Global financial system implosion begins

[david dissadent]

Link

Volvo apparently experiances a 99% drop in truck orders.


(if there are inaccuracies in this story I will correct ASAP)

 

[darkfibre]

It depends what you count in and what you count out of the 'system'. It's got no real meaning if it means 'everything'.

The thing about complex systems is that their 'boundaries' are a bit fuzzy. You can draw an arbitrary line around bits of them if you like, but that will invariably mean you're just excluding something for your 'model'.

We can't know everything. Why pretend that we can?

But that doesn't prevent us from looking at certain aspects that define their behaviour, such as feedback loops, and learning where the leverage points are.

How else are you ever going to change anything?

 

[butchersapron]

That's where what you count in and what you count out becomes important - or where what you see as a feedback loop (read something of importance to me and my interests - well who are you? And thus you get some politics in there as well) becomes important. And that's where ecomomcis isn't a model or a system that operates according to set laws (or even changable laws). All we've heard the last 3 month is that money has done this and money had done that. What's missing from this picture no matter how sophisticatdly modelled it is (and no, it's not people). All these crap models. They are meaningless, they're just there to give some meaning to the greedy fuckers who shift around money they don't create. All this is...shit. I guess economics is going to come out of this stronger once more eh

 

[darkfibre]

I think I see where you're coming from.

I totally agree that there's an effort to present (excuse) the whole thing as an apolitical 'emergent behaviour', with wailing and gnashing of teeth and blaming 'chaos' and 'the mathematics' (whilst they continue to loot I might add).

To me, it's akin to watching someone bashing in nails with a microscope.

I'm probably more pissed off with it than you, as it's 'my' microscope.

Did you see this: http://www.bbc.co.uk/iplayer/episode/b00dzypr/High_Anxieties_The_Mathematics_of_Chaos/ ?

 

[darkfibre]

I guess economics is going to come out of this stronger once more eh

Well, no, it's not.

There might be modifications and increases in complexity that eek out a little more performance for a little longer (eg bailout, bans on shorting), but this will just ensure that the catastrophic collapse will be even more devastating.

It the failure of the city gimps who bought Taleb's book to realise this that keeps him awake at night.

 

[phildwyer]

That's where what you count in and what you count out becomes important - or where what you see as a feedback loop (read something of importance to me and my interests - well who are you? And thus you get some politics in there as well) becomes important. And that's where ecomomcis isn't a model or a system that operates according to set laws (or even changable laws). All we've heard the last 3 month is that money has done this and money had done that. What's missing from this picture no matter how sophisticatdly modelled it is (and no, it's not people). All these crap models. They are meaningless, they're just there to give some meaning to the greedy fuckers who shift around money they don't create. All this is...shit. I guess economics is going to come out of this stronger once more eh

I doubt that. I think economics' status as a fraudulent pseudo-science has been evident to the general population for a long time--probably since its inception The problem is that capitalism doesn't depend on the manifest absurdities of economics, which are at best post facto attempts to rationalize the chaos of the markets. So the further discrediting of economics won't really damage the system.

What has been lacking from the public debate about the crisis is any awareness of what money actually *is.* That is the vital fact to grasp. Once people understand that money is alienated labor-power, and once the implications of that fact begin to sink in, *then* we will have the makings of a popular opposition to capitalism. And that would involve by-passing the burblings of self-proclaimed 'economists' altogther.

 

[darkfibre]

What has been lacking from the public debate about the crisis is any awareness of what money actually *is.* That is the vital fact to grasp. Once people understand that money is alienated labor-power, and once the implications of that fact begin to sink in, *then* we will have the makings of a popular opposition to capitalism. And that would involve by-passing the burblings of self-proclaimed 'economists' altogther.

Yep. I was reading that Douthwaite book earlier and there was some stuff in chapter 3 that had me thinking of a simple experiment everyone could try out at home that might help in this regard.

Basically, you take something of utility, like a banana, and £1 (coin, account password, whatever) and stick them in a cupboard.

After X amount of time or so you take them out and compare each with the original state that they were in X amount of time ago.

So how can 'bananas' be measured in £s?

 

[Dandred]

It wasnt to prevent a recession or the markets from performing in a volatile way, it was to stop the entire banking system from collapsing rather suddenly.

Granted, the way in which it was done means it can be seen as a bailout of certain well to do people, Im not going to claim it was completely fair, but I can see a wider point to it.

It would be an interesting world if the banks were allowed to collapse and various things sieze up totally. But it would be a world where bank accounts, pay, retail & supply of essential goods could come to a standstill within days, and that would be rather ugly for almost everyone.

It looks like that might still happen.........So what really was the point....

 

[Jessiedog]

It looks like that might still happen.........So what really was the point....

The point is to alleviate any potential discomfort that the rich might encounter due to their greed.

As long as the basic "system" remains more-or-less intact, the "haves" will still "have", while the "have nots", as always......





Woof

 

[goebfwai]

Was interested to read some of the posts about turbulence, complexity and the graph. I think that graph is so true. Plus it also useful in understanding that the level of complexity of technology has now reached something of an apex and we are seeing a downward spiral in the benefit of technology. That apex is all tied up with the ability of our society to adapt to them, and control and fully understand the systems that have become enmeshed within financial markets and commerce.

I have noticed it a lot recently with technology that I use. Just one example. While it has benefits, saves paper, postage and is quick, the drawback of email is that you get more of it than if it were paper mail (which means it now takes longer to do your morning mail than it did in the pre-email age!), plus a computer (costing a few hundred pounds) and a monthly subscription is required to receive it! Plus it can take at least a few minutes before you get logged on to even be able to open and read the things. Reading them (in my case) requires a 1kg laptop. Reading paper mail, requires nothing more than a lap to read them on, light and more portable. The cost of printing and ink for anything you need to print are all externalised onto me the recipient, unlike with paper mail where it is the sender that pays.

All technology has benefits and weaknesses. Not that I am advocating a return to ludditism, but I think that the global business bandwagon has got carried rather carried away with it's embrace of technology. The weaknesses have been shuffled under the carpet.

These weaknesses are very important and have become the achilles heel of modern society.

The key weaknesses of unregulated, unbridled capitalism, globalisation, faster media/news and the highly computerised, highly leveraged international financial system is a greater propensity to the domino effect and speedier, more instantaneous collapse.



by the way, this is from this Sunday's Washington Post. worth a read.

IT COULD GET WORSE
If Entire Countries Go Broke, We'll Go With Them
By David SmickSunday, October 26, 2008; Page B03
http://www.washingtonpost.com/wp-dyn/content/article/2008/10/24/AR2008102402933.html

 

[Bernie Gunther]

It depends what you count in and what you count out of the 'system'. It's got no real meaning if it means 'everything'.

It must be noticed that noise is in no intrinsic way distinguishable from any other form of variety. Only when some recipient is given, who will state which of the two is important to him, is a distinction between message and noise possible.

source

Which, I would suggest, is where the 'politics' bit comes in ...

 

[Kaka Tim]

What i find staggering is the narrowness and shallowness of much of the media anaslysis.
Channel 4 news last night had two economic experts who breezily suggestd that the recesion would last about a year based on no eveidence what-so-eve and that is was all about conusmer spending.
Consumers consume more = economic growth. Thats it - thats economics - easy.
The notion that we have approaching the limits of ever expanding consumption (due to peak oil and climate change) or that the whole free-market model has been utterly trashed is clearly not on their radar - its just 'get over this bump/glitch and then back to business as usual'

It seems that eveyone is assuming that it will be like the 1990 recession - becasue that was the last recession we went through. But the conditions this time around are very very different - this is far more wide reaching and its co-inciding with a near collapse of the global financial system. This seems to tie in with the 'balck swan' argument - this cant happen because it hasn't happened before - basically we're in uncharted terroritory and the ruling class doesn't has much of a clue about whats going to happen but fear the worse.

'The year of pain and then we pick up again' justs seems to be a soft soap mantra for the masses. I fear things are going to get a whole load worse and from the way Alastair Darling is talking (absolultey not making any firm predictions and not trying to breezily talk the economy up) I'd say he thinks the same.

 

[hipipol]

Darling may look daft

But he isnt
He said that this would be like the 20/30s months ago, and was slapped down - telling the truth did not sit well with the rest of the Party
Its worse than the early 90s as this time its global
We have never had a global economy before - it follows that this is a LOT harder to sort out

 

[darkfibre]

source

Which, I would suggest, is where the 'politics' bit comes in ...

Ashby - Hell, yeah! The full text of Ashby's book is available as a PDF here: http://pespmc1.vub.ac.be/ASHBBOOK.html

(Thanks for posting that up, it's more or less what I was trying to get across to Butchersapron in post #542)

There was an interesting op-ed piece in the New York Times a couple of weeks ago from Richard Dooling:

In a 1981 documentary called “The Day After Trinity,” Freeman Dyson, a reigning gray eminence of math and theoretical physics, as well as an ardent proponent of nuclear disarmament, described the seductive power that brought us the ability to create atomic energy out of nothing.

“I have felt it myself,” he warned. “The glitter of nuclear weapons. It is irresistible if you come to them as a scientist. To feel it’s there in your hands, to release this energy that fuels the stars, to let it do your bidding. To perform these miracles, to lift a million tons of rock into the sky. It is something that gives people an illusion of illimitable power, and it is, in some ways, responsible for all our troubles — this, what you might call technical arrogance, that overcomes people when they see what they can do with their minds.”

The Wall Street geeks, the quantitative analysts (“quants”) and masters of “algo trading” probably felt the same irresistible lure of “illimitable power” when they discovered “evolutionary algorithms” that allowed them to create vast empires of wealth by deriving the dependence structures of portfolio credit derivatives.

What does that mean? You’ll never know. Over and over again, financial experts and wonkish talking heads endeavor to explain these mysterious, “toxic” financial instruments to us lay folk. Over and over, they ignobly fail, because we all know that no one understands credit default obligations and derivatives, except perhaps Mr. Buffett and the computers who created them.

Somehow the genius quants — the best and brightest geeks Wall Street firms could buy — fed $1 trillion in subprime mortgage debt into their supercomputers, added some derivatives, massaged the arrangements with computer algorithms and — poof! — created $62 trillion in imaginary wealth. It’s not much of a stretch to imagine that all of that imaginary wealth is locked up somewhere inside the computers, and that we humans, led by the silverback males of the financial world, Ben Bernanke and Henry Paulson, are frantically beseeching the monolith for answers. Or maybe we are lost in space, with Dave the astronaut pleading, “Open the bank vault doors, Hal.”

As the current financial crisis spreads (like a computer virus) on the earth’s nervous system (the Internet), it’s worth asking if we have somehow managed to colossally outsmart ourselves using computers. After all, the Wall Street titans loved swaps and derivatives because they were totally unregulated by humans. That left nobody but the machines in charge.

I think that sums it up rather well.

He goes on to reproduce this passage:

Here’s a frightening party trick that I learned from the futurist Ray Kurzweil. Read this excerpt and then I’ll tell you who wrote it:

But we are suggesting neither that the human race would voluntarily turn power over to the machines nor that the machines would willfully seize power. What we do suggest is that the human race might easily permit itself to drift into a position of such dependence on the machines that it would have no practical choice but to accept all of the machines’ decisions. ... Eventually a stage may be reached at which the decisions necessary to keep the system running will be so complex that human beings will be incapable of making them intelligently. At that stage the machines will be in effective control. People won’t be able to just turn the machines off, because they will be so dependent on them that turning them off would amount to suicide.

http://www.nytimes.com/2008/10/12/opinion/12dooling.html

Worth reading in full (especially if you want to know the answer. )

 

[darkfibre]

What i find staggering is the narrowness and shallowness of much of the media anaslysis.

That's probably worth a thread on it's own.

It's an issue touched on in a thread in the General Forum here.

 

[ymu]

This is quite a decent op-ed from Seamus Milne on Thursday.

As the dust of the credit crash clears and the real world recession kicks in, the ideologues of capitalism are scaring themselves with spectres. "He's back," the Times warned its readers on Tuesday over a portrait of Karl Marx. Not only are sales of his masterwork Das Kapital booming, but the virus of the newly fashionable revolutionary has, it seems, spread to the heart of the capitalist camp: the French president Nicolas Sarkozy has had himself photographed leafing through its pages while Marx's analysis of capitalism has been hailed by everyone from the German finance minister to the Pope.

In the US, John McCain has been lashing out at Barack Obama for his supposed "socialism", the High Tory writer Simon Heffer excitedly dubbed the state bail-out of the banks "neo-sovietisation", and the BBC broadcast a prime-time debate last week on whether the crisis signalled the "death of capitalism". Meanwhile the Economist, the Pravda of the neoliberal ascendancy, has been trying to mobilise true believers for a fightback: "Economic liberty is under attack", its current issue thunders. "Capitalism is at bay, but those who believe in it must fight for it."

Of course, they are running ahead of themselves in a panic. If Marx's central ideas about class and exploitation were really taking hold across the western world, you can be sure the mainstream media wouldn't be running quirky, cartoonish pieces and debates about them, but something much more ferocious and alarming.

http://www.guardian.co.uk/commentisfree/2008/oct/23/creditcrunch-economics

"...the Pravda of the neoliberal ascendancy..."

 

[hipipol]

What sort of gibbeish is this?

"credit default obligations" -what the fuck is that supposed to mean? The idiot has conflated or merged two seperate rpoducts - no wonder no one can define it, uit doesn't fucking exist
"Somehow the genius quants — the best and brightest geeks Wall Street firms could buy — fed $1 trillion in subprime mortgage debt into their supercomputers, added some derivatives, massaged the arrangements with computer algorithms and — poof! — created $62 trillion in imaginary wealth"

The notional payout on CDS ever issued is near that final figure - it never exuted and will NOT be paid out - Lehmans CDS, notional outstanding CDS contradts of over $200 billion actually got settled for under $5 billion - a lot of money but nothing like this bumsuck claims. He really is a turd
Algo trdaing - its not a fucking derivative but a computer trade execution tool to buy and sell shares and not move the price in the market either up or down when buying or selling big blocks, say of 5% of the total of the companies issued equity
That this sort of tosh is given credence is astonishing - the man clearly doesn't understand what hes on about, as you, Darkfibre quote him obviuoslu neither do you

Another thing - it was NEVER possible to write a CDS against certain low quality credits, so simply takng the sub-prime ($1.2 trillion at tops) and claiming that all CDS were based on such mortgages. Even if they ALL defaulted the loss on sub-prime was $1.2 trillion - the CDS would merely re-assign the loss to the firm that wrote it

 

[darkfibre]

This is quite a decent op-ed from Seamus Milne on Thursday.

There's an interesting question that arises from the above when viewed through the prism of 'systems' as outlined by Ashby etc.:

Is the implementation of Marx's philosophy dependent or predicated upon centralised control?

In this extract from 'The Eighteenth Brumaire of Louis Bonaparte', Marx is clearly critical of centralisation, although I'm not sure whether it's simply the 'parasitic' nature or from a more 'systems' perspective that his criticism stems. The 'Manifesto' clearly calls for 'centralisation' of power 'in the hands of the State, i.e., of the proletariat organised as the ruling class', which appears to be arguing over who controls the 'system', rather than a criticism of the 'system' itself. I can't see where the concept of 'sustainability' fits into all this.

I'd be interested if anyone can point me towards anything that clears this up.

Either way, you can rest assured that 'decentralisation' is probably not very high on the agenda of the 'gnashers and wailers' currently revisiting his work.

 

[Random]

I doubt that. I think economics' status as a fraudulent pseudo-science has been evident to the general population for a long time--probably since its inception The problem is that capitalism doesn't depend on the manifest absurdities of economics, which are at best post facto attempts to rationalize the chaos of the markets. So the further discrediting of economics won't really damage the system.

no, i reckon they'll just justify their power in terms of more nakedly moral/nationalstic ends.

 

[darkfibre]

What sort of gibbeish is this?

Here, have a banana.

*pats hipipols 'wonkish talking' head*

 

[hipipol]

The Wonk replies

Dear Mr Fibre
I suspect that your wonkish tendecies far exceed mine - I am at a loss to understand how your own "how many angels vcan stand on the head of pin" nerdishness differs from mine other than the assumptions from which we both start

By the way, the banana was lovely, thanx

 

[darkfibre]

I am at a loss to understand how your own ... nerdishness differs from mine

Clearly.

You were supposed to put the banana in the cupboard, BTW.

But you eated it.

 

[david dissadent]

Hundreds of hedge funds will fail and policy makers may need to shut financial markets for a week or more as the crisis forces investors to dump assets, New York University Professor Nouriel Roubini said.

``We've reached a situation of sheer panic,'' Roubini, who predicted the financial crisis in 2006, told a conference of hedge-fund managers in London today. ``There will be massive dumping of assets'' and ``hundreds of hedge funds are going to go bust,'' he said.

``Systemic risk has become bigger and bigger,'' Roubini said at the Hedge 2008 conference. ``We're seeing the beginning of a run on a big chunk of the hedge funds,'' and ``don't be surprised if policy makers need to close down markets for a week or two in coming days,'' he said.

``In a fairly Darwinian manner, many hedge funds will simply disappear,'' Roman said, speaking at the same event as Roubini.

The hedge fund industry is stumbling through its worst year in two decades and posted its biggest monthly drop for a decade in September. Hedge funds are mostly private pools of capital whose managers participate substantially in the profits from their speculation on whether the price of assets will rise or fall.

`Very Ugly'

``Things are getting very ugly also in the emerging markets,'' Roubini said. ``The usual saying is when the U.S. sneezes, the rest of the world catches a cold. Unfortunately, this time around the U.S. is not just sneezing, it has a severe case of chronic and persistent pneumonia. It's becoming a mess in emerging markets.''

link

There is alot of concern that those with money in hedge funds will pull it out when they get the chance and that many of them may experiance a run of margin calls, this where they are asked to post more collateral for outstanding debts or have pay down the debt (I think).

There is alot of built up losses in the system to work through yet. We are not at the bottom yet.

Getting back tothe core of this crisis I have been listening to a mortgage consultant from California. The very worst of this crisis in terms of home prices is still coming, but what has happened is that due to the huge amount of housing stock now owned by the banks as reposessions, many Americans are stuck in there homes. They cannot sell there home to move to a new one. Also the overwhelming bulk of home sales in California at the moment are repossesions. Many houses are just rotting where they lie empty. They will have to be destroyed. This drags the price of the houses in the neighbourhood further down meaning people who took mortgages they could afford and paid honestly, are now finding themselves in negative equity in suburbs that are turning into slums.

 

[david dissadent]

Weird... Tainter doesn't appear to have been mentioned on this site for 4 years. Here's a nice graph that demonstrates the complexity thing.

The benefits of complexity we gained from the PC revolution in the 80s and 90s then the internet in the 00s were huge, they were also real. I like Tainters ideas but I think that they have been employed to societies with a pretty limited toolkit of technologies. To look at our society you would need to superimpose hundreds of graphs of technologies onto each other, for example fuel efficiencies of the turbo fan engine have been huge over the past twenty and even ten years so that modern airliners are dramaticaly more fuel efficient than older ones but the internal combustion engine has not had anything like that kind of improvement.

I am pretty convinced that the net available energy is the keystone to where and when our civilisation is going.

 

[david dissadent]

fed $1 trillion in subprime mortgage debt into their supercomputers, added some derivatives, massaged the arrangements with computer algorithms and — poof! — created $62 trillion in imaginary wealth.

Adding to Hippipols criticisms I think this is very wrong, the $62 trillion is no more wealth than the outstanding insuarance of the world is. The difference is that insuarance is regulated so that they have to have a certain amount of assets to cover each policy written, so in the event of a major event causing a great deal of pay outs it is covered. CDS's dont have this. There in lies the key, if a reasonably big event occurs the writers may not be able to cover it triggering more pay outs, systematic failure.

 

[Bernie Gunther]

Thing is the problem is structural. If you have a system which is predicated on endless growth, but which even leaving apart the limits to growth arising from resources, can't continue to grow without resorting to an out of control ponzi scheme of debt and speculative investment that can turn around and fuck us at any moment, then that system has to go.

This sucks. Let's change it.

 

[elbows]

Uh huh huh hu. He said growth.

 

[Gmart]

Inevitably, sooner or later the powers to be will have to use the discredited Keynesian policies to get the economy moving upward.

The market will reach a bottom eventually, it always does coz otherwise houses would sell for tenners.

Then the rich will buy shares for a song and then loads of people will be unemployed by then leaving only the absolutely essential working for less money.

Meanwhile all goods prices will be higher, but will not go that high because there will always be someone prepared to produce in China and take the money - prices only go up if supply is restricted permanently.

The economy is still working, people are still buying, even if it is less, we still need food. The luxury market will hiccup for a bit.

And in the end the government will nationalise the AAA credit agencies, and the problem will be fixed until the next market failure induced crisis.

That system has to go

Too many jobs depend on that system, too many families who vote. I agree that the UK has great problems, but the market will continue, even if it is in a slightly more regulated form.

BTW, if the government hadn't put a single penny into the system; sooner or later someone would have come along and taken the assets. The banks were bluffing; safe in the knowledge that the government wouldn't have the balls to let them fail.

Small investors are guaranteed up to 32K, so why save the financial system when we let all the manufacturing industry go to the wall on the principle that they weren't viable?

 

[Bernie Gunther]

To be fair. Keynes isn't exactly discredited. He was a really bright chap who was a lot better at economics than say Alan Greenspan the Ayn Rand Fan.

 

[Bernie Gunther]

Thus the professional investor is forced to concern himself with the anticipation of impending changes, in the news or in the atmosphere, of the kind by which experience shows that the mass psychology of the market is most influenced. This is the inevitable result of investment markets organised with a view to so-called “liquidity”. Of the maxims of orthodox finance none, surely, is more anti-social than the fetish of liquidity, the doctrine that it is a positive virtue on the part of investment institutions to concentrate their resources upon the holding of “liquid” securities. It forgets that there is no such thing as liquidity of investment for the community as a whole. The social object of skilled investment should be to defeat the dark forces of time and ignorance which envelop our future. The actual, private object of the most skilled investment to-day is “to beat the gun”, as the Americans so well express it, to outwit the crowd, and to pass the bad, or depreciating, half-crown to the other fellow.

source