Huge underwater "dispersed" oil plume confirmed and other Louisiana catastrophe news

As I have said before, I feel overwhelmed by the amount of information and misinformation around the Louisiana Deepwater Horizon catastrophe and hence I cannot follow it here at Leherensuge with the intensity I would like. I have mentioned also that other more dedicated blogs, such as Washington Blog, Alexander Higgins' Blog and Florida Oil Spill Law, provide a much better and comprehensive critical following of the catastrophe at official and unofficial levels.

But today I must mention some important news. However I am in a hurry, so I apologize in advance for being brief.

Giant oil plume scientifically confirmed at 1 km depth

This is official enough to have made it to the mainstream media. BBC (watch out for a clear pro-BP bias in all British media) and Science Daily report on it, for instance.

The plume is made up of dispersed oil, up to the point that is not easy to see with naked eye. Yet it is there, it is huge and it is not being degraded biologically because water temperature is way too cold.

The news comes from a research paper, published at Science magazine yesterday, by the Woods Hole Oceanographic Institution (WHOI). However they had to stop their field research short because of bad weather. Therefore the plume has not been fully mapped yet.

This confirms the previous denounce by other scientists about the US administration oil figures being a fairy tale. Most oil is still there and because the use of dispersants (which are still being sprayed and are themselves highly toxic) the oil cannot be cleaned up (nor easily found) at surface nor can be degraded naturally by microorganisms, posing an even worse threat.



Independent expert speaks out

Washington Blog published yesterday an interview with University of California professor Dr. Robert Bea, engineer with ample experience in offshore drilling.

According to him, the good news is that the methane bubble doomsday scenario is most unlikely to be a real risk. All the rest are bad news: the geology is fractured and oil will follow such fractures and possibly leak out to the sea many kilometers from the damaged well. Solving the leak certainly will need relief wells - some previous such incidents have needed as many as five different relief wells.


Seafloor fractures in detail

Alexander Higgins has a great article today on how the macondo well might have fractured the geology of the area and its consequences. It can be synthesized to some extent in this image:


There are many other news, many of great interest, but I seriously recommend you to browse the blogs I mentioned in the first paragraph because I have no room in Leherensuge nor even in my mind for all them.

Richer than Bulgaria

The title of this article makes reference to one of the online comics I follow regularly, The Noob (a satire of massive online RP games), which, in a recent release, got the councilors of the starring Clichequest gaming company arguing about Blizzard (a real company that was recently in the news on gamers' privacy issues) as follows:

Boss (irate): We'll sue them!
Councilor 1: But they're richer than Bulgaria!
Councilor 2: I've heard that they have nuclear warheads.

Actually Blizzard is not richer than Bulgaria (and don't worry about their imaginary nukes, of course) but if they would have said richer than Mongolia, they would have been damn right.

And Blizzard is not any particularly large company. There are indeed about 150 corporations that are richer than Bulgaria, what means they are ten times richer or more than the gaming company (and Mongolia too).

I think this is an important point when we try to understand things such as capitalism, globalization and the reduced power of states. For some reason the pun got stuck in some corner of my head and, many weeks later, today, I decided to check what kind budgets actually manage large corporations, which corporations are these and how they compare with countries.

After some consideration, I think that company gross revenue figures compare well with state GDP (nominal) as both represent overall money flows, a measure of accountant if not truly objective nature (see my recent article on the magical nature of money maybe).

Wikipedia is of great help in these matters. I just had to compare their list of companies by revenue with their list of countries by GDP (nominal).

And I found that only a handful of countries are actually richer than Wal Mart, the largest company by this measure. And who says Wal Mart, easily says Exxon, Shell or BP, which are straight behind the commercial giant.

All them and many more are indeed richer than Bulgaria... and even richer than Sweden in the case of Wal Mart or richer than Finland in the case of BP. There are only 21 so-called sovereign countries richer than Wal Mart.

And as we run through the list of hyper-wealthy and therefore hyper-powerful companies, soon we reach some that we have never heard of. In place 18th is something called Glencore International AG, that, after clicking in the hotlink, happens to be dedicated to trading raw materials and such. This rather unknown company is richer than, not just Bulgaria, but also than New Zealand, Ukraine, Hungary or Algeria.

And by the way, the Wikipedia article is pretty much merciless with it: Glencore's history reads like a spy novel... tax evasion and illegal business in Iran... presidential pardon by Bill Clinton... dealing with rogue states... investments in Colombia... But well, I don't want to deal here too much in the peculiarities of specific companies, because surely they are all pretty much the same at the end of the day.

I will take instead as example instead a much more modest company, whose headquarters are located in my hometown and whose building (left) is still the tallest one by far in Bilbao. I'm talking of BBVA. I just chose it because it's a semi-local company, the pride of Basque bourgeoisie (though nowadays it is rather controlled by Spanish owners and has moved much of its infrastructure to Madrid).

It's not even the largest company of Spain (that's Telefónica, where I once worked) not even the largest bank either (Banco Santander is) and only ranks 129th globally, having a fraction of the wealth of Wal Mart or BP. But, uh-oh, it's still richer than Bulgaria (and Sudan, Oman, Syria, Luxembourg, Slovenia, Serbia, Guatemala, Uruguay, Latvia, Jordan, Jamaica or Botswana)

So does that mean that mean that if Mr. Francisco González, executive chairman of BBVA, meets Mr. Georgi Parvanov, President of Bulgaria, are they equals? Protocolarily the answer is no way but in practical terms they are indeed.

And, moving the scenario to the other side of the Atlantic, what does that mean when the Governor of Louisiana, for instance, a state with a GDP of 168 billion USD (roughly like Pakistan or Nigeria) meets the CEO of BP, whose revenue is of some 246 billion USD?

I'll leave the answer open.

Sovereign credit ratings... according to non-Anglosaxons

Specifically, according to Chinese company Dagong Global Credit Rating.

It is not trivial, considering that Anglosaxon companies may have a bias and that China, along with other East Asian countries like Japan, is a major investor in foreign debt.

Definitively the USA, Britain and other major Western countries like France, or even Germany, are not AAA for the Chinese financial watchdog. Notably the USA is rated as merely AA in both local and foreign currency with a negative outlook.

For reference, I must remind that the rating of AAA- of Spain by Standard and Poor caused hysterical reactions from the corporations and the politicians, both locally and at EU level.

Let's see the detail (major powers in bold type)

States that get AAA rating are Norway, Denmark, Luxemburg, Switzerland and Singapore. Australia and New Zealand also get this rating in their local currencies but only AA+ in foreign denominations.

AA+ is achieved by Canada, Netherlands, Germany and China. China also gets AAA in foreign denominations.

AA rating is given to Saudi Arabia and the USA, however the superpower gets a "negative" remark on its outlook.

AA- is obtained by South Korea, Japan, Great Britain and France. Japan however gets a full AA, without the minus, for credit denominated in foreign currencies. Japan, Britain and France get a "negative outlook" remark as well.

A+ is reserved for Belgium and Chile.

A is given to South Africa, Malaysia, Russia, Estonia, Poland and Spain. Poland gets an A- in foreign currency rating. Spain is the only in this bloc with the "negative outlook" remark.

A- includes important countries like Brazil and Italy, as well as Israel and Portugal. Israel credit looks weak but as long as it can get its yearly tribute from Washington guess it'll survive. Italy and Portugal however get the "negative outlook" remark.

BBB includes India, Thailand, Mexico, UAE, Kazakhstan and Hungary. The last two with BBB- in foreign currencies. Hungary and UAE get a "negative outlook" remark.

The category BBB- for both types of bonds is reserved to Indonesia.

BB+ includes Egypt, Venezuela, Nigeria and Romania, this last with a "negative outlook" remark.

A BB ranking is obtained by Greece, Turkey and Iceland. Iceland being the only one with the "negative outlook" remark in this group.

Vietnam gets a BB-, Mongolia and Philippines a B+, Argentine and Ukraine a B, Pakistan B- with "negative outlook" and Ecuador is ranked as CCC, the lowest of all surveyed countries.

The ratings are based on a number of factors, which are fulfilled only by the AAA rated countries:

... political institutions are mature and well-functioning; national development strategies are clear and implemented vigorously with obvious effect; the national security situation is stable; economic strength is strong, and they have powerful global competitive advantage; as the world economic recovery, their growth prospects are assured; they have well-developed financial systems and strong resistance to impacts; the Government maintains a stable fiscal records in long term; although the economic crisis yields the government deficit and debt increasing, the fiscal sustainability are maintained; the internal value of currency is stable; their debts are mainly denominated in local currency, or they have good external liquidity and ample foreign exchanges; the external value of the currency is stable.

Countries rated AA are considered less stable lacking one or two of these ideal components, what makes their solvency somewhat less guaranteed. States ranked A are only strong in two or three of these elements, etc.

The report also includes a comparison with Western rating agencies that makes evident that the Chinese agency is more demanding in order to give an AAA rating but compensate that by giving more AA and A ratings. B and lower segment ratings are similar.

Dagong rates several developing countries higher than its Western equivalents. Of course, one of them is China but also includes Saudi Arabia, Russia, Brazil, India, Indonesia, Nigeria, Venezuela and Argentina. Go BRIC, go! or are the Chinese more objective when rating the developing world?

They argue that:

Dagong holds that the national management capacity of these countries continues to improve, the economic growth potential is stable in the long term, fiscal stability and the resistance capacity against external shocks are getting better increasingly. Especially after the global financial crisis, the performance of these countries prove that they are more likely to turn the disadvantage into advantage in a short time, which could ensure the increase of national credit level.

What seems to make some good sense on light of what we have seen in the news in the last years.

In turn there are 18 countries getting lower ratings by Dagong than the usual NYC-based watchdogs. Of these, more than half are developed Western countries: Canada, the USA, a large list of European states and Israel. There's also a meaningful group of developing countries (UAE, Thailand, Mexico, Romania, Philippines and Ecuador) but these only rank one level lower, while the developed countries of Europe and North America see often their credit rankings reduced by several levels.

Chinese or Western bias? Considering the panic that they are inducing through the media over here about credit issues, I'd say that Western bias looks more likely. However can you trust the media these days?

The Chinese raters argue that:

As a result of the discordance among the growth rate of government debt, the growth rate of the economic output, and that of the fiscal revenue, this group of countries can only maintain their sovereign credit level on the basis of external financing. Since the beginning of 2010, fiscal risks in these countries have not only become the biggest source of systemic risk domestically, but also possibly the main source of the risk of a double dip for the world economy.

There's also a long list of 23 states that get similar ratings by all four companies.


Sources:

• Dagong International Credit Company, Sovereign Credit Rating Report of 50 Countries in 2010 (PDF)
• Al Jazeera Business Blog

Basque class division in figures

According to Iñaki Gil de San Vicente, 1.30% of Southern Basques have 44.4% of the country's GDP (not counting real state). In raw numbers that means that 36,000 Basques have almost half of the wealth created collectively by some 2,776,000 people.

Meanwhile there is an official figure of 12.7% unemployment (surely much higher in fact because this figure only includes those in the official unemployment office, which is almost useless to find job) and 40% of people (1,110,000 Basques) has incomes under 1069 euros per month, which is considered officially the poverty line (life is quite expensive here, specially housing), many of them on what is called the "social salary" which is a subsidy of 650 euros per family (only slightly higher if you have children), less than what costs the usual rent of a cheap apartment (700 euros or higher per month).

The GDP per capita in the Western Basque Country (Navarre must be close if not higher but I lack the exact data) was 31,110 euros (2008), making a rough total of 86.4 billion euros (or some 120 billion USD in 2009) for the whole southern Basque Country. What means (a bit roughly) that the 40% of Basques under the poverty line are getting less than 41% of their theoretical share of the GDP.

Meanwhile, that tiny elite of 36,000 rich Basques own collectively some 38.4 billion euros, more than one million euros each (average).

So while the bulk of the citizenry is getting through life with less than 13,000 euros per year, a tiny oligarchy enjoys one million each. A hundred or more times what the common poor Basque has.

I know that elsewhere it can be much worse (for example here it is mentioned that a Chilean worker can earn as little as $182 per month, with the official minimal salary being of $312, $250 after taxes, less than the effective cost of housing) but I wanted to calculate and write down these figures, just for the record.

The financial coup and the end of Europe as we know it

Economist Michael Hudson has a new article at Counterpunch (Spanish language version at Sin Permiso) analyzing what he bluntly describes as financial coup.

Some key paragraphs:

A balanced budget in an economic downturn means shrinkage for the private sector. Coming as the Western economies move into a debt deflation, the policy means shrinking markets for goods and services – all to support banking claims on the “real” economy.

(...) The idea is to create an artificial financial crisis, to come in and “save” it by imposing on Europe and North America a “Greek-style” cutbacks in social security and pensions.

(...) It is diametrically opposed to the original liberalism of Adam Smith and his successors. The idea of a free market in the 19th century was one free from predatory rentier financial and property claims. Today, an Ayn-Rand-style “free market” is a market free for predators. The world is being treated to a travesty of liberalism and free markets.

(...) Latvia is the prime example. Despite a plunge of over 20 per cent in its GDP, its central bankers are running a budget surplus, in the hope of lowering wage rates.

(...) Beyond merely shrinking the economy, the neoliberal aim is to change the shape of the trajectory along which Western civilization has been moving for the past two centuries. It is nothing less than to roll back Social Security and pensions for labor, health care, education and other public spending, to dismantle the social welfare state, the Progressive Era and even classical liberalism.

(...) The problem is that there is not enough economic surplus available to pay the financial sector on its bad loans while also paying pensions and social security. Something has to give.

(...)

What really is causing the financial and fiscal squeeze, of course, is the fact that that government funding is now needed to compensate the financial sector for what promises to be year after year of losses as loans go bad in economies that are all loaned up and sinking into negative equity.

(...)

This is not the familiar old 19th-century class war of industrial employers against labor, although that is part of what is happening. It is above all a war of the financial sector against the “real” economy: industry as well as labor.

(...)

Latvia has been held out as the poster child for what the EU is recommending for Greece and the other southern EU countries in trouble: Slashing public spending on education and health has reduced public-sector wages by 30 per cent, and they are still falling. Property prices have fallen by 70 percent – and homeowners and their extended family of co-signers are liable for the negative equity, plunging them into a life of debt peonage if they do not take the hint and emigrate.

(...)

The explanation, of course, is that today’s economic planning is not being done by elected representatives. Planning authority has been relinquished to the hands of “independent” central banks, which in turn act as the lobbyists for commercial banks selling their product – debt. From the central bank’s vantage point, the “economic problem” is how to keep commercial banks and other financial institutions solvent in a post-bubble economy. How can they get paid for debts that are beyond the ability of many people to pay, in an environment of rising defaults?

(...)

This is why I say that Europe is dying. If its trajectory is not changed, the EU must succumb to a financial coup d’êtat rolling back the past three centuries of Enlightenment social philosophy. The question is whether a break-up is now the only way to recover its social democratic ideals from the banks that have taken over its central planning organs.

I could add many things but would be mere extensions on this analysis. Sadly enough, Hudson is right and, unless the People of Europe reacts very strongly, the continent will be plunged in a matter of years into the most dystopic scenario with the vast majority of citizens dumped into misery conditions, industries fleeing or dying out and mafias running the only remnants of the economy.

The corruption of the parliamentary representation system, with nearly all politicians being nothing but puppets of their financial patrons and with nearly no free media surviving, plus the destruction of effective state sovereignty is leaving Europe (and the World) on the hands of the big bankers, who have only one goal: to keep their profits high for as long as possible, concentrating all the wealth in their hands, without any real plan for the future other than that.

Capitalism has taken off its mask. It still tries to sell workers' austerity as something "good" but in fact they have no project whatsoever anymore. The Cold War illusion of welfare under capitalist conditions is all but dead now: class war has become very real.

But by the moment at least, the bad news is that the oligarchs are winning the war. For how long?

Eurozone's problem is Germany

Interesting review by Prof. Vincenç Navarro at his blog[es] on how the real problem of the Eurozone is not really the rather normal finances of peripheral countries but in the lack of demand of the central countries, notably Germany.

Germany, supposedly the economic engine of the EU, has been pretty low in the last decade, with small GDP growth figures and high unemployment. What is worse: the domestic demand of Germany has been lower than the peripheral countries now being punished for precisely sustaining the economy of the Eurozone (and specially of Germany itself) with their demand.

This is because Germany, still with a social-democrat government then, chose not to use the huge surplus that conversion to the euro generated to increase its domestic economy by rising salaries (and hence demand) but to speculate in the peripheral countries feeding the housing bubble and the deficit escalation.

Germany is in fact the wealthy but savy cousin who wants to sell commodities to their less well off relatives. And oddly enough, it has worked for a while, thanks to German (and French) credit. But logically this was untenable in the long run and now the Germans (and the French) want their money back by any means, what implies the destruction of the demand for German products.

As I said before, Mr. Volkswagen: how do you expect us to buy your cars if we work for misery salaries and pensions?

Navarro mentions that Oskar Lafontaine, then minister of economy and now co-leader of the growing communist Die Linke party, left Schröeder's government and the SDP for that reason. Lafontaine proposed instead a more balanced approach, increasing the income of German workers and hence the internal demand, what would have created a much more balanced EU and not this neocolonial engender designed for Mr. Volkswagen exporting until the demand runs dry (what is happening right now).

So what really needs to be fixed is that historical error that highly imbalanced the demand in the Eurozone. The demand by Germany and other Eurozone countries need to rise, what probably means increasing local salaries.

That does not mean that other barbarities like the Spanish housing bubble do not need to be addressed, they do. In fact Spaniards could work for less or demand more commodities if housing prices were not so extremely high, and that's a good reason to explode this bubble. But that would cause serious trouble to banks, who have invested heavily in this worthless excercise of financial engineering.

That's after all the real problem we have in EU: if we do what is logical (explode bubbles, restore a healthy demand by rising income), then banks would sink. Nobody cares about that except banks themselves, because they can always be replaced by other more serious banks, private or public. Of course some private investors would suffer but most people would be unscathed.

But the interest of the people does not matter to policy-makers, specially as EU is anything but a democracy, so Brussels and the Eurozone oligarchs have decided that it's best to make people pay for the errors of the banks and re-level the Eurozone demand to misery levels by lowering income and making sure that the banks are paid back.

This is extremely short-sighted: it's bread for today and hunger for tomorrow. Even for the bankers. If there is only a very low demand in the Eurozone, then Mr. Volksvagen (my imaginary archetype of European capitalists) won't be able to sell nearly anything and the economy will become stagnant for a very very long time.

The problem is clear: who dares to hang the bell from the cat's (banks') neck? It's much needed if we want to avoid Europe from sinking into misery and self-destruction.

Nobody? Then I think I know where the first socialist revolution of the 21st century will happen.

Spanish budget cuts less than quarterly benefits of just four companies

I'd say this is a very relevant figure: it means that taxing these companies 25% on benefits would allow the government to keep spending. As there are many more companies, the tax could be much lower, of course.

According to the labour union Basque Workers' Solidarity (ELA), just four large Spanish companies, Banco Santander, Banco Bilbao Vizcaya Argentaria (BBVA), Telefónica and ENDESA, earned in the last quarter more (6.6 billion euros) than the local IMF's puppet, Rodríguez Zapatero, aims to cut in public spending this year (five billion euros).

But instead of taxing them, the government gives them public aid: 61 billion that would have been much better spent in much needed pensions, direct public investment and unemployment aid.

This is an outraging situation not restricted to Spain. In fact it's the generalized abuse in which EU countries, following US lead, have fallen in: tax the poor to give to the rich.

Nothing less than 3.7 trillion euros have been gifted to the banks after squeezing them from the public. And now they say it's time to cut welfare and salaries. Are we dumb or what?!

The public aid to banks reaches the 12% of the European GDP and is going to reach as much as 22%.

Meanhiwle stocks sink anyhow... I wonder if some remnant of common sense in the brains of the vampires is telling them that this rape is just the last untenable bubble and that they are going to even devour the very states and imperial that allow their mere existence. If so, it doesn't matter if you sell or buy because neither kind of paper is going to be worth anymore.

You know I have very bad opinion of Capitalism but something I never really expected it to do was to suicide in this stupid way. I though they'd fight till the last penny but seems that they prefer to destroy all society as long as they can have their dose of benefits today.

Damn junkies! They can never think of tomorrow!

Source: Gara[es].

How the working class is taxed and the rich get away with their loot

Based on data from Ciudad Futura[es].

In the Kingdom of Spain:

• Workers declare raw salaries averaging 18.400 euros (14 monthly pays of 1314 euros)
• Company owners declare income averaging 13.525 euros (14 monthly pays of 966 euros)

Naive conclusion: capitalists are poor charitable souls who sacrifice for their workers and the economy, getting a Greek salary for that. They live in slums typically.

Reality: they declare as little as they can, earning many times what the Tax Office is told.

This is confirmed by the following data:

• In Spain only 727 individuals have patrimonies over 10 million euros, according to the Tax Office
• In Spain 5270 individuals have patrimonies over 10 million euros, according to Banif (Banco Santander)

It is hence estimated that the Spanish Tax Office fails to collect 90 billion euros every year, enough to multiply by 28 times the Education budget (anyhow just a way to pay tithes to the Catholic Church) or the Health and Social Policies budget.

Black money circulating in Spain beyond state reaches is estimated in 245 billion euros. The black market level in Spain seems to be 10 times higher to the Eurozone average.

Greece: why are not the thieves behind bars?, their properties confiscated?

Day after day we read about the Greek crisis and its ramifications. We know by now that a good deal of the responsability behind this case was that of a corrupt government and companies.

But we know little more about that. Some anecdotal details but not a word about any of the culprits being brought to trial or his/her property expropriated to pay for some of the national debt they used for their own benefit.

This is the most outrageous element of all the process: some oligarchs have brought a whole nation to heavy indebtedness and they are not even charged?! Their names are almost not mentioned, their practices nearly not inspected, their wealth (obviously the product of such anti-patriotic larceny) not even considered.

What's wrong?

It's as simple as this: some people and companies scammed a whole nation, they must be held responsible for it and their assets must be returned to the nation so it can face this challenge form a better position.

Yes or yes?

Reward-driven people win more... except when there is a real reward

Just a psychological curiosity, I guess, but one that called my attention.

The so-called reward-driven individuals demonstrated at tests that they are more motivated to win in general and that they win more often than their "normal" peers. However a paradox was found: when there was a monetary prize, the "normal" players actually improved their performance, making the "winner" type win less and perform more like the rest.

Full story at Science Daily.

This suggests to me that "reward-driven" could be a misnomer and that in fact we are before a personality type that is more "success-driven", with or without reward. This may have its rewards (in form of unexpected or hidden prizes and in the open rewards they also get, even if at lower rate) but it may also be costly in terms of energy spent (both mental and physical and even economic resources maybe). I do hence suspect that both phenotypes are in dynamic equilibrium.

Financial madness: how they rob us in daylight and how things will only get worse

There is an interesting spat of economic articles at Global Research these days. Really too much for me to fully understand and analyze but indeed enough to get me on my toes because no one of them is the least hopeful.


The Goldman Sachs ripoff

Maybe the most visible to the usual media reader/watcher/listener is the new Goldman Sachs scandal, analyzed by Patrick O'Connor and Barry Grey at The Goldman Sachs Indictment. They blame the Zionist corporation of precipitating the collapse of the housing bubble in their benefit and they say that GS is going to get out of this one with just a fine, a drop on the ocean of what they robbed, largely because the Obama administration is largely made up with their men. Only one real person is indicted, a 31 years old junior trader, while the infamous GS CEO, Mr. Blankfein, nor their customer, Paulson Inc., are named in the cause.

Their actions—exhibiting an insatiable and manic drive for personal enrichment—have produced devastating consequences for tens of millions of ordinary people, not only in the United States, but around the world. Millions have lost their jobs, their homes and their life savings. Untold numbers of young people have lost their chance for a college education. Untold numbers of old people have been driven into poverty and an early death.

And Reagan, the prophet of late Capitalism, said that "greed is good"... What do you think? Good for whom?

This same story is also dealt with in another article by Robert Scheer. He begins with rough words:

The story of the financial debacle will end the way it began, with the super-hustlers from Goldman Sachs at the center of the action and profiting wildly. Never in U.S. history has one company wielded such destructive power over our political economy, irrespective of whether a Republican or a Democrat happened to be president.

At least the robber barons of old built railroads and steel mills, whereas Goldman Sachs makes its money placing bets on people losing their homes. On Tuesday, Goldman announced a 91 percent jump in profit to $3.46 billion for the quarter, while the dreams of millions of families continue to be foreclosed and unemployment hovers at 10 percent because of a crisis that that very company did much to cause.

And ends with even more discouraging words:

It is insulting to the spirit of populist revolt, which has been fundamental to the success of America’s grand experiment in democracy, that a fat-cat Republican-funded tea party revolt is now the vessel of popular anti-Wall Street discontent. That vessel ought to be our president, who campaigned as a champion of the common people.

Certainly Machiavelli himself would scold Obama badly. His ideal prince would cut the GS head quickly before more damage is made and also to score in popular support, which for Machiavelli is a critical asset for any leader worth that name (and who wants to stay as leader).


Mafianomics

I borrowed this subtitle from Mafianomics by Michael Werbowski. You thought the GS ripoff is bad enough? Well, I'm really sad to inform you that it is only the tip of the proverbial iceberg: the system is rotten to the core.

But Werbowski is kind of soft and imprecise: he complains about how bad is today's capitalist speculation and how immoral is profit for the sake of it, regardless of the pain it causes to society. But for a Red like myself this sounds a bit like idealizing some sort of cavalier feudalism or benevolent slavery and complaining that reality never meets the ideal. Capitalism is that way: rotten scam and organized robbery from the beginning. You should know better.

More interesting and detailed is the article by Ellen Brown titled Computerized front-running and financial fraud. Here we are placed in front of the daily reality of the mafioso scam.

It was initially just a patented program to take on the role of the specialist (the specialized brokers that are the pillars of the stock market) and make it more efficient and faultless. But, after the dot.com crash, the patent had to be sold and ended up in the "wrong hands": a private investment corporation. The program was hence altered to do exactly the opposite of what it was supposed to do: to take advantage of stock market weaknesses. This would have been illegal in EU but seems to be legal in the USA. Also other 132 such "improvements" have been patented after the original one by Keiser.

So nowadays there is a whole array of broker companies taking advantage, thanks to supercomputers, of mere instants in data transmission and processing to make their own speculative bids and ripoff everybody else, who do not have such means.

The details are even more complex and I'd say interesting and, of course, Goldman Sachs is denounced as the ring leader of this mafia, but you better read the original article to get the whole picture.


The new financial bubble.

Another rather worrisome piece is the article by Washington's Blog titled Are interest rate derivatives a ticking time bomb? Here we can read about one of the methods of institutional ripoff by well organized financial mafias and what is seemingly another bubble that will soon blow out on our faces.

What are interest rate derivatives? I could not get a clear idea, sincerely. It is a complex financial instrument designed to hedge financial risks. But, as the article states clearly, people tend to overestimate their ability to understand complex financial instruments. So I won't be so arrogant when even the bosses of the credit default swap scandal had no idea what they were dealing with. I'll better admit my own ignorance.

But whatever they are it is important to understand that they are based on notional values (i.e. the money on which they are based never really changes hands: it's essentially an accountancy tool) and that's the only way the derivatives' market is ten times the size of the global GDP. In other words, while the real economy (more or less, as GDP has some flaws too) amounts to 60-70 trillion USD, the derivatives' market is estimated in 600 trillion.

If that's not a bubble you tell me what is it.

The authors admit that, in theory, these complex financial instruments are designed to keep the balance of the scales but they also warn that theory and practice may not go hand by hand. And when George Soros himself warns against them, then it really gets worrisome:

I must state at the outset that I am in fundamental disagreement with the prevailing wisdom. The generally accepted theory is that financial markets tend toward equilibrium and, on the whole, discount the future correctly. I operate using a different theory, according to which financial markets cannot possibly discount the future correctly because they do not merely discount the future; they help to shape it. In certain circumstances, financial markets can affect the so-called fundamentals which they are supposed to reflect. When that happens, markets enter into a state of dynamic disequilibrium and behave quite differently from what would be considered normal by the theory of efficient markets. Such boom/bust sequences do not arise very often, but when they do they can be very disruptive, exactly because they affect the fundamentals of the economy…

The trouble with derivative instruments is that those who issue them usually protect themselves against losses by engaging in so-called delta, or dynamic, hedging. Dynamic hedging means, in effect, that if the market moves against the issuer, the issuer is forced to move in the same direction as the market, and thereby amplify the initial price disturbance. As long as price changes are continuous, no great harm is done, except perhaps to create higher volatility, which in turn increases the demand for derivatives instruments. But if there is an overwhelming amount of dynamic hedging done in the same direction, price movements may become discontinuous. This raises the specter of financial dislocation. Those who need to engage in dynamic hedging, but cannot execute their orders, may suffer catastrophic losses.

This is what happened in the stock market crash of 1987. (...)

There is much more but you better read it yourself.

The volcano that collapsed all

I don't normally write on news that are on the main pages of all media, but the unpredictable consequences of the infamous volcano Eyjafjallajokull really deserve at least a few lines.

First of all, I admit I am guilty of copy-pasting the name of the volcano. Really it will take me more than just a few days to learn to spell that Icelandic word and therefore I have decided to call it simply Eyja, which I hope doesn't offend it.

And anyhow, it was just a matter of time before it was nicknamed somehow, yes or yes?

Impressive image of Eyja borrowed from Al Jazeera

Anyhow, Eyja's polluting power is such that in just a few days of eruption, otherwise not too destructive, it has created such an unprecedented chaos in modern globalized Europe that wealthy men are begging in Warsaw for a ride back home and airlines are rumored to be preparing to fire personnel. Meanwhile the roses from Kenya or the kiwis from Chile can't reach their European markets and the ash cloud has already reached East Asia causing widespread disruption there as well.

But this is probably only the beginning. Vulcanologists can't predict the duration of the eruption but, in any case, so far has only got stronger and stronger. It could be just two days more... or it could be two years. Nobody knows.

The closest precedent is that of Laki volcano, also in Iceland, in 1783, which lasted for eight months and historians link to crop failure and being one of the triggers of the French Revolution.

There are indeed no precedents for such a widespread closure of air space. The closest case experts can think of is the brief closure of US air space after 9/11. But even that is not comparable: now there's no way to predict how will be the situation just a few days ahead... though the most likely is that it will remain the same or even worsen.

And it is affecting the economy: businessmen can't fly to meetings and fairs (even presidents and prime ministers had to suspend their journeys), some imported food will soon become scarce in your local supermarket and some of the most profitable sectors, such as pharmaceutics, rely on air transport heavily. According to The Guardian, even if only 1% of the volume of British foreign trade is done by airplane, it is nothing less than 30% of its exporting value!

Add up all the many disruptions and their cumulative chain effects in the context of an already very severe economic crisis... and let your imagination fly - because there are no precedents, really.

Of course Eyja could stop tomorrow... but that's not very likely to happen.

New materials should make solar energy a lot cheaper and more effective

That's what a Swiss-Quebequois team has discovered recently: that the costly, ineffective and corrosive electrolytes used to date could be replaced by a new transparent organic material. In turn the costly platinum cathodes can be replaced by a much cheaper one made of cobalt sulphide.

Read more at Science Daily.

References:

Mingkui Wang et al., An organic redox electrolyte to rival triiodide/iodide in dye-sensitized solar cells. Nature 2010. Pay per view.

Mingui Wang et al., CoS Supersedes Pt as Efficient Electrocatalyst for Triiodide Reduction in Dye-Sensitized Solar Cells. Journal of the American Chemical Society, 2009. Pay per view.

Unemployment: what fails and what works

I just stumbled upon a pretty interesting program from Al Jazeera's Fault Lines on the problem of unemployment in the USA (it could be almost anywhere else: I know similar cases here in the Basque Country).



What fails? The so-called market, consumerism, individualism, taboo of socialism. In other words: Capitalism.

What works? Intelligent public subsidies and cooperatives (worker-owned companies that will never leave the community).

The full documentary lasts 30 mins.

Main US banks cheating on accounts to hide real debt levels

That's what Basque newspaper Gara reports, citing the Wall Street Journal as source: that the largest US banks (Goldman Sachs, JP Morgan, Morgan-Stanley, Bank of America, Citygroup...) are using creative accountancy (legal but more than dubious) to make their quarterly results look much better than they in fact are. These tricks are exactly the same as those Greece used to hide its real debt and also those used by the ill-fated Lehman Brothers bank.

The effect is that their debt levels are underestimated by c. 42%.

But you know: you can't deceive everybody forever.

The Fed might be feeding zombies

Interesting analysis the one by Mary Bottary I just stumbled upon at The Huffington Post.

There is an ongoing lawsuit by Bloomberg (the financial media giant) against the US Federal Reserve (known simply as the Fed), trying to force it to disclose the assets it is taking as guarantee for its loans. Legally the the Fed can only loan against investment grade assets but there are serious doubts that many such guarantees are anything but toxic assets without real value.

Bloomberg has won twice in court but it seems that the appeal chain will continue.

The ammount of public money being lent to financial institutions, estimated in 2-3 trillion US dollars, dwarfs the infamous bail-out of some 700 billion for the "too big to fail". The impression, unless those assets are disclosed and happen to be good (a most unlikely case, I'd say), is that the Fed is feeding zombie financial institutions with no real solvency.

The same author brings her analysis further at Global Research, with several links that I still have to explore in depth and even the fashion widget of the decade: a financial crisis tracker!

She there says that the flow of public money to the zombie banks is as large as 4.6 trillion dollars, nothing less than 32% of the US GDP (2008) and 130% the federal public budget of this country.

Of that public money a good deal is being used directly against the interest of the poorer US citizens, by artificially keeping the housing market high. The apportion of public money diverted to this endeavour is nothing less than 1.5 trillion dollars: double than the official bail-out.

In brief: yet another bubble, this one of a "defensive" nature and massively supported by public money. The great global Capitalist financial engineering ponzi scheme that has ruled our lives for the last decade (or probably the last several decades) is being kept under artificial support by the public institutions in charge to prevent such thing from ever happening.

Reality always beats fiction but this is not different from the best of the tales of the Grimm Brothers: the Emperor's clothes. A great lie has been spread but the truth is just before our eyes: the flamboyant neoliberal economy doesn't really exist anymore, at least at many many levels.

However some still believe that the economy is more financial engineering than real economy, that offer can stand alone by mere illusionism without a real demand to buy its products (a very clear and central case is the housing market... or rather lack of market... and not just in the USA), that the people can be robbed endlessly and still be consumers.

Sorry to inform you that such thing is impossible. This was understood by Marx and even by capitalists such as Henry Ford but was at some point this basic economical principle was ignored altogether. Now all the efforts are put to prevent the bubble to explode, as it should already have done, because they feel, with reason that the result will be more than just problematic. But there's no other way and we must face reality.

If the patient has to die, it's time to disconnect the artificial support. Because there's no new life without death and anyhow even the best health care cannot grant immortality.

There are no eternal orders, only Chaos is eternal.

Change must happen and the sooner we allow it, the less painful it will be.

Raise salaries to tackle the crisis

Interesting quasi-Keynesian economical theory the one explained by Alberto Garzón Espinosa at Altereconomía and developed originally by A. Badhuri and S. Marglin: European economies are in fact wage-led, not profit-led, hence destroying salaries will only sunk the economy further, what the system needs therefore is higher salaries.

The problem is that the Economic Doctrine, as in the seminaries... oops, I mean faculties of economics of virtually all universities ignores such fundamentals. The Doctrine says, erroneously, that economies are by definition profit-lead.

Demand is obviously driven mostly by the purchasing power of the people and if you destroy this purchasing power in order to minimize costs you destroy the demand and hence the economy. It doesn't matter how much the capitalist saves because he won't find a market for his super-cheap products if there is no demand.

This is, by the way, the fundamental contradiction of Capital as described by Marx more than a century ago. And that's why The Capital developed the now deprecated Keynesianism, as mechanism of defense when it faced its first structural crisis in the 1930s. But then came Thatcher and Reagan and their hordes of neoclassical priest-economists and decided that somehow the remedy was worse than the illness (was it?) and launched Reaganomics: plunder today that, in the immortal word of Keynes himself, "the future will take care of its own business".

Problem is that the future is today. Meh!

Meanwhile they created The Bubble, temporarily replacing the wage-based demand by a credit-based one. It could not last of course and millions of people and even whole nations were pushed into irrational indebtment in order to generate a spurious demand not sustained by the economy itself, i.e. by the salaries. It was nothing but a pyramid scam (Madoff? Thousands like him rule the world today!)

Whatever the case, the thesis defended by Garzón Espinosa is solid (not in vain it's consistent with the methodical analysis of the only economist worth that name ever: Karl Marx) and shows that the neoclassical remedies promoted by the FMI and acolytes, demanding salary reduction in order to reduce costs of a production that will nevertheless not find any significant demand, are fundamentally wrong. This is probably the case for any large economy anywhere but it's clearly true for Europe, which lives essentially on internal demand.

However, and this is my criticism, in order to make it work properly, a good deal of protectionism would be needed as well, at least while other countries/regions resort to the neoclassical recipes of the FMI. Otherwise the regional demand would be largely "wasted" in foreign products, not supporting the local economies. This is contrary to the interests of the Global Capital, particularly in the Toyotist paradigm, so the recipe cannot in fact be implemented within the system.

A change of system, a change of socio-economical paradigm is needed in order to save the economy, which is, let's not forget it, our very survival.

Navarro on how to solve the Eurocrisis.

Economist Vicenç Navarro deals at Rebelión[es] with the difficult economical and political situation of EU under the euro.

He first considers how the implementation of the single coin with its draconian budgetary demands, was meant to damage the popular classes, which are almost invariably those who benefit from public expenditure, perpetuating, in the case of Spain, the inequalities established by the fascist dictatorship.

Then he travels to other EU states such as Letonia (GDP down 25%, unemployment up to 22%) or France (69% against the euro), while despising IMF's and Krugman's suggestions of reduction of salaries (how do you expect people to pay for the cost of life, if they can't already?)

Then it goes to offer a constructive alternative, that I detail here:

1. Creation of a true European federation, really democratic and participative, including a real instance of economic and monetary coordination at EU level, which does not exist now.

2. A EU budget that, as suggested by the "founding fathers", should be at least 7-9% of the GDP.

3. A Central Bank that is dependent of political institutions: European government and parliament.

4. A pan-European Social Pact, producing pan-European workers' statutes with legal weight.

5. A radical change of the criteria of Maastrich and the Stability Pact, emphasizing the Development component and prioritizing economic growth and employment creation.

6. Alter the draconian limits on deficit, allowing for more deficit than just 3% of GDP and for more debt than just 60% of the state's budget.

7. Instruct the Central Bank to have a role in the generation of European bonds that would help states to solve their punctual budgetary crisis in harsh times like these.

8. Do not allow that any state can be brought to the limit of not being able to pay its debt: creating a EU common front against such eventualities.

9. Establish a EU tax that would feed a common fund with purposes such as redistribution policies that stimulate economic growth, employment generation, etc.


My opinion:

However, I'd say this is not enough. This would have worked if implemented in the 90s or early 2000s but now it is already too late: the only solution for EU (and all capitalist regimes throughout the world) is true socialism. European federation? Sure but under a red banner (and of course with a real red policy).

Of course in the meanwhile, we will witness some of this, with a likely devaluation of the euro in order to allow some competition. Getting out of the common coin is not any realistic option (people would continue using, or at least treasuring, the euro while it exists, because it's stronger and would not get devaluated every other day: think Milosevic's Serbia, where salaries used to be named in German marks) and kicking a country out of it is not either (same reasons, plus political tensions).

This context really only allows for one exit: the creation of a European super-state that rules the economy somehow. But liberals (capitalists) don't want that: their whole (misguided) goal was to create a common market without efficient, much less democratic, federal institutions. This is a total nonsense proper of that engender known as Reaganomics (less state, more "market"). No "market" solutions, of the likes of the IMF, are really possible in this context. Blowing up the euro is not an option either (if it ever happens it will cause much more grief and problems than anything else, not just locally but at the whole EU level).

However a social-democrat federal EU as Navarro suggests is totally inviable, first of all because there are not anymore any social-democrats around. Sure there are a lot that call themselves that way but the only thing they do is to bow their heads to the IMF and the liberal policies of Brussels. And they don't have anymore any project of their own. In the past even the right used to be somewhat social-democrat, now it's the opposite and it doesn't look like the minds involved would ever be able to challenge their "market" fetishes, much less the mega-corporations that rule them, in order to achieve a viable Europe for the people.

That is not their goal anymore: they are all too corrupt, too involved with the global capitalism to dare think in terms of Europe.

Hence the only alternative is to break the molds and forge a new Europe of the people. But this, admittedly will not happen in the next few years, so I foresee a steep path of decline and further chaos, not only affecting EU but all Earth (after all EU is a major market and supplier for nearly everybody else). Eventually the European working class will realize their situation, get organized and take over. But it will take some time for the whole process to complete, sadly.

Greece accuses US and British speculators, Greenspan involved

It has been known yesterday that the Greek intelligence services have discovered that four multinational corporations based in the USA and UK were behind the artificial devaluation of its bonds, selling them "massively" and "buying them again at reduced prices at the end of the day". This information was published yesterday by To Vima newspaper (though I gather it from Gara).

The financial corporations accused are: Moore Capital, Fidelity International, Paulson & Co (these three from the USA) as well as Brevan Howard from the UK. All them are described in Wikipedia as "hedge funds", so it seems just another case of speculative attack by the usual financial criminals against the real economy. It is noticeable that former Fed chairman Alan Greenspan is nowadays "adviser on economic issues and monetary policy" for Paulson & Co.

So guess I would not be too wrong if I'd directly blamed Greenspan for the financial attack against Greece and more in general for the speculative attacks against the periphery of the Eurozone. However blaming the speculators alone would be naive, as it's obvious that EU played it wrong when it did not provide the euro with the appropriate political resorts and is playing it wrong now when it does not allow for a devaluation of the european currency, which would only help the continental economy, favoring much needed exports.

Prime Minister Giorgos Papandreu explained that these attacks are not directed against just Greece but that have a further goal: the euro.

Meanwhile the class conflict in Greece, sparked by the FMI-style draconian measures, is reaching extremes that will probably force a rethink of the policy because the strike public workers of the customs sector is leaving Greece without gasoline and other first need products. This upcoming wednesday a general strike has been called.

Krugman and The Crisis in Spain

It has been news in Spain and Europe recently certain reports that claim that the Iberian Kingdom is "a menace for the Eurozone" and blah-blah. Of course, the conservatives have echoed them in an attempt to win the next elections.

Economics Nobel Prize Paul Krugman deals at Sin Permiso with the reality of this local aspect of the global crisis. As I suspected, the reality is quite clear: there is no debt problem in Spain, which has only a very moderate indebtment, well below the OECD average, only surpassed by Italy and Greece in the Eurozone, and by Japan out of it.

Public debt as percentage of GDP (source: OECD)

In fact, by these standards of indebtedness, central Eurozone countries like Germany or France are in much more perilous positions.

So what's the real problem with the Spanish economy? As Krugman explains, the case is that in the last decade or two there has been a terrible speculative bubble of mainly real state prices, that has caused salaries (and prices) to go up. Not much more has sustained the Spanish economy in all this time and now that the bubble is over (even if housing prices are still not dropping too much) Spanish workforce is accustomed to "high" salaries, what makes it non-competitive in the global market and particularly in the EU.

He says that the recipe now should be inflation but, as Spain has not anymore monetary autonomy, it can't do that.

However what Krugman, after all a capitalist economist, even if Keynesian, does not deal with are the following issues:

In Spain the main expense, by large, of any family or individual worker is housing. If housing prices don't fall, salaries can hardly decrease. But there are such powerful olygopolistic interests in the housing bubble that real state prices, excepted maybe some vacation localities, are not yet falling. We the people expect, reasonably, drops of 30-50% in housing prices but so far, almost two years after the real state/credit bubble crash, housing costs have not varied at all. Homes remain unsold and people has to struggle to pay for them or wait painfully in provisional situations until the "invisible hand" of market finally acts.

Also credit remains extremely elusive. My brother, an engineer with a stable job as executive director of a small but well-doing company, had to get a state-subsidized home. And when he asked for credit to pay for it, he was told that ok... but only because it was not much money, otherwise he would not get any credit. Another brother of mine, an economist with experience and a stable job, is still living in a shared apartment. Myself I have got in lenghty but futile arguments with my landlord after he decided to raise the rent almost 20%. It's still cheap in comparison with most other stuff you can find around.

There is a structural problem in the Spanish economy and that is house prices. Workers' basic expenses are housing, food, clothing and basic services such as electricity, gas or water. Of these housing is by far the most costly and can be almost as much as a regular worker earns. With this situation it's plainly impossible that salaries can go down. How are you going to work for less than 1000 euros/month if housing alone may cost you 700 or more? You must decline any such offer because it's not absolute money what counts but how much can you pay for it.

So, in my humble opinion, what Spain needs, in the context of capitalist market forces, is not inflation but deflation. And that means first of all, forcing housing prices down severely. As the market forces do not seem to work in this still speculative context (even if now is a resistence speculation rather than a benefit driven one) the government should intervene somehow. But that is beyond the ideological scope of the system: neither the socialdemocrats nor the conservatives will do such thing.

So what happens? That unemployment climbs up until almost unheard of levels: more than four million people right now are searching for a job... but, of course, they can't still accept salaries that would not allow them to pay the rent (or mortgage). Other living costs are not low either but housing is the main one and therefore the main problem.

EU rules on "free market" do not help, because they introduce too many constraints on what a government can do. For example, if a (most reasonable) law would be made to force empty homes to be sold/rented or expropriated at half cost, that would violate the EU directives and put the state in serious legal trouble. If the state would increase its debt to massively build subsidized homes at cheap prices, as is much needed, EU would again complain.

So I guess that there is no realistic exit within the parameters of capitalism and EU. So I wonder: what are all those grunters complaining about? Spain is a perfectly normal capitalist economy where oligopolies work to maximize benefits at the cost of the working class. Just business as usual.

Maybe they fear that the working class may get unruly and shatter the status quo? Maybe that's what they are really worried about but they should then address the needs of the people and not just those of the corporations and the tiny elite that owns them. But that would be "socialism" and that's not what EU nor Spain are about.


Update: I just stumbled upon this analysis by Michael Hudson on the reappointment of Ben Shalom Bernanke as director of the US Federal Reserve. And, guess what?, he has exactly the same analysis for the USA than I was making here for Spain: that while housing prices don't fall, salaries will remain high and the economy won't be competitive. Sadly enough, in the USA as in Europe, this is not a policy that rulers are willing to consider.