Eyes Windows Of The Mind And Whirlpools

Sometimes it is good to have a look at what others outside may think. Distance and another perspective may not make the heart grow fonder but the mind will look through different eyes. Try this one below from The Automatic Earth written by Stoneleigh.

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The Imperial Eurozone (With All That Implies)

In the light of events in Greece, I want to address the structure and prospects for the Eurozone, and specifically how the structure pre-determines the prospects. Talk about long term austerity measures in southern Europe by no means covers a worst-case scenario.

All aggregate human structures at all degrees of scale are essentially predatory. They all convey wealth from a necessarily expanding periphery towards the centre, where wealth is concentrated. The periphery may be either forced or enticed to join the larger structure, but that does not affect the outcome. Such structures are all inherently self-limiting, as the fundamental dependence on the buy-in of new entrants grounds them in Ponzi dynamics.

The Eurozone project is no different. The European periphery was sold an impossible dream - that they could by fiat have the same living standards as northern Europe. Perhaps the architects of the project believed that equalization by fiat would work, but whether their intentions were honourable or not is immaterial to the outcome.

The Ponzi scheme was very effective, because the impossible dream was so appealing. The euro project gave people and companies and governments in the periphery access to far lower interest rates than they had ever seen before, and encouraged them to enter the gingerbread palace.

The result was a manic period of credit expansion where people borrowed vastly more than they could ever hope to repay, just like the US subprime borrowers who indulged in the same dynamic. Attempting to borrow yourself into wealth absolutely never works, no matter where you live. The developing debt slavery further enriches the centre in the meantime, though.

As we have discussed at The Automatic Earth many times, credit expansions create outward appearances of great real wealth. They do this by creating multiple and mutually exclusive claims to the same pieces of underlying real wealth pie. Many people feel wealthy, but that is perception, not reality. This wealth is virtual. The structure is Enron-esque. At maximum expansion it appears robust, yet it is destined to implode rapidly.

When such expansions happen on a small scale, borrowers can end up in long term debt slavery but a centre can hold, albeit after taking a haircut and perhaps seeing a change of control to some larger external entity able to absorb the impact. When the same thing happens on a large scale, or indeed an all-consuming scale as it has this time, it will take down both borrowers and creditors alike, in a climate of mutual recrimination.

The debt exposure to the periphery is simply too large to avoid taking down the centre as well, especially as there is no external structure large enough to absorb the impact. This time we have created the first truly global Ponzi scheme, with a myriad local manifestations.

To revisit an earlier essay on “Adaptive Cycles In Natural And Human Systems” the effect of a cycle turning to the downside depends on where it is positioned in relation to both the smaller-scale cycles it is composed of and the larger-scale cycles within which it is embedded. The deepest collapses occur when cycles at many scales move to the downside in a coordinated fashion, so it is not possible to cushion the fall. The erstwhile European Imperium is destined to fail, and it will by no means be alone in this, as it is but one component of a global financial structure of the same nature and at the same position on the brink.

A credit expansion requires two sides - a predatory lending structure at the centre and and gullibility and greed in the periphery. They are mutually responsible for the outcome. In a collapse, the center attempts to blame the periphery and impose all the consequences upon it, while holding on to all the perceived wealth. This is toxic to the larger structure.

The socioeconomic disparities created in the attempt to contain the consequences in the periphery will be politically impossible to sustain. Germany will not be able to continue business as usual while expecting the Greeks (and the Portuguese, Spanish, Irish, Italians, British, Eastern Europeans etc.) to live with drastic austerity measures for years.

The extent to which the attempt to do this will inflame destructive old hatreds is very much larger than people currently suppose in a place as apparently civilized as Europe. Collective memory is long.

Remember Sarajevo - the veneer of civilization is very thin when push comes to shove.

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There is a lot on the web on “Ponzi” and schemes. Stoneleigh refers to The Balkans but there are other places. On the other side of the pond they are more open about their pessimism as they are about their deficits.

Teaching Young Dogs Old Tricks

The present uncertainties arise for a number of reasons. Our new crop of youthful members of parliament has grown up since the late 1980’s. There are some remnant old stagers around as well as those on the Left who burble incessantly about Mrs. Thatcher. This seems to be their modern fetish in line with the worship of antique pop groups. Back in the 1950’s I do not recall us wittering on about Ramsay Macdonald or paying good money for 1920’s ballroom dancing melodies. As for dancing the Charleston, I mean my Dad did that and well who wants to do that kind of thing?

For all of her media dominance and thrust of her personality, Mrs. Thatcher still presided over a party of many parts. It was a coalition of one kind, unluckily because of the electoral system with some bits missing that should have been there. Old Labour always was a coalition where the Methodists traded uneasily with the Marxists, never mind the rivalries of the many trade unions.

Nowadays, but not then, you will find the boilermakers in with the collective of sex workers and a bundle of local government personnel and shop workers as in the GMB, yes dear reader, I am a member of that union, it is a long and strange tale.

Under John Major the old Tory party began to disintegrate and despite the efforts of its publicity people is still fragmented. The difficulty now is that under the Great Leader concept of party management the old checks and balances have gone and it is all very messy.

New Labour has abandoned its traditional base to build up a client base by huge spending in the public sector. It has created a new middle class who are not so much consulted as directed by media and modern management techniques and whipped along by bonus payments and target setting. The BBC is a case in point. The dictatorial nature of New Labour originates amongst the extreme Left groups that so many of them belonged to whose intellectual inspiration was East Germany.

The Liberal Democrat’s began as a coalition of sorts, essentially the dissatisfied meeting the disorientated. Bits that might have remained have dropped off, as Greens and such, but they have become a raggle taggle bunch of camp followers who can see only Europe as the future and Britain as an off shore base for good intentions for the world who will take no notice.

In office New Labour has taken advantage of its position by a process of “creative destruction” which has been very effective on the destructive side but very bad on the creative. They have certainly created unsustainable debt and expenditure levels but not much else.

The only people they have compromised with are the money men and the big spenders. For the rest of it they have steam rollered Parliament, dismantled the old civil service, the Foreign Office cannot even be civil to The Pope, and have created a web of entities and activities too big either to control or to co-ordinate.

In short none of the three major parties has any real experience of the nature of discussion, manner or management of a real coalition situation and of their members few have either grown up or been obliged to conduct any serious business or work in negotiation to achieve the results needed. It is quite literally like putting not so much the lunatics in charge of the asylum as the predatory animal packs in charge of the zoo.

Historically, at different times and in different places similar situations have arisen before and the results are not happy ones. In some cases the political entities just disintegrate as a whole, in others one form or another of absolute government occurs, perhaps after a period of bloodshed and misery. Occasionally, the state concerned just staggers on from one disaster to another. Lastly and all too often the state goes off the map as it is taken over by outsiders in one form or another.

Is anyone taking bets?

Tomorrow Is Another Day

Those taxpayers who cannot avoid paying tax are the only persons contained by existing political boundaries and are wholly at the mercy of their political elites. These elites, their support systems and much of large scale economic activity notably in financial services are not financially confined within the “nation states” they control and from whom they extract their rents and income streams.

They take their money and ownership of assets where they wish. So for the UK the offices of our Inland Revenue which extracts taxes from most of us are no longer owned by our government but by a private equity company based in Bermuda. This company made a very profitable deal on the purchase of the offices and is doing very well out of the leasehold and other charges.

It would be wearying to go on and on and on about all the other examples, please refer to Tax Justice Network on the international situation. In some countries, notably Greece it has gone to greater extremes. There, it is said, hardly any of the top 30% in wealth terms pay much if any tax. Nor do they intend to. One side effect is that such Greeks have been buying into London property and helping to keep up prices there. The UK needs this kind of help much as it needs a return of the Bubonic Plague of 1665-1666.

The great trouble for the media, the politicians and the pundits is that explaining all this to the ordinary, or even most of the educated population is conveying the sheer complexity and depth of what is involved. All I can do is give below the comment made by Tyler Durden yesterday in Zero Hedge dot com “The CDS Traders Verdict Is In – UK In Deep – As Are France And Deutschland”. In another post the site points out that the Greek bail out is also a bail out of French banks.

In the next few days and maybe months you are going to hear a lot about “contagion” and the gathering sovereign debt crisis implodes, explodes or goes stratospheric. Like it or not you and I are part of it, so get used to the idea.

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Portugal... Spain...Greece...these are all last week's news based on CDS trading patterns. Indeed, this week saw the biggest trade unwinds of all top 1000 CDS entities (including all corporates) precisely in these three names.

As the PIIGS implosion is finally being appreciated by everyone and their grandmother, the "speculators" are booking massive profits: the net cover/rerisking in Portugal and Spain was a massive $500 million net notional unwinds in each in the week ended April 30.

Also known as taking profits. Greece and Ireland were also in the top 5, so as we have repeatedly claimed, the market will no longer make the news in Club Med. So where will it? No surprise there - the UK, France and Germany. The smartest money in the world is now actively betting the core of the eurozone is where the next CDS blow up will take place.

With a stunning $630 million, $558 million and $370 million in net notional derisking, France, UK and Germany are the top three most active recipients in negative bets in the prior week, not just in sovereigns but in all names.

The greatest non-sovereign derisker in the last week? Goldman Sachs, with $175 million. Nuff said. Yet a tangent on the UK: last week the UK saw $443 million in net notional derisking. This week the number is even higher: $558 million. There is now over $1 billion in net risky bets made that the UK may not last.

And Zero Hedge's outside bet to be the first core country to blow up, thanks to its massive PIIGS exposure, France, finally made the top spot in net derisking, with $629 million in net notional, or 189 contracts. The smart money is now massively betting that Europe's core is done for; as the PIIGS have demonstrated, the blow out in spreads for the core trifecta can not be far behind.

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The ones who will be worst affected are those who are the taxpayers. And there is no known cure.

A Grand Day Out

Today I went fishing the easy way, by going to the fish shop and asking the fishmonger to do the necessary. As old fashioned fishmongers have gone from almost all our shopping centres you now have to travel some miles. Our nearest is on the coast a forty minute belt down the motorway. We like to eat fish to promote our “green” credentials” The trouble is that fish stocks are now getting low and the price is going up and all sorts of other things so it is no longer “green”.

We took a walk along the seafront. To the south we could see Dungeness Nuclear Power Station, now mostly mothballed, and there is a debate about its renewal. If it is not renewed it will add to the energy problem, if it is it will be the source of other problems. Close to it we could just pick out the huge Romney Marsh Wind Farm, built to provide us with “clean” power. We could see them easily because the sails were not turning as there was no wind.

Adjacent to the power station and wind farms is Lydd Airport. Its owners want to expand it to allow bigger planes and a more extensive air service. This will entail other works. At the moment it offers a world class service to Le Touquet where the French Elite once used to keep their mistresses. Now it has some attractive casinos. Just the kind of thing to support our GDP in peril.

Up to the north the P&O Ferries are working hard out of Dover. They need to in order to keep up with the traffic created by all the strikes in France. There are two large new ferries on order. They hoped to name them “Olympic Spirit” and “Olympic Pride” to celebrate the coming of the Olympic Games to England.

They are not able to. It seems that the use of the word “Olympic” now contravenes legal rules that protect the commercial rights of the organisers of the Olympic Games. As the UK government whose idea this is has not consulted Zeus or his staff I suspect that something unexpected and nasty could happen in 2012.

Despite it being a beautiful day there are not many people around and it is all sad and more than tired. The British seaside does not attract many these days. People have been instructed that they must fly off across the world to be stranded in far away places and sit on beaches and in bars indistinguishable from any others to enjoy themselves.

However, there were two chaps enjoying themselves with their tins and jolly banter echoing around the promenade. It did not take long for me to deduce that they were Glaswegians from the nature and verbal texture of the exchanges as we greeted each other. A short distance away there is a road named after a Glaswegian of great fame, Sir John Moore, and the whole township celebrates his name and memory. Behind us was the great Shorncliffe Redoubt that he built two hundred years ago.

The Glaswegians, old soldiers, it appeared were not in work and homeless, so I invited them to join me in invading France, whose coast was just possible to see. They demurred, they had already tried it and had been thrown out by the French in a sad betrayal of European solidarity.

Sadly, my new friends would not be voting, like many of their ilk. But in their old homes their votes would not be missed being replaced by new postal votes as in so many places. It is one of the wonders of New Labour that the number of fake votes provided by ineligible non European Afghans and Iraqi men will far exceed the number of British troops prevented from voting by administrative difficulties. Sir John Moore would not have understood.

Having advised the two about the location of a decent fish and chip shop and how easy it is to slip out through the back door of the local Waitrose store, it was time to come home. On the way back we were suddenly overtaken by a stream of large expensive limousines doing the ton in the fast lane.

One of my obsessive traits is to work out the meaning of number plates. This lot were off the train from Brussels and headed for London. Does this mean that come Friday there will be a posse of Eurocrats and others on hand to take part in any discussions about power broking or personalities in any new regime?

The only thing that made sense today was the conversation with the Glaswegians.

How We Voted

When the time came to send off our postal votes; we did not take up the kind offer from that very nice man dressed in combat gear, big boots, a badly washed T shirt saying “Gordon The Great” and carrying a baseball bat; it was difficult to decide.

Normally, we would go down the list of candidates and simply roll the dice. It has worked very well in the past, up to a point. The year I voted for the Monster Raving Loony Party candidate got me a tapped phone and regular visits from the Special Branch man anxious to check my gas boiler. I had some fun with that.

But alas we could not find the dice. So we had to resort to a random sample approach, if you can call it that. We allocated a particular event to each candidate and then sat down by the window to see which happened first. In the old days this might have been done by watching out for a postman or a parcels delivery or a policeman on the beat or a doctor or a nurse or other things very likely to appear. This no longer works.

So our list included an urban fox, a rat, a environmental inspector doing a sneak check on recycling bins, a junkie burglar, a serial arsonist, an unlicensed driver with a foreign number plate trying to do the ton in a hundred yards and an elderly man using our hedge because the council have closed all the local W.C.’s.

Use your skill and judgement to work out which event was allocated to which party candidate and which one turned up first.

Social Mobility - Dodgems and Roller Coasters

When politicians say that they want more social mobility then they should be careful what they wish for. Social mobility might go up or down. The 19th Century may have allowed a good deal of upward movement but undoubtedly there was a great deal downward, one of the effects of large families with a higher proportion of children surviving than in the past.

Our problem is to insist on basing our ideas of what is the two dimensional perspective of the notional class structure imposed by statisticians and the belief that this is somehow rigid and mechanical in its workings.

I regret that reality, as ever, is chaotic, very complicated and subject to all the chance and unpredictable fortunes, or not, of life. It is not just swings and roundabouts, it is roller coasters and dodgems and all the rest. Take the happy family above, for example. This is Mark Mac Donnell, 10th Earl of Antrim, his Countess, Jane Emma Hannah and their family. The present Earl does not use his title much, as a businessman it can get in the way of his work.

Mark, however, was very happy to become Earl. Initially, a younger son sent into the navy he was going to have to make his own way in life. His wife was the daughter of an Army Cavalry Major, Turner Macan of Carriff in County Armagh, one of a minor Ulster gentry family who went to India to make his name and fortune. Carriff is now a garden centre.

Mark and Jane with their growing family at one time could hope only for a modest prosperity that would allow them to educate and place their children. By one of those quirks of Irish politics in the late 18th Century the 6th Earl secured in Letters Patent the reversion of the Earldom of Antrim to the female line in the event of no male heir. So Mark was plucked from the Quarter Deck in 1855 to take over the title and estates of the Earldom and the name Mac Donnell.

This was much to his surprise as he had two elder brothers, both of whom died early and childless. They had succeeded their mother who before that her eldest sister, and then their father who had secured the special favour of a female descent for his title. Mark and Jane had risen in the world.

But there was more to come. The later Antrim’s were at Court at the turn of the 19th and 20th Century. One, Lady Jane Grey Mac Donnell, who left a private printed memoir in 1938, married Lord Clinton, Aide and Secretary to the Prince of Wales. Their daughter Fenella, married John Herbert Bowes-Lyon in 1914. He had a rather younger sister Elizabeth and the rest, as they say, is history.

But this is just one small part of the family. Some of the other descendants and connections are strewn about Burke and Debrett, Home, Lichfield, Bicester and others. But many are not. Where are the rest of them? The vast majority have gone off the radar to be found only by grubbing away in the ordinary records. As you go down the years so also you go down the scale of status and income. It is possible to connect both Wayne Rooney and Cherie Booth-Blair to the late Queen Mother. I did say roller coaster, didn’t I?

As for us ordinary lot, even within the limitations of the ups and downs of our own families there is a rise and fall. You start one thing, become another, get lucky or unlucky, make right or wrong decisions, back the right or wrong enterprises, make the right or wrong friends and networks and it will be different. This does not allow for health matters. One day it is all go, the next it all changes.

One of my uncles went into hospital work and for career reasons in the late 1930’s chose an Isolation Hospital. He caught TB and died young. Had he survived, he might well have become a senior figure in the National Health Service in the 1950’s. I could go round all the branches of my family and plot the ups and downs of life.

There is one key difference today however and that is Education. In the past in the Lower and Upper reaches of the middling orders, the pump house of social mobility, it was possible to move up without a great deal in the way of formal education. If anything around much of commerce and industry there was a prejudice against graduates. Work was the university of life.

Nowadays, unluckily, we are virtually at the point where is it compulsory to have a degree and to be in formal Education until the age of 21 at least to obtain the equivalent of entry clerical post. In short, the Education system and the way it is managed and used has become the major obstruction to social mobility.

It is not so much old fashioned class or money that matters but how long and where you were educated. You now often need a post graduate education to become the sort of very junior manager that my uncle was seventy years ago. As lotteries of life go, this is even worse than any of the former obstacles and hurdles.

No wonder that the ambition of so many girls is to become models and footballer’s WAG’s. At least it shows respect for the older traditions of social mobility.

May Day

Today I heard a distant voice singing, it is a very long while since I last heard this in a place far away in distance and in time. Lost, lost, lost.

“Sing a song of May time,
Sing a song of Spring,
Flowers are in their beauty,
Birds are on the wing.
May time, play time,
God has given us May time,
Thank Him for his gifts of love,
Sing a song of spring.”