Speculating on oil and other stuff has taken off. Hedging is back on line. It's just like the '30s. After the crash, governments made sure that the paper-based crash went charging right through the real economy, like a bull. It's as if they won't stop until the common man has paid for every last mistake created by the financial system. Kinda like 'trickle-down economics'.
Here's a story on this from the Independent's (UK) Adrian Hamilton. He's done some good work, but I've got some problems with his arguments.
-Costick67 ( 8^P
[my comments- Costick67]
Here we go again, back to bank profits and big bonuses
Just as before, the returns are being made in the investment arms
Thursday, 14 May 2009
Oil prices are back up to $60 a barrel, bank profits are rising, share prices have surged, buyers are coming back to the housing market and retail sales are beginning to show signs of growth. Happy days are here again. Only the bit that everyone is missing in this outbreak of cheeriness (who said that the media was only interested in bad news) is that it all sounds suspiciously like the things that got us into this mess in the first place.
Take bank profits. Politicians, economists and commentators have all been loud in their condemnation of the banks for diving into the wholesale markets at the expense of good old-fashioned deposit-taking and lending against assets. And where are the profits now being made by the banks? Why, in the wholesale markets and in the investment-banking side of their business. Just look at the results of Barclays or the Royal Bank of Scotland.
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And what is the result of this renaissance of investment banking? Why large bonuses again as share options rocket in value (RBS's head of global markets, John Hourican, stands to gain as much as £11m, thanks to the rise in the bank's shares). The US authorities move to force the banks to raise their capital base and who profits? The investment-banking divisions of the institutions charged with raising the money – all for fat fees and fatter bonuses.
[It's not the bonuses, per se, that are the problem. It's the risky instruments traded without oversight that made risk too easy, especially for the savings banks, who were also not properly supervised. Of course, all this was intentional, and it was allowed to happen.]
Turn to the rise in oil prices, alongside other commodities, and what do you find? The very same forces that were behind the catastrophic chasing of prices up to $140 per barrel last year and their even more precipitative decline to less than $30 per barrel. Just as they nearly quadrupled within the space of a couple of years, so they halved and halved again this year, only to double again during the past few weeks.
[the crowd/wave/lemming mentality. It’s been very extreme because investors are desperate, having no other income except from pushing paper . But, the source of the problem was the demand that this caused for fake documents (derivatives and hedging), with hot air for collateral, to be created [they're pure snake oil].
Also, speculating is the very essence of hedging. There's no stopping it, but why is this backroom gambling allowed to have an effect on the price of basic staples like wheat and corn, and oil, the motivation lubrication? Oil prices are no longer run by the supplier and the demand from the customer. I say, sell your own pinecones for $140/barrel if you think someone will buy them. Just don't let some white guy in a tower somewhere tell you the price of your pinecones.
How can somebody put a price on something they don't own?
I think we're getting in way over our heads
if this is what has become of the markets.
Poor people have already rioted around the world because they can't understand what hand of God just made their daily bread twice as expensive. They think it's a scam, and it is.
Also, the little guy is trying to plan his future and that of his little store/farm/office but cannot, because commodities are making Mount-Everest type peaks on the graph every so often. Fish, or cut bait? or go broke?]
You can take this as an indication of a reviving world economy. Recent statements from China indicate the Asian economies at least may be picking up speed, raising the demand for imported raw materials. But the more likely explanation, as for the rise in stock markets, is simply that the smart money is moving from boring but safe financial instruments to riskier but potentially much more profitable outlets [Got a line of credit, I see.]. In other words, we are back to where we were before the crisis burst.
[Back on track, heading right for the cliff again. Governments haven't changed the rules; they barely promised to, under their breath.]
This is not in itself a bad thing. [WHAT?] Part of the purpose of markets is to predict and pre-empt future trends. [That is, of course, as long as they're not creating panic FOR NO OTHER REASON THAN TO PROFIT FROM THE BONUSES GAINED BY TRADING. THAT kind of speculating should be illegal.] If markets are now indicating that world growth cannot resume without a strain on resources, we should be grateful to them. This is as much a structural crisis in Western economies as it is in over-stretched financial institutions.
[So, the little guy should try to withdraw from the global economy, I say.]
But, of course, markets – as presently constructed – are doing much more than presage the future. They are responding, in highly volatile ways, to the needs of a financial world, where there is a huge disparity between the volume of money building up in parts where savings exceed spending and the parts of the world – led by the US and Britain – where the opposite is true.
[We got none, so we have to ask brokers to get it for us. Fine, it's a service. Pick up a phone; borrow a billion. But, they then make up paper tricks so that they'll have food to eat and a penthouse suite. Can’t we give them paper food for the paper tricks they sell?]
The development of shadow banking, the creation of exotic instruments, the whole mad world of excessive risk of the past decade may have been driven by greed but it was also the response of a world where, with low interest rates, those with money were desperately seeking ways of getting a better rate than the traditional investment means provided. [i.e. greed and laziness. Nothing worse than lazy, greedy rich people. Take ‘em out back, I say. They’ve the time and money to force governments to look after them and not the rest of us, leading to disasters that have brought down every Western empire so far. Because these rich are more about Dynasty than Who’s Got Talent?]
We are now back in exactly the same situation, only the rates of return on savings and investment are no longer small, they are zero. The funds being built up in Asia and the Middle East, the savings being made in domestic pension funds and savings schemes, require an outlet. [build a factory then. Oh, sorry the Chinese have them all. The essential lie to the working people of the West was that they would have other types of jobs to go to in the future. (Now, it's 'uneconomical' to open a factory in the West.) It was necessary to say this repeatedly for globalisation to be sold to the people, peacefully. They're liable to use force the next time you protest, though.]
Just as in the past years of excess, they will try to find it in the more speculative areas. And they will tend to move as a herd. So an oil price that might reasonably be pushed up 10-20 per cent on future expectations, will be forced up 200-300 per cent as the investors, or speculators if you prefer, pile in to make a turn on the rise. So with stock and commodity exchanges.
It's no way to run a world economy. But then none of the measures being considered by politicians or regulators to curb the excessive gambling of the past are going to do much to solve it. If you want a better global system [How about Kissinger's New World Order? Go for it.], then you will have to face up to the problems of currencies and global financial flows. [i.e globalisation] And what's the advantage of that to politicians who see only the value in slamming closed the doors after the horses have bolted? [So, the whole liberalisation thing was a scam which, if perpetrated, could not be gathered up again (until the ultimate collapse, which is coming soon), and those rich who pushed for it also knew this.]
a.hamilton@independent.co.uk
____the end
The question for us worker ants is whether we need this financial system at all and whether we need to depend on sold-out politicians. You've gotta be thinking of solutions. You will make the difference. I'll writing up my thoughts on this later.
