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Financial Skeptic Bulletin, September 2011

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Another crisis. This time with S&P touching 1100. But it was the bond market that was the most affected: [Aug 08, 2011] Corporate Bond Pipeline Snaps Shut

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[Sep 9, 2011]  The Seneca Effect:  Why Decline Is Faster Than Growth

"...oil at a high enough price and low enough energy return breaks just-in-time supply chains worldwide."
The Oil Drum

The Soviet Union was a nearly closed economy before collapsing; a "mini-world" in itself. Notice how Russian oil production went down rapidly after the peak; a classic Seneca cliff. Note also how production picked up again afterwards. At some point, the Soviet Union ceased to exist as an isolated economic system and it became part of the whole world's economic system. At that point, the simple model that we have been using does not work any longer; most likely because the capital stock received an influx of resources that came from a region outside the model.

Conclusion: a banquet of consequences

Very often, we fail to understand the delayed effects of our actions. John Sterman reminds us of this point in a talk on global warming quoting Robert Louis Stevenson as saying, "Everybody, sooner or later, sits down to a banquet of consequences." The models shown here tell us that the Seneca cliff is the result of delayed consequences.

As always, the future is something that we build with our actions and the models can only tell us what kind of actions will lead us, eventually, to a certain outcome. Used in this way, models can be extremely useful and can even be applied to systems which are much more modest than an entire civilization, for instance to a single company or to our personal relationships with other people. In all cases, the Seneca effect will be the result of trying hard to keep things running as usual. In that way, we may run out faster of the resource that keeps the system running: be it a physical resource or a reserve of goodwill. The way to avoid this outcome may be to let the system run the way it wants, without attempting to force it to go the way we want it to go. In other words we need to take things in life with some stoicism, as Seneca himself would probably have said.

Thinking of the worldwide situation and of the problems involved, global warming and resource depletion, what the models tell us is that the Seneca cliff may be the inevitable result of putting too much strain on already badly depleted natural resources. We should try, instead, to develop alternative stocks of resources such as renewable (or nuclear) energy. At the same time, we should avoid to exploit highly polluting and expensive resources such as tar sands, oil shales, deepwater oil, and, in general, applying the "drill, baby, drill" philosophy. All those strategies are recipes for doom. Unfortunately, these are also examples of exactly what we are doing.

I don't know what Seneca would say if he could see this planet-wide effort we are making in order to put into practice the idea that he expressed in his letter to his friend, Lucilius. I can only imagine that he would take it with some stoicism. Or, maybe, he would comment with what he said in his "De Providentia" "Let Nature deal with matter, which is her own, as she pleases; let us be cheerful and brave in the face of everything, reflecting that it is nothing of our own that perishes."

Thanks to Dmitry Orlov for having been the source of inspiration for this post with his article "Peak Oil is History".

Perk Earl:

It's rather apparent with all the efforts being employed to get more oil, such as tar sands, deep offshore, horizontal drilling (super straws), etc. that every possible contingent effort is being employed simply to remain on a plateau of oil production (since 05). In spite of these efforts, Brent continues to be in triple digits per barrel.

Essentially the Seneca Cliff is being pushed out in front of us and in so doing its edge crisply sharpened and angled into a sharks fin. The question regarding descent isn't if, but when and how fast and hard will we fall?

The article ignores or discounts the effect of non-conventional oil technology (oil sands, enhanced oil recovery) as well as the effects of economics (higher prices result redrilling of old oil fields and the dragging out of oil field production in a long tail).

In reality, the amount of non-conventional oil in the world considerably exceeds the amount of conventional oil, and in the long term most oil production will be non-conventional. I can cite the example of my own country, Canada, where conventional oil production peaked during the 1970's and most of the oil production is non-conventional, with current total production now considerably exceeding the 1970's conventional peak.

RockyMtnGuy:

I wish for a systemic collapse.

That seems to be the motivation between a lot of the doomsters and their doom theories. They can't live with the concept of a slow, painful decline and desperately wish for a big crash.

In reality, geology will save the world from a Seneca cliff collapse in oil production. You really cannot produce oil fields in a Seneca-like fashion because oil fields (the majority of them) just don't work that way. Toward the end of their lives they taper off gradually and seem to last a lot longer than the producers had intended. The big oil companies sell them off to the small companies, and then the small companies sell them off to the mom-and-pop operations. Most of the world's really big oil fields will still be producing dribs and drabs of oil 100 years from now.

The Canadian production curve which I posted is really the anti-Seneca of all anti-Seneca curves. That is a result of deliberate policy. Canadian governments have regulated the oil industry with the intention of turning the typical bell-shaped oil production curve into one with a very, very long tail. Canada is still going to be a major oil producer 100 years from now.

Luke H:

he big oil companies sell them off to the small companies, and then the small companies sell them off to the mom-and-pop operations

Yeh in Oklahoma, Texas, and southern Alberta maybe, but how about deep water GOM and Brazil, the Alaska North Slope and the North Sea? More and more of our production is coming from operations like these and they will shut down suddenly well before full field depletion because of the shipping difficulty. Those type fields will forever be beyond the reach of the Mom and Pop organization.

Maybe a Seneca Cliff will desribe the first third to half of the production drop after the 'sustained peak' or plateau or whatever you choose to call what oil producition appears to be hovering at right now. But like you I do not feel oil production will completely fall off the cliff--as long as we avoid the ultimate nuclear Seneca Cliff.

Quite frankly I hope Canada is a major oil producer a century from now--that would mean many things had managed to go right for humanity and the bottleneck we look to be aimed at is at worst gently tapered. Of course I had to call my loyal little dog away from a cow and calf moose in the middle of this reply and and am watching woodpeckers come right back to my feeders the first day they have been restocked after being dry for a fortnight. I might not have so optimistic a bent if I were sitting in a browned out, hundred degree Phoenix or LA concrete and asphalt swelter.

ThisOne:

Right and wrong has nothing to do with it. If the Keystone XL isn't built then the Canadians will build a pipeline west or east, or there will be some other pipeline to get that oil to the coast where it can get full market price. The economics are there to support one of these pipelines. While I agree with the sentiment in protesting the Keystone XL, I think it's misplaced. Even if the protesters are successful in preventing the Keystone from being built, it's only going to be a temporary victory before the next pipeline is proposed. The real objective is closing down the oil sands development.

While I agree that putting any more CO2 into the atmosphere at this point is evil, I don't think it's going to change the outcome one bit. Those who use fossil fuels have more power than those who do not. If the Canadians don't tap the oil sands, they will taken over by a country that will. If you don't agree with me, google 'the carter doctrine'.

Evil is banal.

ewak

So is goodness or heroism:

"We may now entertain the notion that most people who become perpetrators of evil deeds are directly comparable to those who become perpetrators of heroic deeds, alike in being just ordinary, average people. the banality of evil shares much with the banality of heroism. Neither attribute is the direct consequence of unique dispositional tendencies; there are no special inner attributes of either pathology or goodness residing within the human psyche or the human genome. Both conditions emerge in particular situations at particular times when situational forces play a compelling role in moving particular individuals across a decisional line from inaction to action. There is a decisive decisional moment when a person is caught up in a vector of forces that emanate from a behavioral context. Those forces combine to increase the probability of one's acting to harm others or acting to help others. Their decision may or may not be consciously planned or mindfully taken. Rather, strong situational forces most often impulsively drive the person to action. Among the situational action vectors are: group pressures and group identity, the diffusion of responsibility for the action, a temporal focus on the immediate moment without concern for consequences stemming from the act in the future, presence of social models, and commitment to an ideology."

--The Lucifer Effect, Phillip Zimbardo

Right and wrong has everything to do with it. All these actions are moral as well as economic. Might makes right? The dollar decides? I am helpless and inconsequential, so I cannot affect change? Shall I profit from the banality of evil? It's BAU, can't stop it, don't try.

Oct:

To get that product you have to rob the economy elsewhere, which I think makes the claim difficult. You'd have to model the increase in capital outlay for unconventional and determine the pollution factors on the backside.

But unconventional oil is a stop-gap and not a cure for this disease. Hard to imagine Canada supplying much net oil growth per capita as conventional sources around the world wind down.

From my reading Canada will in the end offset declines in Mexico.

Sorry I missed this one, but I'll jump in up top. This first thread, all about "unconventional oil", paying taxes, jobs, etc., really misses the point. Forcing oil (liquid fuel) production, whether conventional, NG liquids, biofuels, whatever, blows bubbles and forces consumption of arguably more necessary resources. Current levels of liquid fuels production enables depletion of every other finite and limited resource. Further, it enables the mother of all unsustainable progressions: population growth. Just askin': What happend to the big picture here?

I'm pretty much in agreement with Ugo's post. When it rains, it pours. Oil cuts both ways. Better pack your parachutes.

jeppen:

 Actually, current and increasing levels of liquids fuel production enables the only non-starvation-and-war based path to population stabilization and shrinkage there is. If it goes down, the risk is high that the fertility rates will go up again.

Perk Earl:

Alright Rocky, but even if Canada has incredible amounts of non-conventional, the flow rates are less than crude, the energy needed to extract is greater, the cost to extract is greater and as much as Canadians would like to think that tar sands will save them from post peak oil, the economic reality is we'll probably all be in the same sinking ship. Once the world economy has tanked, squeezing non-conventional will probably not be cost effective.

So I think your idea of a positively-skewed bell-shaped curve on the back side is at best, fantasy.

x:

Seneca background video: (3 parts)

http://www.youtube.com/watch?v=hJ0g7IKWG7E

He believed people are too optimistic. Things going wrong should be expected, prepared for and accepted.

drillo:

Ugo, thanks for this interesting posting.
I think it depends mainly on "timing" if there will be a rapid decline or a smooth transition:
If mankind will find and apply solution for the challenges of peak oil, climate change etc. then a smooth transition to a post-fossil world is possible. But if we are too late then we will eventually get to a point where we cannot stop the unsteerable wagon from rushing down the spiral.
For example the British were lucky that they had coal at hand when they had cut down all the trees on their island, so they could continue with their industrial growth. Otherwise they would have soon declined again to oblivion.

The timing issue is also described in the less-known second Hirsch "report": Mitigation of maximum world oil production: Shortage scenarios - Energy Policy Volume 36, Issue 2, February 2008, Pages 881-889

From the abstract:

Examination of a number of future world oil production forecasts showed multi-year rollover/roll-down periods, which represent pseudoplateaus. Consideration of resource nationalism posits an Oil Exporter Withholding Scenario, which could potentially overwhelm all other considerations. Three scenarios for mitigation planning resulted from this analysis: (1) A Best Case, where maximum world oil production is followed by a multi-year plateau before the onset of a monatomic decline rate of 2–5% per year; (2) A Middling Case, where world oil production reaches a maximum, after which it drops into a long-term, 2–5% monotonic annual decline; and finally (3) A Worst Case, where the sharp peak of the Middling Case is degraded by oil exporter withholding, leading to world oil shortages growing potentially more rapidly than 2–5% per year, creating the most dire world economic impacts.

In a nutshell he thinks: A plateau period might give us some time to avoid a collaps. Whereas we wouldn't have this chance in case of a sharp peak.

Ironborn:

We probably are at the point where we cannot effectively stop the downward spiral. The plateau will last few more years, but it will end sooner or later and the descent will then be accelerating with passing time.
The current civilization is stagnating and I´m afraid that it´s the best it can do. There is no impetus that would send us forward. Renewables are not enough or they are rather too little too late.
Technology does not provide the solutions, only postpones the consequences.
When thinking about our problems, I often recall the following words of Q about the Borg from Q Who Star Trek episode:

"You can't outrun them, you can't destroy them. If you damage them, the essence of what they are remains. They regenerate and keep coming. Eventually you will weaken. Your reserves will be gone. They are relentless!"

Our reserves are not yet gone, but the systems are weakening.

Jedi Welder:

 The thing that worries me wich I have been thinking about lately is that we have many "slow declines" happening at once. Population growth, climate change, oil decline, economic contraction, etc. Each of those happen slowly, but when they occur at the same time, the burden of all those combined slow faliures adds up to one big collapse.

Mamba:

Jedi Welder said

... all those combined slow failures adds up to one big collapse.

I think most thinking people have already come to this conclusion and are planning their lives accordingly. In my case this has amounted to:

Having only one child and advising him to have none (he's 30 now); Learning all I can about permaculture and growing my own food; Buying some rural land in an area not likely to be devastated by climate change (ie not Texas); Taking early retirement; Buying essential tools, clothing and various things (eg bikes and ancillary equipment) to last the rest of my life (and my wife's life); Investing in precious metals (300% gain in last few years); etc BTW, this is yet another excellent article by Ugo Bardi, one of the most thoughtful modern commentators.

lengould:

You're right about gold bugs, that valuation is way out of proportion, an original speculative bubble. Compare gold to silver, platinum, diamonds, etc.

michaeld

``Wind was 2.5% of world electricity production in 2010." and electric energy was 16% (roughly) of the total mix ..

thus indeed a tiny contribution! even with your impossible growth numbers ..

just look at saturation effects in growth in Germany

Yvan Dutil
Seneca effect is a consequence of an increase in production efficiency and a simultaneous increase in extraction difficulty. Production efficiency is a power law function of the capital (ex: Cobb-Douglas), while extraction cost will increase exponentially at some point. Then you end up with a Pareto-Malthus resources extraction model.

Perk Earl :

Seneca effect is a consequence of an increase in production efficiency and a simultaneous increase in extraction difficulty.

Very well described, and in that description it's easy to see the progression is towards a cliff, almost like the crest of a wave that will subsequently fall. The increase in efficiency accelerates the top of the wave forward, while the increasing extraction difficulty puts the brakes on the lower part of the wave, causing a crest, a graphed shark fin shape.

enicar:

 "Very well described, and in that description it's easy to see the progression is towards a cliff, almost like the crest of a wave that will subsequently fall. The increase in efficiency accelerates the top of the wave forward, while the increasing extraction difficulty puts the brakes on the lower part of the wave, causing a crest, a graphed shark fin shape."

That is what scares me the most - because even as a "prepper" - I realize how much ancient knowledge I have lost to become a modern man. To provide an example" firewoood in the NorthWest corner of Wisconsin. Yes - the house was heated via an outdoor fireplace - built on high technology - dependent upon water pressure- dependent upon an electrically operated well, dependent upon an electrically operated blower.

Wood was delivered off of a semi-trailer, unloaded via a crane mounted upon the trailer. They stacked the logs in a nice pile - which I then cut into manageable logs with a gas -powered chainsaw. I did split the logs with a hand operated axe - and stacked them by hand - but imagine if it was without machines.

First: I have no idea/knowledge of the tools required to take down a tree without a gas chainsaw - much less maintenance/construction of such machines. How to get the quantity of logs to my place? No knowledge of horses/skids/harnesses.... not even having access... How to cut the logs into pieces - without a chainsaw - no idea. If the Ax handle breaks - no idea....Of course - no electricity - no water circulation - no blower - what then?

If I even had all the tools - how would I manage to sharpen/maintain/replace them.

I have provided the above for thought, from actual experience. It does lead me to believe that in any situation where power, electric/petroleum fuel was absent for a period of time - I might not want to be present any longer.

lengould:

 I grew up in (cold!!) Northern Canada with no electricity, gas or other fossil fuels available. We cut trees with a swedesaw and an axe. Skidded them to a road with a horse. Sledged them to the farm with horse-drawn sleigh. Bucked with the swedesaw, split with an axe. Takes about three man-months work to provide a family with heating and cooking counting a man-month as a current working month, eg. 21 x 8 hour days (of course we worked 12 to 14 hour days 30 days per month, and I was doing a mans work by age ten to twelve, so it only took us perhaps 5% to 10% of available time.)

Dad could, with the proper tools, precisely sharpen and set the saw teeth so it could run in green wood. Use a hand set and files. I know the theory but never learned how. I could probably figure it out. I can replace an axehandle very quickly, and could make one from ash with a drawknife fast too.

We bought a chainsaw the first year they were developed. (actually a gas-powered reciprocating Wright even before that)

RickM
German military perspective

Drawing from Feasta's excellent "Tipping Point" (March 2010), the Bundeswehr analysts point out how an economic tipping point could lead to runaway effects:
"In the medium term, the global economic system and all market-oriented economies would collapse.
1. Economic entities would realise the prolonged contraction and would have to act on the assumption that the global economy would continue to shrink for a long time.
2. Tipping point: In an economy shrinking over an indefinite period, savings would not be invested because companies would not be making any profit. For an indefinite period, companies would no longer be in a position to pay borrowing costs or to distribute profits to investors. The banking system, stock exchanges and financial markets could collapse altogether.
3. Financial markets are the backbone of global economy and an integral component of modern societies. All other subsystems have developed hand in hand with the economic system. A disintegration can therefore not be analysed based on today’s system. A completely new system state would materialise" (p. 58 of new translation).

Few systems in our world respond faster than financial markets, nor with greater oscillation/volatility, so it is easy to imagine how some runaway effects could quickly be set in motion. The Bundeswehr authors place a heavy emphasis on human factors like awareness and expectation, and what the likely human responses to those perceptions would be.

By the way, a complete English translation is now available from Bundeswehr, so perhaps our media will finally examine and report on this unique, credible study.
http://www.energybulletin.net/stories/2011-08-30/complete-english-transl...

phil harris

Thanks for the link to Bundeswehr doc

... a so-called “tipping point” is exceeded where linear developments become chaotic ... For example, if the global economy shrinks for an indeterminate period of time, a chain reaction that might destabilise the global economic system is imaginable. Depending on point in time and the level of dependence of the affected society, such a peak-oil-induced, economic tipping point might have such severe systemic implications that only a few general statements as to economic, political, and social developments beyond the tipping point can be made.

Indeed

ian807

Specifically, oil at a high enough price and low enough energy return breaks just-in-time supply chains worldwide. I'm pretty sure that this will be our first ratchet down and yes, it will happen suddenly. The first oil producing country that decides to hoard oil for domestic consumption (civilian and military), will take a large proportion of the world's oil off the market suddenly. If more than one country does so at the same time, the supply chain could fall very rapidly thereafter.

Sudden supply shocks will the first domino. First they break supply chains, and then the economy. International commerce will probably never recover to previous levels.

As I have come to understand supply chains, we are using China as a petrochemical source for many industries including processed foods, fertilizers, electronics, paints and other consumer items. These feedstocks from China can make lower end items that can be assembled in say Japan or Germany. So the question will be how well China can export fertilizer and other essential petrochemical stocks. It seems the world is using China to do the lower level petrochemical stuff -- is it a greenwashing? Yep. We are shifting this pollution to Asia. So would Seneca's cliff appear first in China? Well if that is true then the entire industrial base would collapse in a single shot. If China collapses, industrial production is essentially toast.

The first oil producing country that decides to hoard oil for domestic consumption...

Such hoarding would be grim for the world economy, but I wonder how likely it is on a wide scale? Many of the current oil exporting countries are economic and/or political basket cases, so I’d question if they have the capacity reduce their revenue to any great extent by hoarding

BillH on August 31, 2011 - 11:29pm   Hi, Ugo -- good article. You might be interested in Out of Gas: A Systems Perspective on Potential Petroleum-Fuel Depletion I did for Pegasus Communications back in 2003 (http://pegasuscom.com/aar/model5.html). It exhibits much the same behavior as your model.

What I discovered in later experimentation is that the shape of the fall-off is rather sensitive to the shape of the nonlinearity in the model. So anyone working on a softer landing might look both at ways to replace petroleum resources and at ways to modify the effective shape of that function.

Ugo Bardi on September 1, 2011 - 2:26am Permalink | Subthread | Parent | Parent subthread | Comments top Thanks, Bill. I'll look at your model as soon as I have a moment. I received several notes by people who had developed models similar to mine. It seems that what I did was, mostly, to give a name to something that was already well known!

dmiller on September 1, 2011 - 12:35am    Ugo, the Seneca effect sounds an awful lot like Jack Alpert's "death sprial". As resources, mainly food, become more scarce the rich divert more of those dwindling resources to protecting their own resources. Nobody ever said the downside had to be a smooth transition. And my gut tells me that things will go south very, very quickly.

Ugo Bardi on September 1, 2011 - 2:27am Permalink | Subthread | Parent | Parent subthread | Comments top This kind of gut feeling is shared by many, many people, apparently!

Magnus Redin on September 1, 2011 - 11:57am Permalink | Subthread | Parent | Parent subthread | Comments top Aye, and it is a bad feeling leading to depressed activity.

I wonder what Seneca was referring to? He built a lifetime on rhetoric and education, both taking time and effort to perfect, and finally he was ordered to commit suicide. That's an abrupt end and definitely a Seneca Effect. If he was referring to the end of his civilization, well, the decline of Rome can be debated for ever but I would not say it took three hundred years to collapse, more like a hundred if you take it from the lost battle of Adrianople to the formal end of the empire in the west. I don't include the eastern empire because I consider it another polity. I really don't believe that the late Romans believed their civilization would come to the relatively abrupt end that it did, or even end at all; like us they were very complacent and believed in themselves utterly, and like us they saw no alternative - and they were also contemptuous of those different from themselves: big mistake.

Plagues, like the Black Death, certainly have a Seneca ring. If our current civilization, dependent on fossil fuels, has taken roughly four hundred years to develop; from the first ordinance in England to burn coal rather than wood to save trees in the early seventeenth century (and this may be stretching it a bit I know), I wouldn't expect the chaos and reversals resulting from our inability to sustain our current way of life, based on fossil energy resources, to take more than the next twenty years or so to complete - so that's pretty Seneca too - if it happens as I think it might. But I am just guessing here.

Good points. It is good to keep in mind that the Eastern Roman/Byzantine Empire lasted quite a while, and, in spite of rotating dynasties, the complex bureaucracy that kept Egypt and China running lasted millennia.

But we are like an Egypt that loses the Nile, or a China that loses its Yangtse and Huangho. FFs are the life blood of the modern economy, and we have to walk away from them because:

a) they are running out anyway and in the mean time are taking more and more energy input to get the energy out;

b) they cause devastating local and regional harms and are due to cause ever more as we go into the ever more risky stuff; and

c) and most damningly, their effluents are causing the planet to swing out of the 'goldilocks' comfort zone that humans (and most other life currently on the planet) evolved in.

It is (c), AGW, that really has the likelihood of taking on a 'live of its own' hurtling us toward a hellish unlivable world in a remarkably short time. Paleo-climatologists now have found numerous cases of the climate shifting suddenly, in decades or less, from one state to another very different one. Most PO'ers that think CC is always slow so we don't have to worry about it are not up to speed on this research.

Multiple feedback, some already kicking in, and some of enormous power, and all feeding back on themselves and each other, can/will turn our relatively small initial forcing into a runaway train--our pebble (relatively speaking) becoming an avalanche...and we all live at the bottom and on the sides of the hill with no where to run.

Ugo Bardi on September 2, 2011 - 7:55am Permalink | Subthread | Parent | Parent subthread | Comments top The Roman Empire was peaking at the time of Seneca. It had not yet started to decline, but I think the writing was on the wall and that Seneca himself perceived it.

Ulpian on September 2, 2011 - 10:15am Permalink | Subthread | Parent | Parent subthread | Comments top I'm not so sure about that. No empire lasts forever but the moment when irreversible decline sets in can only be known with hindsight. Rome needed to keep pedalling to maintain revenue, which meant conquering new lands and using their wealth to feed its treasury. Unfortunately the world outside the rich Mediterranean had little to offer and became a drain on revenue, much like Africa was to Britain. Dacia was probably the last territory to be conquered that brought huge wealth, and Dacia was incorporated after Seneca lived. Pessimism is another matter of course and can colour many things, including approaches to energy and PO. I am a pessimist!

geek7 on September 2, 2011 - 9:59pm Permalink | Subthread | Parent | Parent subthread | Comments top Seneca had studied Greek Stoic philosophy, which was developed starting 3 centuries before he lived. The thought he expressed in the letter may not have been original with him. Maybe he had read something in the Greek and was translating to his Latin speaking relative. Pessimism is something else than stoicism.

Constantinople was called Byzantion in Seneca's time and had not yet fallen to the Romans. I think it fell early in the 2nd century CE, but can't quickly find clear statement on the web. The Roman Empire was very much still growing in Seneca's time. Constantinople remained the capital of eastern Rome until it was captured by the Ottoman Turks in 1453 AD. Collapse of Constantinople was very sudden and very final, but surely not forseen by Seneca.

I think the quotation is not at all about collapse in the Grand Sweep of History, but rather a simple observation about collapse of buildings, fall of cities to a besieging army, crops ruined by a rainstorm, etc. We can put our own interpretation on the words. They certainly hold a special significance to us, after it has been suggested by Ugo, but what significance they held for Seneca is open to speculation. And really, if you don't see their truth in our time from your own observation of today then you have a very different world view than I have. Or are you trying to pick apart Ugo's blog by questioning the meaning of the words? Think of it as a literary reference not to be taken literally but to set the scene for the following discussion.

Ulpian:

I was taking none of it literally. That is my whole point. Sudden collapse is the point here and I was merely responding to using the empire as an illustration of collapse. I disagreed that it took three hundred years and would, as I stated, prefer to call it more like one hundred years. This might be called a quick decline and follow the Seneca curve. And I am the pessimist by the way; I don't confuse stoicism with pessimism, although I do believe there are overlaps.

As for Byzantium it was conquered for Rome in 64BC and I reiterate that I did not include the eastern - Byzantine - empire in my observation. The eastern Roman empire can either be called a great success as it maintained the fiction of Roman polity for a thousand years, or it might be seen as the slowest dying of all empires and therefore the antithesis of the Seneca idea.

hinson:

"Collapse of Constantinople was very sudden and very final"

On the contrary. The Byzantine Empire waxed and waned over many centuries, but its road to eventual destruction was via the Crusades, during which it suffered blow after blow over a period of about 250 years. In fact, at then end of the Crusades it was virtually a partitioned rump state. It began to get back on its feet somewhat by the time the Turks arrived, but just was too weak to resist.

I strongly recommend the 3-volume history (or the shorter 1-volume version!) "Byzantium" written by John Julius Norwich, a fascinating history wonderfully written. It was a great shame that this Christian/Roman/Greek civilisation was lost so thoroughly, and that we in the West have almost completely forgotten about it. The Crusades represented an awful "Civil War" within the European sphere.

Feunfeun:

I think our civilization has a greater possibility of quick panic than any other civilization before. It all depends on how fast information travel amongst the various structures that compose it. At the core we have a financial infrastrucutre where 80 % of the transaction are executed within milliseconds. On those transcations and their equilibrium depends our entire hierrachy of what valuable and not . On the fringe of this infrastructure we have the fact that most of the people in the west own a smartphone or watch information continously trough a media outlet. So if a truly negative information which destroy the precarious equilibrium appears, it will then spread very quickly to the fringe affecting everyone in the system ...

YvesT

Yes agree on that, another thing is that more and more some key systems rely on just a few guys having the knowledge to run them (at least in IT), and all this is very poorly documented, and it is in fact getting worse over time with ever increasing complexity, a good set up for a domino effect ...

RalphW

 I am the sole surviving IT employee at my organisation. We used to be 7. I hold together a disparate system of servers and desktops and websites that is essential to every job here, jerry-built together over a decade. Everything is bespoke, no two systems have the same OS and patch level. When I take a week off the other 30-odd employees cross their fingers and pray that nothing major goes down.

YvesT

1, 2011 - 12:49pm Wow, and is there a plan for at least another guy for backup and knowledge transfer or is it seen as "normal situation" ? Do you still do some modifications/"improvments" ? The organisation I work for is much bigger (a telco), but there are so many f#àking systems it's truly amazing, many outsourced here and there with so many layers of specifications or whatever between users and developers, and in the end plenty of key systems with one or two guys able to modify/repair them. Not to mention that we keep on adding some while saying we should reduce ...

FMagyar

1, 2011 - 2:05pm True story: I know of a situation in the corporate finance department of a large hospital where the sole surviving IT person with the requisite level of knowledge to keep the whole system up and running actually died of a heart attack while on the job... They had a hell of a time and enormous expense for hiring outside expertise to come in and figure out what that one guy knew... They could have hired help, given the poor guy a thorough physical and given him a raise and a vacation and it probably would have been a lot cheaper! That's what you get when bean counters get to run organizations that depend on systems which they do not understand, nor do they get why those systems are so important.

notanoilman

1, 2011 - 3:50pm I used to contract in to cover people. Winging it doesn't even start to cover it. Organisations really have no idea of the financial value of such people. Companies should at least take out 'key man' insurance cover to pay for what it would take in an emergency. Having another trained person is a must. Oh, the companies used to whinge about how much they had to pay me, IMHO it was nowhere near enough.

NAOM

eric blair

1, 2011 - 7:51pm It all depends on how fast information travel amongst the various structures that compose it

Except information flow is controlled. Or even faked.

Twitter shutdowns, things like BART blocking cell phones, historical things like "Remember the Maine" "The Lusitania did not carry weapons/ammunition" "Gulf of Tomkin" "Lavion Affair" Deletions of posts on web forums.

So if a truly negative information which destroy the precarious equilibrium appears, it will then spread very quickly to the fringe affecting everyone in the system

Not if the control of information is applied. Like the 80% of the transaction are executed within milliseconds shows there is not a viable 'hand of the market' - there is not an effective open information system.

Doomer_Dan

This was a great post until the end:

We should try, instead, to develop alternative stocks of resources such as renewable (or nuclear) energy. At the same time, we should avoid to exploit highly polluting and expensive resources such as tar sands, oil shales, deepwater oil, and, in general, applying the "drill, baby, drill" philosophy.

Good lord, man! Nuclear!?! You just want to move the pollution problem from fossil fuels to something even more dangerous!? The entire post up to that point was a warning about the consequences of pollution!

Every nuclear plant needs to be shut down before the collapse occurs, or we may not be able to shut them all down when we need to. Loss of capital virtually guarantees that we will be unable to properly manage these plants at some point after we hit that Seneca cliff.

DD

DoomInTheUK

1, 2011 - 11:59am Maybe the term "Parasitic Losses" would be more apt than pollution. In this model anything that chokes the flow from the resource is "pollution". So bureaucracy can be just as much a detrimental effect as conventional ideas of pollution as CO2 emissions and industrial waste or even soil erosion or over-fishing.

Nuclear would fit within an idea initial low parasitic loss, the decommissioning is a problem though. I can imagine a time when all our energy needs to be diverted to safely decommission the ageing fleet of reactors.

forbin

unlikely , the scenario will be that will be plenty of "serfs" or "dole people" to manually dig and move all that radio active stuff to a "safer" place, away from anything the local "king" decides is his. think feudal ......

Forbin.

YvesT

 "I can imagine a time when all our energy needs to be diverted to safely decommission the ageing fleet of reactors."

Personnally I cannot, in that case that would be chaos for sometimes already, and the energy left would for sure be used to heat houses or cook food and not to decommission reactors, reactors that would be left doing whatever they "want" ...

On the other hand I cannot imagine keeping a somehow modern society without nuclear

DoomInTheUK

2, 2011 - 3:41am OK, for the literal minded amongst us, I know it's an absurd extrapolation to suggest all our energy production would go to decommissioning. The point was intended to show that in Ugo's model, the long time lag of the cost of the pollution from nuclear power allows the downslope to be less severe. It's just another type of kicking the can down the road.

-- note to self....remember that on TOD, irony means a bit like iron ---

notadoomerwellmaybe

1, 2011 - 1:34pm   The model described seems rather too linear to me. In the real world things are often more digital and this creates the Sencea effect.

For example we build parts in our factory, there is about 20 subcomponents. Ramping up production is slow, 20 suppliers have to ramp up their production, people have to be trained, problems solved etc. On the downside however if even one of these components is missing production stops immediately.

In the larger world if one input becomes unavailable (food, rare earth metals etc) then production of many other things also becomes immediately impossible in a cascade of failures. How does this model capture this behavior?

AlanfromBigEasy

1, 2011 - 2:49pm   An excellent article that I forwarded to a modeler friend of mine (from Milano).

Upon reflection, a non-complex system (hunting whales, cutting down forests, expanding cultivated fields in virgin land) should show some rough symmetry between rise and decline. If you will, a one dimensional problem.

However, complexity in just two dimensions means that growth is constrained to the most limiting factor, even if both factors interact. So a two dimensional system grows much like a one dimensional "system".

However, in a two dimensional system, if the two dimensions are equally sized and interact equally, the decline should decline at x^2. If one dimension dominates, the decline is somewhere between the symmetric decline and x^2.

Real world systems, such as the Soviet Union decline, are mufti-variate and decline is x^Y and looks much like a complete collapse "off a cliff".

The severity of the Seneca Effect may be directly related to the complexity of the system.

Thanks for Your Efforts,

Alan

ROCKMAN

1, 2011 - 3:13pm Excellent points Alan. But I would go one step further. I made the point a few days ago: just look at one portion of the model: Hubbert. Hubbert’s curve is not a single function. The global flow of max oil flow potential at any point in time is a function the decline of existing fields and the gains from new discoveries. And to a large degree these two factors are independent. Had I the data I could generate a fairly accurate decline curve of all EXISITNG global production. Many folks have offered models of future oil discoveries. A much more difficult task to predict what you’ll find before you find it. But even many of those efforts, however accurate or not, offer just future volumes of new discoveries…not their timing nor their production rates as they come on. Consider the many billions of bbls of oil discovered in DW Brazil. Lots of oil for sure…in the ground. But have you seen a credible forecast of Bz oil production rate for the next 40 years? I haven’t.

So the future shape of the Hubbert curve would be the composite of the decline curve and the discovery curve. And even as it would be so difficult to generate that composite curve it wouldn't really tell the future story accurately IMHO. Let’s say by some great magic we can predict the future oil POTENTIAL global production curve between 2025 and 2040...what would that tell us about the availability of oil to the US economy? Perhaps the KSA has the capability to produce 10 million bopd in 2030. But how much will they be exporting…50%....10%? And at what price? And let’s say it’s 50%: how much will be exported to the US…80%...20%?

Granted no matter how difficult it might be to predict the right side of the Hubbert curve with great accuracy, how important is that physical relationship compared to the very complex and wholly unpredictable (IMHO) of the above ground factors? Having an adequate air supply in a sub is very important if someone is chocking you to death.

AlanfromBigEasy

1, 2011 - 3:48pm I think that there is one prediction that one can make about the "above ground factors" during the decline phase that you claim are "unpredictable".

To wit - The "above ground factors" will be more active and chaotic in the decline phase than during the growth phase.

Outside of TOD and fellow travelers, growth is not just seen as desirable but absolutely essential. Our economic and social systems, and our psychology, are all well adapted to growth.

These systems dysfunction, and interact in their dysfunction, when growth turns to shrinkage.

Personally, I see the Tea Party as a dysfunctional response to a lack of growth. Their dysfunction breeds additional dysfunctionality. And this dysfunctionality increases the rate of decline due to "above ground factors".

Best Hopes for Creating Efficient, Durable, Stable Subsystems,

Alan

writerman

1, 2011 - 4:21pm I don't post much anymore because... well, I think the chance of us dealing with Peak Oil is about as likely as a socialist party candidate becoming president of the United States. So I'm following Princes advice and am partying like it's 1999, spending everything I have on buying my daughters the very best education money can buy, and letting them travel as much as they like, on my platinum card. Easy come, easy go.

Seneca's cliff, or something like it, is refered to in an amazingly well-argued, detailed, and thorough report by the German Bundeswehr's Future Analysis Department, which is a military think tank. It's about peak oil, which they calculate occured in 2010. It's like the Hirsh Report but pulls no punches.

One of the central arguments is that for complex reasons the fall in economic activity will probably be far, far, steeper, and not mirror the Hubble bell curve. That's the Seneca bit.

The German report, which one can find on the web in full and through Der Spiegel, is interesting for a number of reasons. Firstly it's the best military report so far, as far as we know, as it fearlessly confronts the enromous economic, political, social, and security challenges we face. It almost reads like science fiction, or a doomsday report. It's the military going public with the bad news, regardless. It's also interesting that the military has 'leaked' the report in an attempt to give it a life of its own and put pressure on the politicians to begin getting the public ready for what's just around the corner. That is waking them from their induced slumber.

The report also puts the Nato attack on Libya in a proper perspective.

pi

1, 2011 - 11:37pm But people are strong and resiliant...I see a Seneca's cliff of maybe money, economic activity (trade), banking transactions, airline travel, advertising, retail space rented, plastic packaging generated, miles driven, etc and other things that are more on the surface.

But that will mean that the world is throwing off or casting off its oil-induced capitalist, commercial mantle. There will be a great deal of desperation if such a thing occurred. The desperation would find a focus on producing food and on getting the government to procure it, even just a little. All of that commercial activity that was knocked out by the financial cataclysm would leave a lot of oil for governments to play around with.....and they would start focusing on food production. I think population might decline more slowly than we think. If this sort ofthing happens in different places at different times, it could be slow.

flametree

1, 2011 - 6:19pm I live in southern Tasmania, I can tell you whale hunting and tree cutting don't stop slowly. It takes time to gear up, import machinery etc. There were several thousand people involved in hunting and tree cutting. Cockle creek had six pubs. Now it does not exist. Whale hunting stopped because of a sudden fallen in whales. You harpoon a baby whale drag it to where you want the adults to go and then kill the adults. Easy. For 10's of years you get 1000's of whale. One or two years you you get 100's next you get about none.

Trees go just as quickly, they good ones take hundreds of years to grow. A generation or two to cut down.

Cheers

Hide_away

1, 2011 - 7:39pm   After reading all the comments from people about the seneca cliff, it is not easy to form an opinion of what is likely to happen. Lots of talk of feedback loops "above ground factors" and the like, yet no realistically possible examples.

So here is one..

Given that Westexas is correct in the ANE or close to it, then a country like Australia will run into big problems very quickly in a few short years. Australia produces just over 300,000 b/d (falling) and imports ~600,000 b/d. Of those imports ~178,000 b/d are diesel fuel. These figures from this source....

http://www.ret.gov.au/resources/fuels/aps/pages/default.aspx

If/when Australia's imports are suddenly stopped/greatly reduced the effect will reverberate around the world. The diesel here is used for agriculture, mining and heavy transport in the main. The curtailment of wheat, coal and uranium exports will have massive implications for the importing countries of those commodities. Countries in the middle east import a lot of wheat from Australia. If the price there suddenly skyrockets, how stable will those 'still stable' remain.

Assumptions are made by many that the price mechanism will continue to allocate oil, yet it is becoming abundantly clear that the bigger stick has a lot of sway. Countries like Australia have small sticks, yet missing out on the oil will have massive effects. Examples of slow collapse are very hard to find (I haven't found any), yet examples of fast collapse or the seneca cliff are very easy to find.

metalRules

1, 2011 - 8:28pm I'm hoping Australia's massive commitment to LNG will mitigate this. By next decade the plan is that Australia will rival Qatar as an exporter of LNG. Should the Woodside, Shell, and other LNG projects succeed, Austalia may in fact be in a relatively good position.

Hide_away

1, 2011 - 8:48pm The point about the seneca cliff and my post is that what is used now is diesel, the equipment to run things now is what is important. Massive LNG production will not happen if there is a sudden drop in diesel supplies.

Westexas has ANE dropping from ~35 mbpd down to ~23 mbpd from 2010 to 2015. That does not give us "By next decade the plan". Given a nice gentle BAU approach then the long term plans will probably happen, the seneca cliff implies that those plans may not reach fruition.

metalRules

1, 2011 - 9:23pm re: "Massive LNG production will not happen if there is a sudden drop in diesel supplies." For the current plans not to come to fruition due to diesel supply alone the Seneca Cliff would need to be almost vertical, and total, (and pretty soon) otherwise any remaining resource would be poured into completion of the LNG projects. Yes, that is definitely a possibility, but I'm just more optimist that that.

That still leaves the question of what happens when LNG production declines, but being the eternal optimist I hope the message of the inevitable and permanent decline of world resources will of got through by then. Otherwise we face the mother of all Seneca Cliffs.

Hide_away

2, 2011 - 1:50am MetalRules,

If the LNG sector gets all the fuel they need when there is a crunch, then who misses out? Is it going to be the farmers? or perhaps other miners? Heavy transport cannot miss out because that is needed to move the materials to build the LNG plants.

While being optimistic is nice, it does little in helping to understand and prepare for what is about to hit us. A sudden fuel crisis will inevitably have the politicians bring in fuel rationing, with motorists feeling the pinch. Yet that will save petrol, not diesel. Rationing diesel means some miss out, while price rises and delays kick in.

The Seneca cliff will happen because people do not understand the immediacy of the problem and the multiple feedback loops of constrained fuel supplies.

metalRules

2, 2011 - 6:52am Really, I'm quite confident of completion of several major LNG projects such as Pluto (Woodside) and Gladstone (Santos, Petronas, Shell) because they are under development and will be completed with a few years. Personally I do not believe we'll be hit by a Senaca Cliff senario due to PO within that timeframe. If you think the SWHTF earlier, then yes, you are right on (would be very nasty indeed, since we would be totally unprepared)

Just so I don't sound like I'm being a total optimist, I'll give you an example of a 'feedback loop' that paints a darker picture for Australia. The way Woodside (and others I think but I can't recall the details) funded, or where able to get approval, for these hugely expensive projects was to forward sell much of next decade's LNG supply to China. So while at first glance Australia's dependence on imported fossil fuels may seem to be highly mitigated, the reality could be a significant proportion of LNG production will actually be exported, while we could suffer domestic fuel shortages.

National economies are so interwtined now I don't see how anyone can divine with certainty what will happen when resource shortages start to hit (oil will probably be the first, but not the last, shortage we will face). I don't think it's gonna be pretty, but I don't know if we will inevitably face a Senaca cliff.

EDIT: since I mention particular projects I should declare I've got a small share holding of Woodside, and a larger holding of a small spec oil and gas explorer that could do well if a Queensland LNG facility is built (both stocks doing crap now, but hey, ever the optimist)

RalphW

2, 2011 - 9:12am Australia is a major energy exporter. It will ALWAYS be able to out-compete other diesel importers for the remaining world supply of diesel exports.

Australia will not collapse unless the collapse is global. Here in the UK, on the other hand...

Hide_away

2, 2011 - 7:49pm I would fully agree with you if price was the only criteria for obtaining fuel.

However I feel this is a false assumption. In a world of declining oil production other factors will come into play besides price.

westexas

1, 2011 - 9:45pm Strictly speaking, I outlined some scenarios. Note that there are three key variables for what I define as ANE (Global Net Exports less Chindia's combined net oil imports):

The rate of change in production for the top 33 oil exporting countries;

The rate of change in consumption for the top 33 oil exporting countries;

The rate of change in Chindia's net oil imports.

If we see a 2%/year production decline rate from 2010 to 2015, and if internal consumption continues to increase at the current rate and if Chindia's net oil imports increase at their current rate, then ANE would be down to around 23 mbpd, versus 35 mbpd in 2010 and versus 40 mbpd in 2005. Basically, the volumetric ANE decline rate would accelerate from an average rate of one mbpd per year, 2005 to 2010, to about 2.4 mbpd per year, 2010 to 2015.

Hide_away

2, 2011 - 1:27am Thanks Jeffrey, I really wish your numbers were totally incorrect, however the realist in me knows that you are right. They are scary numbers that have many just turning a blind eye to them. I cannot see any fault in them other than you may be to optimistic. Sudden "above ground factors" like what is happening in Libya could easily accelerate the decline and are far more likely as ANE decline.

I believe you work on GNE and ANE are close to a best case scenario. It really is the business as usual case, yet people do not want to believe it.

westexas

2, 2011 - 7:08am I think that there is a certain level of denial, even among Peak Oilers, regarding "Net Export Math." I frequently get qualitative objections to what is basically a quantitative argument. My usual response is, show me some counterexamples, to-wit, find an example of an oil exporting country, showing a sustained production decline, with a meaningful level of consumption, that has cut that consumption sufficiently so that the net export decline rate is the same as, or less than, the production decline rate.

Note that 20 of the 33 top net oil exporters in 2005 showed lower production in 2010, versus 2005.

Given an ongoing production decline rate in an oil exporting country, unless the country's rate of change in consumption falls at the same rate as, or at a rate faster than, the rate of decline in production, the resulting net export decline rate will exceed the production decline rate and the net export decline rate will accelerate with time.

Jedi Welder

2, 2011 - 7:11am I am not sure how long India will keep growing. More and more news are comming out about how they are struggling with their electric grid. If you don't grow electric supply, you don't grow the economy. Also it apears lots of the growth in the economy has been on the credit card. Such a development is not sustainable. My guess is China will outrun India vary fast in the grouth run ahead of now.

westexas

As Yogi reportedly said, "It's tough to make predictions, especially about the future." But the recent numbers do indicate some deceleration in India. India's 2002 to 2010 rate of increase in net imports was 5.4%/year, but in 2010 they showed only a very slight increase in net imports over 2009, partly because of an increase in production. China's 2002 to 2010 rate of increase in net imports was 12%/year, with a year over year rate of increase of 12.5%/year from 2009 to 2010. "Chindia's" overall 2002 to 2010 rate of increase in net imports was 9.4%/year from 2002 to 2010.

lumina

After reading this post and the BBC article below, I think I saw a potential Seneca cliff in the "projected number of functioning LEO orbiting satellites":

Space Junk at Tipping Point, Says Report

Some computer models show the amount of orbital rubbish "has reached a tipping point, with enough currently in orbit to continually collide and create even more debris, raising the risk of spacecraft failures," the research council said in a statement on Thursday.

...

The situation is critical, said Mr Kessler, a retired Nasa scientist, because colliding debris creates even more of the junk.

"We've lost control of the environment," he said.

geek7

"We've lost control of the environment," he said.

Of course, we never had control of the space environment. What is happening is that it is becoming painfully obvious that we never really had control and that all planned activity based on the supposition on control is now at risk.

Look for calls to develop spider web type sticky strands that work in space. Yah, right!

augjohnson

I wish I could remember the Science Fiction story I read maybe a couple decades ago. Seems that we earthlings had lost the ability for space travel because of so much space junk that any additional flights got hit and destroyed. Some alien race came along and offered, for a huge fee, to clean out all the space junk so we could again have access to space flight.

geek7

Ugo, Thanks for a brilliant article. Unfortunately, some readers missed your point. Comments like "Your model is too simple, it doesn't include (whatever)." and "Your model is too complicated. You made a mistake, which I don't have time to identify.". But keep up the good work. This isn't your first attempt, and I'm sure it won't be your last.

One more substantive comment. Malthus and Verhulst models were models of stocks and flows, but of one stock only, namely people. Subsequent authors cast their models in terms of differential equations, but historically there is a remarkable uniformity to how we model nature. What changes over time is the number of stocks and the number of flows, which always seems to increase. Trying to keep the model simple enough for the reader to understand is, I think, a useful innovation. But something is still needed to reach the whole audience.

Cheers

Ugo Bardi

Thanks, geek. The point I was trying to make has to do exactly with this point: after having studied the whole story of "The Limits to Growth" I was surprised to see how many people had criticized the study without understanding it. Entire academic papers had been written by people who didn't have the smallest idea of what they were talking about. And they were world-renown economists!

So, I think there is a strong need for mind sized models but, also, the other point which maybe I should have stressed more in my post is that the models must also be based on thermodynamics. This is a point that the authors of "The Limits to Growth" failed to mention with sufficient strength - although they did say it. So, I hope that this approach moves something, even though, I am afraid, it won't so much!

Picarita_Basura

Great article, great discussion. Since most people don't know that much about the less salacious parts of ancient Roman history, how about changing the name, Seneca Effect, to one more well-known in popular culture: the Wiley Coyote Effect? You know, he runs off a cliff and his legs keep churning as if he could keep running?

Ugo Bardi

Wiley Coyote was mentioned in an earlier version of the post; I deleted it to make the post shorter but - yes - you have a good point. The Seneca effect starts when the Coyote suddenly discovers that he is walking on thin air!

browning

Excellent article. I've been passing it around.

I do wish the system dynamics math were a bit clearer. The y-axis values appear mixed up. I tried to replicate the second chart, and succeeded only after applying multipliers to each of the stocks and rates. It would have been nice to provide the small amount of additional information, for those like me who want to replicate these damn things.

This is good stuff.

AlanfromBigEasy

One of my areas of interest :-) is rail - intercity and urban.

I noted that many economic functions would decline, at varying rates, as oil declined and economic dysfunctions spread.

However, what if an economic function - two subsets of transportation - expanded and dramatically increased efficiency (with virtually no oil use) in the midst of an overall economic decline ?

My thought is that the remaining economic activity would reform around the more efficient, oil free technologies and the last half, 2/3rds or 1/3rd of the Seneca decline would be aborted and converted into either a much more moderate decline or even a steady state economy.

Any thoughts ?

Alan

2ndlawrules

H.T. Odum would be quite pleased with your simple storage components/flows/dissipation-to-entropy model. He was a great proponent of simple models to enhance understanding of very complex systems. In reviewing your numerous articles on TOD, I think that I perceive the hand of H.T.Odum in your understanding of energy-materials systems. Were you at one time one of his graduate students?

Having been such, on a regular basis I see on TOD the reverberations of projections that Odum made time and again almost 40 years ago. Keep up the good work Professor Bardi.

[Sep 10, 2011] Employers Diss Obama Job Plan «

September 10, 2011 | naked capitalism

TheTrader:

Yves,

Forgive my negligence, but how exactly “more debt restructurings and writedowns to get the debt overhang resolved faster” would help here?

Tao Jonesing:

Let me try.

Debts that can’t be repaid won’t be. The sooner we force the banks to accept their losses, the sooner we can start growing again. Continuing to “extend and pretend” is at best treading water, but, as we’re seeing, the banks can’t tread water fast enough or long enough to stay afloat. So, unless we deal with those losses right away, we’re going to continue seeing periodic credit crises with increasing frequency (the current one is occuring 3 years after the last, the next will be in two, then one, then so on). The only way to save the current system is to make the people who caused all the problems eat their losses so the rest of us can move on.

Personally, I don’t see growth in our future, even if we wipe out all the debts (even those that can still be repaid). And I don’t really want to save the current system. Still, I’d like to see a debt jubilee to relieve the suffering of innocents that we’re seeing today.

 

Rest

[Sep 17, 2011] Summer Rerun A Conflict of Interest is Not a Conflict of Interest If It Involves Goldman

September 10, 2011 | naked capitalism

Linus Huber

Might is Right

Who needs the rule of law when Might is Right.

kingbadger

“when current Goldman chief Lloyd Blankfein was the only Wall Street denizen to meet with Hank Paulson when the Treasury was deciding what to do about AIG”

This turned out to not be true I believe? Other bank chiefs met with Paulson at the same time. I’m sure I remember reading about this falsehood in 2010 somewhere. I’ve searched for links but haven’t found anything yet.

YankeeFrank:

That point is minor compared to the picture of a swamp of self-dealing and corruption that is the NY Fed. The banking cartel with its nexus around the NY Fed is one of the most disgusting scams in the history of the planet. The impunity with which these “people” operate is testimony to the fact that banking in the US needs to be completely restructured with state banks providing heavily regulated and transparent utility retail services, with all profits directed back into local investment. As far as the casino of massive trading operations like Goldman and the hedge funds — they should be shuttered and the ill-gotten rents of the wealthy need to be heavily taxed at around 90% as they were for a time in the 20th century. If the rich want to make a return what remains they must do so through investment in productive ventures that generate employment and positive ends for society. End of story. The wealthy have shown themselves to be incompetent and irresponsible when it comes to allocating capital and hence the job must be taken away from them. Money and capital investment are far too important to our society to be left in the hands of such treasonous scum.

[Sep 9, 2011]  The Seneca Effect:  Why Decline Is Faster Than Growth

"...oil at a high enough price and low enough energy return breaks just-in-time supply chains worldwide."
The Oil Drum

The Soviet Union was a nearly closed economy before collapsing; a "mini-world" in itself. Notice how Russian oil production went down rapidly after the peak; a classic Seneca cliff. Note also how production picked up again afterwards. At some point, the Soviet Union ceased to exist as an isolated economic system and it became part of the whole world's economic system. At that point, the simple model that we have been using does not work any longer; most likely because the capital stock received an influx of resources that came from a region outside the model.

Conclusion: a banquet of consequences

Very often, we fail to understand the delayed effects of our actions. John Sterman reminds us of this point in a talk on global warming quoting Robert Louis Stevenson as saying, "Everybody, sooner or later, sits down to a banquet of consequences." The models shown here tell us that the Seneca cliff is the result of delayed consequences.

As always, the future is something that we build with our actions and the models can only tell us what kind of actions will lead us, eventually, to a certain outcome. Used in this way, models can be extremely useful and can even be applied to systems which are much more modest than an entire civilization, for instance to a single company or to our personal relationships with other people. In all cases, the Seneca effect will be the result of trying hard to keep things running as usual. In that way, we may run out faster of the resource that keeps the system running: be it a physical resource or a reserve of goodwill. The way to avoid this outcome may be to let the system run the way it wants, without attempting to force it to go the way we want it to go. In other words we need to take things in life with some stoicism, as Seneca himself would probably have said.

Thinking of the worldwide situation and of the problems involved, global warming and resource depletion, what the models tell us is that the Seneca cliff may be the inevitable result of putting too much strain on already badly depleted natural resources. We should try, instead, to develop alternative stocks of resources such as renewable (or nuclear) energy. At the same time, we should avoid to exploit highly polluting and expensive resources such as tar sands, oil shales, deepwater oil, and, in general, applying the "drill, baby, drill" philosophy. All those strategies are recipes for doom. Unfortunately, these are also examples of exactly what we are doing.

I don't know what Seneca would say if he could see this planet-wide effort we are making in order to put into practice the idea that he expressed in his letter to his friend, Lucilius. I can only imagine that he would take it with some stoicism. Or, maybe, he would comment with what he said in his "De Providentia" "Let Nature deal with matter, which is her own, as she pleases; let us be cheerful and brave in the face of everything, reflecting that it is nothing of our own that perishes."

Thanks to Dmitry Orlov for having been the source of inspiration for this post with his article "Peak Oil is History".

Perk Earl:

It's rather apparent with all the efforts being employed to get more oil, such as tar sands, deep offshore, horizontal drilling (super straws), etc. that every possible contingent effort is being employed simply to remain on a plateau of oil production (since 05). In spite of these efforts, Brent continues to be in triple digits per barrel.

Essentially the Seneca Cliff is being pushed out in front of us and in so doing its edge crisply sharpened and angled into a sharks fin. The question regarding descent isn't if, but when and how fast and hard will we fall?

The article ignores or discounts the effect of non-conventional oil technology (oil sands, enhanced oil recovery) as well as the effects of economics (higher prices result redrilling of old oil fields and the dragging out of oil field production in a long tail).

In reality, the amount of non-conventional oil in the world considerably exceeds the amount of conventional oil, and in the long term most oil production will be non-conventional. I can cite the example of my own country, Canada, where conventional oil production peaked during the 1970's and most of the oil production is non-conventional, with current total production now considerably exceeding the 1970's conventional peak.

RockyMtnGuy:

I wish for a systemic collapse.

That seems to be the motivation between a lot of the doomsters and their doom theories. They can't live with the concept of a slow, painful decline and desperately wish for a big crash.

In reality, geology will save the world from a Seneca cliff collapse in oil production. You really cannot produce oil fields in a Seneca-like fashion because oil fields (the majority of them) just don't work that way. Toward the end of their lives they taper off gradually and seem to last a lot longer than the producers had intended. The big oil companies sell them off to the small companies, and then the small companies sell them off to the mom-and-pop operations. Most of the world's really big oil fields will still be producing dribs and drabs of oil 100 years from now.

The Canadian production curve which I posted is really the anti-Seneca of all anti-Seneca curves. That is a result of deliberate policy. Canadian governments have regulated the oil industry with the intention of turning the typical bell-shaped oil production curve into one with a very, very long tail. Canada is still going to be a major oil producer 100 years from now.

Luke H:

he big oil companies sell them off to the small companies, and then the small companies sell them off to the mom-and-pop operations

Yeh in Oklahoma, Texas, and southern Alberta maybe, but how about deep water GOM and Brazil, the Alaska North Slope and the North Sea? More and more of our production is coming from operations like these and they will shut down suddenly well before full field depletion because of the shipping difficulty. Those type fields will forever be beyond the reach of the Mom and Pop organization.

Maybe a Seneca Cliff will desribe the first third to half of the production drop after the 'sustained peak' or plateau or whatever you choose to call what oil producition appears to be hovering at right now. But like you I do not feel oil production will completely fall off the cliff--as long as we avoid the ultimate nuclear Seneca Cliff.

Quite frankly I hope Canada is a major oil producer a century from now--that would mean many things had managed to go right for humanity and the bottleneck we look to be aimed at is at worst gently tapered. Of course I had to call my loyal little dog away from a cow and calf moose in the middle of this reply and and am watching woodpeckers come right back to my feeders the first day they have been restocked after being dry for a fortnight. I might not have so optimistic a bent if I were sitting in a browned out, hundred degree Phoenix or LA concrete and asphalt swelter.

ThisOne:

Right and wrong has nothing to do with it. If the Keystone XL isn't built then the Canadians will build a pipeline west or east, or there will be some other pipeline to get that oil to the coast where it can get full market price. The economics are there to support one of these pipelines. While I agree with the sentiment in protesting the Keystone XL, I think it's misplaced. Even if the protesters are successful in preventing the Keystone from being built, it's only going to be a temporary victory before the next pipeline is proposed. The real objective is closing down the oil sands development.

While I agree that putting any more CO2 into the atmosphere at this point is evil, I don't think it's going to change the outcome one bit. Those who use fossil fuels have more power than those who do not. If the Canadians don't tap the oil sands, they will taken over by a country that will. If you don't agree with me, google 'the carter doctrine'.

Evil is banal.

ewak

So is goodness or heroism:

"We may now entertain the notion that most people who become perpetrators of evil deeds are directly comparable to those who become perpetrators of heroic deeds, alike in being just ordinary, average people. the banality of evil shares much with the banality of heroism. Neither attribute is the direct consequence of unique dispositional tendencies; there are no special inner attributes of either pathology or goodness residing within the human psyche or the human genome. Both conditions emerge in particular situations at particular times when situational forces play a compelling role in moving particular individuals across a decisional line from inaction to action. There is a decisive decisional moment when a person is caught up in a vector of forces that emanate from a behavioral context. Those forces combine to increase the probability of one's acting to harm others or acting to help others. Their decision may or may not be consciously planned or mindfully taken. Rather, strong situational forces most often impulsively drive the person to action. Among the situational action vectors are: group pressures and group identity, the diffusion of responsibility for the action, a temporal focus on the immediate moment without concern for consequences stemming from the act in the future, presence of social models, and commitment to an ideology."

--The Lucifer Effect, Phillip Zimbardo

Right and wrong has everything to do with it. All these actions are moral as well as economic. Might makes right? The dollar decides? I am helpless and inconsequential, so I cannot affect change? Shall I profit from the banality of evil? It's BAU, can't stop it, don't try.

Oct:

To get that product you have to rob the economy elsewhere, which I think makes the claim difficult. You'd have to model the increase in capital outlay for unconventional and determine the pollution factors on the backside.

But unconventional oil is a stop-gap and not a cure for this disease. Hard to imagine Canada supplying much net oil growth per capita as conventional sources around the world wind down.

From my reading Canada will in the end offset declines in Mexico.

Sorry I missed this one, but I'll jump in up top. This first thread, all about "unconventional oil", paying taxes, jobs, etc., really misses the point. Forcing oil (liquid fuel) production, whether conventional, NG liquids, biofuels, whatever, blows bubbles and forces consumption of arguably more necessary resources. Current levels of liquid fuels production enables depletion of every other finite and limited resource. Further, it enables the mother of all unsustainable progressions: population growth. Just askin': What happend to the big picture here?

I'm pretty much in agreement with Ugo's post. When it rains, it pours. Oil cuts both ways. Better pack your parachutes.

jeppen:

 Actually, current and increasing levels of liquids fuel production enables the only non-starvation-and-war based path to population stabilization and shrinkage there is. If it goes down, the risk is high that the fertility rates will go up again.

Perk Earl:

Alright Rocky, but even if Canada has incredible amounts of non-conventional, the flow rates are less than crude, the energy needed to extract is greater, the cost to extract is greater and as much as Canadians would like to think that tar sands will save them from post peak oil, the economic reality is we'll probably all be in the same sinking ship. Once the world economy has tanked, squeezing non-conventional will probably not be cost effective.

So I think your idea of a positively-skewed bell-shaped curve on the back side is at best, fantasy.

x:

Seneca background video: (3 parts)

http://www.youtube.com/watch?v=hJ0g7IKWG7E

He believed people are too optimistic. Things going wrong should be expected, prepared for and accepted.

drillo:

Ugo, thanks for this interesting posting.
I think it depends mainly on "timing" if there will be a rapid decline or a smooth transition:
If mankind will find and apply solution for the challenges of peak oil, climate change etc. then a smooth transition to a post-fossil world is possible. But if we are too late then we will eventually get to a point where we cannot stop the unsteerable wagon from rushing down the spiral.
For example the British were lucky that they had coal at hand when they had cut down all the trees on their island, so they could continue with their industrial growth. Otherwise they would have soon declined again to oblivion.

The timing issue is also described in the less-known second Hirsch "report": Mitigation of maximum world oil production: Shortage scenarios - Energy Policy Volume 36, Issue 2, February 2008, Pages 881-889

From the abstract:

Examination of a number of future world oil production forecasts showed multi-year rollover/roll-down periods, which represent pseudoplateaus. Consideration of resource nationalism posits an Oil Exporter Withholding Scenario, which could potentially overwhelm all other considerations. Three scenarios for mitigation planning resulted from this analysis: (1) A Best Case, where maximum world oil production is followed by a multi-year plateau before the onset of a monatomic decline rate of 2–5% per year; (2) A Middling Case, where world oil production reaches a maximum, after which it drops into a long-term, 2–5% monotonic annual decline; and finally (3) A Worst Case, where the sharp peak of the Middling Case is degraded by oil exporter withholding, leading to world oil shortages growing potentially more rapidly than 2–5% per year, creating the most dire world economic impacts.

In a nutshell he thinks: A plateau period might give us some time to avoid a collaps. Whereas we wouldn't have this chance in case of a sharp peak.

Ironborn:

We probably are at the point where we cannot effectively stop the downward spiral. The plateau will last few more years, but it will end sooner or later and the descent will then be accelerating with passing time.
The current civilization is stagnating and I´m afraid that it´s the best it can do. There is no impetus that would send us forward. Renewables are not enough or they are rather too little too late.
Technology does not provide the solutions, only postpones the consequences.
When thinking about our problems, I often recall the following words of Q about the Borg from Q Who Star Trek episode:

"You can't outrun them, you can't destroy them. If you damage them, the essence of what they are remains. They regenerate and keep coming. Eventually you will weaken. Your reserves will be gone. They are relentless!"

Our reserves are not yet gone, but the systems are weakening.

Jedi Welder:

 The thing that worries me wich I have been thinking about lately is that we have many "slow declines" happening at once. Population growth, climate change, oil decline, economic contraction, etc. Each of those happen slowly, but when they occur at the same time, the burden of all those combined slow faliures adds up to one big collapse.

Mamba:

Jedi Welder said

... all those combined slow failures adds up to one big collapse.

I think most thinking people have already come to this conclusion and are planning their lives accordingly. In my case this has amounted to:

Having only one child and advising him to have none (he's 30 now); Learning all I can about permaculture and growing my own food; Buying some rural land in an area not likely to be devastated by climate change (ie not Texas); Taking early retirement; Buying essential tools, clothing and various things (eg bikes and ancillary equipment) to last the rest of my life (and my wife's life); Investing in precious metals (300% gain in last few years); etc BTW, this is yet another excellent article by Ugo Bardi, one of the most thoughtful modern commentators.

lengould:

You're right about gold bugs, that valuation is way out of proportion, an original speculative bubble. Compare gold to silver, platinum, diamonds, etc.

michaeld

``Wind was 2.5% of world electricity production in 2010." and electric energy was 16% (roughly) of the total mix ..

thus indeed a tiny contribution! even with your impossible growth numbers ..

just look at saturation effects in growth in Germany

Yvan Dutil
Seneca effect is a consequence of an increase in production efficiency and a simultaneous increase in extraction difficulty. Production efficiency is a power law function of the capital (ex: Cobb-Douglas), while extraction cost will increase exponentially at some point. Then you end up with a Pareto-Malthus resources extraction model.

Perk Earl :

Seneca effect is a consequence of an increase in production efficiency and a simultaneous increase in extraction difficulty.

Very well described, and in that description it's easy to see the progression is towards a cliff, almost like the crest of a wave that will subsequently fall. The increase in efficiency accelerates the top of the wave forward, while the increasing extraction difficulty puts the brakes on the lower part of the wave, causing a crest, a graphed shark fin shape.

enicar:

 "Very well described, and in that description it's easy to see the progression is towards a cliff, almost like the crest of a wave that will subsequently fall. The increase in efficiency accelerates the top of the wave forward, while the increasing extraction difficulty puts the brakes on the lower part of the wave, causing a crest, a graphed shark fin shape."

That is what scares me the most - because even as a "prepper" - I realize how much ancient knowledge I have lost to become a modern man. To provide an example" firewoood in the NorthWest corner of Wisconsin. Yes - the house was heated via an outdoor fireplace - built on high technology - dependent upon water pressure- dependent upon an electrically operated well, dependent upon an electrically operated blower.

Wood was delivered off of a semi-trailer, unloaded via a crane mounted upon the trailer. They stacked the logs in a nice pile - which I then cut into manageable logs with a gas -powered chainsaw. I did split the logs with a hand operated axe - and stacked them by hand - but imagine if it was without machines.

First: I have no idea/knowledge of the tools required to take down a tree without a gas chainsaw - much less maintenance/construction of such machines. How to get the quantity of logs to my place? No knowledge of horses/skids/harnesses.... not even having access... How to cut the logs into pieces - without a chainsaw - no idea. If the Ax handle breaks - no idea....Of course - no electricity - no water circulation - no blower - what then?

If I even had all the tools - how would I manage to sharpen/maintain/replace them.

I have provided the above for thought, from actual experience. It does lead me to believe that in any situation where power, electric/petroleum fuel was absent for a period of time - I might not want to be present any longer.

lengould:

 I grew up in (cold!!) Northern Canada with no electricity, gas or other fossil fuels available. We cut trees with a swedesaw and an axe. Skidded them to a road with a horse. Sledged them to the farm with horse-drawn sleigh. Bucked with the swedesaw, split with an axe. Takes about three man-months work to provide a family with heating and cooking counting a man-month as a current working month, eg. 21 x 8 hour days (of course we worked 12 to 14 hour days 30 days per month, and I was doing a mans work by age ten to twelve, so it only took us perhaps 5% to 10% of available time.)

Dad could, with the proper tools, precisely sharpen and set the saw teeth so it could run in green wood. Use a hand set and files. I know the theory but never learned how. I could probably figure it out. I can replace an axehandle very quickly, and could make one from ash with a drawknife fast too.

We bought a chainsaw the first year they were developed. (actually a gas-powered reciprocating Wright even before that)

RickM
German military perspective

Drawing from Feasta's excellent "Tipping Point" (March 2010), the Bundeswehr analysts point out how an economic tipping point could lead to runaway effects:
"In the medium term, the global economic system and all market-oriented economies would collapse.
1. Economic entities would realise the prolonged contraction and would have to act on the assumption that the global economy would continue to shrink for a long time.
2. Tipping point: In an economy shrinking over an indefinite period, savings would not be invested because companies would not be making any profit. For an indefinite period, companies would no longer be in a position to pay borrowing costs or to distribute profits to investors. The banking system, stock exchanges and financial markets could collapse altogether.
3. Financial markets are the backbone of global economy and an integral component of modern societies. All other subsystems have developed hand in hand with the economic system. A disintegration can therefore not be analysed based on today’s system. A completely new system state would materialise" (p. 58 of new translation).

Few systems in our world respond faster than financial markets, nor with greater oscillation/volatility, so it is easy to imagine how some runaway effects could quickly be set in motion. The Bundeswehr authors place a heavy emphasis on human factors like awareness and expectation, and what the likely human responses to those perceptions would be.

By the way, a complete English translation is now available from Bundeswehr, so perhaps our media will finally examine and report on this unique, credible study.
http://www.energybulletin.net/stories/2011-08-30/complete-english-transl...

phil harris

Thanks for the link to Bundeswehr doc

... a so-called “tipping point” is exceeded where linear developments become chaotic ... For example, if the global economy shrinks for an indeterminate period of time, a chain reaction that might destabilise the global economic system is imaginable. Depending on point in time and the level of dependence of the affected society, such a peak-oil-induced, economic tipping point might have such severe systemic implications that only a few general statements as to economic, political, and social developments beyond the tipping point can be made.

Indeed

ian807

Specifically, oil at a high enough price and low enough energy return breaks just-in-time supply chains worldwide. I'm pretty sure that this will be our first ratchet down and yes, it will happen suddenly. The first oil producing country that decides to hoard oil for domestic consumption (civilian and military), will take a large proportion of the world's oil off the market suddenly. If more than one country does so at the same time, the supply chain could fall very rapidly thereafter.

Sudden supply shocks will the first domino. First they break supply chains, and then the economy. International commerce will probably never recover to previous levels.

As I have come to understand supply chains, we are using China as a petrochemical source for many industries including processed foods, fertilizers, electronics, paints and other consumer items. These feedstocks from China can make lower end items that can be assembled in say Japan or Germany. So the question will be how well China can export fertilizer and other essential petrochemical stocks. It seems the world is using China to do the lower level petrochemical stuff -- is it a greenwashing? Yep. We are shifting this pollution to Asia. So would Seneca's cliff appear first in China? Well if that is true then the entire industrial base would collapse in a single shot. If China collapses, industrial production is essentially toast.

The first oil producing country that decides to hoard oil for domestic consumption...

Such hoarding would be grim for the world economy, but I wonder how likely it is on a wide scale? Many of the current oil exporting countries are economic and/or political basket cases, so I’d question if they have the capacity reduce their revenue to any great extent by hoarding

BillH on August 31, 2011 - 11:29pm   Hi, Ugo -- good article. You might be interested in Out of Gas: A Systems Perspective on Potential Petroleum-Fuel Depletion I did for Pegasus Communications back in 2003 (http://pegasuscom.com/aar/model5.html). It exhibits much the same behavior as your model.

What I discovered in later experimentation is that the shape of the fall-off is rather sensitive to the shape of the nonlinearity in the model. So anyone working on a softer landing might look both at ways to replace petroleum resources and at ways to modify the effective shape of that function.

Ugo Bardi on September 1, 2011 - 2:26am Permalink | Subthread | Parent | Parent subthread | Comments top Thanks, Bill. I'll look at your model as soon as I have a moment. I received several notes by people who had developed models similar to mine. It seems that what I did was, mostly, to give a name to something that was already well known!

dmiller on September 1, 2011 - 12:35am    Ugo, the Seneca effect sounds an awful lot like Jack Alpert's "death sprial". As resources, mainly food, become more scarce the rich divert more of those dwindling resources to protecting their own resources. Nobody ever said the downside had to be a smooth transition. And my gut tells me that things will go south very, very quickly.

Ugo Bardi on September 1, 2011 - 2:27am Permalink | Subthread | Parent | Parent subthread | Comments top This kind of gut feeling is shared by many, many people, apparently!

Magnus Redin on September 1, 2011 - 11:57am Permalink | Subthread | Parent | Parent subthread | Comments top Aye, and it is a bad feeling leading to depressed activity.

I wonder what Seneca was referring to? He built a lifetime on rhetoric and education, both taking time and effort to perfect, and finally he was ordered to commit suicide. That's an abrupt end and definitely a Seneca Effect. If he was referring to the end of his civilization, well, the decline of Rome can be debated for ever but I would not say it took three hundred years to collapse, more like a hundred if you take it from the lost battle of Adrianople to the formal end of the empire in the west. I don't include the eastern empire because I consider it another polity. I really don't believe that the late Romans believed their civilization would come to the relatively abrupt end that it did, or even end at all; like us they were very complacent and believed in themselves utterly, and like us they saw no alternative - and they were also contemptuous of those different from themselves: big mistake.

Plagues, like the Black Death, certainly have a Seneca ring. If our current civilization, dependent on fossil fuels, has taken roughly four hundred years to develop; from the first ordinance in England to burn coal rather than wood to save trees in the early seventeenth century (and this may be stretching it a bit I know), I wouldn't expect the chaos and reversals resulting from our inability to sustain our current way of life, based on fossil energy resources, to take more than the next twenty years or so to complete - so that's pretty Seneca too - if it happens as I think it might. But I am just guessing here.

Good points. It is good to keep in mind that the Eastern Roman/Byzantine Empire lasted quite a while, and, in spite of rotating dynasties, the complex bureaucracy that kept Egypt and China running lasted millennia.

But we are like an Egypt that loses the Nile, or a China that loses its Yangtse and Huangho. FFs are the life blood of the modern economy, and we have to walk away from them because:

a) they are running out anyway and in the mean time are taking more and more energy input to get the energy out;

b) they cause devastating local and regional harms and are due to cause ever more as we go into the ever more risky stuff; and

c) and most damningly, their effluents are causing the planet to swing out of the 'goldilocks' comfort zone that humans (and most other life currently on the planet) evolved in.

It is (c), AGW, that really has the likelihood of taking on a 'live of its own' hurtling us toward a hellish unlivable world in a remarkably short time. Paleo-climatologists now have found numerous cases of the climate shifting suddenly, in decades or less, from one state to another very different one. Most PO'ers that think CC is always slow so we don't have to worry about it are not up to speed on this research.

Multiple feedback, some already kicking in, and some of enormous power, and all feeding back on themselves and each other, can/will turn our relatively small initial forcing into a runaway train--our pebble (relatively speaking) becoming an avalanche...and we all live at the bottom and on the sides of the hill with no where to run.

Ugo Bardi on September 2, 2011 - 7:55am Permalink | Subthread | Parent | Parent subthread | Comments top The Roman Empire was peaking at the time of Seneca. It had not yet started to decline, but I think the writing was on the wall and that Seneca himself perceived it.

Ulpian on September 2, 2011 - 10:15am Permalink | Subthread | Parent | Parent subthread | Comments top I'm not so sure about that. No empire lasts forever but the moment when irreversible decline sets in can only be known with hindsight. Rome needed to keep pedalling to maintain revenue, which meant conquering new lands and using their wealth to feed its treasury. Unfortunately the world outside the rich Mediterranean had little to offer and became a drain on revenue, much like Africa was to Britain. Dacia was probably the last territory to be conquered that brought huge wealth, and Dacia was incorporated after Seneca lived. Pessimism is another matter of course and can colour many things, including approaches to energy and PO. I am a pessimist!

geek7 on September 2, 2011 - 9:59pm Permalink | Subthread | Parent | Parent subthread | Comments top Seneca had studied Greek Stoic philosophy, which was developed starting 3 centuries before he lived. The thought he expressed in the letter may not have been original with him. Maybe he had read something in the Greek and was translating to his Latin speaking relative. Pessimism is something else than stoicism.

Constantinople was called Byzantion in Seneca's time and had not yet fallen to the Romans. I think it fell early in the 2nd century CE, but can't quickly find clear statement on the web. The Roman Empire was very much still growing in Seneca's time. Constantinople remained the capital of eastern Rome until it was captured by the Ottoman Turks in 1453 AD. Collapse of Constantinople was very sudden and very final, but surely not forseen by Seneca.

I think the quotation is not at all about collapse in the Grand Sweep of History, but rather a simple observation about collapse of buildings, fall of cities to a besieging army, crops ruined by a rainstorm, etc. We can put our own interpretation on the words. They certainly hold a special significance to us, after it has been suggested by Ugo, but what significance they held for Seneca is open to speculation. And really, if you don't see their truth in our time from your own observation of today then you have a very different world view than I have. Or are you trying to pick apart Ugo's blog by questioning the meaning of the words? Think of it as a literary reference not to be taken literally but to set the scene for the following discussion.

Ulpian:

I was taking none of it literally. That is my whole point. Sudden collapse is the point here and I was merely responding to using the empire as an illustration of collapse. I disagreed that it took three hundred years and would, as I stated, prefer to call it more like one hundred years. This might be called a quick decline and follow the Seneca curve. And I am the pessimist by the way; I don't confuse stoicism with pessimism, although I do believe there are overlaps.

As for Byzantium it was conquered for Rome in 64BC and I reiterate that I did not include the eastern - Byzantine - empire in my observation. The eastern Roman empire can either be called a great success as it maintained the fiction of Roman polity for a thousand years, or it might be seen as the slowest dying of all empires and therefore the antithesis of the Seneca idea.

hinson:

"Collapse of Constantinople was very sudden and very final"

On the contrary. The Byzantine Empire waxed and waned over many centuries, but its road to eventual destruction was via the Crusades, during which it suffered blow after blow over a period of about 250 years. In fact, at then end of the Crusades it was virtually a partitioned rump state. It began to get back on its feet somewhat by the time the Turks arrived, but just was too weak to resist.

I strongly recommend the 3-volume history (or the shorter 1-volume version!) "Byzantium" written by John Julius Norwich, a fascinating history wonderfully written. It was a great shame that this Christian/Roman/Greek civilisation was lost so thoroughly, and that we in the West have almost completely forgotten about it. The Crusades represented an awful "Civil War" within the European sphere.

Feunfeun:

I think our civilization has a greater possibility of quick panic than any other civilization before. It all depends on how fast information travel amongst the various structures that compose it. At the core we have a financial infrastrucutre where 80 % of the transaction are executed within milliseconds. On those transcations and their equilibrium depends our entire hierrachy of what valuable and not . On the fringe of this infrastructure we have the fact that most of the people in the west own a smartphone or watch information continously trough a media outlet. So if a truly negative information which destroy the precarious equilibrium appears, it will then spread very quickly to the fringe affecting everyone in the system ...

YvesT

Yes agree on that, another thing is that more and more some key systems rely on just a few guys having the knowledge to run them (at least in IT), and all this is very poorly documented, and it is in fact getting worse over time with ever increasing complexity, a good set up for a domino effect ...

RalphW

 I am the sole surviving IT employee at my organisation. We used to be 7. I hold together a disparate system of servers and desktops and websites that is essential to every job here, jerry-built together over a decade. Everything is bespoke, no two systems have the same OS and patch level. When I take a week off the other 30-odd employees cross their fingers and pray that nothing major goes down.

YvesT

1, 2011 - 12:49pm Wow, and is there a plan for at least another guy for backup and knowledge transfer or is it seen as "normal situation" ? Do you still do some modifications/"improvments" ? The organisation I work for is much bigger (a telco), but there are so many f#àking systems it's truly amazing, many outsourced here and there with so many layers of specifications or whatever between users and developers, and in the end plenty of key systems with one or two guys able to modify/repair them. Not to mention that we keep on adding some while saying we should reduce ...

FMagyar

1, 2011 - 2:05pm True story: I know of a situation in the corporate finance department of a large hospital where the sole surviving IT person with the requisite level of knowledge to keep the whole system up and running actually died of a heart attack while on the job... They had a hell of a time and enormous expense for hiring outside expertise to come in and figure out what that one guy knew... They could have hired help, given the poor guy a thorough physical and given him a raise and a vacation and it probably would have been a lot cheaper! That's what you get when bean counters get to run organizations that depend on systems which they do not understand, nor do they get why those systems are so important.

notanoilman

1, 2011 - 3:50pm I used to contract in to cover people. Winging it doesn't even start to cover it. Organisations really have no idea of the financial value of such people. Companies should at least take out 'key man' insurance cover to pay for what it would take in an emergency. Having another trained person is a must. Oh, the companies used to whinge about how much they had to pay me, IMHO it was nowhere near enough.

NAOM

eric blair

1, 2011 - 7:51pm It all depends on how fast information travel amongst the various structures that compose it

Except information flow is controlled. Or even faked.

Twitter shutdowns, things like BART blocking cell phones, historical things like "Remember the Maine" "The Lusitania did not carry weapons/ammunition" "Gulf of Tomkin" "Lavion Affair" Deletions of posts on web forums.

So if a truly negative information which destroy the precarious equilibrium appears, it will then spread very quickly to the fringe affecting everyone in the system

Not if the control of information is applied. Like the 80% of the transaction are executed within milliseconds shows there is not a viable 'hand of the market' - there is not an effective open information system.

Doomer_Dan

This was a great post until the end:

We should try, instead, to develop alternative stocks of resources such as renewable (or nuclear) energy. At the same time, we should avoid to exploit highly polluting and expensive resources such as tar sands, oil shales, deepwater oil, and, in general, applying the "drill, baby, drill" philosophy.

Good lord, man! Nuclear!?! You just want to move the pollution problem from fossil fuels to something even more dangerous!? The entire post up to that point was a warning about the consequences of pollution!

Every nuclear plant needs to be shut down before the collapse occurs, or we may not be able to shut them all down when we need to. Loss of capital virtually guarantees that we will be unable to properly manage these plants at some point after we hit that Seneca cliff.

DD

DoomInTheUK

1, 2011 - 11:59am Maybe the term "Parasitic Losses" would be more apt than pollution. In this model anything that chokes the flow from the resource is "pollution". So bureaucracy can be just as much a detrimental effect as conventional ideas of pollution as CO2 emissions and industrial waste or even soil erosion or over-fishing.

Nuclear would fit within an idea initial low parasitic loss, the decommissioning is a problem though. I can imagine a time when all our energy needs to be diverted to safely decommission the ageing fleet of reactors.

forbin

unlikely , the scenario will be that will be plenty of "serfs" or "dole people" to manually dig and move all that radio active stuff to a "safer" place, away from anything the local "king" decides is his. think feudal ......

Forbin.

YvesT

 "I can imagine a time when all our energy needs to be diverted to safely decommission the ageing fleet of reactors."

Personnally I cannot, in that case that would be chaos for sometimes already, and the energy left would for sure be used to heat houses or cook food and not to decommission reactors, reactors that would be left doing whatever they "want" ...

On the other hand I cannot imagine keeping a somehow modern society without nuclear

DoomInTheUK

2, 2011 - 3:41am OK, for the literal minded amongst us, I know it's an absurd extrapolation to suggest all our energy production would go to decommissioning. The point was intended to show that in Ugo's model, the long time lag of the cost of the pollution from nuclear power allows the downslope to be less severe. It's just another type of kicking the can down the road.

-- note to self....remember that on TOD, irony means a bit like iron ---

notadoomerwellmaybe

1, 2011 - 1:34pm   The model described seems rather too linear to me. In the real world things are often more digital and this creates the Sencea effect.

For example we build parts in our factory, there is about 20 subcomponents. Ramping up production is slow, 20 suppliers have to ramp up their production, people have to be trained, problems solved etc. On the downside however if even one of these components is missing production stops immediately.

In the larger world if one input becomes unavailable (food, rare earth metals etc) then production of many other things also becomes immediately impossible in a cascade of failures. How does this model capture this behavior?

AlanfromBigEasy

1, 2011 - 2:49pm   An excellent article that I forwarded to a modeler friend of mine (from Milano).

Upon reflection, a non-complex system (hunting whales, cutting down forests, expanding cultivated fields in virgin land) should show some rough symmetry between rise and decline. If you will, a one dimensional problem.

However, complexity in just two dimensions means that growth is constrained to the most limiting factor, even if both factors interact. So a two dimensional system grows much like a one dimensional "system".

However, in a two dimensional system, if the two dimensions are equally sized and interact equally, the decline should decline at x^2. If one dimension dominates, the decline is somewhere between the symmetric decline and x^2.

Real world systems, such as the Soviet Union decline, are mufti-variate and decline is x^Y and looks much like a complete collapse "off a cliff".

The severity of the Seneca Effect may be directly related to the complexity of the system.

Thanks for Your Efforts,

Alan

ROCKMAN

1, 2011 - 3:13pm Excellent points Alan. But I would go one step further. I made the point a few days ago: just look at one portion of the model: Hubbert. Hubbert’s curve is not a single function. The global flow of max oil flow potential at any point in time is a function the decline of existing fields and the gains from new discoveries. And to a large degree these two factors are independent. Had I the data I could generate a fairly accurate decline curve of all EXISITNG global production. Many folks have offered models of future oil discoveries. A much more difficult task to predict what you’ll find before you find it. But even many of those efforts, however accurate or not, offer just future volumes of new discoveries…not their timing nor their production rates as they come on. Consider the many billions of bbls of oil discovered in DW Brazil. Lots of oil for sure…in the ground. But have you seen a credible forecast of Bz oil production rate for the next 40 years? I haven’t.

So the future shape of the Hubbert curve would be the composite of the decline curve and the discovery curve. And even as it would be so difficult to generate that composite curve it wouldn't really tell the future story accurately IMHO. Let’s say by some great magic we can predict the future oil POTENTIAL global production curve between 2025 and 2040...what would that tell us about the availability of oil to the US economy? Perhaps the KSA has the capability to produce 10 million bopd in 2030. But how much will they be exporting…50%....10%? And at what price? And let’s say it’s 50%: how much will be exported to the US…80%...20%?

Granted no matter how difficult it might be to predict the right side of the Hubbert curve with great accuracy, how important is that physical relationship compared to the very complex and wholly unpredictable (IMHO) of the above ground factors? Having an adequate air supply in a sub is very important if someone is chocking you to death.

AlanfromBigEasy

1, 2011 - 3:48pm I think that there is one prediction that one can make about the "above ground factors" during the decline phase that you claim are "unpredictable".

To wit - The "above ground factors" will be more active and chaotic in the decline phase than during the growth phase.

Outside of TOD and fellow travelers, growth is not just seen as desirable but absolutely essential. Our economic and social systems, and our psychology, are all well adapted to growth.

These systems dysfunction, and interact in their dysfunction, when growth turns to shrinkage.

Personally, I see the Tea Party as a dysfunctional response to a lack of growth. Their dysfunction breeds additional dysfunctionality. And this dysfunctionality increases the rate of decline due to "above ground factors".

Best Hopes for Creating Efficient, Durable, Stable Subsystems,

Alan

writerman

1, 2011 - 4:21pm I don't post much anymore because... well, I think the chance of us dealing with Peak Oil is about as likely as a socialist party candidate becoming president of the United States. So I'm following Princes advice and am partying like it's 1999, spending everything I have on buying my daughters the very best education money can buy, and letting them travel as much as they like, on my platinum card. Easy come, easy go.

Seneca's cliff, or something like it, is refered to in an amazingly well-argued, detailed, and thorough report by the German Bundeswehr's Future Analysis Department, which is a military think tank. It's about peak oil, which they calculate occured in 2010. It's like the Hirsh Report but pulls no punches.

One of the central arguments is that for complex reasons the fall in economic activity will probably be far, far, steeper, and not mirror the Hubble bell curve. That's the Seneca bit.

The German report, which one can find on the web in full and through Der Spiegel, is interesting for a number of reasons. Firstly it's the best military report so far, as far as we know, as it fearlessly confronts the enromous economic, political, social, and security challenges we face. It almost reads like science fiction, or a doomsday report. It's the military going public with the bad news, regardless. It's also interesting that the military has 'leaked' the report in an attempt to give it a life of its own and put pressure on the politicians to begin getting the public ready for what's just around the corner. That is waking them from their induced slumber.

The report also puts the Nato attack on Libya in a proper perspective.

pi

1, 2011 - 11:37pm But people are strong and resiliant...I see a Seneca's cliff of maybe money, economic activity (trade), banking transactions, airline travel, advertising, retail space rented, plastic packaging generated, miles driven, etc and other things that are more on the surface.

But that will mean that the world is throwing off or casting off its oil-induced capitalist, commercial mantle. There will be a great deal of desperation if such a thing occurred. The desperation would find a focus on producing food and on getting the government to procure it, even just a little. All of that commercial activity that was knocked out by the financial cataclysm would leave a lot of oil for governments to play around with.....and they would start focusing on food production. I think population might decline more slowly than we think. If this sort ofthing happens in different places at different times, it could be slow.

flametree

1, 2011 - 6:19pm I live in southern Tasmania, I can tell you whale hunting and tree cutting don't stop slowly. It takes time to gear up, import machinery etc. There were several thousand people involved in hunting and tree cutting. Cockle creek had six pubs. Now it does not exist. Whale hunting stopped because of a sudden fallen in whales. You harpoon a baby whale drag it to where you want the adults to go and then kill the adults. Easy. For 10's of years you get 1000's of whale. One or two years you you get 100's next you get about none.

Trees go just as quickly, they good ones take hundreds of years to grow. A generation or two to cut down.

Cheers

Hide_away

1, 2011 - 7:39pm   After reading all the comments from people about the seneca cliff, it is not easy to form an opinion of what is likely to happen. Lots of talk of feedback loops "above ground factors" and the like, yet no realistically possible examples.

So here is one..

Given that Westexas is correct in the ANE or close to it, then a country like Australia will run into big problems very quickly in a few short years. Australia produces just over 300,000 b/d (falling) and imports ~600,000 b/d. Of those imports ~178,000 b/d are diesel fuel. These figures from this source....

http://www.ret.gov.au/resources/fuels/aps/pages/default.aspx

If/when Australia's imports are suddenly stopped/greatly reduced the effect will reverberate around the world. The diesel here is used for agriculture, mining and heavy transport in the main. The curtailment of wheat, coal and uranium exports will have massive implications for the importing countries of those commodities. Countries in the middle east import a lot of wheat from Australia. If the price there suddenly skyrockets, how stable will those 'still stable' remain.

Assumptions are made by many that the price mechanism will continue to allocate oil, yet it is becoming abundantly clear that the bigger stick has a lot of sway. Countries like Australia have small sticks, yet missing out on the oil will have massive effects. Examples of slow collapse are very hard to find (I haven't found any), yet examples of fast collapse or the seneca cliff are very easy to find.

metalRules

1, 2011 - 8:28pm I'm hoping Australia's massive commitment to LNG will mitigate this. By next decade the plan is that Australia will rival Qatar as an exporter of LNG. Should the Woodside, Shell, and other LNG projects succeed, Austalia may in fact be in a relatively good position.

Hide_away

1, 2011 - 8:48pm The point about the seneca cliff and my post is that what is used now is diesel, the equipment to run things now is what is important. Massive LNG production will not happen if there is a sudden drop in diesel supplies.

Westexas has ANE dropping from ~35 mbpd down to ~23 mbpd from 2010 to 2015. That does not give us "By next decade the plan". Given a nice gentle BAU approach then the long term plans will probably happen, the seneca cliff implies that those plans may not reach fruition.

metalRules

1, 2011 - 9:23pm re: "Massive LNG production will not happen if there is a sudden drop in diesel supplies." For the current plans not to come to fruition due to diesel supply alone the Seneca Cliff would need to be almost vertical, and total, (and pretty soon) otherwise any remaining resource would be poured into completion of the LNG projects. Yes, that is definitely a possibility, but I'm just more optimist that that.

That still leaves the question of what happens when LNG production declines, but being the eternal optimist I hope the message of the inevitable and permanent decline of world resources will of got through by then. Otherwise we face the mother of all Seneca Cliffs.

Hide_away

2, 2011 - 1:50am MetalRules,

If the LNG sector gets all the fuel they need when there is a crunch, then who misses out? Is it going to be the farmers? or perhaps other miners? Heavy transport cannot miss out because that is needed to move the materials to build the LNG plants.

While being optimistic is nice, it does little in helping to understand and prepare for what is about to hit us. A sudden fuel crisis will inevitably have the politicians bring in fuel rationing, with motorists feeling the pinch. Yet that will save petrol, not diesel. Rationing diesel means some miss out, while price rises and delays kick in.

The Seneca cliff will happen because people do not understand the immediacy of the problem and the multiple feedback loops of constrained fuel supplies.

metalRules

2, 2011 - 6:52am Really, I'm quite confident of completion of several major LNG projects such as Pluto (Woodside) and Gladstone (Santos, Petronas, Shell) because they are under development and will be completed with a few years. Personally I do not believe we'll be hit by a Senaca Cliff senario due to PO within that timeframe. If you think the SWHTF earlier, then yes, you are right on (would be very nasty indeed, since we would be totally unprepared)

Just so I don't sound like I'm being a total optimist, I'll give you an example of a 'feedback loop' that paints a darker picture for Australia. The way Woodside (and others I think but I can't recall the details) funded, or where able to get approval, for these hugely expensive projects was to forward sell much of next decade's LNG supply to China. So while at first glance Australia's dependence on imported fossil fuels may seem to be highly mitigated, the reality could be a significant proportion of LNG production will actually be exported, while we could suffer domestic fuel shortages.

National economies are so interwtined now I don't see how anyone can divine with certainty what will happen when resource shortages start to hit (oil will probably be the first, but not the last, shortage we will face). I don't think it's gonna be pretty, but I don't know if we will inevitably face a Senaca cliff.

EDIT: since I mention particular projects I should declare I've got a small share holding of Woodside, and a larger holding of a small spec oil and gas explorer that could do well if a Queensland LNG facility is built (both stocks doing crap now, but hey, ever the optimist)

RalphW

2, 2011 - 9:12am Australia is a major energy exporter. It will ALWAYS be able to out-compete other diesel importers for the remaining world supply of diesel exports.

Australia will not collapse unless the collapse is global. Here in the UK, on the other hand...

Hide_away

2, 2011 - 7:49pm I would fully agree with you if price was the only criteria for obtaining fuel.

However I feel this is a false assumption. In a world of declining oil production other factors will come into play besides price.

westexas

1, 2011 - 9:45pm Strictly speaking, I outlined some scenarios. Note that there are three key variables for what I define as ANE (Global Net Exports less Chindia's combined net oil imports):

The rate of change in production for the top 33 oil exporting countries;

The rate of change in consumption for the top 33 oil exporting countries;

The rate of change in Chindia's net oil imports.

If we see a 2%/year production decline rate from 2010 to 2015, and if internal consumption continues to increase at the current rate and if Chindia's net oil imports increase at their current rate, then ANE would be down to around 23 mbpd, versus 35 mbpd in 2010 and versus 40 mbpd in 2005. Basically, the volumetric ANE decline rate would accelerate from an average rate of one mbpd per year, 2005 to 2010, to about 2.4 mbpd per year, 2010 to 2015.

Hide_away

2, 2011 - 1:27am Thanks Jeffrey, I really wish your numbers were totally incorrect, however the realist in me knows that you are right. They are scary numbers that have many just turning a blind eye to them. I cannot see any fault in them other than you may be to optimistic. Sudden "above ground factors" like what is happening in Libya could easily accelerate the decline and are far more likely as ANE decline.

I believe you work on GNE and ANE are close to a best case scenario. It really is the business as usual case, yet people do not want to believe it.

westexas

2, 2011 - 7:08am I think that there is a certain level of denial, even among Peak Oilers, regarding "Net Export Math." I frequently get qualitative objections to what is basically a quantitative argument. My usual response is, show me some counterexamples, to-wit, find an example of an oil exporting country, showing a sustained production decline, with a meaningful level of consumption, that has cut that consumption sufficiently so that the net export decline rate is the same as, or less than, the production decline rate.

Note that 20 of the 33 top net oil exporters in 2005 showed lower production in 2010, versus 2005.

Given an ongoing production decline rate in an oil exporting country, unless the country's rate of change in consumption falls at the same rate as, or at a rate faster than, the rate of decline in production, the resulting net export decline rate will exceed the production decline rate and the net export decline rate will accelerate with time.

Jedi Welder

2, 2011 - 7:11am I am not sure how long India will keep growing. More and more news are comming out about how they are struggling with their electric grid. If you don't grow electric supply, you don't grow the economy. Also it apears lots of the growth in the economy has been on the credit card. Such a development is not sustainable. My guess is China will outrun India vary fast in the grouth run ahead of now.

westexas

As Yogi reportedly said, "It's tough to make predictions, especially about the future." But the recent numbers do indicate some deceleration in India. India's 2002 to 2010 rate of increase in net imports was 5.4%/year, but in 2010 they showed only a very slight increase in net imports over 2009, partly because of an increase in production. China's 2002 to 2010 rate of increase in net imports was 12%/year, with a year over year rate of increase of 12.5%/year from 2009 to 2010. "Chindia's" overall 2002 to 2010 rate of increase in net imports was 9.4%/year from 2002 to 2010.

lumina

After reading this post and the BBC article below, I think I saw a potential Seneca cliff in the "projected number of functioning LEO orbiting satellites":

Space Junk at Tipping Point, Says Report

Some computer models show the amount of orbital rubbish "has reached a tipping point, with enough currently in orbit to continually collide and create even more debris, raising the risk of spacecraft failures," the research council said in a statement on Thursday.

...

The situation is critical, said Mr Kessler, a retired Nasa scientist, because colliding debris creates even more of the junk.

"We've lost control of the environment," he said.

geek7

"We've lost control of the environment," he said.

Of course, we never had control of the space environment. What is happening is that it is becoming painfully obvious that we never really had control and that all planned activity based on the supposition on control is now at risk.

Look for calls to develop spider web type sticky strands that work in space. Yah, right!

augjohnson

I wish I could remember the Science Fiction story I read maybe a couple decades ago. Seems that we earthlings had lost the ability for space travel because of so much space junk that any additional flights got hit and destroyed. Some alien race came along and offered, for a huge fee, to clean out all the space junk so we could again have access to space flight.

geek7

Ugo, Thanks for a brilliant article. Unfortunately, some readers missed your point. Comments like "Your model is too simple, it doesn't include (whatever)." and "Your model is too complicated. You made a mistake, which I don't have time to identify.". But keep up the good work. This isn't your first attempt, and I'm sure it won't be your last.

One more substantive comment. Malthus and Verhulst models were models of stocks and flows, but of one stock only, namely people. Subsequent authors cast their models in terms of differential equations, but historically there is a remarkable uniformity to how we model nature. What changes over time is the number of stocks and the number of flows, which always seems to increase. Trying to keep the model simple enough for the reader to understand is, I think, a useful innovation. But something is still needed to reach the whole audience.

Cheers

Ugo Bardi

Thanks, geek. The point I was trying to make has to do exactly with this point: after having studied the whole story of "The Limits to Growth" I was surprised to see how many people had criticized the study without understanding it. Entire academic papers had been written by people who didn't have the smallest idea of what they were talking about. And they were world-renown economists!

So, I think there is a strong need for mind sized models but, also, the other point which maybe I should have stressed more in my post is that the models must also be based on thermodynamics. This is a point that the authors of "The Limits to Growth" failed to mention with sufficient strength - although they did say it. So, I hope that this approach moves something, even though, I am afraid, it won't so much!

Picarita_Basura

Great article, great discussion. Since most people don't know that much about the less salacious parts of ancient Roman history, how about changing the name, Seneca Effect, to one more well-known in popular culture: the Wiley Coyote Effect? You know, he runs off a cliff and his legs keep churning as if he could keep running?

Ugo Bardi

Wiley Coyote was mentioned in an earlier version of the post; I deleted it to make the post shorter but - yes - you have a good point. The Seneca effect starts when the Coyote suddenly discovers that he is walking on thin air!

browning

Excellent article. I've been passing it around.

I do wish the system dynamics math were a bit clearer. The y-axis values appear mixed up. I tried to replicate the second chart, and succeeded only after applying multipliers to each of the stocks and rates. It would have been nice to provide the small amount of additional information, for those like me who want to replicate these damn things.

This is good stuff.

AlanfromBigEasy

One of my areas of interest :-) is rail - intercity and urban.

I noted that many economic functions would decline, at varying rates, as oil declined and economic dysfunctions spread.

However, what if an economic function - two subsets of transportation - expanded and dramatically increased efficiency (with virtually no oil use) in the midst of an overall economic decline ?

My thought is that the remaining economic activity would reform around the more efficient, oil free technologies and the last half, 2/3rds or 1/3rd of the Seneca decline would be aborted and converted into either a much more moderate decline or even a steady state economy.

Any thoughts ?

Alan

2ndlawrules

H.T. Odum would be quite pleased with your simple storage components/flows/dissipation-to-entropy model. He was a great proponent of simple models to enhance understanding of very complex systems. In reviewing your numerous articles on TOD, I think that I perceive the hand of H.T.Odum in your understanding of energy-materials systems. Were you at one time one of his graduate students?

Having been such, on a regular basis I see on TOD the reverberations of projections that Odum made time and again almost 40 years ago. Keep up the good work Professor Bardi.

[Sep 10, 2011] Employers Diss Obama Job Plan «

September 10, 2011 | naked capitalism

TheTrader:

Yves,

Forgive my negligence, but how exactly “more debt restructurings and writedowns to get the debt overhang resolved faster” would help here?

Tao Jonesing:

Let me try.

Debts that can’t be repaid won’t be. The sooner we force the banks to accept their losses, the sooner we can start growing again. Continuing to “extend and pretend” is at best treading water, but, as we’re seeing, the banks can’t tread water fast enough or long enough to stay afloat. So, unless we deal with those losses right away, we’re going to continue seeing periodic credit crises with increasing frequency (the current one is occuring 3 years after the last, the next will be in two, then one, then so on). The only way to save the current system is to make the people who caused all the problems eat their losses so the rest of us can move on.

Personally, I don’t see growth in our future, even if we wipe out all the debts (even those that can still be repaid). And I don’t really want to save the current system. Still, I’d like to see a debt jubilee to relieve the suffering of innocents that we’re seeing today.

[Sep 10, 2011] The Financial Zoo An Interview with Satyajit Das – Part I «

naked capitalism

Interview conducted by Philip Pilkington, a journalist and writer based in Dublin, Ireland.

Philip Pilkington: Your new book ‘Extreme Money’ is primarily a story about what our society has become — or rather: what we have become. It tells the tale of a sort of — although I hate to use jargonistic neo-English — hyper-financialised world in which money, or perhaps even the idea of money, has knitted itself into the social fabric and taken over. While there are some fascinating caveats in the book dealing with the inner-workings of this strange world, it is primarily the culture that I wish to focus on here.

So, let’s begin.

At the end of the debt-chains that blew up in the US in 2008 there was tied a mortgage-holder. In your book you describe the architecture that was built up to ensure that people who should not have received these mortgages did. It struck me that it was a remarkably cynical culture that grew up around this industry in the US — far more so than what formed in Ireland, where I’m from. Indeed, an entire dialect of fraud seems to have mushroomed in this industry during this period. Can you talk a little about all this?

Satyijat Das: It goes back to how financial institutions make money – primarily, by lending other people money (that has always been and still remains the core of banking profits). But there are a limited number of people you can lend to who will pay you back. Initially, when finance de-regulated (in the 1980s) there were opportunities to lend to people who were good credits but were restricted in their access to money. However, as banks expanded you exhausted the pool of people who could lend to and then moved onto the others – until you came to people who couldn’t ever really pay you back.

So the trick was to hide or get rid of the risk of non-payment – it became a case of ‘NMP’ (not my problem!) or as it is termed by the finance-crats: ‘risk transfer’. So you made loans that you shouldn’t and then transferred them to people who probably didn’t quite grasp the risk fully or were incentivised to look the other way. It was a culture of fraud and self delusion.

Mortgage brokers just lent to anyone they could find. Once they figured out the game borrowers just lied about their finances – this is why terms like ‘liar loans’ and ‘NINJAs’ (no assets no jobs or assets) sprung up in the mortgage industry. In a way it would have been downright unpatriotic of these consumers not to participate in this game – as remember they were now the engine of economic growth. Even minor players like valuers were complicit. There were ‘drive-by valuations’, where the valuer literally drove past the property in order to assess it. If the property value was insufficient to justify the loan, then the valuer added the required margin for kerb value.

Everybody cynically took advantage of the system that developed. Mortgage brokers didn’t disclose the risk to banks who didn’t disclose them to rating agencies who then rated them at levels inconsistent with the real risk and investors bought this whole nonsense because they were AAA securities. The whole thing took on a momentum of its own as everyone was making too much money to care how it was being made. No one was interested in that quaint thing called the ‘truth’.

The self delusion was astonishing. When the ratings proved to be egregiously wrong, chairman and chief executive Harold ‘Terry’ McGraw III defended S&P: ‘A couple of assumptions we made didn’t work out and we just totally missed on the US housing recession.’

There was the proverbial conga line of people who all participated in and deluded themselves into this the dialectic of fraud. I suppose no one cared as long as they thought it was working and they were getting richer. Predictably it ended in tears.

PP: There’s something so enclosed, so incestuous with those involved in the financial markets. In your book you document how the hedge fund industry in particular displayed this insularity to a rather remarkable degree. Some of your anecdotes remind me of a group of late-adolescent males preparing for a drinking trip or a football match. You worked in and around this industry, what do you make of this dynamic? What effects does it have on the way these people make decisions?

SD: Fraternities; ‘frat boys’ (and they are mainly boys) as the Americans would say. It’s a monoculture. They generally go to the same schools, the same universities; they have similar backgrounds and spend time with each other reinforcing their narrow worldview. Even the few outsiders who make it in – usually by dint of sheer desire and skill, usually in making money – seek to be ‘insiders’. It means that they can only see the world through the same lenses and perspectives. They can’t think outside the consensus – whatever it is at a given time. They can’t see that things could be different to what they perceive it to be.

They also see themselves as superior beings – ‘God but with a better suit’. The reason for their superiority is that they make more money than anyone else which in my view is purely accidental. But in their minds they see money and brilliance as synonymous. David Hare captured this neatly in his play ‘The Power of One’. He has a character, who looks remarkably like Gillian Tett from the Financial Times, say: “These people genuinely believe they’re masters of the universe. And why are they masters of the universe? Because they’re paid fifty times as much as anyone else. So they must be cleverer than anyone else.” Unfortunately, as subsequent events demonstrated, they weren’t that clever; they were just in the right place at the right time, at least for a while.

This culture creates a kind of ‘financial nihilism’ – those on the inside can’t see the consequences of their actions on other people at all. That’s because other people are inferior – outside the bubble. Justin Cartwright in his novel ‘Other People’s Money’ has one of his characters describe how financiers see ordinary people: “The rest of us are just the extras, without speaking parts, just fill in the blank spaces in the frame.” I think that’s accurate – these people really have a weird sense of being always right, not to mention generally superior. They can’t see what damage they have caused. They still think that they were right. The fascinating thing is that ordinary people and even powerful people like politicians actually believed that they were really special. Maybe, they still do.

PP: How disturbing. And this seems to reach all levels, right? In your book you portray the upper-management as vacuous clones. They come across as simply mouthpieces that spout vague jargon in order to ensure that everyone continues to ‘believe’ in whatever it is that they’re selling at a given time. Surely this isn’t the typical picture of an ‘entrepreneur’ taking risks and innovating to make money while shattering bureaucracies and truisms?

SD: It’s amazing how much money you can make just shuffling paper backwards and forwards. Malcolm Gladwell wrote a piece praising John Paulson who made a killing from the subprime disaster as an entrepreneur. But what did he make? What did he leave behind? Paul Volcker, the former chairman of the Federal Reserve, argued: “I wish someone would give me one shred of neutral evidence that financial innovation has led to economic growth — one shred of evidence. US financial services increased its share of value added from 2% to 6.5% but is that a reflection of your financial innovation, or just a reflection of what you’re paid?”

Management and directors of financial institutions cannot really understand what is going on – it’s simply not practical. They cannot be across all the products. For example, Robert Rubin, the former head of Goldman Sachs and Treasury Secretary under President Clinton, encouraged increased risk taking at CitiGroup. He was guided by a consultant’s report and famously stated that risk was the only underpriced asset. He encouraged investment in AAA securities assuming that they were ‘money good’. He seemed not to be aware of the liquidity puts that Citi had written which meant that toxic off-balance sheet assets would come back to the mother ship in the case of a crisis. Now, if he didn’t understand, others would find it near impossible. And I’m talking about executive management.

Non executives are even further removed. Upon joining the Salomon Brothers Board, Henry Kaufman, the original Dr. Doom found that most non-executive directors had little experience or understanding of banking. They relied on board reports that were, “neither comprehensive … nor detailed enough … about the diversity and complexity of our operations.” Non-executive directors were reliant “on the veracity and competency of senior managers, who in turn … are beholden to the veracity of middle managers, who are themselves motivated to take risks through a variety of profit compensation formulas.”

Kaufman later joined the board of Lehman Brothers. Nine out of ten members of the Lehman board were retired, four were 75 years or more in age, only two had banking experience, but in a different era. The octogenarian Kaufman sat on the Lehman Risk Committee with a Broadway producer, a former Navy admiral, a former CEO of a Spanish-language TV station and the former chairman of IBM. The Committee only had two meetings in 2006 and 2007. AIG’s board included several heavyweight diplomats and admirals; even though Richard Breeden, former head of the SEC told a reporter, “AIG, as far as I know, didn’t own any aircraft carriers and didn’t have a seat in the United Nations.”

PP: Okay, you say that it’s impossible to tell what’s really behind many financial assets. I think most people would accept that. But a lot of things in this world are uncertain and most of us seem to get by fairly well. Are you sure we’re talking about simple ignorance here or are we talking about willed ignorance? I mean, there’s a fine line between the two but still, at some level these executives must say to themselves, “Wow! I really have no idea what’s going on here! I have responsibility for a great deal of societal wealth, of pension funds, of taxpayer guaranteed money — and yet, I have no idea what I’m doing.”

I don’t want to make it out that they’re all engaged in fraud — I don’t believe that, although some undoubtedly are — but if a doctor can tried and convicted for criminal negligence, then surely we are not dealing with simple ignorance. You’ve worked in the industry; you’ve met these people; what do you think?

SD: It’s silly to think that everybody in finance is ‘evil’ or engaged in fraud (though there are people who assert that). Most people involved are very smart, diligent, hard working and passionate about what they do. Ironically, so were most of the people who created great social upheavals – the Chinese Cultural Revolution, Pol Pot’s Year Zero project, pogroms etc.

It’s ‘groupthink’. They have ways of thinking about the world. They think it’s the right way so they keep trying it again and again. At least until there is a horrendous disruption and then they go: “Oh dear! There’s a problem.”

Take Alan Greenspan. He thought deregulated markets were the solution. He thought that any problem could be fixed by flooding the system with money. He was wrong, but even today he doesn’t really see that his world view is erroneous. They are very good at rationalisation and don’t tolerate dissent.

As for responsibility, they are doing what is accepted practice – they think they are doing the best for their stake holders. Galbraith’s observation is very accurate: “The conventional having been made more or less identical with sound scholarship, its position is virtually impregnable. The sceptic is disqualified by his very tendency to go brashly from the old to the new. Were he a sound scholar… he would remain with the conventional wisdom.”

As you long as you follow convention you are unlikely to be successfully prosecuted or made liable. Ultimately that’s the only purpose of corporate governance – to ensure that by following a set of accepted practices you make yourself and your organisation litigation proof.

That’s what is really interesting about this period of history. I think you parsed it accurately when you said that extreme money changed the world by altering the way we think about money; by embedding it into the social fabric. I would go further though; it changed our ways of approaching problems and thinking. That’s the most interesting thing about it – some would say sinister.

This is also why it’s so difficult to fix. It’s like a shift in our views of the cosmos – does the sun spin around the earth or vice versa? It took a few centuries to change that – despite evidence as to the correct view. I think David Hume was right when he noted: “All plans of government, which suppose great reformation in the manners of mankind, are plainly imaginary.”

PP: One much commented on phenomenon in the financial markets is that they’ve started recruiting very highly educated people, such as physicists. This seems like a total waste of resources – Fukushima melts down, as physicists help create turbulence in the markets. Maybe you could say something about this? But also, in the book you give the impression that, even though these people are highly educated, perhaps even overly educated for their role, they still engage in groupthink. I’d love to get your perspective on that.

SD: Finance has led to a serious misallocation of resources. The best and the brightest moved from real engineering into financial engineering. If you believe that real growth comes from innovation, improvements in productivity etc. then this was a serious issue.

The reasons were also interesting. The supply of jobs in science, for example, decreased as the Cold War wound down and the research jobs in academic institutions and things like the Bell Labs became scarcer. Another reason was the disproportionate rewards available in finance. It wasn’t related to the value created by finance. It was really the fact that financial products were sometimes mispriced because of complexity and lack of transparency and also because it was possible to measure contributions more directly. How do you measure a surgeon’s or nurse’s value in terms of the work they do? In contrast, a trader can tell you immediately what they think they made.

Scientists applied their approaches to modelling to markets. The problem is that it is much more difficult to model financial outcomes than people think because we don’t really understand the process very well. Former Goldman Sachs’ quant Emanuel Derman, a trained physicist, was right when he observed that : “In physics, a model is correct if it predicts the future trajectories of planets or the existence and properties of new planets… In finance, you cannot easily prove a model right by such observations.” Derman concluded that: “Trained economists have never seen a really first-class model.” Most financial models are wrong, only the degree of error is in question. Differential equations, positive definite matrices or the desirable statistical properties of an estimator rarely determine the price of traded financial instruments. So this was all an egregious waste of resources.

Of course, it begs the question why people used these models and spent so much money on them. The answer to this is quite troubling: it was for a significant part a gigantic fudging exercise. The models were really created to package up relatively simple products and make them more complicated to allow banks to earn economic rents – that is, excess returns – from them. They were designed to arbitrage capital rules and increase leverage. They were also useful in helping banks’ upfront earnings. Everybody appeared very clever, but it was all kind of a fake sophistication. Why would anyone want to trade a dollar/yen double barrier digital knockout with Elvis pelvic thrusts? None of this appears productive to me, but a lot of resources went into the process. And as everybody was making a lot of money doing this stuff it was hardly in anyone’s interest to stand up and point out the reality of what modern finance had become.

PP: It’s really interesting that you mention the lack of scientific funding after the Cold War. The eminent economic historian Philip Mirowski has noted this time and again. In his books he writes about how scientists found themselves increasingly in oversupply as the Cold War ran down and spending on military research dwindled. He contends that much of the ‘mathematicisation’ of modern economics – that is, the move away from realistic theories that help the public purpose and into ‘pure’ models that don’t really do or say anything – was due to this emigration from the hard sciences. Clearly without the threat of the ‘Evil Empire’ Western governments no longer see as much need to spend on expensive research. I mean, while I’m not hugely keen on the military-industrial complex, at least a lot of this research ended up serving the public purpose when it was released by the military.

Now we’re seeing less interest in real innovation and more interest in releasing our best and brightest into the toxic waste dump that is the financial sector. Without the government to spend large outlays on serious research, these people have moved into the private sector. And since the private sector is geared toward nothing but making a quick buck the results are catastrophic. While it’s difficult to make prognostications do you see any evidence of this changing? In your experience were the scientists you encountered in the finance sector in any way disillusioned with what they were doing? Especially so after the 2008 crash?

SD: You probably need to ask the ‘quants’ that question. After Traders… came out, I was outed as “anti-quant” (whatever that means!).

My observation would be that most people who are honest think the science is trivial. Many really don’t quite get the impact of what they do – it’s a sort of ‘cogs in a machine’ syndrome. I know a few who find their work less than satisfying – it’s a lot like Stfan Zweig’s observations of chess in The Royal Game. “Thought that leads nowhere, mathematics that adds up to nothing, art without an end product, architecture without substance.”

But they have their consolations. They get paid a lot for what they do, certainly more than they could ever make in their scientific pursuits, unless they struck it really lucky. They have also created a fascinating tribal culture – awards, societies, tribal leaders and, naturally, critics (most notably Nassim Nicolas Taleb). The culture would excite anthropologists and ethnographers and you wouldn’t have to go to the Gobi desert to do the fieldwork.

As for changes. It’s hard to make the types of changes that you need. Keynes hit it on the head when he observed that: “the difficulty lies not so much in developing new ideas as in escaping from old ones.” Unfortunately, finance generally approximates what John Kenneth Galbraith astutely predicted does happen: “faced with the choice between changing one’s mind and proving there is no need to do so, almost everyone gets busy on the proof.”

Part II coming soon, in which Satyajit Das and Philip Pilkington discuss carnivalesque ‘money shows’, the function of the financial system, ‘haves and have nots’ and much more…

Posted by Yves Smith at 12:01 am

Innocent Bystander

12:11 am I take issue with the notion that the sad mathematization of economics is the fault of physicists. Having studied both math and economics, the level of math used in economics is laughable.

When physicists get involved in economics you do not get kindergarden notions like the Black Scholes option pricing model (a “Nobel Prize” for solving a stock second year college differential equation) but something a lot more sophisticated. See for example Bouchaud’s “Theory of financial risk” or Sornette’s “Why markets crash”.

The first thing all these physicists do is look at the data, something economists forgot to do after Adam Smith. They have only recently started dipping their toes into the water of actual data.

Look at the hard time Mandelbrot was given for pointing out that changes in financial market prices did not obey a normal distribution, which economists had decided, from pure thought, they must have.

Yves Smith
2:04 am You seem to be missing Das’ point. Physicists and mathematicians HAVE been hired in droves by Wall Street, including ones with top pedigrees (as in PhDs in pure math from top rated programs). He clearly says he does not think this is a good thing

And as Das has explained elsewhere, quite a few of these “quants” do not bother understanding the phenomena underlying the data they have been asked to parse.

Maju
2:11 am Most delicious interview. Laugh and cry all at the same time. Thanks, Philip.

DocG
3:02 am There’s plenty a gold, so I been told: http://amoleintheground.blogspot.com/ 

Fraud Guy
3:11 am What I take out of this is that you have a large number of people who are highly skilled in mathematics, trained to analyze and find a solution to a problem on a purely theoritical level, and hired to find solutions to the problem “$OURS > $THEIRS”, then put into a tribal structure where personal value is strongly correlated to compensation, then managed and abetted by persons who, are borderline or actual sociopaths, and who got their experience during a time when all valuations tended strongly positive.

I can see how this turns out well.

Hugh
3:30 am Pilkington: “I don’t want to make it out that they’re all engaged in fraud — I don’t believe that”

Das: “It’s silly to think that everybody in finance is ‘evil’ or engaged in fraud (though there are people who assert that).”

For Pilkington and Das, it is a toxic mixture of attitude, bad behavior, and yes, some fraud, but basically they believe that the underlying system is sound. But what gives the lie to their views is the houcoudanode upon which it depends. We are to believe that no one in the finance industry could see or be expected to see a multi-trillion dollar housing bubble built on millions of individual frauds with scams and cons at every point overlain by an even larger system of multi-multi-trillion dollar bets and Ponzis, none of which could be paid off on. Except there were many of us out here who did see these things. Precisely because they were so vast A) they were dead easy to see and B) so were their consequences.

There is this weird push and pull between downplaying fraud and seeing it everywhere, the financial world as toxic dump. I mean which is it? Fraud receives a few mentions, but not a word about criminality so of course nothing about kleptocracy. The result is a mishmash. People did things. Things happened. It is all so agentless. It’s like some people stored some gas cans. Oh, and the cans happened to be near your house. They also like to smoke, flick matches and other harmless fratboy fun like throwing flares and grenades. As it was no one really understood that this would cause the gas cans to go up, did I mention they stored them not so much near your house but against your house, and oh yes, they leaked. Anyway it was a complete surprise that your house burnt down. And it is purely coincidence that they had taken out insurance on your house a few days before, just in case it did go up in flames. But it is preposterous that there was anything like a criminal conspiracy in this. Just because the judge was their uncle and the police their cousins, and there was no investigation or prosecution, anyone could tell it was just a series of unfortunate events, at most some immature and misguided behavior.

attempter
3:55 am Hugh, you selected the exact two quotes I did.

I’ll just add that both of these flat-earth assertions are made with zero evidence offered. Neither offers even a single example of what a big bank does which isn’t fraudulent, or a single example of anything it does which is productive or necessary at all.

This is religious fundamentalism, or insidious lying.

It goes back to how financial institutions make money – primarily, by lending other people money (that has always been and still remains the core of banking profits).

Let them explain why this lending, the alleged “purpose” of banks, should exist at all. The answer can’t include any reference to capitalist imperatives. It must be prior to capitalism and stand on its own if capitalism ceased to exist. (Like the way it’s inadmissible to define a term using other forms of the same term.)

IbiLeaks
3:32 am Wonderful read…did Satyajit Das quoted all those dead economists verbatim or did the interviewer later pulled a Johann Hari when transcribing the interview?

Can’t wait for part two of the interview

Matt Stoller The Corrupt Establishment Begins Smearing Eric Schneiderman « By Matt Stoller

naked capitalism

Matt Stoller the former Senior Policy Advisor to Rep. Alan Grayson and a fellow at the Roosevelt Institute. You can reach him at stoller (at) gmail.com or follow him on Twitter at @matthewstoller

Last month we had New York Fed Board Member Kathryn Wylde whining and meddling about Eric Schneiderman’s investigation into big banks. That seriously backfired. HUD Secretary Shaun Donovan put pressure on him as well, and that didn’t go over so well. And after Tom Miller petulantly stopped allowing Schneiderman on his AG conference calls, there was a mini-media storm over the rancid character of the DOJ and bankster-owned Miller. None of the insider signals worked, so now it’s on to stage two of neutralize Schneiderman. It’s time for…. the smear campaign!

Two editorial boards are coming out and using innuendo to paint Schneiderman as a self-promoter looking to make a name for himself by unfairly tarnishing banks. It’s pretty standard – throw up rumors that have a narrative basis in the American psyche, and chip away at public faith. Here’s the Washington Post’s editorial.

The majority of the other attorneys general, led by Tom Miller of Iowa, have kicked Mr. Schneiderman out of the negotiations, accusing him of making excessive demands. Mr. Schneiderman protests that the banks are to blame, for trying to use the robo-signing case to get immunity they could use on the securities front. Mr. Miller and his colleagues respond that they have no intention of letting the banks off that particular hook.

We’re tempted to declare a pox on everyone’s house — or at least say that the banks are getting what they deserve for being sloppy, and that the attorneys general are getting what they deserve for exploiting an overblown scandal to shake down the banks.

After all, the banks will have to come up with that $20 billion somehow — perhaps through reduced lending and higher fees. That wouldn’t be a problem if the money were going to compensate victims. But it won’t, because there don’t seem to be many victims

Notice the lie (repeated below in the other editorial) – that the majority of Attorneys General threw Schneiderman off the 50 state task force. No, it was Tom Miller’s decision, period. Or at least, that’s what some newspaper called The Washington Post reported last week.

So why is the Post lying about this situation? Why the split between the news and editorial? It might have something to do with, well, money! You see, the Washington Post newspaper isn’t profitable, the company makes most of its money from its for-profit educational subsidiaries (hence the nickname “Kaplan Test Prep Daily), including its for-profit university. And guess who is investigating the shady practices of the subprime university educational racket?

Mr. Schneiderman is looking into whether the schools and their recruiters misrepresent their ability to find students jobs, the quality of instruction, the cost of attending, and their programs accreditation, among other things. Such activities could constitute deceptive trade practices or fraud.

Oops. Looks like the Washington Post has a financial interest in kneecapping the New York Attorney General. While Kaplan isn’t being investigated, the entire sector is reliant on government subsidies that are at risk should criminal charges nail a few of the schools.

Next up is the New York Daily News, a paper which has now gone after Schneiderman twice for… being an elected official. The latest hit is that Schneiderman sent out an email to his political list after getting pressure from Tom Miller and the Obama administration. The horror! A politician wants to communicate his side of the story after the President, major money center banks and the New York Fed go after him. How inappropriate! For shame!

It’s not like the regulators, banks, and Tom Miller’s office have been leaking like a sieve and lying to the press for months. Oh wait, they have. And it’s not like Tom Miller took enormous sums of money from out of state banks and then turned around to negotiate a sweetheart deal with those same banks. Oh wait, he did.

Finally, there’s Mort Zuckerman himself, the real estate billionaire who owns the New York Daily News. He wouldn’t have a financial interest in the banks, would he? Well, let’s see. In 2008, he was busted shilling for a bailout of Citigroup, because Citigroup rented more than a million square feet of space from his company. The guy went on TV and passionately advocated public policy positions that would help his bottom line, while owning major media outlets. Fascinating.

Schneiderman’s gotten on the wrong side of some very aggressive and very powerful people. It’s enjoyable to watch them flail around, at least for a little while.. They have given him hints, they have told him publicly and privately to back down, and you can hear the increasing frustration at New York cocktail parties. He should just know better, right? For now, it’s fruitless – they can’t sway him, and they can’t destroy him, and everything they try backfires. It’s not only hilarious, it’s also a window into just how these people exercise power.

More on this topic (What's this?) Chuvit cursing corrupt politicians (The Analytic, 7/19/11) Indian Government shamelessly defends Corrupt Officials,Black Money despite claims to the contrary (Green World Investor, 1/25/11) Report: U.S. Moving Up the Ladder Amongst Corrupt Nations (Fund my Mutual Fund, 10/26/10) Read more on Corrupt at Wikinvest Topics: Banana republic, Banking industry, Guest Post, Legal, Politics

Email This Post Posted by Yves Smith at 6:30 pm

37 Comments » Links to this post

37 Comments: •Cheyenne

6:56 pm Drew my conclusion when I came across this:

“the Washington Post newspaper isn’t profitable, the company makes most of its money from its for-profit educational subsidiaries (hence the nickname Kaplan Test Prep Daily), including its for-profit university. And guess who is investigating the shady practices of the subprime university educational racket?

Mr. Schneiderman is looking into whether the schools and their recruiters misrepresent their ability to find students jobs, the quality of instruction, the cost of attending, and their programs accreditation, among other things. Such activities could constitute deceptive trade practices or fraud.

Oops. Looks like the Washington Post has a financial interest in kneecapping the New York Attorney General.”

What an old-school ass-kickng Stoller has delivered here.

Does the Washington Post have the nut sack to posit an explanation?

Economista Non Grata
 “… the company makes most of its money from its for-profit educational subsidiaries (hence the nickname Kaplan Test Prep Daily), including its for-profit university…”

Wrong…..! They are whores… That’s how they make their money….

K Ackermann
2:45 am But “whores” makes them sound like they only care about money.

They are really whores with cloaked agendas that go beyond mere money.

wunsacon
6:58 pm Good eye, Matt. Nicely done.
barrisj
7:00 pm Re: WaPo editorial, “…shaking down the banks”. I say, “……shaking down the banks”?? WTF? Banksters have proven themselves time and time again over these several years to be exemplary practitioners of outright extortion of taxpayer coin, and if there ever was a reason to invoke RICO indictments, the actions and tactics of the TBTF brotherhood would head the list. Oh,BTW, how’s that Buffet investment in BAC working out? Rather bloody-awful, as Moynihan sent to the gallows two more senior staff, in a flailing effort to be seen “doing something”. http://finance.yahoo.com/news/Krawcheck-Price-Out-in-Bank-nytimes-1796049170.html?x=0&sec=topStories&pos=main&asset=&ccode= Maybe this will draw a fawning WaPo editorial.

PQS
8:02 pm Clearly the editors of the WaPO don’t get out much.

I doubt you’d find even two people 100 miles outside of DC that think shaking down the banks is immoral or wrong. Or even slightly off color.

The pitchforks in America are sharp.

citalopram
12:16 am The pitchforks aren’t even out. Not yet anyway.

Cody Willard
7:23 pm From Elizabeth Warren to Tom Miller, how many times have we built up one of these Republican/Democrat elites into a supposed anti-elite force who “might be the only elected official willing to stick his/her neck out” only to see them cave and then have to backtrack our embrace of said hypocrite. How long til we/you/I have to admit that Schneiderman is just another spoke in their wheel who is playing their game and simply faking their resistance?

I had hoped Elizabeth Warren would join with Ron Paul or something so that we could finally end this false Right/Left/Repub/Democ paradigm…and I had hoped Tom Miller really would “send some of these bankers to jail”. Now we have Warren trying to paint herself into a Democrat-pay-for-play Senate seat and of course Miller’s backtracking from prosecutor to crony is legendary now among the educated blogosphere.

Schneiderman will betray us all in a similar fashion — he is fully endorsed, stamped and funded by the same Republican/Democrat Fascist Regime as the rest of them.

Our only chance is to go post-partisan and vote exclusively away from the R/D paradigm. How hard can that really be?

Because
7:40 pm Uh, Ron Paul is part of it. You don’t get the games’s rules at all, thus you don’t understand the game.

Cody Willard

7:50 pm Who said Ron Paul wasn’t part of it? I said Elizabeth Warren and Ron Paul together would at least destroy the false left/right paradigm in most American voters’ heads.

Yves Smith
10:17 pm Warren would NEVER join Ron Paul. He is refreshingly candid on many topics, but some of his views are batshit.

Warren’s strength and weakness is she is a brilliant technocrat. She is very data and research driven and will describe the pathologies of the system in great detail. But her instincts are to work within the system, and she is not willing to see that the elites as a class are deeply corrupt.

Pitchfork

11:39 pm I humbly submit that this attitude (“NEVER”) is part of the problem, especially when you consider that most of what you consider “batshit” about Ron Paul are the things least likely to be implemented as actual policy.

As President, of course, Ron Paul could immediately end the wars, which, as all right-thinking people understand, is the most important policy position of all.

Never? Really?

citalopram
12:22 am That is exactly what I said the other day of Huffpo – he’d end the wars and prevent thousands upon thousands of potential deaths. He is firmly anti-establishment and that really has the insiders worried. There are all these webpages from liberals themselves on how the man is anti-abortion, anti-science blah blah blah. My guess is they want you to vote Obama.

What they’re forgetting is that Paul ain’t gonna be able to do much about abortion, that would require passing legislation. I don’t think that’s possible, but as President he’d have the authority to end the occupation of the Middle East, and I think that in itself would be worth it.

Yves Smith
1:23 am As much as I appreciate the fact that Ron Paul is deeply suspicious of the Fed, which is the right attitude, most of his views about economics are disastrously wrongheaded. And I’m also no fan of much of economics.

JohnnyGL

11:58 pm Yves, I had the chance to meet Elizabeth Warren the other day at one of her rather low-key events. She certainly seems quite sincere in her aims. She comes across as genuine and unpretentious. I think she’s managed to make enough progress while playing nice ‘inside’ the tent to give her further encouragement to continue with the strategy. She spoke highly of the fact that the Consumer Protection Bureau exists and that she got the single page mortgage form completed. I mentioned your idea of running for President and she’s quite familiar with your blog and she seemed to think the that the idea was over the top.

I figure she’s going to exhaust the ‘inside’ strategy before going outside and running for president would obviously lose a lot of Democratic Party insiders (not that she’s got a ton on her side). She didn’t seem too thrilled at the Senate idea, but settled on it as the least bad option. There were a few local political figures there, so she didn’t say anything bad about Democrats until pressed, and certainly didn’t name names. I made a remark to her about how I enjoyed her exchanges with Geithner and she cracked a smile that looked too big to be a courtesy smile. I still think it was one of her finest moments.

Johnny

Yves Smith
1:24 am Thanks for the report.

If she is not wild about running for the Senate, she should not be running. No oe is holding a gun to her head. If you can detect her lack of enthusiasm, so will others.

TR
12:06 am It’s all George Carlin’s “BIG CLUB”

wunsacon
12:30 am And you (and I) ain’t in it.

EJ Milbank Dionne Ignatius
7:46 pm Who can forget the health care payola. What was it, 25K for access? It’s a country club, and you ain’t in it.

decora
7:47 pm “We are hurtling back into a Soviet abyss, into an information vacuum that spells death from our own ignorance. All we have left is the internet, where information is still freely available. For the rest, if you want to go on working as a journalist, it’s total servility to Putin. Otherwise, it can be death, the bullet, poison, or trial—whatever our special services, Putin’s guard dogs, see fit.”

– Anna Politkovskaya

i dont think we are there in the US…. yet…..

Brian
9:37 pm We’re there. Been there for a while now. But here we’re more velvet glove than Iron Fist. They don’t poison you, they just kill your career and blacklist you – which in America is essentially the same thing.

Missed a Zero
7:52 pm “KURTZ (7/3/09): Washington Post Publisher Katharine Weymouth yesterday canceled plans for a series of policy dinners at her home after learning that marketing fliers offered corporate underwriters access to Post journalists, Obama administration officials and members of Congress in exchange for payments as high as $250,000.”

steelhead23
7:53 pm Matt, I would not be so sanguine about the humor in all this. Words are not machetes, but they can cut you down. This is a dangerous time for Mr. Schneiderman. They are hunting him. I am a complete neophyte at this, but having watched how this game is played, I offer Mr. Schneiderman the following advice. From now on, at any event where you may be asked a question or two, think this way: you have no ambition for higher elected office, none; your goal is to protect the people of NY by enforcing the law, period; you love your wife and children; etc., etc. Stay the hell out of bars and brothels. Put your wife on your arm and display open affection (kiss her you fool). Don’t forget what they did to Eliot. TPTB have declared open season on you – don’t expect mercy. Indeed, if you have something on these guys, some minor faux pas, bust ‘em. Yes, bust em. Not as revenge, but as a warning to others not to kick dirt in your face. That is the kind of game you are in. Nice guys finish last.

lambert strether
8:12 pm And Eric? Don’t go up in small planes.

Yves Smith
10:13 pm My impression is he has no ambition for higher office. That is what makes him so dangerous.

attempter
4:09 am Assuming for the sake of argument that he’s sincere in all this, he still wants to work only within the same criminal system, and toward the same criminal goals, just in a “reformed” way. (He explicitly said his goal is to “restore faith” in the mortgage delusion. So he’s really pushing another version of the HAMP scam, just at the broader cultural level.)

So in that case, he’ll end up destroyed on account of that he was neither hot nor cold but lukewarm. It’s not possible to fight the elites from within their premises.

Blurtman
8:04 pm Tom “”Shitty” Deal” Montag, leaving behind the crimes committed at Goldman Sachs, is promoted to COO at BAC, reporting directly to its CEO.

Mr. Montag remarked about his promotion, “Thank god for crime, amd firms that appreciate a good sleaze-ball like Bank of America.”

http://finance.yahoo.com/news/Krawcheck-Price-Out-in-Bank-nytimes-1796049170.html?x=0&sec=topStories&pos=main&asset=&ccode=

Sam
8:20 pm Particularly stupid when you realize the fix is to do away with all bank-friendly regulation from the past 30 years. The State Bank of North Dakota is a wonderful bank, from what I can tell, and the unemployment rate in North Dakota is extremely low.

alia michelle
10:33 pm way to out the post for being full of shit dude. another permutation of SHUT THE FOX UP and other inaccurate media outlets.

show those repugnantcunts whose boss.

xxooo alia

scraping_by
11:03 pm In a somewhat fussbudget moment, it seems important to point out that Mr. Stoller is not, repeat not, engaging in guilt by association, those bizarre chains right wing blowhards offer with Wagnerian gravitas.

While, on paper, Kaplan and WaPo and WaPo editorial are separate and independent, the daily reality is one entity under management, with a handful of technocrats calling the shots. Nobody is going to step on the airhose.

http://www.truth-out.org/14-propaganda-techniques-fox-news-uses-brainwash-americans/1309612678

Justicia
11:16 pm So, where are the RICO indictments?

American Bankster

http://www.americanbanker.com/issues/176_173/mortgage-reinsurance-respa-kickbacks-hud-investigation-doj-1041928-1.html

Banks Took $6B in Reinsurance Kickbacks, Investigators Say

Many of the country’s largest banks received $6 billion in kickbacks from mortgage insurers over the course of a decade, according to a previously undisclosed investigation by the Inspector General of the Department of Housing and Urban Development.

[...] Documents from the investigation show that the inspector general’s staff concluded that banks and insurance companies had created elaborate financial structures that had the appearance of reinsurance but failed to transfer significant amounts of risk to their bank underwriters.

Some of the deals were designed to return a 400% profit on a bank’s investment during good years and remain profitable even in the event of a real estate collapse.

Making matters worse, banks allegedly forced unknowing consumers to buy more insurance than they needed and failed to properly disclose the reinsurance agreements, another RESPA violation.

Ray Phenicie
11:30 pm So what if . . . Everyone who had a mortgage from one of these barons–2008 total deposit in Billions- JP Morgan Chase & Co. New York, NY$1,0092 Bank of America Charlotte, NC$8843 Wells FargoSan Francisco, CA$7854 CitigroupNew York, NY$7745 PNC Financial Services GroupPittsburgh, PA$1936 HSBC HoldingsLondon$1617 Bank of New York MellonNew York, NY$1608 U.S. BancorpMinneapolis, MN$1599 SunTrust BankAtlanta, GA$11310 State Street Corp.Boston, MA$11211 Capital One FinancialMcClean, VA$10912 BB&T Corporation Winston-Salem, NC$98.7 -were to suddenly call up and say “Prove to me that you’re no fool and show legit lines of ownership for my mortgage which you supposedly securitized.”

Upon failure of that little question, for those who are able, hire a lawyer and refuse to make anymore payments.

Have a credit card balance from one of these feudal-like viscounts? Stop paying immediately

If even a small percentage of the consumers in debt, large or small stopped their payments maybe someone would wake up.

aletheia33
1:48 am i suspect that many people have in fact stopped paying on their credit cards, far more people than the banks would like it to be known. i remember seeing the term “de facto bankruptcy” awhile back as a term for an action that will spread as people lose jobs, homes, everything. yves has noted, IIRC, that since the 2008 meltdown HELOCs have been considered uncollectable–though Treasury has instructed the TBTF banks to retain them on their books as assets (hope i remember this right). if this is true of HELOCs, it would seem likely of other forms of debt outstanding.

once your credit rating is gone, there’s not much they can do to induce you to pay up. more and more people are beginning to realize they’ve been literally robbed up down and sideways by the financial industry and that not repaying what they “owe” is a way to right the balance, without any moral compunction left. and some commenters see a debt revolt on the horizon.

some states have legal protections of debtors that prohibit garnishment of more than a specified fraction of a debtor’s income, so as to help people to some extent to meet their basic needs no matter how big their debt. people considering not paying should look into these protections in the law of their home state. the website or office of the state AG is a good place to start–no lawyer required.

banks are also making very favorable settlement offers to large numbers of such creditors. they are becoming increasingly desperate, as more and more people simply don’t have the means to repay.

Fraud Guy
11:50 pm On my blog, you can see a copy of the letter Schneiderman sent to his supporters:

http://www.fraudism.com/ 

What’s so offensive here, I don’t see.

Also, it never ceases to amaze me that the mainstream media, in this case the NY Daily News, refuse to post documents that are the subject of stories. Clearly, they don’t want readers to be able to form their own conclusions. And they wonder why their business is dying.

Also, I started my blog after becoming an avid fan of Yves. So she should view imitation as the sincerest form of flattery.

Fraud Guy
3:42 am Thank you, but already had the name and my own blog.
Dan The Man
12:33 am Every year tobacco related disease kills 400,000 people in the U.S. In 2010 The government paid tobacco companies $194,435,671 in subsidies for this service. I’m starting to believe the government might not have are best interests in mind.
babaganush
3:11 am Good article. Reminds me a little of Elliot Ness. Go Schneiderman!

Dow 20,000 vs. ‘The End of America’ Altucher Debates Stansberry

 Daily Ticker - Yahoo! Finance
Stansberry believes Europe's debt crisis will only intensify in the coming year, predicting Italy's Unicredit will be "the next big domino to fall."

If Unicredit fails, "Italy can't bail it out and Germany will not bail Italy out," he says, predicting Germany will leave the EU within the next 12 months.

But Stansberry is even more bearish on the U.S., predicting the dollar will lose its reserve status and the Treasury "bubble" will burst. "There's a huge storm brewing," he says. "Everyone with any sense is leaving the [Treasury] market, including a lot of our trading partners and central banks."

By his own admission, Stansberry has been wrong about the Treasury market, which showed incredible strength last week, even after S&P's downgrade. 

Continued



Etc

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The Last but not Least


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Last modified: September 12, 2017