Sunday, December 28, 2008

Le Metro

The ads are in every Metro car on lines 3,5, 8,10,11:


The posters, despite the predicament of Wall Street, despite the fact that they are printed on plain cardboard and are not protected behind plastic or by lamination, remain, unfortunately, unaltered, untouched, unanswered by the most merciless of critics, those jurors of history, graffiti artists.

As a New Yorker in Paris, I wish to give back to my hosts by providing them with the following up-to-the-minute, essential guide for speaking Wall Street English:

1. We are closed until further notice

2. I'm thinking being laid off is an awesome opportunity for me to go out on my own and like really use my entrepreneurial skills.

3. What do you mean the account is "frozen"?

4. Comme dit on en francais, "The check bounced"?

5. We are not honoring requests for

6. The bank has repossessed my
---cell phone

7. The number you have dialed has been disconnected. No further information is available.

8. Moved, left no forwarding address.

9. In accordance with USC 201.37, this building and all its contents have been seized by federal marshals for non-payment of taxes.

10. Can I get incorporated as a bank?

11. I'm broke.

12. [From Hudson in Aliens]: "How do I get out of this chicken-shit outfit?"

Saturday, December 27, 2008


Two days after Christmas, and the Israelis have proven they are children of the true Christianity; that they have the holiest of holy spirits in them, by bombing Gaza and killing and maiming. I omit the number of deaths and maimings intentionally. The numbers matter to those who were and are the beings that make up the numbers, those who knew, know, loved, love those who were and won't be again. The task is not in knowing those numbers; in reducing those numbers. The task is in abolishing the process that creates those numbers-- the process that survives only through destruction.

The numbers don't count to the Israelis. What counts, literally, is destruction. The numbers, the index to the efficiency to the process of destruction, are secondary to the all the bourgeoisie as it is destruction alone that maintains their property; destruction alone that preserves aggrandizement.

As the bourgeoisie demonstrate everyday and in every way, their zeal for, and fidelity to, efficiency is vastly overrated. Efficiency is only an euphemism for aggrandizement. The Israelis, perfect vectors, cats' paws, proxies, derivatives, of and for the bourgeoisie are perfect examples of efficiency efficiently debased, profitably devalued, and made vitally wasteful and vice-versa to the real project of capital which is exacty that debasement, devaluation, destruction.

There is no basis for the existence of the state of Israel other than destruction, devaluation, debasement. The mythology of making the "desert bloom," of "technological progress," is nothing other than misdirection, the smoke and the anti-mirror to cover the destruction of the original social relations. In this, the Israelis are the true heirs to the Boers of South Africa; to the apartheid rule of Verwoerd, de Klerk and Botha; to the US of Nixon and his Christmas Bombings; to the United States and its destruction of Iraq.

There can be no two-state solution; there can be no one-state solution. There can be no solution without the revolutionary overthrow of the Israeli state. Attempts at Israel's simple destruction are worse than fruitless; they are necessary to its very existence. The transition then from resistance to revolution requires the socialist rejection of Arab nationalism by the displaced, the immiserated Palestinians and by the workers of Egypt, Syria, Lebanon, Jordan.

December 27, 2008

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Saturday, December 13, 2008



Abu 'abd-Allah, Muhammad XII, the last Moorish king of Granada, assumed power in 1482 after his father had been driven from the land. His mother, made of sterner stuff, stayed.

In 1483, Abu invaded Castile. Unsuccessfully. Captured, he obtained his release after promising to rule Granada as a tributary kingdom to that of Ferdinand and Isabella, a couple of vampires if ever any existed in human form.

In 1489, called upon by the merged and acquisitioned houses of Castile and Aragon to surrender Granada in toto, he resisted. Unsuccessfully.

On January 2, 1492 the royal standards of Castile and Aragon, the banner of St. James, and a cross were raised at the summit of the Alcazaba, oldest section of the palace and fort that was the Alahambra.

The surrender of Granada was not just defeat, it was also ceremony. It was not just conquest or reconquest, it was tranfer of title, conveyance of property.

A son of the royal family, taken prisoner in battle, was returned.

A daughter of Abu 'abd-Allah was taken as concubine, mistress to Ferdinand. Nothing conveys title to property like rape .

As Abu 'abd-Allah rode away from the Alahambra he turned for one final look, for one last sigh. He wept. His mother, made of sterner stuff, said "You do well to weep like a woman for what you could not defend as a man."

The rebuke was warranted. As were the tears.

And not only for the order, the culture that the Moors had created and would be destroyed, not only for what the Moors might have become, but for what Castile and Aragon were not, and could never be.

In the place of enlightenment and knowledge, cant and superstition.

In the place of experiment and investigation, inquisition.

In the place of hawks, dogs of god.


Nowhere is that truth of what Castile and Aragon were not and could never be felt more acutely than in South America. Nowhere in South America is the legacy of what Spain was and could never be-- that legacy of ashes-- more alive than in Bolivia.

In the conquest of the Andes territories, Spain could subjugate the property of the Inca's empire, it could demolish, debilitate, infect those relations of land and labor, creating enclaves of what Spain was (and was not) at home in the body of the Inca's empire. Spain could not supplant completely those relations of land and labor; Spain could not revolutionize those relations, no more than it could revolutionize the relations of land and labor at home. The mercantile-landed estate compromise that was the basis of, that was monarchy itself was reproduced in the latifundio, in the indentured labor of indigineros, in the vice-royalties, in the economy of extraction.

Expansion and penetration by the Spanish crown were the intensification of extraction for export. Expansion and penetration were the import of backwardness. And this was not just because Spain was not England, was not, in the 16th, 17th, 18th centuries capitalist in its organization of land and labor. In not being England, in not being capitalist, in its backwardness, Spain showed to all of capitalism the future inferiority of private property in and as the organization of agriculture; the inability of landed private property to change the terms of of extraction to terms of development; the inability of private property in agriculture to support anything more than enclave capitalism.


There is uneven and combined development, and then there is Bolivia. Throughout its history, and until the MNR took power in 1952, Bolivia maintained the hacienda, the allyu, and the communidades, the "free communities" of the indigeneros, of the "originals," as units of agricultural production. The Spaniards of the conquest, the creoles and mestizos of the liberation had no interest, no material interest in the development of a unitary and productive-- above subsistence level-- form of agricultural property, of agricultural labor.

That labor of the indigenous people was confined, restricted under the terms of both conquest and "liberation." Labor that was required for the extraction of wealth from the silver mines was indentured labor.

Landed property, the hacienda was bestowed by the royalty and vice-royalty as reward for those overseeing that indentured labor. The hacienda was a token of service, a symbolic wealth, archaic in its formation, and valued in its archaic-ism.

The labor that was not required for the mines was required to serve the hacienda, to serve that token of wealth, maintaining it in stasis, not expansion.

The labor that was organized in the allyus on and off the haciendas was organized around "subsistence +" production.

Labor that was organized in the free communities was assessed a tax which lined the pockets of the tax collectors.

The mita was abolished by Bolivar in 1825, but it lived on in the countryside in the form of the pongo, a labor service obligation imposed upon the indigenous peoples by the owners of the haciendas.

The pongo tethered the indigeneros to the large estates while the existence of the large estates themselves, claiming the most fertile land but leaving such land uncultivated, and unproductive, controlled the ability of the free communities to produce above subsistence levels.

While industrial capitalism drives itself forward, is driven forward, by its simultaneous needs to aggrandize and expel ever greater quantities of wage-labor, and in fact reproduces itself only in the aggrandizement and expulsion of greater quantities of wage-labor in the production process, the legacy of indentured labor in Bolivia was involution, declining domestic industry, declining domestic production, declining productivity.

As a consequence, the needs of the laboring population were unmet. Those unmet needs could only support artisan, handicraft production. Cities existed not as permanent markets for the exchange of labor with, and, for commodities, but as administrative centers.

As a consequence, imports from the industrial capitalist countries took over the domestic markets while domestic production collapsed. By the middle 19th century, Bolivia's domestic textile production had declined 70 percent from the colonial period. crushed under the weight of the manufactured, flimsy English cottons.


Except in the Cochabamba with the production of wheat and corn, the hacienda did not dominate agricultural production nor agricultural labor until the second half of the 19th century. The Cochabamba, as the granary of Bolivia, was the basis for the accumulation of wealth by merchants and landholders, and that wealth found its way out of the limits of the hacienda, and the merchants serving the haciendas, and into the mining enclaves.

A general expansion of international capitalism followed the crises and near-revolutions of 1848, stumbled and fell in 1857, and then resumed its course through the 1860s. The source for both expansion and contraction was the introduction of new and cheaper technologies into production. In Bolivia that brought the application of steam power to the mining operations of the Altiplano.

That expansion dragged in its wake all the contradictions of capitalism. At one and the same time, the mining enclaves required greater access to labor and greater control over the supply and cost of labor. At one and the same time, the mining enclaves required greater quantities, lower prices and more reliable delivery of agricultural products to its centers of production, while minimizing the cost to itself of the improvement in infrastructure and in agricultural techniques that could satisfy these requirements. The impulse to developing a domestic capitalism, transmitted in the activities necessary to support the expansion of mining production and the sale of products, sought protection through tariffs and taxes against British capitalism. At the same time, the mining-merchant-hacendado alliance, the enclave troika, opposed such tariffs, seeing increased costs to its own business if such restrictions were enacted.

Losing out with the takeover of the national government by Belzu in 1848, the mining alliance finally elected their man, Jose Maria Linares to the presidency in 1857. As important as the alliance was, it was an emerging alliance of an emerging capitalism. As rich as it might be, the alliance was not rich enough to provide full funding to its government. In 1860, the tribute tax, assessed against the indigineros, accounted for more than one-third of the government's budget. The revenue stream alone ensured the survival of the "free communities" of the indigenous peoples.

In beginning and in end, the parliamentary form of bourgeois government depends on the stability, security, and prosperity of the small-property holders of capitalism. Where and how else could the bourgeoisie find the funds and personnel to handle the administration, the management of pettiness and and venality so essential to their business of governing, and vice-versa? And where there is no stability, no prosperity of the small-property holder? When there are individuals but no actual class of small-property holders, what then? Then the caudillo, then the military man, the general, the man on the horse, then the maybe hero to a would-be petty-bourgeoisie, then the petty tyrant despised by those with, and for a lack of, breeding; the man with the horse moving now left, now right, but always and always so crudely in the direction of order, property, obedience.

No better example of this can be found than in the person of Bolivia's General Mariano Melgarejo, the caudillo barbero. Seizing power in 1864, Melgarejo realized the program of the mining-merchant-haciendado alliance.

In this troika, we have not just the hacendados acting as the equivalent of the plantation owners in the US South; we have not just the merchants playing the part equivalent to that of the merchants in New York and Boston implictly, explicitly supporting the slaveholder rebellion against the emerged bougeoisie. We have the hardest core of the bourgeoisie supporting the hacendados, the merchants against the further development of Bolivia beyond enclave and toward a national capitalism.

While this same period brought forth the destruction of slavery in the United States under the banner of "free soil"; while in Russia this same period produced an announcement of the emancipation of the serfs as capitalism whispered its presence behind the Czar's throne; in Bolivia "free soil" is the attack on the communal land tenure practices of the indigenous people. "Private property," "private farming," was the assault on the free communities; on the competition to the monopoly of ownership, a monopoly not of or buy individuals, of or by one or two producers, but the monopoly of individuals and producers as a social class. Private property in agriculture is an ideology covering the tethering of the indigenous peoples to the hacienda, to sustained poverty, to a labor supply, limited by and to below subsistence agriculture, that can be aggrandized and expelled at will.


After, and because of WW 2, Bolivia experienced a radical reorganization of demographics. The population began a sustained and rapid migration from the countryside, from the haciendas, from the impoverished rural communities, and into the cities. During the second half of the 20th century, the ratio between urban and rural populations reversed itself so that 65% of the population resided in urban areas.

Within the demographic transformation, the "national revolution" of the MNR organized itself around "state capitalism" in industry-- the nationalization of industry in order to preempt its expropriation by the workers.

In the countryside, the MNR's preemptive focus was on creating a "true peasantry" that would metamorphize from peasantry to yeoman farmers to capitalized agricultural production. Private ownership and petty production were the goal.

That goal was fulfilled. In a torturous due process to establish title to lands, and compensate the latifundistas, the MNR did in fact destroy the haciendas. Peasant production, however, is not and cannot be self-capitalizing. It does not, of its own dynamics, compulsively seek expansion. Just the opposite is likely to occur. Population pressures, increased family sizes, lead to increased parcellization of the land, and sustained declines in productivity. In pre-empting the workers' revolution, in opposing the expropriation of private property, the MNR preserved the organization of the enclave economy which was not only incapable of supporting agricultural productivity, but inherently hostile to such productivity. The private capitalization of agriculture, like the state capitalization of industry, was a coda to the impossibility of capitalist development of Bolivia. The agrarian reform produced private ownership while perpetuating the social poverty of private, subsistence agricultural production.

Banzer proved the impossibility of the private capitalization of agriculture. Expanding Bolivia's indebtedness fourfold during his first reign, Banzer provided extensive subsidies, and grants of large tracts of land to European, and North American private and corporate farm interests to colonize Santa Cruz and the other lowland provinces.

After the overthrow of the MNR, the military governments tried to maintain an "alliance" with the rural producers. As conditions worsened in the countryside that "alliance" existed only at bayonet point. Peasant syndicates were organized, coalescing in the Confederacion Sindical Unica de Trabajadores Campesinos de Bolivia (CSUTCB). The radical Tupac Katari movement took over leadership of the CSUTCB, and in 1981 Genaro Flores, leader of the Tupac Katari movement, was elected leader of the Confederation of Bolivian Workers (COB).

The MNR, in its need to pre-empt a workers' revolution led by the miners pre-figured international capitalism's pre-emption of the old structure of the enclave economy during its retrenchment of the 1980s. Peasant unions, government workers, service-sector workers replaced the miners as the mainstay of the COB. In 1983, oil and gas replaced tin as the primary export. The old enclave was dead. Long live the new enclave.

In 1985 the reelection of Paz Estenssero completed the pre-emption with the closing of mines, reducing the workers ranks by 75 percent, dismantling the state run Confederation of Bolivian Mines (COMIBOL)-- all capped by removing Juan Lechin, the old war-horse and leader of the miners' union, from the COB.


Decapitating the workers' movement was essential to both the change from old to new enclave and the maintenance of the status quo, accelerating the unevenness and distortion of land tenure in agriculture. Behind every free market stands the bayonet... and a University of Chicago trained politician. After his victory in the 1993 elections, Gonzalo Sanchez do Lozada, who ran as a fusion candidate in alliance with Tupac Katari Revolutionary Liberation Movement, introduced a series of "democratic," market-based reforms. The reforms included the law on Popular Participation, the law on Decentralizaton, effectively decentralizing the country, creating direct election to over 300 municipalities for indigenous peoples; the law on educational reform, which provided for primary school instruction in the local languages of the indigenous peoples; and the law on Capitalization, which led to the privatization of the five state-owned corporations.

The ideological focus of these programs was an intent to establish through decentralization and privatization functioning national markets. The national markets in return would create a functioning petty-bourgeoisie to administer, endorse, and accommodate the aggranizement of resources and the expropriation of labor.

Markets can only exist where property can be exchanged, where property is alienable; and to be alienable, property must be titled. As a consequence, in 1996 Sanchez introduced another law on land reform.

A decade before Evo Morales and the MAS came to power with the promise of a constituent assembly and a "new" constitution recognizing the rights of indigenous peoples, the MNR /TKRLM government of Gonzalo Sanchez amended the existing 1967 constitution to define Bolivia as multiethnic and pluricultural. A decade before Evo Morales and the MAS promised thorough and substantive land reform, the Sanchez's MNR government enacted legislation that recognized the historical legitimacy of the communal land tenure practices of the allyus and the free communidades, and exempted small rural property holders from taxation. A decade before Evo Morales and the MAS promised to takeover and redistribute land not being used "productively," the Sanchez government had enacted legislation authorizing such actions. In fact, the 2006 MAS law on land reform and the seizures of land that have taken place in Bolivia are based on the MNR's 1996 law.

In order to establish the legitimacy of the claims to land, and the forms of land tenure -- to establish the boundaries of enclaves within enclaves, the MNR reform of 1996, like the proposed MAS reforms, requires the accurate determination of title to the land. In 1995, the World Bank provided $23.7 million to Bolivia to create a National Land Administration.

The project's primary objectives were:

The project objectives are to achieve a more efficient and transparent land administration system, clarify the land tenure situation, identify public land suitable for small farmer settlements and promote a more sustainable use of the country's land resources. To achieve these objectives the project helped the Government to formulate land administration and policy reforms, obtain accurate land ownership information, carry out land studies, alleviate land conflicts and improve land transaction registration.

In its own evaluation of the success of the program, written in 2006, the World Bank concluded that the performance in reaching the objectives was "moderately successful." The project was moderately successful in that its objectives were so limited. The project goal for clarification of land tenure was set at 3 million hectares.

The Bolivian government's estimate of land requiring clarification of title identifies 110 million hectares requiring review, with only 20 million hectares having been reviewed in the last decade.


Despite Goni's resignation and flight from the country, and despite the calls for his arrest and extradition to stand trial for ordering the murderous assaults of 2003; despite the bankruptcy of the MNR's programs of "state capitalism" and "market capitalism"-- not once, but five times-- these failures live on in the MAS programs of--- state capitalism, nationalization, land reform.

In fact, Bolivia remains an enclave economy. Ninety percent of its total exports are consist of "primary products," energy, minerals and raw agricultural products (for Brazil these products account for 50% exports. For Mexico, 25 percent).

Despite the revenue surge that was provided by the increased prices for gas the Morales government won from Brazil and Argentina, and despite the increased price for zinc provided by the deceased commodity boom, between 2003 and 2006 the overall rate of fixed capital formation in Bolivia has been flat. And this after the rate had declined 20% between 2000 and 2003

The much praised nationalization of the hydrocarbon sector has done little to create an even, but combined, development of the economy. The nationalization itself can be questioned as protest from Brazil resulted in a halt to the nationalization process, and a renegotiation of its terms so that Petrobras could maintain at least a 15 percent return on investment. Today, production by Petrobras accounts for 18% of Bolivian GDP, 24% of the tax revenues, 95% of refining, 23% of fuel distribution, and... Petrobras "manages" 46% of Bolivia's gas reserves.

Just as agriculture is not self-capitalizing, land tenure reform cannot be accomplished in the countryside alone. Land use cannot be reformed without the overthrow of the relations of landed property to labor; without the overthrow of the relations of private property to labor that have created and sustained the existing pattern of land tenure.

"Nationalization" has not and will not create a "national capitalism" but will only perpetuate the limitations of enclave capitalism throught its subordination of production to the world markets, the subordination of production to exchange.

Only when the relations of production in both city and countryside, in factory, workshop, mine, gas field, large farms are transformed into the relations of production for use will the material support be provided for alleviating the poverty of subsistence production and for sustaining the practice of agriculture in traditional communal forms.

S. Artesian

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Friday, November 28, 2008

Dismal Science, Wonderful World


The November 2008 issue of the Statistical Supplement to the Federal Reserve Bulletin is now available . The bulletin provides the Fed's estimates on industrial production and capacity use for the first two quarters of 2008 and compares them to the 2007 numbers.

If you look deeper into these numbers and compare them to historical data available in in Fed G.17 reports, available at, you can discern the following:

Industrial Output: The Fed is using 2002 as its baseline for indexing growth and rates of growth in 2007 and 2008. 2002 was near the trough in the last recession, which only shows the Fed is scraping the bottom of the barrel in more ways than one.

In 2000, industrial output measured 116% of output in 1997.
In 2002, industrial output measured 110% of output in 1997.
In 2008, industrial output measured 111% of output in 2002, equivalent to 122% of 1997 output.

Industrial output in 2008 is approximately 4.5% greater than output in 2000.

2. Not Sweet

Now look at growth of industrial capacity.

First you will notice, unless you're an economist or a hedge fund manager, that annual capacity growth increases averaged about 4.6% per year for 1997, 1998, 1999, 2000.

In 2001, capacity growth declines to 1.7 % above the 2000 mark.
In 2002, capacity growth declines to 1.1 % above the 2001 mark.
In 2003, capacity growth remains at 1.1% above the 2002 mark.
In 2004, capacity growth "improves" to 1.6% above the 2003 level.
In 2005, capacity growth remains 1.6% above the 2004 level.

Now comes the uptick with increased capital investment.

In 2006, industrial capacity grows 2.4 percent.
In 2007, the capacity growth rate falls to 1.8 percent.
In 2008, FRB estimates are that industrial capacity growth slows again to 1.6 percent.

Rates of return on capacity investment had peaked in 2006, and once again were showing themselves to be more cost than benefit to profits.

All in all, output increases approximately 4.5% between 2000-2008, while capacity increases amount to approximately 13.5 percent.

These are the circumstances of overproduction that Marx described in Volume 3 of Capital:

Overproduction of capital never signifies anything else but overproduction of means of production-- means of production and necessities of life--which may serve as capital, that is serve for the exploitation of labor at a given degree of exploitation; for a fall in the intensity of exploitation below a certain point calls forth disturbances and stagnations in the process of capitalist production, crises, the destruction of capital...

Marx continues:

...there is periodically a production of too many means of production and the necessities of life to permit of their serving as means of exploitation of the laborers at a certain rate of profit...

...there follows swindle and a general promotion of swindle by frenzied attempts at new methods of production, new investments of capital, new adventures, for the sake of securing some shred of extra profit, which shall be independent of the general average and above it.

3. And Down Low

It certainly is not the case that the "real economy" was/is healthy and that the disturbances are the result of speculation, overextension of credit, fictitious capital, irrational exuberance, excess leverage, poor savings by consumers, etc. etc. The condition and terms of finance are determined by the condition of the real terms of production.

With output and investment so restrained by the bourgeoisie after the 2000-2003 period, finance's access to the revenue stream of industrial production through corporate lending, corporate bond underwriting, etc. was severely restricted.

If as Marx put it, overproduction is the overproduction of the means of production that cannot be deployed to exploit labor power at a required, sufficient, intensity, then finance capital's focus on the securitization of consumer debts, of mortgage payments, of student loans, represents the attempt to divert revenue away from wages, from the V component of capitalist production; to in effect, reduce wages.

Finance capital represents, not a vampire feeding on the body of so-called real capital, but the attempt to generate a sufficient intensity of exploitation of labor by means other than increased output and capacity growth. Financialization proves itself the most modern expression of the most primitive expropriation of surplus value by demanding and instigating the absolute reduction in the value of wage-labor.

S. Artesian

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Tuesday, November 25, 2008


1. Once was nowhere near enough. Giddy from their near death experience after letting Lehman Bros. sink, Ben and Hank couldn't wait to play another round of What's My [credit] Line? with the invisible hand around the throat of the capital markets.

They made a winning combination, like... well, like Merrill and Lynch, like Citi and Travelers, like Bear and Stearns, Martin and Lewis, Peaches and Herb, Bing and Bob, Fear and Greed, Barnum and Bailey, Tom and Jerry, Gerry and the Pacemakers, Pacemakers and Defibrillators, Widows and Orphans, Orphan and Annie, Mick and Keith, Burns and Allen, Fools and Money, and everybody's favorite, Moose and Squirrel. Capitalism, incorporation, after all, was all about partners.

Ben, the student and scholar of the 1930s depression, knew exactly what went wrong then and was prepared to do exactly the wrong things differently this time.

Hank, the master of the credit derivative, was confident, always confident, that with the right vehicle, with the proper execution, his proposed reverse forward purchase convertible optioned collateralized repo swaps would lead, not all, but some, the important some, out of the wilderness and into the land of milk and honey. And if the milk was spiked with melamine? And if the bees had vanished from colony collapse syndrome? Hank would resecuritize that risk, too.

They were the best and the brightest. The were so smart and they were rich, too, so that proved it.

So on November 10, Hank announced that the Treasury would not purchase the asset backed securities, the super-heavy bad paper, the anti-money burning black holes in the banks' already empty pockets.

Playing Bullwinkle the Moose to Ben's Rocket J. Squirrel, Hank turned to his trusty sidekick and said, "Hey Rocky, watch me put a kill on this rabbit and then stuff him back into the hat."

"Again?" said Rocky.

Again, indeed. Again the markets responded with fear, despair, and then panic.

And on the trading floors in New York, in the back offices, in pits, across desks, on Blackberrys and iPhones, a single thought, a new combination, a new favorite, was traded back and forth: "Moose and squirrel must die!" said 100,000 Borises to another 100,000 Natashas.

2. Stupidity, like everything else is a learned art, a historical category, called forth on the historical stage at just the right time that is itself the wrong time, to give full voice, full faith and credit, to the temporal nature, the limits and inadequacy of the bourgeoisie's intelligence. Being really stupid requires an education, and timing.

If Bush is, in fact, the stupidest president in US history, he is, at his stupidest, no more stupid, and no less, than all those previous and future presidents serving the interests of their class [with the exception that proves the rule of Abraham Lincoln].

They served, and will serve, the needs of a specific moment of capital with the resources at their command. Their brilliance and stupidity, and each is organized in the other, depends precisely on those resources, and those specific needs.

In his belligerent ignorance, Bush represented more than the belligerent ignorance of that nexus of the petroleum and finance capitalists, he represented everything capital required at that moment. And if today, Bush is isolated, despised, and disregarded, it is not because he represents an isolated, despised, and disregarded nexus of the bourgeoisie. It is because all of capital requires something else. At this moment.

Paulson is no more stupid, and no less, than Rubin, his predecessor at both Goldman Sachs and Treasury. Bernanke is no more stupid now than Greenspan was prior to 2006 during the "salad days" of securitization . As a matter of fact, if Lincoln represents one exception to the rule, representing more than the bourgeoisie at more than their best, Greenspan represents another exception-- being legitimately, chronically, pathetically, stupid and shallow even at more than his best, never knowing better, no matter how much he pretends to know.

Paulson represents no different wing or section of the ruling class than did Rubin. He represents, in all his stupidity, his missteps, the changing need of capital-- the need for drastic devaluation of all values.

The reproduction of stupidity is not at all limited to the United States and the US bourgeoisie, although given the centrality of the US financial networks, the stupidity here sure gets more air time.

Before the G20 conference, Sarkozy, confident in having Gordon Brown behind him (talk about stupidity) ran around the world stage like a ferret on crystal meth proclaiming the the era of laissez-faire capitalism was over, the dictatorship of a single currency was finished, that a new collective strength of Europe and whatever support it could gather from the BRIC countries would replace the US domination of the financial markets.

As he spoke, of course, the US Fed had to extend unlimited currency swap lines to European central banks to prevent the collapse of the EU's capital markets; while he spoke, euros were being exchanged for dollars so that European investors could move their money into the safe haven of US government debt instruments; while he spoke spreads between French sovereign debt and German and US debt widened as the bond markets were not quite so confident in Sarkozy's dream of the DeGaulle Monetary Fund/Pompidou Bank for Reconstruction and Development.

At the conference itself, Merkel leaned over to Brown and whispered, in English, "Shut that man up before he ruins everything."

3. The last time the bourgeoisie had dot.conned themselves out of much less money, in 2000-2001, their theoreticians of the purse, the economists, had identified the speculators, the criminals, the con-artists, all those who had out-bourgeoisied the bourgeoisie, who had found those pots of gold called the bigger fool at the end of rainbow.

Never trust an economist to have any insight into the economy.

The source then, as is the source now, of capital's contraction are the very terms of its previous expansion, which like smart people gone stupid, turns accumulation, value, asset into decomposition, devaluation, loss.

Demanding improved and improving rates of extraction of value, of surplus value, from the wage-worker, the bourgeoisie invested back then considerable amounts in the means and methods that could reproduce the workers own wages in less, and less again time. Between 1993 and 2000, annual amounts of capital investment in US manufacturing increased 45 percent. Each increase in investment produced an incremental increase in rates of surplus value, reducing the time required for wages to be reproduced, but not always enough to improve overall rates of return on total investment in production.

The US Commerce Department's Annual Survey of Manufacturing contains data on production workers' wages, production workers' hours, total costs of materials consumed in production, total value added, and capital expenditure. When examined for years 1998, and 2000-2006 provides a glimpse into the genius of capital self-deconstruction.

Annual amounts of capital investment had increased more than 40% between 1993 and 1998, but between 1998 and 2000, the increase was less than 2 percent. The mass and the rate of surplus value extraction, the time it took for the worker to reproduce a value equivalent his/her own wage was incrementally improved, so that the worker reproduced the daily wage within the first 1.48 hours of labor. However, the accumulated investment in production and the costs of expanded production reduced the ratio of the mass of surplus value, the "value added" as the annual survey categorizes it, to total value of the products produced.

In 1998, that ratio of value added to total value measured 48.5 percent.

In 2000, the ratio declined to 46.9 percent.

In 2001, despite reduced capital investment, reduced production worker wages and wage rates, reduced costs of materials in production, the ratio declined again to 46.6 percent.

By 2002, yearly capital investment amounts were 21% below the 2000 peak, wage rates were 6.32 percent above the 2000 mark, but the total wage expenditure was 9% below that of 2000. The rate of surplus value extraction had improved so that the hourly wage was reproduced in 1.42 hours. The value added ratio improved to 48.2 percent.

The bourgeoisie thought had found an answer and it made them look, and feel smart. Reduce investment, control costs, hoard cash.

In 2003, yearly capital investment again declined and was now 28% below its 2000 peak. Total wage costs declined again. Wage reproduction rates improved again that the day's wage was reproduced in 1.38 hours of labor. With the rising cost of petroleum, fuels, and energy used in production, however, the value added ratio declined to 47.9 percent. The bourgeoisie were smart and had the answer. The mass of value added increased and approached the previous peak of 2000.

In this reciprocating compensation of mass for rate, and rate for mass, the bourgeoisie sought comfort, and the love that only money can buy.

In 2004, the steady decline in production workers and production hours offset the minor increase in total wage costs. The daily wage was reproduced in the first 1.3 hours of work. Again costs of materials in production increased and reduced the value added ratio to 47.3 percent.

In 2005, unable to remain comfortable with increased costs of the material, the fuels, the energy absorbed in production, the bourgeoisie found an old answer waiting for them-- boosting the rate of surplus value extraction through increased capital expenditures. The capital spending amount increased by 13 percent. Wage reproduction was accomplished within 1.23 hours of work. The mass of value added shot up by 10% over the year earlier, exceeding the increases of the 90s. The bourgeoisie had their answer. The ratio of added value at 46.6 percent, was a question put off for another year.

In 2006, capital investment increased by another 10 percent. It had to as only increased rates of production created the possibility for the mass of value to compensate for the fall in its rate of reproduction. With total wage costs still 6% below those of 2000, with a surplus value rate of 6.65 to 1, where the daily wage was replaced in 1.2 hours of work, with total value added 15.8% above the 2000 mark, the rate of added value reproduction fell again to 45.6 percent.

The bourgeoisie were out of answers, and with the increasing costs of production and transportation driven by the price of oil, with the price of oil driving the bourgeoisie into greater capital expenditures to increase the rate of surplus value; with oil undermining growth in the mass and rate of value added-- manufacturing, hidden beneath all the noise and clamor of Wall Street, of all the investment bankers at all the trading desks slapping themselves on the back with each new deal-- manufacturing had all ready rung the closing bell.

Those who didn't hear it, couldn't hear it. They were too smart. They were too stupid.

The only answer left for capitalism was/is the destruction of assets.

4. With so many special purpose vehicles, new credit facilities, capital injections, bailouts and buyouts all in the market, taking up space where money used to be made, The Wolf Report offers its own concrete practical program for rescuing the economy:

The Wolf Report will deposit with the Federal Reserve System for distribution to all member banks, all primary dealers, all money market funds, all asset-backed commercial paper issuers, 24 dollars in trinkets, in exchange for which all such bankers and dealers agree to immediately leave the island of Manhattan.

November 26, 2008

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Monday, November 17, 2008

Pimp My Assets, 2

Blue October

3. Sunday, Bloody Sunday

It was a calculated decision. It was a decision made only after exercising due diligence, after conducting a thorough, and painful examination of all available information. It was a decision that began in calculation and ended in the long good-bye. It was a decision that measured the alternatives, and came up short. It was a decision made when no white knight appeared to assume guardianship, accept responsibility, for the that black hole, the investment bank formerly known as Lehman Bros.

It was a calculated decision. It was a decision made only after the gnashing of teeth and the crunching of numbers. It was a decision made only after quantitative models had been run, assessing the impact of Lehman's bankruptcy on the world markets. It was a decision made only after elaborate, sophisticated, robust [a word the quants simply love] algorithms had been applied, determining what the probable response to the collapse would be in London, Mumbai, Sao Paulo, Hong Kong, Tokyo, Paris, Berlin.

And....after all that calculation, all that arbitraging of the inefficiency of markets, Ben and Hank went their separate ways to consider the calculus of collapse. Ben, a cooking aficionado who dresses in a toque and apron when watching Iron Chef (original version), sank into his favorite chair with his favorite cookbook-- Recipes from the Kitchen of the Andes Plane Crash. Hank, a movie buff, partial to ascots and megaphones when at home with his family, slipped his favorite move, Lifeboat, into the DVD, finding this movie above all others to be a "constant source of inspiration."

They were men at work, making a calculated decision.

They were confident. The would cut the blue wire, sacrificing Lehman Bros., not the red wire, thus saving AIG, on Sunday, thus defusing the improvised explosive devices, the structured investment vehicles, blocking travel on the road to confidence.

Economics is the most dismal of dismal sciences. It is always and forever about the same thing-- justifying somebody else's immiseration. It is a dismal science, in part, precisely because it imagines itself to be a science-- a precise, objective calculation, when in reality it is a pseudo-science with its pseudo-scientists practicing their dismal mathematics, applying their dismal algorithms, all of which are variations on the single governing truth of capital: garbage in, garbage out.

But so much for historical considerations. Hank and Ben knew what they were doing. The next day, meeting inside the infectious disease ward previously known as the New York Federal Reserve Bank, Hank and Ben walked over to the room occupied by the Lehman Bros. First Ben placed a sign on the door to the room, "Nothing By Mouth," it read. Hank placed a second sign, written in bold-- Do Not Resuscitate. Then, together, they took a pillow, and carefully, quietly, forcefully, pushed it down onto the face of the barely breathing brothers. And held it there.

"That's done," said Hank, rubbing his hands.

"Easier than I thought it would be," said Ben, stroking his beard.

"Now what?" said Hank.

Neither had the slightest idea.

4. Wednesday's Children

On Wednesday, October 1, the Fed's first order of business was to remove the enforcement action that it had had in place since 2006 against Mitsubishi UFJ bank for violations of anti-money laundering requirements. It seemed a little churlish of the Fed to maintain the action when, after all, it, the Fed was in the midst of the greatest money laundering scheme in history. Besides, maintaining the action might have been embarrassing after Mistubishi had agreed to purchase 25% of the newest member of the Federal Reserve System, Morgan Stanley.

On Friday, October 3, the Congress approved the Treasury's bail out program. Bush promised to sign the legislation as soon as it reach his desk.

'God bless our brave investment bankers," said Hank.

Quoting Conrad's Nostromo, Ben replied, "Ah yes, we must comfort our friends....the speculators."

On October 7, the Fed announced the creation of another special purpose vehicle, the Commercial Paper Funding Facility. The CPFF was authorized to purchase unsecured and asset backed commercial paper with maturities of 3 months directly from the issuers. The FRB in essence was absorbing all default risk in the commercial paper markets. God bless our brave investment bankers.

Wednesday came around again all too soon. The FRB cut its funds rate 1.5 percent, in a concert with actions by the Bank of England, the European Central Bank, the Swiss National Bank, the Bank of Canada to defibrillate the bank lending markets. Ah yes, we must comfort our friends...the speculators.

But the real news of Wednesday's children was the new news from the past that emerged from the Fed's release its review of the Shared National Credit program.

In 1997, the Fed established the Shared National Credit program in concert with the FDIC and the Office of the Comptroller of the Currency. In 2001, the Office of Thrift Supervision was co-opted into the program as an assisting agency. The stated purpose of the program is to provide an "efficient and consistent review and classification of shared national credits." The program rates the quality of the credit, the loans and loan commitments extended by supervised institutions and their affiliates for lines of credit, loans, commitments in amounts that exceed $20 million per transaction and that are shared by three or more unaffiliated supervised issuers, or where portions of the original transaction are sold to two or more unaffiliated institutions, with each purchaser assuming a proportional share of the extended credit.

On October 8, this Wednesday's child, the SNC report, the assessed the outstanding credit as of December 31, 2007. The volume of extended credit rose by more than 22% from the previous report, reaching $2.8 trillion. The SNC employes two categories to identify changes in total portfolio credit quality. Classified credits are those issues that are "substandard," "doubtful," and "loss." Classified credits have well defined potential for loss including default. Criticized credit incudes all classified credits and includes credits that require "special mention." Special mention credits have potential weaknesses that may move them into the classified category if corrective actions are not initiated.

Wednesday's child reported that the volume of critcized credit issues expanded to $373 billion, or 13.4% of the credit portfolio as against 5% of the portfolio in the previous year. Classified credits measured 5.8% of the portfolio, growing from 3.1% the prior year.

The volume of classified credits doubled for US banks, foreign banks, and non-bank financial institutions. Although representing only 1/5 of the total shared credit portfolio, the non-bank institutions hold the largest share of the classified loans.

In the year of study, credit classified as substandard grew 122% and now exceeds the substandard amounts of the recession years 2002, 2003. "Doubtful" credit increased 373% and "loss" expand 231% although volumes in both categories are below those of the recession years.

Criticized credits (watch and worry) concentrated in services, commodities, and manufacturing sectors. Classified (cover your eyes, it's almost too late to worry) concentrated in service, manufacturing, financial, and real estate sectors.

Wednesday's children full of woe.

5. Stormy Monday

The shock wave from the Lehman Bros. assisted suicide was, as the song says, so wide can't get around it, so high can't get over it, so low you can't get under it. Ignorant of anything and everything that couldn't fit, that they couldn't learn on their flat screens, the Fed and the Treasury had relied on algorithms instead of homework. They powerpointed the world financial markets right into shutdown.

Simple homework would have told Hank and Ben that killing Lehman would be nearly cataclysmic for the tissue thin financial networks. Lehman Bros. alone accounted for 1 of every 8 trades conducted on the London Stock Exchange. After Lehman filed for protection under bankruptcy law, 97 administrators were put to work across the globe trying to unwind Lehman's trades, settle its accounts, organize claims for and against, and, in short, simply find the money.

On October 13, the Fed, again attempting to mitigate the damage from this action, announced that it would make take joint actions with the Bank of England, Bank of Japan, European Central Bank, and the Swiss National Bank in their 7, 28, and 84 day auctions of US dollars. Said the Fed, in what must be one of the most restrained confessions of desperation:

Counterparties in these operations will be able to borrow any amount they wish against the appropriate collateral in each jurisdiction. Accordingly, sizes of the reciprocal currency arrangements (swap lines) between the Federal Reserve and the BoE, the ECB, and the SNB will be increased to accommodate whatever quantity of U.S. dollar funding is demanded.

The next day, Tuesday's are just as bad, the Fed announced that swap lines to the Bank of Japan will be increased to accommodate any amount required.

One week later, Tuesday's were still just as bad. The Fed announced the-soon-to-be-created special purpose vehicle, the Money Market Investor Funding Facility. The MMIFF, when and if ever functional was designed to directly purchase certificates of deposit and commercial paper, having maturities between 7 and 90 days, issued by "highly rated financial institutions." Total dollar limitations on purchases by the MMIFF were not identified.

As the month closed, Wednesday came around again. The Fed announced it was establishing currency swap lines with the central banks of Mexico, Brazil, Korea, and the Monetary Authority of Singapore. Each line measured $30 billion dollars.


Mexico, Brazil, Korea, Singapore, Japan, the ECB, Canada, Switzerland-- 1 year, 2 years ago these were part of the advancing wave of countries that would replace the United States in a "new epoch" with China, of course, at the head of the advance. These were some of the countries running trade surpluses with United States, supposedly accruing declining US currency and grossly overvalued US debt instruments, supposedly forced to "subsidize" the parasitic US economy, supposedly providing it with goods and services in exchange for paper crumbs from the imperial table.

In 2007, the US racked up a $3 billion deficit in merchandise trade with Brazil, a $12 billion deficit with the Republic of Korea, an $117 billion deficit with the European Union, an $87 billion deficit with Japan, $69 billion with Canada, $76 billion deficit with Mexico. Japan was the largest holder of US debt instruments. Russia, Brazil, Korea, had increased their foreign exchange reserves since the dark days of 1998 and 2000.

Why now was the Fed extending unlimited temporary currency swaps with these countries?

First and foremost, because the banks and financial institutions within those countries would not or could not extend credit to importers or exporters to facilitate shipment or delivery of goods. Banks and financial institutions wouldn't lend to each other. They would not place themselves on the hook for the full value of an export or import contract. When the central bank of Brazil reduced the reserve requirements for the country's banks in order to facilitate lending to business, the banks turned around and used the released funds to invest in high yield government securities.

But secondly, these central banks do not own the dollar reserves and those US debt instruments, just as in fact the US does not really run a trade deficit with most of those countries. The international trade of the US is essentially one of export and reimport. Imports from related parties, subsidiaries of US companies abroad, account for almost half of total US imports. Once trade is adjusted for this, the US trade deficit declines by 75 percent. For 2006, the adjust trade deficit declines to $226 billion and that amount is accounted for by the increased prices for a single imported commodity-- petroleum.

The US debt instruments held by international central banks are made up in part of just those revenues from US related party trades. The instruments represent in part the profits of those countries' domestic businesses trading with the US and other countries. The instruments represent in part the currency obtained and required for participating in the US security markets. The instruments represent the importance of US and Western European banks, of dollar denominated debt, in the economies of all countries. These instruments do not represent any latent economic power of Japan, Brazil, India, the EU, China, Canada, Mexico, or Russia over the United States. These instruments do not, in essence, belong to any of those countries. Those countries do not own the revenue stream that is tapped, and trapped, by the instruments.

Much has been made of Russia's stabilization fund, fed by revenue from oil and gas sales. Between 1999 and 2008, Russian pushed approximately $565 billion into that vehicle. What has not been publicized is that during that same period, Russia increased its indebtedness to US and Western European banks by $490 billion.

August, September, October, and November have made whole what was before only revealed in part by the declining exchange value of the dollar after 2003; by the importance of US financial markets to the profitability of the world's banks-- that the idiots, bumblers, fools at the head of the US financial system are in fact geniuses dancing on the world's grave. They are the best representatives their class, the US bourgeoisie, could ever have.

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Next: PMA 3-- Roots, Rates, Returns


Saturday, November 15, 2008

Pimp My Assets, Part 1

1. Short Timers

It was just a short time, barely two months into finance capital's Great Escape, with Wild Ben Bernanke and Ranger "Hank" Paulson betting the ranch on the Troubled Assets Relief Program (TARP), that is to say, betting the ranch on the growing number of foreclosed ranch houses, that Ben and Hank pulled up on the reins, stopping their twin greenbacked ponies, "T" and "Bill" dead midstream. Swinging around in his saddle, said Hank to Ben, "Let's change horses." Ben looked to the bank behind them. No horse there, just a half-dead elephant packing his trunk. Hank looked to the bank ahead of them. There were horses there all right. Old gray mules with names like Volcker, Rubin, and Summers that weren't what they used to be, but then again, nothing was what it used to be.

Ben thought for a short time, the water rising around him, "We need a special purpose vehicle," said Wild Ben.

"Right," responded Ranger Hank after a short time, "A special purpose vehicle! My kingdom for a horse. My horse for a special purpose vehicle!" he cried.

It was a short time, barely two months after placing Fannie Mae and Freddie Mac into conservatorship, barely one month after the Great Escape Redux with the US Treasury injecting, granting, bestowing $160 billion to banks mostly large, and some less large, through direct share purchase that Ranger and Ben decided to junk the asset and relief parts of the TARP, leaving just a troubled program.

The junking was pre-figured by extending and revising the terms of the deal bailing out AIG. The new deal, with cards dealt from the bottom of the deck, was a thing of wonderment. First, the US Treasury exchanged $25 billion of AIG's debt for 40 billion dollars worth of senior preferred shares of stock, thereby diluting the "value" (purely notional) of its original 79.9% portion of AIG's equity. Secondly, the Treasury reduced the rate of interest on AIG's outstanding debt from the 3 month LIBOR rate plus 850 basis points (8.5%) to the 3 month LIBOR plus 300 basis points (3%). The terms of the loan were extended to five years. The rate on portions of the loan not drawn upon would be reduced from the LIBOR + 8.5% to LIBOR +.75%

But wait. There's more. Two new special purpose vehicles were formed. One was called the Residential Mortgage Backed Security Facility (RMBSF for short?). Organized as a limited liability company with a $22.5 billion loan from the Fed, and $1 billion from AIG, the was designed to, in the Fed's words, "return all cash collateral posted for securities loans outstanding under AIG's U.S. securities lending program. As a result, the $37.8 billion securities lending facility established by the New York Fed on October 8, 2008, will be repaid and terminated."

The second vehicle, the Collateralized Debt Obligations Facility, was the big news, a real thing of beauty, bringing smiles, for a short time, to the faces of bankers everywhere. With $30 billion from the FRB and $5 billion from AIG, that is to say with $35 billion from the Fed, the CDOF would purchase the credit default swap contracts that AIG issued insuring debt instruments, the structured investment vehicles, bought (and issued) of, for, and by.....the banks. And insurance companies. And hedge funds. The CDOF will purchase the underlying CDOs at market value (approximately 50% of original face value), while the banks will be allowed to keep the collateral that AIG had to supply when the face values declined. The banks will be made whole. "Now that's what I call banking," said Andy Fastow, not a short-timer, a bit wistfully, from his prison cell.

Meanwhile, T and Bill paddled on gamely, going nowhere. Excess liquidity has its downside.

It was clear why Ben and Hank had decided to jettison their plans for the TARP. They had in fact already established the TARP by another name. Ben and Hank had turned the entire public treasury into a special purpose vehicle.

2. Black September

Eliot wrote that "April was the cruelest month." What did he know? Purveyor of structured banality, sterile verse, a bad poet, and obviously not a banker. September is the cruelest month. Ask any of the Lehman Bros. And October is just as bad.

Following hard on the takeover/collapse of Freddie and Fannie, the FRB initiated a series of actions broad in scope and substantial in depth to maintain "liquidity" in the credit markets. Broad and substantial and always a day late, and no matter how many billions were made available, always a dollar short.

On September 14, Wild Ben relaxed the rules on the securities that could be pledged as collateral by investment banks for Fed funds at the Primary Dealers's Credit Facility. The new rules accepted as collateral securities that were generally accepted as collateral by the two major clearing banks in New York. Prior to this change, only investment grade securities was accepted as collateral by the PDCF.

The Fed also relaxed the requirements on collateral at the Term Securities Lending Facility. The new rules allowed all investment grade securities to be utilized as collateral. Previously only US Treasury instruments and AAA rate asset-backed securities were accepted.

On September 16, the Fed issued a statement fully endorsing the actions and decisions of the US Treasury to 1) let Lehman Bros, with a balance sheet of $630 billion in "assets," meaning debt exposure, collapse with the thud heard 'round the world; 2) initiate Rescue Plan 1 for AIG, involving an $85 billion dollar dedicated loan facility, and the initial 79.9% equity stake.

It is this date that marks the end of the "stabilization" focus of the Fed, the ECB, the US Treasury, the Bank of England. This date marks the beginning of the "desperation" focus. What followed upon the heels of the decision to let Lehman Bros. sink was, and remains, nothing short of a dash for cash, and if, as a European banker put it, "you don't have dollars, you're screwed."

On September 18, the dash for cash had become so acute that,in order to increase dollar liquidity in the lending markets abroad, the Fed authorized expanding its reciprocal currency arrangements (swap lines) by $247 billion with the European Central Bank, the Bank of England, the Bank of Japan, the Swiss National Bank, and the Bank of Canada.

On September 19, the Fed announced the creation of another special purpose vehicle, the Asset Backed Commercial Paper Money Market Mutual Fund Liquidity Facility (AMLF). The AMLF was intended to increase liquidity in the money markets by loaning money to depository institutions and bank holding companies to buy asset backed commercial paper from money-market mutual funds. The AMLF would make the loan and the Fed would indemnify the bank purchasing the ABCP against any loss of value of the ABCP until its maturity.

At the same time, the Fed announced it would purchase the short term debt instruments of the FNMA and FMAC for the "primary dealers" with which it conducted its business.

Two days later, Goldman Sachs and Morgan Stanley, having caught a glimpse of its own mortality in the death agony of Lehman Bros., decided to seek protection under the Fed's spread, and increasingly threadbare wings, by reincorporating themselves as bank holding companies. The Fed accepted the applications and also authorized loans to the London operations of Goldman Sachs, Morgan Stanley, and Merrill Lynch which, the stronger chick in the nest, had been rescued by Bank of America at the same time as Lehman Bros. was fed to the cat.

On September 24, again attempting to "unfreeze" the credit markets in Europe, the Fed authorized another $30 billion increase in its currency swap lines, this time extending the dollar funding to Australia, Denmark, Sweden, and Norway.

On September 26, the Fed added $10 billion to the swap lines with the ECB, and $3 billion to its line with the Swiss National Bank

The derivative world, the world of collateralized everything and nothing, was ending all right, with a bang, and a whimper. The decision to allow Lehman Bros. to seek bankruptcy protection while defending AIG was the worst move made in the assessment of the strength of real estate and finance since that of September 2001 cancelling the evacuation of the South Tower of the World Trade Center after the North Tower had been struck.

The collapse of Lehman Bros. was no less noisy, dirty, and terrifying to the world financial markets than of those 100 stories of concrete and steel.

Wild Ben and Ranger Hank had apparently forgotten that markets are their own special purpose vehicles, generating an "average rate of social profit" throughout the system of capital; transmitting the success, and failure, of the reproduction of value to every participant; consummating not just exchange, but transmission, interpenetration, and... infection. AIG was "rescued" because its exposure, its liabilities in the credit default swap market were so immense that its collapse threatened all of capital's financial network. Yet, AIG's exposure was based on the liabilities it had assumed on exactly the type of securities issued by Lehman Bros. Once Lehman Bros. collapsed, AIG could not be insulated from the collapse in market value of the securities it had insured for all issuers. The wheels began to fall off the special purpose vehicle.

Next: Pimp My Assets 2

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Wednesday, November 05, 2008

An Event of Immense Signifcance

1. All, or almost all, are in agreement. Everyone from John McCain to Oprah Winfrey understands that the election of Barack Obama is an event of immense historical significance. Who can deny the pride, the achievement, the vindication, felt by African-Americans, after 450 years of discrimination, slavery, betrayed promises, Jim Crow, rapes, lynchings, assassination, police brutality, economic exploitation, in the victory of a man of their own color? In a man of intelligence, knowledge, insight so far superior to that of those, all those, opponents within his own party and within the Republican Party, that if, if, the US bourgeoisie chose their representatives on merit and by ability, the presidential election would have been declared no contest?

It is not, however, merit or ability that moves the bourgeoisie to accept, to bankroll, to embrace a candidate as their candidate. Sometimes, color, or more precisely, the lack of color is enough. And sometimes not. Whenever, whomever, the bourgeoisie embrace, whenever the bourgeoisie do anything, they are counting, and they are counting on their man, their candidate to reconstitute the mechanisms of accumulation. Nothing else matters to the bourgeoisie, or at least nothing else matters until that mechanism, that accumulation is restored.

2. All, almost all, will tell you that we live in an era filled with event of immense historical significance. The "terrain," ideological and material, of capital has changed. So we've been told.

In the past twenty years, history has witnessed the disintegration of the USSR and its allied countries and their reconstitution as nodes of capitalist accumulation, changing the terrain

In the past ten years, history has recorded the emergence of the "newly industrializing economies" of Thailand, Taiwan, South Korea, Malaysia, Brazil, India, and of course, China, changing the terrain.

For the past nine years, the theorist/merchants of "peak oil" have flogged their particular brand of entropic apocalypse (for the third time, I might add, in lockstep with OPEC price spikes, as if the third time was the charm), changing the ideological terrain, not just for capitalism, but for any advanced economy.

For the past five years, the professional journalists and economists of capitalism have trumpeted China's emergence as the new "superpower," with its destiny one of replacing the United States as both the industrial and financial linchpin of the world markets. China's "market socialism/state capitalism" was an event of immense significance, changing, levelling the uneven terrain of capital,

For the past four years, we have read about the "North-South" divide; the increase in "South-South" economic strength and independence from the behemoths of North America and the European Union. "Decoupling" was an event of immense significance, changing the terrain of capital.

For the past four years, we have watched the decline of the dollar/ascent of the euro, further evidence, we know, of an event of immense of significance, the decline of the United States .

For three years, until 2007, history recorded the immense significance of "risk management," "mark to market valuation," and tranching, parcelling of reward, changing the terrain for the accumulation of capital.

For a year and a half, we have witnessed the waning of capitalism's paper moon, the debasement of all that was virtual, the destruction of assets.

For three months we have witnessed the events of immense historical significance as the bourgeoisie everywhere try to delay the immense and significant margin call of history, dumping money into the pits called banks, when the real event of immense historical significance is that money is no longer exchangeable with time.

3. All, or almost all, capitalists will tell you "time is money," but we know that that is not exactly right. Money isn't time, it is alienated, expropriated time. Time is not money, but money is the absolute loss of time, just ask anybody who works compulsory overtime.

Finance, the ability to finance, to supply credit, is generated in the expansion of capital as it realizes the labor time it has aggrandized with the purchase of wage-labor. Finance is generated in the metamorphoses, the circuits of capital, from money through commodities to mo'money.

From its point of initiation however, finance and credit, function in the hesitations, the interruptions, the lapse, the delays in that circuit of expansion. Credit and finance sustain reproduction in those interstitial moments when expanded value has not yet been realized.

Credit is supposed to buy time, or if not actually make the purchase, get a short term rental until realization of value catches up with extraction. And once the metamorphosis has occurred? As with everything else, as with all of capital, credit can only exist by starting all over again. Everything that has once been realized immediately disappears, becoming only a point on larger circle that must be traversed again. Finance is nothing. Refinancing is everything.

The assumption of debt amounts to not only a claim of future earnings, but embodies the extinction of all current values, as those values are insignificant when and if expanded reproduction does not occur. Collateral is damage.

Debt, credit, bridge the periodicity of capital, and when reproduction staggers under the burden of accumulated capital values, it burns those bridges. The assumption of more debt under these conditions, the attempt to buy the time, extend the time, for expanded reproduction fails; either credit is withdrawn, or the compounded debt accelerates the destruction of preexisting values. Money can no longer buy time.

4. All, or almost all the events of immense historical significance, "changing the terrain of capital," have fused the accumulation of capital, the buying of time, with the assumption of debt, with the destruction of assets, with the preservation, not the erosion, of the primacy of the United States in the capitalist network. What appears as capitalist expansion does not occur without preparing the destruction of the preexisting, and future, social assets.

So the Soviet Union's productive apparatus is demolished with the economy reduced to monoline production, while life expectancies decline by twenty percent. The terrain for capitalist accumulation is restored.

So "peak oil" becomes one more argument of "supply and demand," and profits soar for the oil bourgeoisie, as the price of oil drains profits from other corporations and into the oil companies. The terrain for capitalist accumulation is reconstituted.

So China, the new superpower, holds US debt instruments not as leverage over the US, but as an index to its own uneven development, its inability to fundamentally alter its gap between city and countryside, between agriculture and population. And in that gap, the mechanism for capitalist accumulation is reconstituted.

So with the dollar in decline, the US increases its capital equipment exports, its agricultural exports to new records. The terrain for its capitalist accumulation, its dominance of the world markets is restored.

So the asset-backed securities, which banks and bankers all over the world purchased as instruments, vehicles, for profit accretion, were in fact the products of simultaneous overproduction and reduced reproduction, and the debasement of the paper securities is only the mechanism for accumulation turning on itself as time runs out.

So that event of immense historical significance, with time running out, the election of Barak Obama, is the attempt to alter the terrain of capitalism, and find a way to reconstitute the mechanism of capitalist accumulation.

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Summing Up: On the Election

Note to George Bush:

George, you fucked up so bad we had to allow the election of an African-American.


Bankers of America

Saturday, October 18, 2008

Of Hats and Rabbits, 3

1.(What it is) There were meetings in Washington, New York, Paris, Zurich, London, Berlin, Frankfurt, Milan; meetings in front of cameras and behind closed doors; meetings at which the giant teeny-weenies of the capitalist order-- those central bankers, ministers prime and sub-prime, presidents, secretaries; meetings at which that cast of midgets and mumblers performed like fleas at a pocket circus, yoked together by a single thread, dragging in unison the wagons of the public treasury across the stage to the oohs and ahhs of journalists, columnists, experts; meetings where promises were made; meetings where the governments put the public money where the private mouths were, upturned, open, empty.

And after every meeting, after every agreement, the bourgeoisie found themselves right back where they started from: gripped, controlled, hounded by declining profits. Money, it turns out, is everything, or at least the image of everything. And for capital, image is everything.

Money, in its loss, represents the overproduction of capital; it represents, in its powerlessness, the overproduction of the means of production that eviscerates [1. verb trans.--disembowel. 2. verb trans.-- bring out the innermost secrets. 3. verb trans.--elicit the essence of., OED] the rate of profit, that obstructs capital's ability to maintain its own reproduction. It represents in its weakness the inability of private property to maintain the production for value. It represents the conflict at the heart of capital, between the means of production and the property relations that encapsulate them. Money represents all there is to the bourgeois order-- and all there is is weakness, decline, devaluation.

2. (What it was) Overproduction of capital never signifies anything but overproduction of the means of production... Marx, Capital Vol. 3

Picking through the rubble of its 2001 recession, the U.S. bourgeoisie found life after dotcom digital death in the five pointed star of reduced factory employment, war, dollar devaluation, increased oil prices, and reduced capital spending. If expanded reproduction is the lifeblood of capital, then the US bourgeoisie decided that it was time to drink the blood, to intensify accumulation through increased, and unreplaced, capital consumption.

Annual real investment in manufacturing fixed assets had peaked in 1998 at $198.3 billion, and ended 2000 at the $198.1 billion mark. By 2003 the amount had fallen to $147 billion. That same year manufacturing profits began a spectacular recovery. By 2004, manufacturing profits where 12% above their 2000 peak according to the US Bureau of Economic Analysis. On a year-over-year basis, profits in 2005 increased 50 percent. In 2006, they grew another 24.4 percent.

Net capital investment did not increase to the amounts of the prior decade. Increased capital consumption limited net capital spending to amounts half, and three-quarters of the net amount invested in 2000. In fact the amount spent annually has remained below the 2000 mark for every year following. However, replacement and expansion of fixed assets, even on a restricted basis is essential to capitalism. Reduced net investment is accompanied by increasing gross investment, and so capital reproduces itself, it expands, on a reduced, but increasingly costly, basis.

The rate at which profits accumulated exceeded the rate at which capital investments were made, but as the capital investments continued the rate of growth of the rate of return on that investment slowed. Slowing from a growth in rates from 15.2% in 2004 to 20.6% 2005, the rates in 2006 and 2007 were 23.1% and 22.5% respectively. The more it expanded, even/particularly on the reduced basis, the more investment required in equipment and materials, the more capital overproduced itself and reduced the rate of growth of the return on its expenditures.

For capital, rate, speed, velocity time is everything. A deceleration in, not just the rate of return, but the growth in that rate, means that more and more time is being consumed between the extraction of value and its realization as profit.

And with money the mirror, the lens, the image of capital, it is in the money markets, in the exchanges of paper, that the merest slow down in the ability of money to turn its tricks of disappearing and reappearing bigger and stronger, is magnified, leveraged, into paralysis, freeze, collapse.

3. (What it's not)

What it's not is a problem of "underconsumption." Consumption only exists as a "derivative" of capitalism's need to simultaneously aggrandize and expel wage-labor from the process of production. Consumption exists only as an index to capital's achieving expanded reproduction, sufficient profitability, and its success at exploiting wage-labor at an intensity sufficient to overcome the declining rate of return inherent in this reproduction, this profitability, this exploitation.

What it's not is a problem of "fictitious capital." Fraud, swindle, charlatanism are ever-present in the circuits and cycles of capital, and while these fine qualities are necessary for the conduct of capital's daily business, these fine qualities are not sufficient. Fraud, swindle, charlatanism do not create, nor can they substitute for, the social relation that determines both capital's ecstasy and its despair. Like every other bit of the circulation process, like every other market exchange, the dishonest exchanges are a zero-sum game. Nothing is created in exchanges real or fraudulent.

4. (What it will be).

Confronted with the overproduction which is, in fact, it's essence, capital can do no more and no less than to debase the values it has spawned, attempt to destroy the means of production, and demand an increase the exploitation of wage-labor. The difficulty capital encounters in actualizing this process is not the encounters with various other and competing capitals, but with the human component of its mode of production. Class struggle is the only obstacle to a world of increased misery.

S. Artesian

October 18, 2008

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