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Gerry Patterson. The world's most humble blogger |
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The Cassandra Complex |
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Date: Fri, 31 Dec 2010 18:40:52 +1100The Wikileaks "Cablegate" story continues to be one of the biggest on the Internet and in the mainstream media. Many commentators have offered opinions that as a result of this incident we are about to enter or have already entered a "new era" of electronic journalism. As the story broke, Julian Assagne suggested that we might divide the modern era into BC and AC (Before Cablegate and After Cablegate). However that assessment over-estimates the importance of Wikileaks. If Wikileaks did not exist we would have found it necessary to have invented them. The real game changer is the technology which makes Wikileaks possible. One of the greatest changes has been the transformation of "money" and the way the financial sector gambles with this new form of money and interacts with the "real economy". |
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Speculators may do no harm as bubbles on a steady stream of enterprise. But the situation is serious when enterprise becomes the bubble on a whirlpool of speculation.
-- John Maynard Keynes, 1936
And we don't have to speculate what form the post-cablegate era will assume. Because we are already living in it. Even though we are only just realising the fact. Newspapers and other media providers are worried about their revenue streams. Traditional bricks-and-mortar retailers are also worried about competition from online trading.
The trend towards electronic trading shows no sign of declining. But even though businesses everywhere are taking their business online, the Internet is still not owned by a single corporate entity or group of corporations.
And hopefully it never will be.
One of the most dramatic impacts electronic systems have had on business was the recent Global Financial Crisis. Even though the problem of so-called "external shocks" seems to be perennial for capitalism, there are many things about this most recent financial crisis which make it a distinctly digital "external shock". The concept of electronic transactions dates all the way back to Western Union in the 19th century. So it is not really so new. The late 19th and early 20th century saw the spread of the paper tape (ticker tape) machine, one of the earliest forms of digital electronic communications.
Since electronic transactions began, they have accelerated markets and trading. And it is probably true that this acceleration was one of the reasons why the first truly global financial disaster (The Great Depression), was so dramatic and rapid. News of the panic was spread by phone and telegraph. Ticker tape machines delivered the bad news all around the world via a digital electronic network. It became an electronic fire-storm that almost consumed global capitalism.
Nevertheless, earlier forms of electronic trading had impediments which helped slow them down. There were human and electro-mechanical interfaces, paper audit trails etc. And there was the clunky and painfully slow electronics technology of those earlier times. These acted as a "choke" on the transfer of electronic funds. Gradually over the last century the interfaces have been miniaturised, integrated and automated. It is no longer necessary for a human operator to read a paper tape, pick up a phone and initiate another transaction. Nowadays the whole process can happen in milliseconds. There are now fewer impediments to the flow of (electronic) funds. Capital is now more digital and more imaginary than ever.
At the same time that money had become more electronic, the trend towards financial deregulation had been consistent throughout the latter half of the twentieth century. Currencies, already cut loose from the gold standard after the Great Depression, were floated to drift in a sea of global trade and gradually regular banks were freed from restrictions which used to prevent them from behaving like merchant banks. In the late eighties, enthusiasts for global capitalism got an enormous boost to their self-confidence when the Soviet Union lost the cold-war in such spectacular fashion. Some of them wrongly (and foolishly) attributed the fall of the Berlin Wall to their own brilliant market strategies rather than to the shortcomings of the soviet system.
The steady creeping deregulation, when combined with digital money and capitalist triumphalism, created a heady and extremely fluid form of global finance. The last vestiges of regulation of US banks were removed at the end of the nineties (with initiatives like the passage of the US Financial Services Act in 1999).
The small but apt jargon Real Economy refers to that part of the economy actually concerned with producing goods and services as opposed to the unreal economy which could be used to describe what happens in financial markets. And as an aside, we should bear in mind, that in mathematics, the dual roles of reality and unreality are represented in complex number theory. In this case the set of complex numbers is deemed to consist of a real component (usually designated with the symbol "r") and an imaginary component (designated with symbol "i"). The symbol "r" can be considered equivalent to unity (1). The symbol "i" can be considered to be the square root of -1 (an imaginary number).
Although they don't often employ complex number theory, the so-called masters of the universe often attempt to beguile their audience with differential calculus and polynomial expressions. Generally the mathematics is used in the same manner a conjurer uses sleight of hand. The complexity of the systems used to gamble on the financial market exist mainly to dazzle and distract the onlooker and to impress him with the cleverness and skill of the conjurer who is, in fact, artfully and comprehensively picking the onlooker's pockets while his attention is diverted.
What these clever people did was use tricky mathematical formulae to prove that it was no longer necessary to actually have physical possesion of tangible assets or commodities ... And that there was no need for accountants to engage in mundane activities like "balancing" both sides of a ledger. If clever people made the numbers big enough, they became just imaginary numbers and clever people could do whatever they imagined. If perchance things didn't work out well, that nice Mr Greenspan, who ran "The Fed" would chip in and bail them out with some additional imaginary funds.
Capital had finally been severed from any grounding in reality. It could be whatever the masters of the universe imagined it should be. Freed from any physical constraints, it flowed like water over the global economy.
And it must be said that for businesses, capital is like water is to gardens. Any gardener knows that water is essential in order to make anything grow. And the same thing applies, in a virtual sense, to real economic entities, which need a steady drip of capital. But excessive amounts of water do not encourage agriculture ... Excess water turns into great raging torrents that will scour the landscape of all top soil, rip away bridges, gouge great valleys out of the land, uproot trees and inundate villages ... It could even topple mountains!
And when capital had been set free it started to behave less like a life-sustaining mineral and more like a deluge ... Sweeping over the economic landscape, eroding much of the economic humus of previous centuries ... Pouring into the Great Dot-com Reservoir ... A new age dam, with its towers in the clouds of virtual reality and its foundations rather shonkily and shakily bedded in bullshit ... And inevitably, the dam burst. At the same time, the Twin Towers, great icons of global finance crumbled, brought down by nineteen deluded young men armed only with hijacked jet planes, box-cutters and copies of The Koran.
The bursting dams bought a new inundation of digital capital that went gushing down the valleys of dubious US property investments which had grown up around government schemes that were (we were told) supposed to help less fortunate citizens to become property owners ... But in reality it was nothing more than a giant pyramid scheme, run by con-men and gangsters ... And rapidly became a new and even more dangerous bubble.
Having gambled away their savings on the dot-com bubble, suckers were now invited to "borrow" so that they could make good their losses. Remarkably, the Federal Reserve and the US Administration did their best to facilitate and improve the frightful onrushing flow of imaginary capital. That nice Mr. Greenspan, chairman of Federal Reserve, was widely praised by heads of financial institutes as one of the greatest and most successful chairmen ever.
Greenspan himself even cited the great raging torrents of imaginary money as an irrefutable sign of the overall health and vigour of financial markets, often referring to the terrifying effusion of imaginary money as A Recovery!. Along with other like-minded helpers in the finance sector, he set about opening all the spigots and stop-cocks completely ... The deluge became a cataclysm ... Which he nevertheless persisted in referring to as A Recovery throughout most of the first decade of the 21st century.
In August 2007, however, financial markets commenced what many commentators referred to as a "free-fall". Fortunately those nice people at the Fed were soon on the scene ... In an emergency meeting convened on the 17th of August, 2007, the members of the board of the Fed voted unanimously to cut the "discount rate". In other words major financial institutes would be paying almost no interest on money they "borrowed" from the Fed --- Regular folks in the "real economy", would, of course, not derive any such benefit.
Journalists and commentators started wondering ... Rates had already been slashed to a remarkably low point ... Almost zero! Surely there was not much room for further cuts? In an article in the New York Times, 18 August 2007, Jan Hatzius, chief United States economist for Goldman Sachs, was on record as having uttered the following inauspicious comment about the rate cut:
What the Fed is really saying is that this recovery is more in danger than it has been since it started nearly six years ago ...
Over the next six months the word Recovery disappeared from the lexicon of the financial con-men, thieves and bullshit artists who were (and still are) running the USA ... It soon became apparent that the Recovery had always been a massive hoax.
The rest of the story is, as they say, history ... That's economic history, dear reader. The economic rivers of imaginary money have since become a flood of biblical proportions. In previous eras, when we actually had to create a physical impression on metal or paper there were constraints on the amount of money that we could create. Even in the worst excesses of the previous (great) depression when some states unwisely tried to escape economic ruin by "printing money", there were the physical constraints of how much money the printing presses could actually print. But the new economic crisis gave rise to an entirely new phenomenon. A new form of money that had no real substance. One that was devoid of any semblance of reality.
As the depth of the crisis became apparent, the Fed realised that interest rate cuts would no longer work. So they just gave the financial institutions huge quantities of imaginary money.
Greenspan, just like Mickey Mouse playing the role of The Sorcerer's Apprentice, had tinkered with magic he didn't fully understand and could not control. Finally, when confronted with the awesome magical brooms that he had conjured up, and which just kept right on delivering trillions of bucket-loads of magical imaginary money, he melted away ... In a state of profound and perplexed dismay. And since he departed, economic commentators have become less fulsome in their praise of the Sorcerer's Apprentice and his Magical Recovery. Your blogger humbly suspects that historians (economic and general) will not be very kind when they consider, in cold hindsight, the role that Alan Greenspan played in the manufacture of the greatest financial scam ever perpetrated.
Nevertheless, Greenspan's successor has not proved to be a Grand Vizier. Ben Bernanke has picked up more or less where Greenspan left off and busied himself pumping ever larger quantities of unreal funds into the unreal economy. Greenspan had tried "liquidity injections" (more money). Bernanke gave us "stimulus packages" (much more money) and lastly (in sheer desperation) he/they have tried "quantitative easing" (a !@#$ing shirt-load more money). And in reality, dear reader, none of it seemed to do the trick.
The fairy tale that has been sold to the public is that the recent crisis was precipitated by the "sub-prime" mortgage collapse. As the crisis deepened, Australian TV stations would accompany news reports with a shot of a printing press, churning out US bank notes. As each stimulus was liquidised, quantitatively eased and injected into the distressed finance sector's veins, a picture of the same printing press, continuously printing US currency, would flash on our screens.
Because, Wall Street (and their friends) didn't just lend out the money to people who shouldn't be loaned the money in the first case, but they then sliced, diced and re-packaged the debts, shipped them off all over the entire globe and then took side-bets on how long the whole extraordinary deception would last. The trillions of dollars that have since been given to financial institutions was just to cover the bets that Wall Street made on the rotten scheme. It was enough money to actually buy every single one of those sub-prime mortgages outright. And with the money left over they could have bought a house for every person in the USA who still didn't have one. And even then there would have been enough left over to finance research into alternatives to fossil-fuel and to rid the Third World of Malaria, and to commit other acts of great virtue, and they probably would have enough left over to fund the annual Federal budget.
Boy that was some party! And it hardly seems fair that we have to foot the bill when we weren't even invited to it!
Of course, dear reader, there was no printing press for money. The printing press and the money were imaginary. The footage of a printing press was a pictorial aid, helpfully composed by the news team so that we might imagine what was happening in the unreal economy.
And after all dear reader, we are all just human. And unless you are an idiot savant (like "The Rainman"), then, like most of us, you just can't comprehend the scale of these astronomical numbers. We use the word "trillion" as if it were just another noun. But in truth none of us, not your humble blogger, not even The Masters of the Universe ... Really understand how large a trillion is. If we had to mint a trillion dollars as nickels and dimes, it would cover the entire earth with coins and weigh a staggering 22 billion tonnes. Even if we were to introduce a "million dollar note" ... Well, if you printed a trillion dollars worth, you'd print a million of them. Imagine that! A million million-dollar notes! No I guess we can't (imagine it).
The numbers really are beyond comprehension. You just don't get it unless you are an idiot savant ...
Or, a computer.
Of course, when we need a trillion dollars, we turn to our computer ... Our helpful plastic digital pal who is fun to be with ... Computers sure can count up to a trillion and they can do it very quickly. So when some faceless official in The Fed wants to donate yet another trillion dollars to another deserving financial institution he just sits down at a computer keyboard and starts typing ...
Clickity clickity clack ...
And just like magic ... A trillion dollars springs into existence!
So there it is ... Problem solved!
Or should that be ... Problem just begun?
In the past fifty years the "finance sector" has undergone an extraordinary transformation. From a sector which existed only to serve the real economy and which took a modest 5 percent of the total as compensation for that service, it has been transformed into a parasitic monster which consumes almost half the economy and for which, it now seems, the real economy exists only to serve it (or so they say).
In April 2010, Rolling Stone journalist, Matt Taibbi compared the Wall Street banking phenomenon, Goldman Sachs to a giant vampire squid, sucking on the face of humanity. Taibbi, explains in general some of the ways capitalism has been transformed by the huge amounts of imaginary money pumped into the system to be used primarily for speculation, and in particular the Goldman Sachs modus operandi. The key to the scam is size. There are already laws against manipulating the value of individual companies ... And perpetrators can be prosecuted for insider trading or securities fraud. The pump and dump scam run by institutions like Goldman Sachs doesn't involve individual companies, it involves entire markets. According to Taibbi, when securities fraud is committed on such a vast scale, the perpetrators either get away with it completely or the penalties are so minuscule compared to the gains that they don't care if they get caught.
Although in your blogger's humble opinion, Taibbi takes rather a hard line when he singles out Goldman Sachs for such treatment. Overall his article is highly defamatory --- Of vampire squids! --- Who really are adorable, highly-ethical, yet instinct-ridden creatures --- as compared to Goldman Sachs and other such parasitic entities, who peddle excess debt with all the moral integrity and social conscience of drug dealers pushing highly addictive narcotics.
And it has mostly been made possible with computers. Electronic devices that can print imaginary digital cash trillions of times faster than printing presses can print real money.
In the USA, phony political movements like the Tea Party, have diverted people's attention away from the greed and excesses of financial institutions, directing attention instead towards minorities and welfare recipients (rather the blame-the-victim syndrome, really).
The "courageous" Republican party have drawn a line in the sand and are throwing everything into a desperate last-ditch defence of tax cuts promised to the ultra-mega-super-filthy rich by that nice Mr. G. W. Bush. And generally, politicians of all political persuasions appear to be merely the hired help, dancing to the tune of large financial institutions. Although it must be admitted, they do occasionally pause to feign profound regret and sorrow about how they just have to vote for another bail-out, or for more golden parachutes for Wall Street bankers ... For the good of the country, mind you! ... Even though the cupboard is quite bare ... They are so sorry ... They don't want to do it ... But they just have to do it! ... And so they reluctantly suck another trillion imaginary dollars out of that imaginary printing press in an imaginary basement in Washington!
The feeble efforts from today's poiticians at restraining Wall street should be contrasted with FDR, who, last century, certainly talked the talk:
We had to struggle with the old enemies of peace --- Business and financial monopoly, speculation, reckless banking, class antagonism, sectionalism, war profiteering.
They had begun to consider the Government of the United States as a mere appendage to their own affairs. We know now that Government by organized money is just as dangerous as Government by organized mob.
Never before in all our history have these forces been so united against one candidate as they stand today. They are unanimous in their hate for me --- And I welcome their hatred.
--- Franklin D. Roosevelt, October 1936, "We Have Only Just Begun to Fight" .
In Australia, our government is mainly preoccupied with interests rates, and would never dream of voicing such defiant and immoderate sentiments. Banks in this country used to interview prospective borrowers in depth and write down all their assets, liabilities, income etc. They would then work out the applicant's disposable income and if the amount you wished to borrow was more than five times the disposable income they'd just say "no" ... That all ended in the new age of imaginary money ... Although such quaint practices (often referred to as "due diligence"), may re-emerge if we start on with getting real ... But do not hold your breath here ....
But for now, banks behave more like rogue sugar manufacturers, encouraging their customers to not eat their vegetables, to eat more sweets and do less exercise ... That is, to eat more of the toxic, sugar-laden debt they are still peddling, and it seems our own government is mainly preoccupied with promising that they will make it easier for the populace to continue consuming. And millions of voters share this delusion as they shuffle off to the financial abattoirs, pausing occasionally to bleat or moo plaintively about "rising interest rates". When the reality is ... They have already borrowed way too much ... And interest rates should be raised! ... Because that is probably the best way to prevent the bleating herd from engaging in excess borrowing and to encourage them to save! But we won't hear such brutal truths any time soon from an Australian politician.
Although governments have failed to restrain markets, it seems that they would like to throttle the free flow of information. To date however, such efforts have not met with much success. The reason? Well it's because of our plastic digital pals who are such fun to be with ...
The famous case of The Pentagon Papers involved an allegedly serious security breach. Ellsberg and his colleagues spent hundreds of hours slaving over a photocopier that was running so hot it practically melted. Over the long nights that ensued, much coffee was heated and re-heated, many ash-trays filled with cigarettes butts ... And the information was painstakingly assembled into bundles ... Stuffed into brief-cases, smuggled out to darkened car-parks and secreted in the boot of a car.
The Wikileaks "Cablegate" leak, on the other hand, took only a few minutes. Some guy sat down at a computer screen, pretending that he was copying a "Lady Gaga" DVD ... And in the time it takes to cut a single DVD, he copied the equivalent of a thousand Pentagon Papers. He was a mere private first class.
Like all that imaginary money, information has proliferated in the last twenty years. For the military, there is now so much information that keeping it contained is a bit like trying to keep a mighty river contained when it is swollen with flood waters. And every now and then some annoying little whistle-blower might dip his or her canteen into the waters and carry it off to share with folks who should not be imbibing it (like Wikileaks).
And here is where it gets interesting because today's ordinary citizen doesn't carry a dinky little cassette recorder and/or pen and paper ... But instead carries in his/her pocket the equivalent of (in Ellsberg's day) ... A camera, photocopier, video camera, portable two-way radio (phone), tape-recorder, encyclopaedia, data-processing centre and a small portable television studio ... All of it fitting snugly into the user's palm. (That's right, today's seemingly-bored-teenager on your street could be a spy, but for whom?)
Wikileaks is not really a threat. But what they represent is a threat. The information has been widely disseminated and even if Wikileaks were taken down ... the leaks could not be sealed ... and if the USA kicks over the chairs, throws the toys around the playpen and threatens to hold its breath until it goes blue ... this only makes it worse! Because after the temper tantrum ... The information still cannot be contained!
The computer has proven to be a Trojan Horse ... An impressive looking vehicle on the outside ... But on the inside packed full of imaginary money, information (some real, some pseudo), corporate bullshit, uncomfortable truths, spam, malware, pornography and entertainment. Computer technology is now transforming our society and it has brought many problems. And alas, we may have to cope with these problems by applying yet more computer technology! ... Which will no doubt bring even more problems.
The one who first raised the alarm about the threat of Trojan horses was Cassandra, a Trojan princess lass who is fairly famous for raising the alarm about many things going on in her time ... Although nobody paid any attention to her warnings. She wondered herself about the usefulness of her various warnings, but retrospect proves her right most of the time, so she had a tortured life. These days, we could do with someone with such prescience. During the great Magical Recovery, there were a few sages such as US-mighty-investor Warren Buffet, who offered advice such as: "If you don't understand it ... Don't invest in it", and/or issued such dire warnings as: "Derivatives are Financial Weapons of Mass Destruction". And those warnings were treated with an indifference similar to that shown towards poor Cassandra's prophecies.
For the time being it would seem that the biggest threat to Internet freedom comes from large corporations who would prefer to subvert the entire network and turn it into merely a distribution channel for bullshit and unnecessary products.
But if governments and corporations, in fact all of us, are going to live in the new post-cablegate, post-Trojan Age, we must Get Real and learn to use the Internet effectively ... That is, not to manufacture bullshit, but to use it for real communication and to share information, using open source data models.