High Anxieties: The Mathematics of Chaos

"The hyper-rich are facing something worse than death: becoming poor. Do you think they will go quietly? I think they will do whatever it takes and sell it to us in the name of 'saving the system.'"

David Malone, Debt Generation

This documentary was started in 2007 by David Malone and Mark Tanner on commission from the BBC. David had finally persuaded the network that a financial collapse was coming, a situation which he had been watching and documenting for some years.

It was finally finished on 12 September 2008, the Friday before the collapse of Lehman Brother. Two days later it was aired on BBC4.

David Malone writes a financial blog Golem XIV.

A number of people had been warning of a collapse including myself. The bubble in housing and dodgy credit was apparent to anyone who had eyes to see, the time and training to look, and a mind unclouded by conflicts of interest.

I remember after one particular rant of mine on an establishment economics site about the coming collapse, someone asked, 'What do you think he wants?'

And that is perhaps the heart of what went wrong. Few were acting from conscience and principle, and most, as is so human, were guided by self-interest, ideology, rosy thinking, careerism, and the flawed models that supported inaction in the face of monstrous injustice and transfers of wealth from the relatively innocent and unsuspecting to the financial predators.

I will tell you now that what is coming next will be as awful as anything that has gone before, and quite possibly much worse. Poison is being offered as a cure, and if taken, will contribute to the suicide of the middle class.

There is still some time to act, but it is quickly slipping by. We seem to have learned nothing.

Author’s Note from Debt Generation By David Malone

"From the very start of this crisis what concerned me, above all else, was the almost total lack of any real and meaningful debate. Decisions have been made that will affect us for generations to come, but did we ever truly hear competing ideas, explanations and alternative solutions? I certainly didn’t. All I heard was a worrying unanimity.

Bankers, financial experts, journalists and politicians all repeating each other with the same absolute, shrill, conviction. Only a seemingly endless series of vast bank bailouts, they told us, could avert otherwise certain and catastrophic disaster. It was all far too complicated for the likes of you and me to question what we were not qualified to understand.

Such absolute certainty always gives me cause for thought, so I did what I do in such situations: I began to read – but not economics books. I already knew, from a film I was making at the time, that the assumptions economists used about the real world were fatuous at best. I chose to read what actual traders inside the crisis were saying to each other, day to day, on the message boards where they exchange ideas and information.

Most of what is said on such boards is in trader gibberese, but some of it is a brutally clear analysis of what is happening. I didn’t have to agree with their politics to learn from what they had to say. There was another view of the crisis. There were other ideas of what should be done. Radically different ideas.

The more I read, the stronger my conviction grew that the mainstream media’s reporting of the crisis was alarmingly wrong. After three months of reading, I began to write. That was in early 2008. I had no intention of writing a book. I simply felt compelled to voice opposition to the deafening certainties being thrust at me from all sides. What I wrote, under the name GolemXIV, were comments on the Guardian newspaper’s website responding to financial news stories.

We had been denied, I argued, a meaningful discussion of the nature of this crisis and the futility of what was being done in the name of fixing it. As the crisis unfolded, I became more and more convinced that what was being done in the name of helping us would instead, whether by design or stupidity, turn us and our children into the Debt Generation: the generation whose principle use and fate would be to pay off other people’s debts. It made me angry. Angry at those engineering it, angry at those who justified it, and angry at those who told me there was no alternative.

After nearly two years of commenting on the Guardian, I started my own blog where I still write.

What you have in your hands is a condensation of all that anger, frustration, reading and thinking. My friend and collaborator on many films, Mark Tanner, took everything I had written and formed it into what we hope and believe is a jargon free and readable critique of what, to this day, we are still being told by all the experts, bankers, politicians and journalists.

If, like us, you feel the need to have a different account of our current situation and what we should be doing about it, then I sincerely hope this book offers you something valuable and important."

The Loophole That Placed MF Global Customers At Risk Was Still Being Used

Apparently the 'loophole' that allowed MF Global to use customer assets for their own purposes and not set aside sufficient funds to cover them is still in place and still being used by some brokers.

The CFTC has sent a letter this month to all futures brokers telling them to stop using this loophole, and intends to close it through additional formal actions.

Change occurs, but slowly.

NY Times
A Loophole Big Enough To Lose a Billion
By James B. Stewart
24 June 2012

If nothing else, the collapse of MF Global has made one thing clear: The notion that customer assets were safe was a sham.

MF Global’s customers, who discovered that the firm had plundered $1.6 billion of their property, learned that the hard way. But they aren’t the only potential victims. The loophole that allowed MF Global to convert more than $1 billion in customer property to its own reckless bet on European debt is still in effect — although the Commodity Futures Trading Commission, which regulates futures and commodities brokers, said it had since pressured other firms to stop using it.

The CME Group, which is both the largest commodities and futures exchange and also regulates many brokers, told me this week that when MF Global collapsed last year, four of the 40 firms it oversees were still using an “alternative” calculation of customer assets that vastly understates what firms actually owe. A spokeswoman declined to name them, saying such information was confidential. In my view, they should all be identified publicly so their customers can demand reassurances that the practice has stopped — and that their assets are safe.

Since the Depression, when thousands of customers were wiped out by failing brokerage firms, the idea that customer assets are protected has been sacrosanct, embodied in laws and regulations that require the assets to be safely segregated. Violating these requirements is a crime.

The rules require a firm to put aside the amount it would owe if its customers’ accounts were liquidated. This would seem simple common sense: if a brokerage firm closed or failed, customers should expect to get the full value of their assets.

But the rules apply only to accounts in the United States. In 1987, the commodity commission approved a series of rules governing foreign futures and options transactions, one of which provided an alternative calculation of how much firms needed to put aside for accounts that traded on foreign exchanges.

The alternative calculation almost always resulted in a lower amount — sometimes much lower — that needed to be segregated in foreign accounts, because it covered only options and futures. Cash and securities held in customer accounts didn’t count. So if a customer held only cash and securities, the firm had no segregation requirement at all...

To its credit, the commodity commission is taking action. This month the commission sent a letter to all regulated futures brokers telling them the agency expects them to use the net liquidating calculation — and not the alternative calculation — for all accounts, American and foreign, “pending adoption of the new rules.” It said those new rules would include “the elimination of the Alternative Method.” The letter also said that all firms still using the alternative method had agreed to discontinue using it...

Read the rest here.

Bill Moyers With Matt Taibbi and Yves Smith on the Banks - The Psychopathy of Wall Street

"Too many people hold the idea that psychopaths are essentially killers or convicts.

The general public hasn't been educated to see beyond the social stereotypes to understand that psychopaths can be entrepreneurs, politicians, CEOs and other successful individuals who may never see the inside of a prison."

Dr. Robert Hare

Source

Gold Daily and Silver Weekly Charts - Ending a Week of Shenanigans

Well, we can say goodby to this week, and good riddance to what proved to be a rough week for the metals bulls and miner mavens, except for the good news that Harvey Organ's illness was not life threatening and he will be fine it appears.

As you may recall, I warned about a 'hit' on the metals for FOMC meeting Tues-Wed. But I expected there to be a rebound and then another hit next week for the end of quarter and silver's July option expiration. That turned out not to be the case, as the metals were hammered lower. Interestingly enough, Silver OI increased.

Intraday commentary on this here.

So what next? Chart formations are really not so much help here except to track levels of support and resistance. I think the reason for this is the free-wheeling nature of these paper markets, only lightly traded, dominated by pros, disconnected from the real economy, and swinging around technicals and exogenous events.

Let's see how next week goes. There should be more data by then to be able to say something more substantial.

Chris Powell's interview on CNBC Asia is below the charts.

Have a pleasant weekend.