Capital, it fails us now

economic crisis, Life under Capitalism
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This crisis has been a real eye opener, hasn’t it, in that it made visible how much of the world economy was based on credit driven overconsumption, both on a consumer level as in the more rarified air of Wall Street. Ever since “communism” was “defeated” we’ve forgotten how wasteful capitalism is. we’ve been conned into believing there was no alternative, that we could not control its destructive tendencies and at best we could hope to only migitate some of its worst excesses, but that ultimately we were locked in a race to the bottom that would however somehow bring us untold riches someday, if we followed the rules of the free market. The fall of the Berlin Wall spelled the death knell for the perverted version of “communism” practised in the USSR, could this recession bring the same for thriumphant capitalism?

Because one thing is certain. We do have the resources, the abibilty and the ingenuity to make everybody in the world rich without destroying the planet and without engaging in the dance of mutal assured destruction that is free market capitalism. But it would mean the end of the priviledged classes and they’ve never given up their power without struggle. One good suggestion to start the struggle comes from Ian Welsh, on how to stop the obscene bonuses and salaries managers and CEOS have awarded themselves over the years:

The simplest thing is to just count all income equally, tax it all at the same rate, don’t allow deductions beyond a certain level (50K or so) and tax all income above, say 1 million at 90%, 95% for all income above 5 million. Don’t allow too much income deferral and there you go. Slap on some “in kind” rules for corporations (yes, if your corporation pays for your car, that’s salary) and while there will always be loopholes, you’ll still rein in the worst excesses.

This of course presupposes a government anywhere in the western world on the side of the workers, rather than the rich, which might be a problem…

Books read November

books and books review, posts interesting only to me
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Bleak Seasons — Glen Cook
The sixth book in the Black Company and the first to star Murgen rather than Croaker or the Lady. Grim and gritty in a good way.

The Road to Verdun — Ian Ousby
I hadn’t heard of the author before, but this turned to be an immensily interesting book on not just the military history that led to the battle of Verdun in World War I, but which also explains the cultural and historucal background of this battle, of how the War of 1870 was echoed in Verdun.

Voice of the Whirlwind — Walter Jon Williams
Not his most famous cyberpunk novel (that’s Hardwired but still an excellent example of a second generation cyberpunk novel.

The Situation — Jeff Vandermeer
This was given away as a free e-book by Wired and PS Publishing. I had heard of Vandermeer but not yet read anything by him and this was a good introduction, as it was a chapbook less then fifty pages long. A fairy tale of office politics and the post-singulary (I think).

Kingtiger Heavy Tank 1942 – 1945 — Tom Jentz, Hilary Doyle, Peter Sarson
The first entry in Osprey’s New Vanguard series of short books aimed at serious tankheads. A reasonable overview of the development history of this tanl, but with little attention paid to the operational history. Yes, this is me indulging my war nerd side.

Driftglass — Samuel R. Delany
I’ve been looking for this collection of short stories for a long time. Delany isn’t much of a short story writer, more a novelist and hasn’t written many; the ones here were all written between 1965 and 1968. Reading them in sequence gives a good overview of recurrent themes and images in his work.

Attack of the Unsinkable Rubber Ducks — Christopher Brookmyre
If Richard Dawkins wrote thrillers and had a sense of humour this would be the book he’d write. Brookmyre’s hero Jack Parlabane gets involved in a suppsoedly scientific experiment to prove the psychic powers of an American medium, only to get involved in a much larger complot. Religion and mysticism do not quite get a fair hearing here.

Plagues and Peoples — William H. McNeill
Here’s a book written some two decades before Jared Diamond’s Gun, Germs and Steel which covers much of the same terrain: the way in which diseases and plagues shaped human history.

H-Bomb Girl — Stephen Baxter
I’m not a great Stephen Baxter fan, but this was quite good. Written as a young adult novel, this will give some bright twelve year old nightmares for years –in a good way.

Cry of the Newborn — James Barclay
It was only because Steve Erickson provided the cover blurb that I picked this book up. Unfortunately it turned out to be just another middle of the road epic fantasy. What’s more, I found the side the author wants us to cheer for — the hegemonising faux-Roman Empire attempting to conquer the world to bring peace and prosperity — morally repulsive.

Kingdom of Shadows — Alan Furst
Alan Furst specialises in writing interbellum thrillers, set in the late thirties with world War II looming in the background. Even when his protagonists win their battles, you know their victories are ultimately futile when Europe gets swept up in a new world war. It makes for sombre, slightly depressing reading which works well in small doses.

Peace & its Discontents — Edward W. Said
A collection of Said’s columns written during 1993-1995 for various Arabic newspapers, explaining how the Oslo peace process had let down the Palestinian people.

Life on a Young Planet — Andrew H. Knoll
Excellent overview of what we know of what life looked like and evolved in the billions of years before the socalled Cambrian Explosion.

Hons and Rebels — Jessica Mitford
An autobiography of the communist member of the Mitford sisters. Understated humour.

Have Space Suit – Will Travel — Robert A. Heinlein
Another of Heinlein’s juveniles ticked off. Good entertainment as always, but better read if you’re twelve.

Hedge funds and the economic crisis

economic crisis, Life under Capitalism
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You could walk around Mayfair all day and not notice them. Hedge funds don’t — can’t — advertise. The most you’ll see is a discreet nameplate or two. An address in Mayfair counts in the world of hedge funds. It shows you’re serious, and have the money and confidence to pay the world’s most expensive commercial rents. A nondescript office no larger than a small flat can cost £150,000 a year. Something bigger and in the style that hedge funds like (glass walls, contemporary furniture) can set you back a lot more. It’s fortunate therefore that hedge funds don’t need a lot of space. Two rooms may be enough: one for meetings, for example with potential investors; one for trading and doing the associated bookkeeping. Some funds consist of only four or five people. Even a fairly large fund can operate with twenty or fewer.

These small organisations control substantial amounts of capital. If a hedge fund manages less than $100 million it isn’t seen as a big player; $1 billion is quite commonplace. The capital managed by the world’s ten thousand or so funds amounts to around $2000 billion. (Hedge funds don’t have to divulge the details of their finances and operations, so no one knows the exact numbers.) About a fifth of this money is managed by funds based in London, and two fifths by those based in the US, mostly in New York and its upmarket suburbs, especially Greenwich, Connecticut.

The start of Donald MacKenzie’s excellent article on hedge funds in the London Review of books, which in general has done a good job of providing background articles on the credit crisis in the past few months. Though at the start of the current crisis in late september/early October hedge funds were portrayed as the villains of the story, they’ve now seem to have been largely forgotten. The crisis is now reported on as if it were a natural disaster, something beyond the control of humans, which governments and banks are manfully trying to containt. Any residual populist anger is limited to the bank managers and market specialists which earned such huge bonuses for what now seems very little work or result, with the poor old shareholder as their victim.

What’s conveniently lost in the story is the role shareholders in general and hedge funds in particular played in creating this crisis. It was after them after all who egged on those overpaid bank managers, CEOs and financial wizards to take ever increasing risks to make ever greater profits for them. Yes, it is risible that even managers of failing companies are paid millions of euros in bonuses, but that’s small peanuts compared to the limitless hunger of shareholders for a quick profit.

A local example is the story of ABN AMRO. This bank, one of the three biggest in the Netherlands (the others being ING and Fortis) had been under shareholder pressure to perform better for years, preferably by merging with another bank or selling off some of its subsidaries. Things came to a crisis last year, when a hedge fund called TCI (The Children’s Investment Fund Management) challenged the board of directors directly to split or sell the company to the highest bidder. The response of the
board was to seek a merger with Barclays, a bidding war with a rival group of companies (Royal Bank of Scotland, Fortis and Banco Santander) erupted which the latter won, but not before ABN had sold off some of the targets this group was particularly after. Billions of euros were wasted in this fight, only for several of the companies involved to end up in deep trouble this year. Both ABN AMRO and Fortis have been nationalised by the Dutch government, while the Royal Bank of Scotland had to be rescued by the British government, in what both insisted was not a nationalisation but just looked like one. Without the pressure from TCI this costly takeover fight could’ve been avoided and AB, Fortis and RBS would’ve been in a much better position now.

That’s the problem with hedge funds and shareholders in general. They’re parasites with no stake in the companies they control. The economy 101 idea of shareholders as investors in companies providing them with the capital to expand or set up their business has long been obsolete. The vast majority of shares is traded between third parties, with the company receiving no money at all from them. For the shareholder the only issue is whether or not their share will make a profit in the short run and to achieve that they’ve egged on companies to take greater and greater risks. HEdge funds in particular are dangerous because there’s so little public oversight of them. A handful of people in control of billions of euros, pounds or dollars can make decisions that will make or destroy companies, make thousands of people unemployed or destroy the economy of a small or not so small country. They’re fundamentally undemocratic and need to be abolished as a first step to take public control of our economies.

Aargh

Comix, funny
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aagh

The perils of trawling through the XKCD archive.

Dutch mayors call for legalised cannabis

Amsterdam, Dutch politics, Reefer Madness
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Amsterdam coffeeshop

Only a few weeks ago it seemed the Dutch tolerance towards soft drugs would end soon, due to the increasing strength of the puritan movement in Dutch politics. Magic mushrooms are already banned, while the future of the coffeeshop seemed limited, due to cheese paring measures forced on city councils like the rule that no coffeeshop could be located within 500 metres of a school. Try and find a coffeeshop in Amsterdam that doesn’t…

Meanwhile the growing troubles caused by socalled drugs tourists from France, Germany and Belgium in border towns had already led several of those towns to close down their coffee shops altogether. The future therefore seemed bleak for the ordinary cannabis user in the Netherlands, who smokes it recreationally or to relief pains and nausea (for which it works quite well, as I’ve seen myself, better than many conventional pain killers or nausea relievers). Though the system had worked reasonably well for some three decades, making going to the coffee shop almost as normal as going down the local for a quick pint and a half, it had always been a stopgap, an attempt to regulate cannabis trade without legalising it, as that would be difficult to explain abroad. It was introduced as a measure to free police resources for the battle against hard drugs as well as to limit the dangers of cannabis users “graduating” towards harder drugs. As such it worked well, but there never was the intention on the part of the authorities to go any further towards legalisation. It was a policy they were forced into but never were comfortable with.

Tolerance as a policy, even had it had the full support of politicians and police, could never continue forever. The inherent contradictions of the policy, which made it semi-legal to buy and sell cannabis at a retail level, but illegal to sell wholesale, let alone grow it, would see to this. But because we could never make the choice of legalisation without incurring the wrath of France and America, nor end Tolerance altogether the situation did continue. The hobbyists and smalltime growers who had been the base of the cannabis culture in the Netherlands were driven out by organised crime causing huge problems for many city councils.

The way these criminals operate is to go to an impoverished neighbourhood in Rotterdam or Tilburg or someplace simular and get a front man to hire a house from the council or housing society. This is then turned into a full blown industrial cannabis nursery, powered by stolen electricity from the neighbours. They only need to keep the flat on for several months, until harvest time, then disappear and make a huge profit selling their harvest to the coffeeshops. Despite everything the councils do to combat this, there’s little risk for the real criminals themselves: they leave everything to their patsies.

So it’s no wonder that the mayors of some thirty cities, including Amsterdam, last Saturday called for an end to this situation, by regulating the “backdoor of the coffeeshop”. What they want is to legalise the growing of cannabis by putting it under state supervision and allowing coffeeshops to legally buy their supplies from these suppliers. This would end the involvement of organised gangs, regulate the awkward situation the coffeeshops themselves are in now where they’re forced to buy from criminals, not to mention provide amuch needed source of income for local councils. It’s a good idea, but at the moment it still seems unlikely the central government will take the councils on, as the governing parties are largely opposed to legalisation.