Tuesday, August 16, 2011

Parasitical Trading in a De-regulated, Boom/Bust Economy

The Real News Network is running a series of interviews with Obama's 're-regulation' Czar Bart Chilton, that reveals some of the players in this new, unregulated Boom/Bust market who are leaching off with our pensions - and other capitalizations of the liberal democratic state.

Chilton is one of five commissioners on the "Commodity Futures Trading Commission" (CFTC), which has been tasked by Congress to anaylise the landscape of the new Boom/Bust market place - and find some appropriate regulation strategy to over-see the hither-to invisible machinations in this 'Pirate Market' (notably the electronic milli-second traders, and the over-the-counter derivatives traders). The same entities that packaged sub-prime mortgages into bundles and then - via the ratings companies who were playing along in this lawless unregulated market (Standard and Poor's deserves a prominent mention) - rated them as high yield vehicles and then sold them around the planet.

Looking at the volumes of trades in the two years leading up to the 2007 collapse one might guesstimate that there are 10's of Trillions of these so called, 'toxic assets' still looking for a moment to come home to roost. Just ask the Greek Government - or the Irish, Iceland, Spain, or Italy.

CFTC Commissioner: "A Hair Trigger Away from Economic Calamity" - Home Page

Part 1 - CFTC Commissioner: "A Hair Trigger Away from Economic Calamity"

Part 2 - Food, Speculation and Parasitical Trading

(This series may continue - bookmark the Home Page linked in the title above.)

One of the results of deregulation of the financial sector, and trading sector has been extreme market fluctuations, otherwise known as a Boom-Bust economy.

Back in 1995 when neo-con governments introduced a qualitatively different government revenue stream through the introduction of regressive goods and services taxes - they at the same time forced a portion of people's income into the speculative markets by increasing income taxes to unthinkable levels while at the same time opening loop-holes in the tax law that would enable people to avoid paying income tax by investing a portion of the yearly income in speculation - this created the funds we know well today. Trillions of dollars of our retirement savings tied up in the stock markets, forced there through a change in government tax policy.

Essentially what the neo-con governments did was privatize pensions. Now with deregulation and a institutionalized Boom/Bust economy, these trillions of dollars of retirement savings are vulnerable to the machinations of a volatile market.  So far retirement savings have taken 3 hard hits which causing the collapse of several major funds and the loss of 1/2 a Trillion in retirement savings.

Through a handy, time line of the 2007-2009 Financial Crisis at Credit Crisis Timeline - I found this Financial Times article from 8 April 2008, "IMF puts cost of credit crisis at $945bn":
"The IMF said total losses and writedowns would reach about $945bn, based on market prices in mid-March. Banks would suffer slightly more than half the total losses, with the rest falling on insurance companies, pension funds, hedge funds and other investors."

'..insurance companies, pension funds, hedge funds and other investors.'

All the money is coming from people forced by their governments tax policy into the gamble. It's the Trillions that this is all about. So by the IMF estimate our pensions took a 500 Billion dollar hit in this one Bust - admittedly the biggest Bust since 1929, but the biggest bust since the Great Depression comes within a no regulation Meme - just like that which was in force (or not in force) in the 1920's and '30's.

The kicker is even though the market always regains it's points totals over time - in the correction your fund, or your neighbour's fund gets slaughtered. And the boom/bust cycle goes on and on. And more and more investors in this volotile market are betting against it, shorting down and in many cases these are huge player with both lots of cash and lots of the physical commodity they are hedging. They can depress prices by selling physical commodities in the market, hedge down and down which adds to the momentum of the depression of the commodities price - then withdraw the physical supply, let the normal demand take up the slack in the market and then sell as the market corrects up.

How in the hell do we get to a place where everyones in - but it births a predatory entity - the hedging down shorters who - with enough practice at their wizardry - could wipe out Trillions more in the nations retirement fund? And perhaps the Empire itself!

I've been watching national retailers, like Canada's Loblaws - a food retail chain, part of the Weston Empire that owns wholesale food production enterprises as well as a chain of Hotels. I think they've been trying to even out their retail pricing in these volatile conditions. I assume they're doing it by hedging a price they think is the projected normal over the long average - but once in a while they get caught having to sell long options at prices lower than they had projected. Thus prices begin to spike periodically as they pass on the loses.

The pain has begun. In a labour market where wages have remained level or falling for 2 decades, we have never seen this kind of inflation in food prices, 39% over the last year.

Is this good public policy - to have the future public good in a Pirate Bay with no way out? Seniors will die quietly in poverty and with out access to good medical care - but what of their sons and daughters? Will they not hold government to account?

One is reminded of the storming of the Bastille.

Let them eat cake indeed.

Inflation chart via StatsCan.


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