payment on default $80 million.

That's quite a payment for that crummy $500,000 per year. This asymmetry causes enormous problems.

What is the commercial purpose for such a contract ?

Are there natural buyers and sellers ?

Natural Buyers

These could be bondholders of debt of company X and any other entity that company X owes money to, such as lessors, commercial vendors, etc. There are plenty of these.

Natural Sellers

Hmmm ... who would effectively insure risk of default of company X ? Hmmmm ... ta da dum ta da di dum ... buzzzzzzzz. Time's up ! No one.

That's a big problem. These contracts have no natural commercial existence. Gosh, no wonder they did not exist for over two centuries of modern commerce and finance. Perhaps more, since Lloyd's of London has existed for over 300 years.

Why is this risk not like a simple insurance risk ?

Because each individual risk is hugely correlated with each other. A CDS is more like flood insurance, or volcano insurance, or nuclear contamination insurance. One default of a company impacts the whole network of its customers & vendors. And in a financial panic, a huge swath of companies can default. Gosh .. what just happened in 2008 ? Without government support, a large number of companies would have technically defaulted on debt as the commercial paper market collapsed.

All CDS risk is too highly correlated to be insurable, just like floods. Who provides flood insurance ? The government.

What Moral Hazards Arise from CDS ?

Normally in insurance, one cannot buy insurance unless one has an insurable risk. I can't buy fire insurance on my neighbor's house, since I lose nothing if his house burns. But a hedge fund can buy a CDS now to speculate on and profit from financial troubles of company X. And that same hedge fund could buy up its debt at pennies on the dollar (before default), then refuse to negotiate better terms and cause a default. That's bad.

Also, as company X experiences problems, the hedge funds can "gang-buy" that company's CDS. Without any natural sellers, the CDS market will be quickly flooded, making its debt seem far riskier than the cash market for its debt might otherwise be. So if the hedge fund is short a millions of shares of company X stock, the increased appearance of financial distress caused by overloading the CDS market with buy orders would likely cause the stock to drop precipitously. The beefers profit by creating credit problems via CDS.

This actually happened in many examples in 2008.

What to Do ?

Ban credit default swaps. Make credit insurance a true insurance contract with rules on having insurable interest (such as actually owning the bonds to collect), and tight rules on capital and diversification to make payoff prospects very strong. Regulate the contract like insurance and regulate writers of such insurance as insurance. That's what it is.

Word of the Day

"Asseverate" - verb, transitive [$10] and "asseveration" - noun [$10]
Asseverate means to declare solemnly or emphatically.
Asseveration is an instance of such.
Sentence: Bunkerman hereby asseverates with impeccable logic that all credit default swaps should be banned as unnatural and harmful products for undue speculation.

Wednesday, April 21, 2010

Another Blank Wednesday

I suppose I should not be surprised that nothing is happening. It's Wednesday, after all. Nothing in the news sparks my brain to spew forth some paragraphs of articulate opinion. And I have no pre-prepared post. Sighhhh.

AAPL had good earnings. That's a long term winner in the Sky Fund that has more to go for awhile, but be aware that it often sells off after earnings.

The moral decrepitude of Wall Street is getting sickening, as I hear so many persons there defending Goldman's practices.

Word of the Day

"Misprize" - verb, transitive [$10] literary
Misprize means to despise, score, fail to appreciate.
Sentence: (A) [Shakespeare, As You Like It, Act I, scene II] "Your reputation shall not be misprized." (B) No one but a Financial Viking or one of their symbiotic parasites (or a wannabe) could not mizprize the amorality of proprietary activities of Wall Street. They don't work for customers, they work against them.

Tuesday, April 20, 2010

Disappointing ...

.... to hear that the SEC vote to charge Goldman, Sachs was 3 to 2. Here's the actual complaint ->

In that complaint, one will read that Paulson & Co. paid Goldman, Sachs $15 million to set up the transaction that led to over $1 billion in losses (see paragraph #5). Goldman, Sachs has not yet denied that charge. If true, in my thinking that is a smoking gun for the guilt of Goldman, Sachs ... and Paulson & Co. in an insidious conspiracy to defraud investors. One simply cannot take undisclosed money from one party while purporting to work for another. Since Paulson & Co. paid the "fee" - how can they not be responsible, too ?

Why would an SEC commissioner vote not to proceed ? Both were Republicans. I suppose IF I was a conspiratorialist, I'd think they were paid off or in the pocket of the rich & powerful Wall Street crowd. But as I like to joke (with truth), I've seen black helicopters, so if I can't see a conspiracy, it's likely not there. In this case, I think not.

Perhaps they wanted the SEC to try to settle first. That is the prior SEC modus operandi aka m. o. aka method of operation. Maybe. But after the Panic of 2008 and all that pain caused by Wall Street and the beefers, why keep that old m. o. ? That did NOT serve the public in the past, but was a means for the clique of ruling class lawyers to keep nefarious deeds as quiet as possible. Hence IF that was their reason, it was wrong.

Some Republicans (and even some liberals) have a knee-jerk anti-government reflex action. That's not so bad to have. I have it, too, as a good Fraternal Libertarian. Government fails in so many things it purports to do. BUT any Republican or anyone else with a bit of historical knowledge should know that great Republican President, Theodore Roosevelt, led the fight to bust the big trusts who were strangling the nation to get more wealth for themselves. And one should note that the first Republican President, Abraham Lincoln, favored well-structured internal improvements. The simple fact noted above should have neutralized any knee-jerk reflex against a strong SEC move. Hence IF their knee-jerk anti-government philosophy was the cause for voting no, that was wrong, too.

Therefore I'm disappointed in the Republicans, just like I was on the first TARP vote, which they defeated for incorrect knee-jerk anti-government reasons. That was a massive error that helped let the Panic of 2008 grow to epic size. The markets have only just recovered to pre-first-TARP vote levels. The public really needs an open hearing on all the crimes of Wall Street. This should be a start.

Republicans, think about Theodore Roosevelt's leadership. Stop being stupid and rigid. Adopt some of Theodore Roosevelt's populism. That is the key to winning elections now. You have to be more "Pro common man" .. well, perhaps more like a Fraternal Libertarian :)

Word of the Day

"Marry" - interjection [$10] - this is use #2 in dictionaries; archaic (often used in Shakespeare plays as an interjection.
Marry (2) means expressing surprise, asseveration, indignation, etc. [Middle English from (the Virgin) Mary]
Sentence: Marry, why did those Republicans votes against charging Goldman, Sachs ?

Analogy for understanding its usage: mild interjections that are very common today are "Christ!" and "jeez" (from Jesus), or even "Jesus H. Christ" !! Even "gosh" and "golly" arose from "God!". In Shakespearean times, an interjection that arose from Mary was ... marry !

Monday, April 19, 2010

Financial Vikings

Friday began what I hope is an historical example of "The Truth Shall Set You Free" [John 8:32]. Finally some group in the regulatory swamp in DC finally did their job and investigated some of the failed transactions that helped create the Panic of 2008. The SEC charged Goldman, Sachs - a leading Financial Viking - of misleading investors, and hiding the true nature of a transaction it created.

What is a Financial Viking ? The analogy to the Vikings of old fits rather well. The Vikings who invaded Europe after 800AD and continued for about 200 years were ruthless plunderers who took whatever they could, burned monasteries and towns, and killed anyone in their way. Then later they settled in conquered lands and set up aristocratic feudal states. William the Bastard - Duke of Normandy - later William the Conqueror and then William I, first King of England, was a descendent of the leader of a Viking band.

A financial viking is a firm (Wall Street or beefer) who trashes, loots and plunders anyone it or he can in financial trades in any manner possible. They use their great wealth and power to ... get more. They lure sleepy institutions into dumb trades: heck, internally they call them the "dumb money". They don't care if that leads to job losses or the bankruptcies of innocent people. They hide behind phalanxes of well-paid lawyers and boilerplate risk language.

Financial Vikings shorted huge amounts of stocks while buying credit default swaps on those firms. They were trying to cause defaults by spreading fear and panic. And like the Vikings of old, they operate in loose bands. One would blow the horn to attack (likely using unrecorded instant message systems), and the others would start to hammer the stock and swaps.

And they created artful lures to get more from the "dumb money". The transaction created by Goldman Sach at the heart of the SEC charges is well described in this link ->

I have seen the Goldman Sachs "pitchbook" for the Abacus 2007-AC1 offering. This "document" is grossly misleading. The pitch goes to great lengths creating a sham that ACA was the creator of the offering, managing it, and structuring it. GS is portrayed as simply the initial buyer of the securities. The core role of Paulson is not mentioned. The entire transaction was a lure - a trap - for "dumb money" to enter the lair of Paulson & Co. Dracula had to lure his victims to his clutches: "Enter freely and of your own free will" [Dracula, by Bram Stoker, Chapter 2, page 2. And the Financial Vikings had to do that to continue to drink the blood of the dumb money.

I hope that the Department of Justice and the New York State authorities investigate this as conspiracy to defraud investors, and include Paulson & Co. in that. That firm is a quintessential Financial Viking. Sure, he saw a problem - a fire starting in residential mortgages. He proceeded to throw gasoline on and spread the fire everywhere to burn as much of the forest as possible .. for his own gain.


Friday's Wall Street Journal describes the new headquarters of Goldman Sachs. That building is so representative of that firm. The aristocracy of the "partners" have palatial offices. The rest of the vassals and serfs get demeaning and uncomfortable desks and cubicles. Sure, they might be well paid. But they have to kiss the books of their Lords, the "partners", every day before being sent out to loot the public and "dumb money". Goldman Sachs is a band of Financial Vikings trying to create an aristocracy of the rich & powerful in the US and the World. Until recently their "partners" were part of what seemed like an exchange program for the ruling classes, going on to high offices in the US government. That all has to change.

Financial regulatory reform must put all Financial Vikings and their weapons (derivatives, etc.) under chains and locks.

And More

Goldman, Sachs hid the fact of the SEC investigation [ the "Wells Notice"] from the public. Amazingly brazen !

Word of the Day

"Misprision" - noun [$10] [pronounced mis 'prizh un] from Shakespeares's "As You Like It".
Misprision means (I) (Law) 1. the deliberate concealment of one's knowledge of a crime, treason [misprision of a felony, treason]; 2. a wrong act or omission; 3. neglect in preventing or reporting a crime; 4. maladministration of public office. (II) 1. a misreading, misunderstanding, etc.; 2. (usu. foll. by 'of') a failure to appreciate the value of a thing; 3. (archaic) contempt (see related verb 'misprize')
Sentence: How many people in the financial community - lawyers, compliance, management, on and on - are guilty of misprision ? The numbers are likely countless: well-paid enablers of the looting.

Friday, April 16, 2010

TGIF ... and a some thoughts

Yup, and I'm tired. It's been a long week.

Below is a slight modification of an old post from mid 2008 when the Panic of 2008 was getting really bad. I updated it by changing "populist libertarian" to Fraternal Libertarian. For reference, at the time written, the price of oil was about $140 per barrel and the financial market panic was getting much worse - soon to implode completely.

***Old post begins***

Tuesday, June 24, 2008

Speculation is not a Dirty Word

For all my rants against beefers (aka big, evil funds) and oil market speculators, I want to make it explicit that speculation is neither a dirty word nor a dirty business. Everyone should be free to speculate to the extent of his or her desire. That's what freedom means and clearly, being a fraternal libertarian, you expect that from me.

But ...But that means as a person ... not a giant pool of big money. Human freedom is to be exalted, but not groups of big money pools. Those need to be regulated and / or prohibited from trashing crucial financial markets, and overwhelming natural hedgers by their sheer size and thus manipulating prices higher in the same manner as the old "corners" on markets.

And the rich pour money into these pools in the search for "excess returns" and "stable returns". Do they invest in a new oil field ? Or a new mine ? Or in new discoveries ? No. They pour money into financial products and beefers who act as their Vikings to loot more plunder in trading pools. The rich should just find a good broker to pick some stocks and private investments in new mines, oil, or ventures. This layer of beefers needs to be heavily regulated.

Fraternal Libertarianism is a two word concept. The "fraternal" part means that the big pools of money, the ruling classes, must be limited in their ability to raid the common man.

***Old post ends***

Back to now

Later in the fall of 2008, the financial Vikings did destroy the markets. They cause a worldwide panic much like the original Vikings did just after 800 AD. Then everyone had to hide in castles and towers or in the woods to avoid their depredations. Later in 2008, many persons and institutions moved all their money to T-bills and hid, shriveled up and terrified of the raids.

Now the markets have recovered just to pre-October 2008 panic levels. The economy is back to a sort of normalcy, with a huge loss in economic wealth and human capital in the millions of unemployed and underemployed. And it truly did not have to get that bad. The beefer Vikings caused the Panic. If the financial reform bill does not address them, then it will be a failure.

Regulate hedge funds, Wall Street trading operations, credit default swaps. Banks should be banks, not securities trading operations. Any "bank" not making loans should be forced to cease being a bank and lose the right to take deposits.

Money has to circulate in the small towns and cities across ALL of America. Big banks should not suck it all out to play in securities trading in NYC, etc. Regulate all the big money pools much more: make them serve the common man more, and not be used to fund speculation.

Word of the Day

"Genuflect" - verb, intransitive [$10]
Genuflect means to bend the knee.
Sentence: It's time to make the money masters genuflect to the common man; for too long they have acted like lords over all people. Make them submit to stronger regulations that benefit the common man.

Thursday, April 15, 2010

Tasty Bite

Food is one of my favorite topics. A problem with much customary American food is that it's rather boring. That doesn't mean I don't like it: I love simple foods like mashed potatoes, cheese burgers, and so on. I've even written about a simple fried egg here.

But after awhile, one wants more exposure to the exotic foods and flavors of the world We read about those, but except at a restaurant, can't get it simply. Now it's available.

Tasty Bite is the name of a panoply of superb Indian cuisine that can be prepared very easily and added to rice, vegetables and other dishes, or just eaten alone for lunch. All are all natural and vegetarian. I'm not a vegetarian, so often add some chicken (the Purdue prepared chicken strips are great and easy). I'm looking at a product called Paneer Makhani: it's "homestyle paneer cheese in a creamy spiced sauce." The product has just 240 calories. One boils the pouch in water for five minutes or microwaves it in a bowl for 90 seconds. That's it.

The Indian spices are superb - sooooo tasty. And not "hot". I don't like "hot" spicy foods; they are usually too hot. Mild is OK.

Tasty Bite makes many different flavors; all have been excellent. We first found this product at Whole Foods. But that's no longer convenient for us, so we bought a case online and put that in the pantry. Shelf life is months. See

Some are suitable alone for lunch, like a vegetable stew, but with incredibly tasty exotic spices.

This is a five star product family in my book.


More up. This feels like a crowd of penguins edging closer & closer to the ice cliff. I'll check the Krypto Fund for orders later this AM. I've been compared to a perma-bear in the commentary lately. That seems inappropriate to me since I was targeting S&P 1200 last summer and was ridiculed widely [ ahem, by that same critic ;) ]. Now we are there. I have more strong urges to cut back. I'll stick with Krypto, though. She's a super fund manager. Good doggie. Here's your fee - a tasty dog treat.

Word of the Day

"Limn" - verb, transitive [$10]
Limn means 1. to describe, to portray in words; 2. (archaic) paint (esp. a miniature portrait); 3. (historical) illuminate (such as a manuscript).
Sentence: It's quire impossible to limn the taste of Tasty Bite Indian cuisine - the flavor is as tasty as the illumination of a manuscript is beautiful.

I came across this word first in Goethe's Faust - the Great Books edition, Dedication, line 3. Recently, it was also in the Book of the Week - Braddock's March, page xiv. Without checking the true meaning, one would guess wrongly from this sentence: "lessons from that experience that are limned deep in the American self-conscious." It doesn't mean the lessons are deeply etched or engraved - it mean the picture - illumination - is placed deep in the self-conscious.

Wednesday, April 14, 2010

Bunkerman Busts Billionaires ... a reprise

Something that has bugged me for awhile recurred this AM while I was watching Blabberg - aka Bloomberg TV.

Why oh why do we or does anyone care about what one - or two - or many - billionaires are doing ? Why do we care what they think ? Blabberg has another piece about what George Soros thinks. And then had a piece about some Brazilian billionaire trash-talking about how he's gonna be the World's Richest Man soon. And another piece on what some billionaire investors are doing ... to make more money.

Most of these guys seem unable to do anything except try to make more money. Or talk about it. Or try to get power with it. Most do nothing good for humanity with it. Sheesh, what a morally and philosophically worthless class ! Thus I have decided to reprise one of my early blog posts from August 19, 2007.

***Old Post Begins***

Uses of Wealth

The private enterprise system and private property [aka that Marxist term "capitalism" that I dislike] fantastically motivates people to create wealth. Some create great wealth. Here's a quote from Thucydides that sparked my thinking - perhaps I first read it referenced in Erasmus' "Praise of Folly". The quote is from the famous oration of Pericles.

"We cultivate refinement without extravagance and knowledge without effeminacy; wealth we employ more for use than for show, and place the real disgrace of poverty not in owning to the fact but in declining the struggle against it."

Other than Bill & Melinda Gates, who among the modern mega-rich emulates the beneficence of Andrew Carnegie who donated everything to create libraries in multitudes of small towns in America, including my home town? Following Pericles, his great wealth was quickly used to increase the intellectual capabilities of the entire nation. It was not hoarded in trust or a foundation to perpetuate the glory of the donor. The Gates Foundation has a fixed time limit to spend - use - all the money.

Modern rich and powerful people lobby to eliminate the rule against perpetual trusts, so they can create a new de facto nobility [not de jure as no titles can exist in America thanks to the Constitution, Article I, Section 9]. Named foundations are created that, barring stupid investments, last forever as independent institutions. Their independent boards of trustees over time can completely diverge from the donor's wishes - only the name is perpetuated. The Ford Foundation is the quintessential example.

And then I read Bill Gross in the WSJ, August 4-5, 2007 issue, page B4: "... now is the time, long overdue in fact, to admit that for the rich, for the mega-rich of this country, that enough is never enough ..." and "... "A thirty million dollar gift for a concert hall is not philanthropy, it is a Napoleonic coronation."

Much of the mega-rich seem to just want more, or to be able to brag about their "returns", hence the current infatuation with hedge funds. Or the money is spent in great shows of extravagance. Many modern mega-rich emulate dukes & princes in the past courts of Europe in their opulent parties, colossal mansions, and vast landholdings. Or endowing events and groups with the primary purpose of creating a perpetual edifice inscribed with the donor's name. Or donating to universities for fund named endowed professorships or named institutes therein. Younger scientists - those actually making most of the discoveries ... get little.

Is using the funds for increasing the capabilities of the human race ever a consideration?

Some do. A recent WSJ article about a conference in mathematics sponsored by the American Institute of Mathematics that was founded by John Fry seems to be one fine example. From its website:"The American Institute of Mathematics, a nonprofit organization, was founded in 1994 by Silicon Valley businessmen John Fry and Steve Sorenson, longtime supporters of mathematical research.The goals of AIM are to expand the frontiers of mathematical knowledge through focused research projects, through sponsored conferences, and through the development of an on-line mathematics library.

In addition, AIM is interested in helping to preserve the history of mathematics through the acquisition and preservation of rare mathematical books and documents and in making these materials available to scholars of mathematical history."

Pericles would approve.

Citation: Great Books, Vol. 5, Thucydides, page 397, section 40.

***End of Old Post***

Billionaires ... ptui. Do something good for humanity.

Word of the Day

"Chilblain" - noun [$10]
Chilblain means a painful itching, swelling of the skin usually on a hand, foot, etc., caused by exposure to cold and by poor circulation.
Sentence: Most billionaires are chilblains on society.

Tuesday, April 13, 2010

Lists ...

When one learns Latin with Wheelock's fine text, "Wheelock's Latin", one translates many, many sentences about tyrants. For example, one finds exercises with 16 ways to say, "The tyrants were driven from the city" using difference cases and verb tenses. The Roman people knew about tyrants and feared them. This is why a Roman citizen had the right to a trial. Tyrants like Sulla just put names on lists for "proscription", i., e. killing. Lists of the proscribed had names added for many reasons, such as the coveted estates of the doomed.

The writers of the US Constitution knew about tyrants, too. That is why they wrote the Treason clause in the US Constitution. They knew about abuse of the charge of Treason from the history of England, hence the very specific rules for treason charges of Article III, section 3 and the limit on punishment from running to a person's family [working Corruption of the Blood] and even limiting forfeiture.

I wrote about these matters in a prior post [see February 16, 2010, "The Fundamental Rights of American Citizens"]. Now we have more information:

Here's the key part: "Today, both The New York Times and The Washington Post confirm that the Obama White House has now expressly authorized the CIA to kill al-Alwaki no matter where he is found, no matter his distance from a battlefield." And: "in Barack Obama's America, the way guilt is determined for American citizens -- and a death penalty imposed -- is that the President, like the King he thinks he is, secretly decrees someone's guilt as a Terrorist. He then dispatches his aides to run to America's newspapers -- cowardly hiding behind the shield of anonymity which they're granted -- to proclaim that the Guilty One shall be killed on sight because the Leader has decreed him to be a Terrorist."

From The Mikado of Gilbert & Sullivan:

As some day it may happen that a victim must be found,
I've got a little list — I've got a little list
Of society offenders who might well be underground,
And who never would be missed — who never would be missed!

That's quite humorous in the Gilbert & Sullivan play. But it's not funny now. Barry has a little list. Who's on it and why ?

And More

I'm waiting for the screeches from the American left. We can only imagine the demonstrations if George W. Bush had done this.

From the link about: "And what about all the progressives who screamed for years about the Bush administration's tyrannical treatment of Jose Padilla? Bush merely imprisoned Padilla for years without a trial. If that's a vicious, tyrannical assault on the Constitution -- and it was -- what should they be saying about the Nobel Peace Prize winner's assassination of American citizens without any due process?" [my emphasis.]

Maybe Barry should get a new nickname, something like Sulla.

Populus tyrannum timuit. The people feared the tyrant.

Word of the Day

"Dyslogism" - noun [$100]; from "Dyslogistic" - adjective [$100]
Dyslogistic means conveying disapproval or censure; not complimentary or eulogistic.
Dyslogism means an example or instance of dyslogistic speech or behavior.
Sentence: (A) Many comments in this blog are dyslogisms towards other commentors. I guess that's OK - a free fire zone for free speech has to be ... free. (B) How can any principled person write or speak about Barry's list in other than quite dyslogistical terms ?

Monday, April 12, 2010

Monday Meandering

First, I want to express my deepest condolences to all the people of Poland and all Polish people everywhere on Earth for the horrible tragedy of Saturday. To lose so many national leaders in so many fields at once is stunning and terrible. Considering relative sizes, we in the US must multiply the loss by 10 to get an idea what the impact of a similar loss would be. So far Poland is pulling together and mourning as one. And initial clues are that the tragedy might pull Russia and its people out of their old delusions. Putin's recognition of Stalin's guilt at Katyn started that thought a few days before; now the tragedy is forcing people in Russia to recognize Poland's loss both then and now. See this story for more commentary:


The Greece mess continues. Some in the EU seem to want to do something, but that Union's weak executive and weak powers are preventing acting with deliberation and speed. The markets want to see the money. Why not just let the IMF do it ?

Book of the Week

A new book just out - Braddock's March, by Thomas Crocker - is very good. This book covers that organization for and the actual march by a large army into the wilderness to attempt to drive the French from the area where Pittsburgh now is, to prevent the French from strangling the English colonies with a string of forts. Braddock's army is eventually crushed by the French and Indians. This battle started the French and Indian War which determined the future path of North America.

The book is very well researched, drawing mostly on letters and diaries and other first hand sources of the people involved. The crucial importance of this march and battle arise from several factors: its own significance in the start of the war, that many American leaders of the Revolutionary War got their initial military experience in it, including George Washington, and that this close contact between British officials and Americans started the tensions between Americans and British persons as American began to recognize their freedom would be lessened by more British control.

Word of the Day

"Vincible" - adjective [$10] literary
Vincible means that can be overcome or conquered.
Sentence: The weaknesses shown by the British in their defeat in Braddock's March might has simmered in George Washington's mind and helped him recognize that British military power was vincible in the American environment.

Friday, April 9, 2010

The Optimal Political Economic System

In Socratic dialectics, a dialogue between two sides occurs and over its course it may be resolved with new insights. Aristotle argued for the correct, virtuous optimum as being a balance between two extremes. In Hegelian dialectics, a thesis gives rise to its reaction, the antithesis. The two conflict and are resolved in a new synthesis. And then ... Bunkerman in his two posts on "The Way the World Works" (see October 27, 2009 and January 28, 2010) argues the world - microscopically and macroscopically - is an optimal combination of two or more states optimized considering all possible paths in space and time and ... people.

After four days of posts that critically analysed Capitalism and Socialism by examining and describing the Good and the Bad parts of each system, now is the time to synthesize the findings into a golden mean - a virtuous system that is created by combining the two systems into one that can optimize the aggregate happiness of all people. That is the object.

By breaking down Socialism and Capitalism into their extreme good and bad parts, the reconstruction of a better system is rather easy. We simply take the good parts and eliminate bad parts. As the old Bing Crosby song goes, "... accentuate the positive, eliminate the negative ..."

1. Start with Capitalism - we extract its pure Libertarian core as a starting system. This gives us its economic freedom to find the best way to do & combine resources of people and things, and its motivational and innovational strengths. The Good of Capitalism is kept.

2. Add governmental restrictions - limits, taxes, intergenerational (temporal) transfers - on the wealth and power of persons (natural and corporate) at some high level. This firmly prevents aristocracies from forming. The Bad of Capitalism is eliminated.

3. Use the funds & resources from #2 to fund help to the poor, unlucky or marginalized persons and for limited common shared benefits. This gives us the Good of Socialism: a sense of community support and reduced the risk for all.

4. Add hard, legal - including constitutional limits - on the power of government and its ruling classes. This eliminates the Bad of Socialism.

That is the optimum system of political economics - and lo and behold, we see it matches Fraternal Libertarianism as derived independently from simple axioms - see blog post of January 29, 2010. The robust nature of the superiority of Fraternal Libertarianism to both Capitalism and Socialism is strongly supported by the fact of our having derived this system from two different, independent techniques.

Fraternal Libertarianism is the goal we all should work toward ... bit by bit ... incrementally. Fraternal Libertarianism is complete freedom for the common man, tough restrictions on the rich & powerful ruling classes, and support for the poor, unlucky and marginalized people - a strong safety net - and limited common shared benefits. If we can get momentum and keep it towards national and worldwide Fraternal Libertarianism, the US and the world will become a better place for humanity and all its peoples.

Word of the Day

"Conflate" - verb [$10]
Conflate means to combine into one whole (two variant texts for examples).
Sentence: Conflation of the Capitalism and Socialism and concomitant nullification of their Bad parts, leaves the Good parts of both; the resultant unified system is the optimal system for human political economics: Fraternal Libertarianism.

Thursday, April 8, 2010

The Good & Bad of Socialism & Capitalism. IV

As promised, today I will write about what's bad about Capitalism. I'll also include at the end a "PS" on a bad element of Socialism that I inadvertently omitted (OK, I forgot).

What's Bad about Capitalism ?

Unfettered Capitalism over time tends to lead to the creation of aristocracies. The many dimensions of freedom in Capitalism conflated with the many dimensions of human differences, and both then perturbed by simple luck (good & bad) and the world environment, tend to create powerful aristocracies (merited and unmerited) with great economic power. These people can then use that power to obtain more economic power and political power to get ... MORE.

The economists miss this in their theories which mostly use static, equilibrium methods. For an astronomical analogy, Kepler solved the problem of the shape of the orbits of planets around the sun in static equilibrium (they are ellipses). BUT Newton's theory of gravitation provided the insight to understand what happens when a stray asteroid (or more distant planet) perturbs those orbits at some time. Time is the key added dimension to the analysis. The dynamics in Newton's time-dependent equations of motion let Herschel discover Neptune from its perturbation on the orbit of Uranus.

Dynamics of Capitalism matter hugely. When firm goes bankrupt, it often disappears. Zero is zero and hitting zero causes the firm to be zeroed out. Huge (and successful) firms in dynamic Capitalism gain more market power and profits. A big firm can usually borrow money at less cost, negotiate larger price discounts and buy more political protection and thus gain a larger advantage over smaller rivals. The owners (if concentrated as in the 19th Century gilded age) and / or the rulers (CEOs and top management in today's large public firms) gain more and more wealth and money and then begin to act like Dukes & Earls & Barons. The popular press call them Barons of industry with good cause.

Like mafia dons, the Barons buy more and more political power and protection through legions of lobbyists and contributions, and purchase subsidies and rights from the politicians. All this feeds on itself more and more. It's a dynamically unstable process. Yes, purely unfettered Capitalism is a dynamically unstable process leading to more and more concentration of wealth and power into an aristocracy of wealth and power.

We know from numerous historical examples that powerful and growing aristocratic class leads to the fall of a nation over a few hundred years. Simply put, the aristocracy takes more land and power and wealth from the common people AND from the central government. The common people who truly give the nation its military and economic power get weaker and weaker as a class, losing any stake in the success and life of the nation. Eventually the process bursts into an ugly revolution or the nation is so weakened that external enemies can overwhelm it.

Examples of nations destroyed by aristocracies are ancient Rome, the later Eastern Roman empire, the Mameluke empire, the Commonwealth of Poland-Lithuania, and the kingdom of France.

In a democracy, a populist force of stabilization can arise. The US saw this in the "Square Deal" of Theodore Roosevelt which led to changes that curtailed the power of the Robber Barons. Later his distant cousin's "New Deal" brought forth other legal forces of stabilization that reduced the power of the money barons and the large corporations of that era, such as fair union organizing rules, the Investment Company Act and the SEC. The common man needs a fair deal in his relations with the economically stronger units of Capitalism that must arise. Some limits are need to protect the crucial common man from being ground into serfdom.

That great economist Friedrich Hayak missed this other Road to Serfdom. At the time (1940), it was not on the world's "radar screen" - not a big problem - so he had a good reason to not dwell on it. Today, however, we see this grotesque creature again. In the late 1990s, the technology barons grabbed huge amounts of wealth and power in the technology stock bubble. In the first decade of the 2000s, the financial barons (hedge fund managers, Street leaders and traders) grabbed huge amounts of wealth and power. In both periods the CEO club members have grabbed more wealth and power. Yet in this 15 year period, the common man in the US has gotten NOTHING extra after taxes and inflation. Nothing. Why ?

The budding aristocracies in the US are taking all the growth and profits for themselves. The common man sees his pension cut, his wages stagnate, gets laid off and or more work piled onto him. He works longer hours for the same or less. He has to take a second job. Etc., etc., etc. The ruling class in DC does nothing as they enjoy their own perquisites of office They even conspire to give more power to the large corporations was the expense of small business and the common man.

Demagogues like Obama use this discontent to grab more power for the State. That's no good for the common man either. We need new leadership to get the common man a 21st century "Square Deal".

Tomorrow I will write about what I see as the solution - the optimal political economic system.

PS: More on "What's Bad about Socialism ?"

If Socialism evolves to create a larger and larger state sector of the economy (and not simply regulate or transfer wealth), those well-connect groups will gain more political power and use that to grab more and more wealth for themselves to the detriment of those outside the State tent. The sector then acts like the powerful under Capitalism to grab more and more for themselves. We see this process in Socialist Greece now. And we see it stick its head up in Britain, France and other nations with more Socialist dimension to their economies. We also see it in the US public sector now. The same dynamics that lead to Robber Barons in unfettered Capitalism leads to a preferred class in Socialism.

Word of the Day

"Vitiate" - verb, transitive [$10] an oldie from the card file
Vitiate means to make faulty or defective often by the addition of something that impairs. Alternate definitions: 1. to impair the value or quality of; 2. to corrupt morally, debase; 3. to make ineffective, invalidate.
Sentence: The powerful forces that make Capitalism a good, hugely beneficial system also vitiate it by leading to aristocracies over time.

Wednesday, April 7, 2010

The Good & Bad of Socialism & Capitalism. III

After writing about what's good about both Socialism and Capitalism, now it's time for the bad side of them. Today it's Socialism's turn.

What's Bad about Socialism ?

The fundamental problem with Socialism is both practical and theoretical, and can be summed up with the simple question, "Where Do You Draw the Line ? "

Once a governmental system begins to re-allocate resources according to a principle of equality, does it go all the way to total equality ? If so, that goal conflicts with the observable facts that people are different and have different wants, needs, desires, abilities and motivations. The US Declaration of Independence proclaimed that "All men are created equal", not that "all men are and shall be equal at all times."

That conflict CAN drive Socialism to become a system of envy and jealousy as inherent differences in human beings conflict with the principle - and the principle of equality applies only to some situations; it is NOT a universal law for all times, places, events, and persons.

This conflicts leads to the big, bad, dirty part of Socialism, that it is very, very susceptible to attracting the ruthless and power seekers. The re-allocation of resources and wealth that Socialism must do to help the poor and unlucky can become a force used by ruthless cliques to drive human mobs and ruthless cliques to let them seize power. Masses of humans under stress are known to be susceptible to mass delusions. Ruthless cliques use this nature to drive the mobs. The inherent differences in people become icons of hate and envy for the mobs as they seek revenge for past slights. "Equality" becomes a slogan and means of getting even, not a means to move to a higher plane of happiness.

Examples of this in the 20th century are profound: Mussolini's fascism in Italy, Nazism, Bolshevism, and Mao's Red China. If you don't realize how the ruthless gain and seize power in times of stress using Socialism as a force to drive mobs, read a past Book of the Week, "My Life as a Rebel", by Angelica Balabanoff. She was personally involved in the Bolshevik revolution, personally knew both Mussolini and Lenin well, and was a leader in the true Socialist revolutions; she maintained her belief in its principles. The ruthless did not.

Modern examples are Chavez's Venezuela, Castro's Cuba, and North Korea. All proclaim forms of Socialism as their system, but all are just dictatorships of a clique or family. Socialist doctrines are just propaganda to drive the masses.

When the force that binds the community and creates workable Socialism is not sufficiently strong to prevent a clique from seizing power, then history seems to show that is exactly what will happen. In the old Russian empire, there was little common ground among the people of that huge empire. Bolshevism took over, and evolved itself into rule by a bureaucracy -nomenklatura - of selected high Party officials. Nazism operated similarly: a decentralized system of Gauleiters subject to the edicts of the Führer. Red China today operates similarly in the political sphere, but permits (for now) rough economic freedom.

I don't need to reiterate the monstrous evils of these natural mutations of Socialism: one example will suffice. Today there is a ceremony marking the massacre of thousands of Polish officers in the Katyn forest under Stalin's orders and conducted by his killers in the old NKVD, the direct predecessor of the KGB. Stalin wanted to incorporate Poland into his evil empire operated under the guise of Socialism. Getting rid of potential leaders of Poland furthered that goal. Humanity means nothing to the ruthless persons that unfettered Socialism attracts to its leadership. Rule of the ideology leads directly to Totalitarianism and its evils exemplified in the 20th century.

Friedrich Hayak wrote about this in his famous book, The Road to Serfdom, written around 1940. He was right, as events proved over time. Socialism without true community bonds is a very risky system.. The force of the community bonds that help Socialism work also can repel the ruthless when they seek to divide the masses and use envy and jealous to gain power over the mobs. The same forces that help Socialism work also help to maintain and stabilize it.

Can Socialism work in a multicultural nation ? That is neither proven nor obvious nor even theoretically likely. Examples of where socialism work are homogeneous nations: the individual Scandinavian nations, Germany, France, Italy, etc. But cracks and tension are evident in France as the Muslim minority does not assimilate into French culture. Germany dealt with its large Turkish minority of "guest workers" by expelling them. As nation cannot do that to its own citizens with stepping closer to, and risking, genocide.

For Europe, a federalist system might let Socialism rule in the individual nations, and a true federal government might provide a means for the cooperation and coordination of nations. Time will tell if it works. I hope it does.

PS: Tomorrow I'll write about what is bad about Capitalism.

Word of the Day

"Transmogrify" - verb, transitive [$10]
Transmogrify means to change or alter with grotesque or humorous effect.
Sentence: Without strong community bonds, Socialism seems to tend to transmogrify into a ruthless totalitarian system. That transmogrification can happen very quickly and even the earliest transition phase into Socialism can go beyond it directly into totalitarianism.

Tuesday, April 6, 2010

The Good & Bad of Socialism & Capitalism. II

Yesterday I wrote at length about, "What's Good about Socialism?", and as promised, today I write about ->

What's Good about Capitalism ?

The proper name for the political economic system commonly called Capitalism is the free, private economic system [see blog post of July 28, 2008]. Yes, it's clumsy, so I'll reluctantly use the Marxist term, Capitalism, and will assume a "perfect" form for today's exposition, unmodified by what has happened in modern, mixed systems or how pure Capitalism can - and has - mutated on its own.

The freedom inherent in Capitalism permits each person individually to pursuit his maximum happiness derivable from the material world. That person is maximally motivated to work hard and innovate as he keeps everything he can realize from his efforts. He is completely free to form associations with others, such as limited liability corporations or partnerships or any other beneficial form, and to work jointly with them on new endeavors that seem profitable.

The private ownership inherent in Capitalism provides for free movement from farm, town, city, region or even nation. He owns his property and factories himself in fee simple title, unfettered by governmental rules or regulations. He can move himself, move his factory and / or his money anywhere he thinks he can achieve more. He can alter, adjust, divide, or combine all those resources of money and property however possible to increase his profits and wealth as he freely desires.

Capitalism creates optimal prices of exchange of goods and services completely internally and self-consistently. No government determines the prices - the Capitalist system creates them and changes them as needed to maximize wealth. Capitalism internally prices the transfer of money and resources over time self-consistently: the value of consuming now versus saving for the future is determined by Capitalism. No government specifies it. This emphasis I make on self-consistence is crucial: only a self-consistent system can operate and evolve on its own without external support. By optimally pricing the transfer of goods and money over time, Capitalism becomes a dynamically optimal system, meaning it will seek own its own to increase wealth over time. The simple individual motivation and freedom of the free persons comprising a free, private enterprise system - Capitalism - will tend to do that.

One can mathematically prove under very general conditions that under this system of pure freedom and private ownership that the pure sum of linear wealth over each person in a Capitalist society can be a maximum. Yes, Capitalism can produce more wealth.

Examples from the world support this. Under a fairly unfettered form of Capitalism, the United States grew from zero to become the richest nation in the world in just about 250 years, surpassing the Old World which had 5,000 or more years to create wealth. China under Mao was a poor nation. By adopting much of the system of free, private enterprise to liberate the Chinese peoples as individual persons to create wealth, China has rocketed past many other developing nations which are still burdened by Old World ideas of socialism, such as India.

Capitalism motivates innovation. Persons with good ideas can start businesses, raise money, operate as they see fit, sell or market their goods and services anywhere they wish for whatever prices they can charge. With the maximal freedom that Capitalism offers, again, one can mathematically proves that such a firm would be able to create more wealth in the system of Capitalism than in any other system. Of course the US provides innumerable examples of this innovation and massive wealth creation.

Old Europe also provides examples of the success of moves toward Capitalism from the older systems: England in the 19th century and Netherlands of the 17th century come to mind.

Capitalism - the free, private enterprise system - is provably superior to all other systems for the creation of wealth and does work in systems of human beings to produce massive wealth from nothing.

Notice I used the conditional "can" and "would" in describe the provable superiority of Capitalism. Person are free - they have free will - and do not necessarily always make the correct decisions to maximize that wealth.

Tomorrow I will write about what's bad about Socialism.


I will check later to see if Krypto has any sell orders. Also I point out that the price for TIPs is approaching my initial level (102 is my first level) to move some cash to TIPs. [TIPs are Treasury inflation protected securities. I invest in those in tax-free IRA accounts.]

Word of the Day

"Puissance" - noun & adjective [$10] archaic & modern & literary
Puissance means (noun - archaic) strength, power; (adjective - literary) having great power or influence, mighty; (noun - modern) a test of a horse's ability to jump large obstacles in showjumping.
Sentence: The puissance of Capitalism for creation of wealth is incontestable and unsurpassed by any other political economic system.

Monday, April 5, 2010

The Good & Bad of Socialism & Capitalism. I

This is part one of a four part blog to summarize what's good and bad about socialism and similarly, what's good and bad about capitalism. I'll use those Marxist terms for both, even though in prior posts I've pointed out how inaccurate and pejorative they are in both directions.

Why this subject ?

The Panic of 2008 has created a huge wave of talk about changing "capitalism" with little true thinking about what it is, what is being changed and to what object is the change made. Without good theoretical and practical thinking, all this talk becomes blather and often a insidious power grab by bureaucrats and politicians. I will employ simple analysis of the basics of both and draw on actual examples of successes and failures as proofs for what I call the "good" and the "bad".

Today the topic is "What's Good About Socialism".

Socialism, or perhaps more accurately called communitarianism (NOT communism) - my preferred term is fraternalism - stresses that people should share and live in communities (as brothers or sisters) where all share in the work and product of the community "fairly", that no one take an outsized, disparate portion of the community's wealth, and all contribute to the care of the poor and indigent and simply unlucky. Aggregating many communities gives us an entire society, hence the term "socialism". Fine.

Does it work in theory and practice in aggregates of human beings? Yes, it can work. Of that there is no doubt. Socialism began very early in the 19th century in many small experimental communities in Europe and the US. You might be surprised by the US being a crucible for much early experimentation, but yes, it's true. Several scholarly books which I own and have read document a very large number of "communist" experimental communities (aka "utopias") in the US north and Midwest in the 19th century.

These were communities formed completely voluntarily - not by force by government. And yes, they did succeed providing much happiness for their members. People could join and could leave. So they had freedom, and thus prove that humans can live in such communities freely and achieve the "pursuit of happiness". BUT most of these communities broke up or failed after a few decades. Not all failed. Some still exist, but many are now historical sites to be preserved for education of the people about their past and for tourists, such as Zoar Village in northeast Ohio.

So these are definite counterexamples for those (many on the US right) who say socialism can't work. A counterexample - one - definitively disproves a hypothesis. Socialism can work and can provide happiness for its members.

The elevated good of socialism comes from the reduction in the negative: the community helps those in need (for whatever reason) and thus the aggregate happiness of the community is increased. And as I've proven in prior posts, under basic economic theory, that aggregate amount of increased happiness of those helped is MORE that the reduction caused by reallocation of resources away from some, due to the principles of diminishing returns and risk aversion.

In the experimental communities, this reallocation was voluntary in the sense that no one had to participate to remain in the community. Some "force" (in the general sense analogous to the force of gravity) is needed to bind the community as many humans are selfish by nature. In the experimental communities, a religious belief or the ideology of the community or even a charismatic leader provided the force. IF the force came from a charismatic leader, that was bad - after the passing of the leader, usually the community broke up. Religion or ideology worked better.

In modern nations, socialism has succeeded in nations like Norway, Sweden, and Denmark, permitting much happiness for their people. There is no doubt those nations are very prosperous and the people are quite happy. Socialism - to the extent its precepts are employed in those nations - also works in Germany and France. It has evolved in fits and starts in both, with some very bad turns, but now seems solidly entrenched and no doubt the people are mostly happy with the results. They freely return governments that intend to preserve its tenets of community care and support. Why deny it, as the American right often does? Facts are facts. Socialism can work and provide much happiness for people living in those places.

In modern socialism applied in nations, this reallocation is not voluntary (except as controlled by democracy IF that exists in the nation). But people can emigrate. If, as the American right spouts, socialism is so bad, why don't people leave those nations ? There is no wall or force of troops keeping Norwegians in Norway. Some nations welcome immigrants. Australian does, and the US does to a limited extent. These is no flood of Norwegians seeking to move to the US. Many or most Norwegians know English, so language is not a barrier. Neither is culture much of a barrier since American TV and movies are sooooo prevalent and viewed worldwide. Let's face it - socialism in Norway and those other nations does work without loss of much freedom.

Now look over that list of successful implementations. What do they all have ? They all have a relatively homogeneous population and shared culture. That provides a strong, nongovernmental force to hold the people together. And it provides a true sense of community values and feelings for each other. Sweden has only about 10 million people. Norway and Denmark have about 5 million each. Those are just the size of one major city in larger nations. France and Germany are larger, but are now internally bound by strong language and cultural ties that did not exist before around 1800. The force: shared culture, langauge, history and values. This should be no surprise as those are the foundations of what we would call a Community.

That's the good part of socialism: increased aggregate happiness for the people. Socialism can achieve its objective as proven in small and larger societies. BUT it does seem to need a force to bind the communty together. No successful multicultural, socialist society exists or has existed ... yet. Whether the EU can achieve a federalist - and multicultural socialist - society remains unproven.

Tomorrow I will write about what's good about capitalism.


Waiting. No new sell orders from Krypto as the rise in equity prices is rather uniform. I suspect that a few % more up will create some sell orders.

Word of the Day

"Abecedarian" - noun and adjective [$100] from reading Montaigne's Essays.
Abecedarian means (noun) 1. a person who is learning the letters of the alphabet; 2. a beginner in any field of learning; (adjective) 1; of or pertaining to the alphabet; 2. arranged in alphabetical order; 3. rudimentary, elementary, primary.
Sentence: This week's series of post will provide an abecedarian overview to the good and bad of socialism and capitalism.

Usage from Montaigne (Essays, Book One, 54 in Great Books, volume 23, page 191) "It is said with some plausibility that there is an abecedarian ignorance that comes before knowledge, and another, doctoral ignorance that comes after knowledge: an ignorance that knowledge creates and engenders, just as it undoes and destroys the first."

Thursday, April 1, 2010


No, guys, that is not a vulgar term and contains no innuendo (well, not much). Bifurcation* is the separation of a previously single line or flow into two distinct ones. [* see Word of the Day]

I learned this word about 35 years ago in a Galactic Dynamics graduate level class at Beefer U. aka Harvard University. Galactic dynamics is the very advanced mechanics of many, many particles - in this case stars - that comprise galaxies. There are two major types of galaxies: elliptical and spiral. One can study the structure of elliptical galaxies analytically using Newtonian mechanics and some simplifying assumptions. The Nobel laureate, S. Chandrasekhar, who first explained white dwarf stars, advanced this theory very much. One finds sequences of stable ellipsoids with certain properties and finds that these sequences bifurcate at certain points into two distinct sequences having different shapes. For example, as rotation increases along certain axes, a pear-shape becomes stable. In general much was learned in those pre-computer days about galactic dynamics from the study of the bifurcation of homogeneous ellipsoids. Hehe. Yes, we used chuckle over that phrase in class.

So what ?

The world economy is bifurcating more and more: Asia and Latin America are recovering and growing fast while the US and Europe are just creeping along. Today's headlines of screeching over iron ore price increases is further proof this economic bifurcation is affecting attitudes, too. The Asian steel makers are selling into a strong market with plenty of demand - they can raise prices and make money. The US and European steel makers - and their main customers - have stagnant markets and much difficulty raising prices. Perhaps a naive economist would say the 100% price rise is the allocation of a scare resource, BUT since iron is one of the most abundant elements in the earth's crust, that makes little sense.

There are three explanations: (A) the time lag for bring out new mines (much infrastructure is required to get the ore out of the ground and to market), (B) the big ore miners now have sufficient demand to move to an oligopolistic pricing regime and are holding back ore from the market, or (C) the new derivatives market in iron ore is permitting huge hedge funds and pension "investors" to "invest" in this commodity, thus sucking up enough excess supply to give prices a huge boost.

That's what happened in oil to cause the huge peak to $140/barrel in summer 2008 while the world economy was slowing. The funds just bought all the excess supply, forcing prices to rip higher in spite of weaker demand. Eventually it collapsed as OPEC increase production.

Or the bifurcation of the world economies is causing it: internal Asian demand - strong growth on a higher and higher base - is creating more new demand faster than new supply can come on the market.

More likely, it's a bit of all three - a combination or correlation of forces is creating this change in the state of the ore markets. After all, that's how the world works. [See blog post of October 27, 2009]


I'm just patiently waiting for more up, so I can sell more stocks at good prices & raise cash for the eventually dip/pullback.

Word of the Day

"Bifurcate" - verb [$10]
Bifurcate means (vt) to divide into two branches; (vi) to separate into two branches.
Sentence: Bifurcation of stable growth levels better explains strong Asian growth versus US+European stagnation than does decoupling of connections. Internal Asian and Latin American demand now is beginning to dominate those economies. The coupling is as strong as ever, it's just less important now. A new axis of stability exists now: that's bifurcation.