China Copies USA: Bans Shortselling

Taking a page from the book of the regulatorily-captured SEC, China banned shortselling as soon as the legitimate bets began to pay off.   Christopher Cox as head of the SEC did the exact same thing when bankers experienced a wee bit of inconvenience for their crimes in 2008.

Of course in China today the reason is exactly the reason given by the hegemon in 2008: to protect the investors and the markets, when in fact it was just to effect theft from small investors, the whole point of banking in USA.

There is a criminal form of shortselling, naked shortselling, which is allowed in USA, naturally, otherwise.  Naked shortsellers have no skin in the game, so a ban to them is "nothing ventured, nothing gained."

Shortselling is the only effective way to regulate securities markets, and banning shortselling is in effect eliminating fraud enforcement, reducing it to the mere theatre provided by the regulatory-captured SEC, etc.

Those who actually understand the market and play fair exit the rigged game and it is left to those who don't understand it, people who invest, and those who do, the front runners and government licensed "market makers."

Hong Kong turned down Alibaba IPO, because they have a legit market.  But USA citizens are effectively not allowed to invest there, by USA rules.

Funny place, USA.

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L A Architecture

LA is now a Hispanic city, and it does have its high-rises, but it also has massive swathes of 2000 SF storefronts with living quarters on top, precisely the kind of architecture needed for a recovery.  Family businesses, exempt from the "get big or get out" government mandates, and outside of the claims crowding down on so little USA GDP, plus the Mexican culture, means LA will thrive as cities less blest will suffer mightily.

Now, if the inevitable banking system crash would just happen....

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Claims on GDP

I know, I keep coming back to this graph, because it shows it all in a nutshell...



Below the red line is the productive capacity of the United States (for argument sake accept military, government, etc, as "productive") and the blue line is the nominal stock market valuation of the capacity.  "Valuation" is in other words the direct claims on whatever is below the red line.

Note this does not include indirect claims, such as the welfare state, the ginormous derivatives markets. I would be much obliged if someone could come up with a graph illuminating the claims (or burdens) on the USA GDP.  

Thoughts:

A. The GDP and the ownership thereof, as represented in stock prices...  from the graph cited above the notional value also represents the claims of ownership...  more people think either they are wealthier than they are or don't realize how much claim is on X assets, or both.

B. That GDP is what "we" have to work with.... welfare (corporate and personal) depends on that same GDP to produce the transfer payments, something that currently can't be done proven by the fact we borrow 50% of what we spend as a nation.  (Can that be shown in the same graph?)

C. Next, there is the notional value of the derivatives originating in the red-line GDP in the graph, said to be in the hundreds of trillions but unknown.  It probably does not matter really what this number is, since it represent speculative wealth and who gets hurt when it is repudiated is so diffuse no one will care...  except...

D. All of this moving of assets around and accounting for it makes for a massive services industry, which will crash when the markets do... their unemployment will bring new claims on the productive segment.

I wonder if there are any other claims outside of what I have listed...  so the graph would show the various claims on the same asset base: GDP.  the point would be, why even bother trying to "get some" let alone "made whole" when the crash comes (if it comes fast) or even if it is in slow motion...  give it up and create a business that gets you far more far easier and faster rather than fighting over scraps in which bigger dogs will crowd you out anyway.

Further, unemployment, with some 93 million out of work (if true) is obscene, and a result of the policies that give us the above.  Those policies and practices in law provide for misallocation and malinvestment. self-employment when successful is pitch perfect allocation and investment when it proves profitable.

Self employment grows the GDP, but what miniscule contribution is 100% allocated to the entrepreneur.

Anyway, if anyone can come up with a graph, that would be splendid...  this ZIRP and negative interest rate percent is a fascinating development, and very hopeful...  t

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Return to Discredit Usury?

Here is an obscure case that has heads scratching, but harkens back to a time when usury (charging interest) was deemed baleful.

AS we return to private credit, as a program of economic salvation, how courts view credit and collections, or how courts are returning to earlier views, is useful.

That is the ruling that has piqued the interest of the credit markets. Not that debt collection itself is all that big a fish. But the issue of transferrable preemption pops up throughout the financial pond. Credit cards, like mortgages, student loans, etc., get securitized, and have been getting securitized without any concern about applicable usury laws so long as they have been lawful at origination (when, as in this case, they are generally protected by preemption).Shout Out to LevitinThe defendant and the court’s various friends will try to change the result. But in the meantime, some credit has to go to Adam J. Levitin, of the Georgetown University Law Center, for creative lawyering. The appeals panel has now adopted a theory that Levitin first advanced back in 2009. In an article published in the Yale Journal on Regulation, Levitin wrote of the “recent changes in financial markets” that had “placed the majority of consumer debt in the hands of secondary market entities … which are not protected by federal regulation.” This gave the states what Levitin called the ability to “channel the hydraulic force of the markets.” He thereby created the argument that the plaintiffs are now using, thus far with success.
The legal argument that defendants are using on the other side, against the 2d Circuit’s holding, relies on a precedent almost two centuries old, the U.S. Supreme Court decision in Gaither v. Farmers & Mechanics (1828). The high court said then that “the rule cannot be doubted, that is a note [is] free from usury, in its origin, no subsequent usurious transactions respecting it, can affect it with the taint of usury.” Gaither doesn’t seem to have had anything to do with federal/state issues. Indeed, the notion of federal preemption of state regulatory authority was itself only slowly developing in those years, in a string of cases in which Gaither plays no part.
There was no plausible argument for federal preemption of any of the consequences of state usury laws until the passage of the National Bank Act thirty five years after Gaither, so it isn’t immediately obvious how the appeals courten banc, or the Supreme Court should the issue get that far, is going to judge the relevance of Gaither to these facts.

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Crowdfunding to Bail Out Greece

Someone raised a couple of million on Indiegogo to bail out Greece.  Now a couple of million ain't gonna do it, and it is not clear where the money will go.  Also, it begs the question, does Greece need a bailout, or deregulation of their economy?  Or escape the EU?

Natural disasters are occasions of great outpourings of charity, so this is nothing new.  And there will be plenty more opportunities to bail out countries over the next few years.

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Greece: 200 Years Ago, Precisely the Same Thing

Read this fine historical essay, and see how today is a repeat, along with the eventual solution:

It is now largely overlooked, but the 19th century had its own precursor to EMU in the shape of the Latin Monetary Union, set up principally to try to solve the hoary problems of silver:gold bimetallism. But, if much of the Union’s history was dogged by the narrow technical issues of how, firstly, to structure its members’ own monetary system and, thereafter, to align it more closely with those of the non-members, there were other features, too, which are still very much germane today.

Also, note this:

“…taxes had been increased by 45%; immense loans had been contracted and it had been decided to confiscate… the property of the religious corporations. [But] toward the end of 1865… a final deficit of 210 million lire [~40% of receipts] was found to exist… taxes… proved unreliable and it was found necessary to float a new loan.”

The neocons took a page from the Nazis who charged Catholics clergy with pedophilia as the Church rejected Nazi militarism.  The Catholic Church in USA was the only entity to reject the Bush/Neocon wars, so they too were targeted the same way.

The next step, after raising taxes (no big deal to the self-employed) will be the seizing of church assets on a larger scale.

We've seen all of this before.

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A Lesson From Jerry Weintraub

For the last thirty years, if Jerry Weintraub was on the line, the top people in Hollywood took the call.  Weintraub started in the mailroom and worked his way up.  He considered himself self-employed.  Most of his career he lost money.

But he also made more money than he lost, and made money for others too, in entertainment.  You cna't worry about losing once in a while, or even often, if you are self-employed.  It does not matter much, and it is the life you chose.

RIP, Jerry Weintraub.

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What Have I Been Saying?

Greek people are doing exactly what I say anyone interested in avoiding the coming economic crash needs to do:

1.  Extend credit privately instead of using bank credit.

2.  Prepay all you can, since money gets more valuable the longer you hold it.  That si counterintuitive, but think about it... if you can pay today or in 3 months, pay now, since what you have in three months will buy more then than it does not.  Why sit on your cash?  Pay now, while it is cheaper today, and than in three months.  In fact, pay off all your debts now!

To wit:

His firm has reached an accord with regional supermarkets to accept coupons or private scrip money in lieu of payment as soon as next week. His workers will then be able to use this paper as a parallel currency at the supermarket to buy goods.
In the meantime, people are trying to offload their bank holdings as fast as possible. (Electronic bank transfers within the country are still allowed). "Everybody is afraid of a haircut. Our clients are trying to pay us as much as possible, and transfer their problems to us. We, in turn, are paying everything in advance: taxes, gas, anything we can."

So when this wind hits us, best to be in a position already where you are not using banks.  Pay your bills as soon as you can, delay receipt of income as long as you can.  This is 180 from what was best the last 40 years, and takes a change in reflexive thinking.

Get rid of any debt, delay receipt of payment.  Wow, the world is upside down (or finally has righted itself) but in any case learn from the people on the outskirts who are first experiencing this storm.

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Beer Tax Kills 1/4 UK Pub Revenue

After the last crash, labour taxed pubs to raise revenue for bank bailouts.

The 1.3 per cent rise in 2014 followed nine consecutive years of decline, which saw beer sales slide by an astonishing 24 per cent – 6.7 million fewer pints sold, per day.
It was mainly due to Labour’s beer duty escalator which ran from 2008 and 2013 and saw beer tax rise by 42 per cent, leading to 7,000 pubs closing and the loss of 58,000 jobs.
However after two historic cuts in beer duty by Chancellor George Osborne the industry has begun a resurgence.

And now that the tax is repealed, beer sales are returning.  On the next crash, whose property will be seized/destroyed by taxation?

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Greek Vote, Warrants & "sofort, unverzüglich"

Greece had a plebiscite for freedom, but the problem with the question posed is it did not reflect the problem faced:  either vote for welfare state directed by Brussels, or one directed locally.  A rather false dilemma, since freedom was not a choice.  They voted "no" to Brussels directed welfare, so now Greece must come up with its own welfare money, but it does not have any money.  So it will issue "California-style IOUs"...  I know what those are, I've been "paid" in those by schools in California.  The correct term is warrant, that is a claim on the State even when the state has no money to pay me.
***

“If necessary, we will issue parallel liquidity and California-style IOU’s, in an electronic form. We should have done it a week ago,” said Yanis Varoufakis, the finance minister.

California issued temporary coupons to pay bills to contractors when liquidity seized up after the Lehman crisis in 2008. Mr Varoufakis insists that this is not be a prelude to Grexit but a legal action within the inviolable sanctity of monetary union.

***
Temporary coupon is an odd thing to call a warrant, but the "coupons" look just like a check but they clearly state "warrant" on the face.   I received those before 2008, I think as early as 2000.  I have never had a warrant not accepted by a bank, I think for two simple reasons:

1. The state can come up with the money eventually.

2. The state can severely punish any bank that refuses to accept a warrant issued by the state.  Of course there is no law a bank must accept a warrant (it is not even a promissory note, since it is not post-dated, and in essence fraudulent, a check on an account with insufficient funds) but banks know better than to insult the state.  And the point is, the states have a million more tricks before there is trouble.

The Greek government issuing "IOU's" is no big deal, California has been doing it for years  (and after Greece overthrew its king in 1967, eventually a UC Berkeley professor became the Prime Minister of Greece, hence the likely fountainhead of Greek political thought.  (Indeed, the economy of California and Greece have interesting similarities.)

There will be no chaos in Greece, since states can go very far indeed before there is rioting.  They already took the big move of bail-in, that is in effect seizing the assets of savers, the lowest hanging fruit.  In Greece, as in USA, once you deposit money with a bank, it belongs to the bank, not you.

Louka Katseli, head of the Hellenic bank Association, said ATM machines will run out of money within hours of the vote. One official say that Eurobank was “flat out of money” late on Sunday, even though Greek depositors have been limited to €60 a day since capital controls were imposed a week ago.

One solution is to simply print more currency.  Little known is each Euro country has its currency contribution noted by a country code on the currency.  What Greece issues starts with a Y, and Greece can print those with abandon, getting the bail-out the ECB currently refuses.

“The first thing we must do is take away the keys to his office. We have to restore stability to the system, with or without the help of the ECB. We have the capacity to print €20 notes,” said one.

It is quite possible for both the Greeks to print all of the currency they want and take the bail-out the ECB refuses (and simply make the rest of europe pay with inflation) and for the ECB to stop accepting Y-code (Greek currency).  Get the popcorn, this could get interesting. Recall, the Iron Curtain fell because a clerk ad-libbed an answer to a question at a press conference.

Here is the real problem:

Yet matters will be decided by handful of people in Berlin, Frankfurt, and Brussels over coming days, with the ECB in the unwelcome position of having to decide by its actions whether or not to bring the crisis to a head.

It will never happen that a handful of people come up with the right combination of moves to fix the problem.  And the vote did not address the problem.  It is the daily decisions of the 11 million people of Greece, trading freely, making dozens of economic decisions each day, that will establish a sound economy (a Greek word, meaning household management).  A handful of people will never get it right.  so there is nothing happening yet that will make a difference.  Deregulation is the key.  Start with banking.

Perhaps the Greeks should ask for their king back, sofort, unverzüglich.  Kings tend to rule better than democrats.

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Revolutions and Violence

"If we had not fought the American Revolution, we'd still be under British rule. "  This is a logical fallacy, ahistorical thinking.  We did fight a revolution, and we are no longer under British rule.  Those two parts are historical.

There is no basis to claim "we'd still be under British rule" since that is not what happened to USA.

But there is history of countries under British rule who gained independence without fighting a revolution.  For example, Canada. And dozens of others.

So a historically valid statement would be, "We would have gained independence without fighting a revolution."  Nothing in that statement conflicts with history.

Now you try:  "If we did not fight the Civil War, USA would still have slavery."  This too is ahistorical.

We did fight a civil war, and we did end private property slavery.

In the era we fought a civil war, 19 other countries ended slavery peacefully.  So a historically valid statement would be "USA could have eliminated slavery without a civil war."  Nothing in that statement conflicts with history.

It is important to speak accurately, especially if you want to be in business, where what you say matters.

Wars and revolutions for change only make matters worse.  The USA had a good thing going until the bankers hijacked the peaceful independence movement by means of a constitutional convention.  The enemy of peace in the USA, Alexander Hamilton, led the successful effort to create a corporation with banking at its core and a standing military, and call it the federal government.

His activities sound so contemporary:

Alexander Hamilton, then building up the army, suggested sending it into Virginia, on some "obvious pretext". Measures would be taken, Hamilton hinted to an ally in Congress, "to act upon the laws and put Virginia to the Test of resistance".^[14]

We would be much better off if we had no wars and revolutions.  That is a historically valid statement.  Any claims to the contrary cannot be substantiated by history.  I cannot celebrate war and oppression, but when the bankers control the textbooks, just about everyone else does.

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