F Financial Sector Induced Systemic Instability of Economy

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Financial Sector Induced Systemic Instability of Economy

While I believe in usefulness of capital markets, it is clear that they are double edge sword and that banks "in a long run" tend to behave like sociopathic individuals. Mr. Capone may have something to say about danger of banks :-).That means that  growth of financial sector represents a direct threat to the stability of the society. Positive feedback loops creates one financial crisis after another with the increasing magnitude leading up to a collapse of financial system like happened in 1927 and 2008.

News Casino Capitalism Recommended Links  Stability is destabilizing: The idea of Minsky moment Corruption of Regulators Quiet coup
Neoliberalism as a New Form of Corporatism Principal-agent problem Numbers racket Criminal negligence in financial regulation Corruption of FED Invisible Hand Hypothesis
The “Too Big To Fail” Problem In Goldman Sachs we trust Citi - The bank that couldn’t shoot straight JPMorgan AIG collapse Lehman
Free Markets Newspeak as Opium for regulators Derivatives Lobby Corrupts Congress Lobbying and the Financial Crisis Control Fraud
(crisis of corporate governance)
Stock Market with buybacks as a Ponzi scheme Derivatives
Small government smoke screen Financial Bonuses as Money Laundering Corporatist Corruption: Systemic Fraud under Clinton-Bush-Obama Regime Corporatism   Financial obesity
Webliography of heterodox economists HFT Aleynikov vs. Goldman Sachs Casino Capitalism Dictionary Financial Humor Etc
  "Minsky's financial instability hypothesis depends critically on what amounts to a sociological insight. People change their minds about taking risks. They don't make a one-time rational judgment about debt use and stock market exposure and stick to it. Instead, they change their minds over time. And history is quite clear about how they change their minds. The longer the good times endure, the more people begin to see wisdom in risky strategies."

The Cost of Capitalism: Understanding Market Mayhem and Stabilizing our Economic Future, by Robert Barbera

The flaw with Capitalism is that it creates its own positive feedback loop, snowballing to the point where the accumulation of wealth and power hurts people — eventually even those at the top of the food chain. ”

Uncle Billy Cunctator
In comment to Economic Donkeys

 
  Banks are a clear case of market failure and their employees at the senior level have basically become the biggest bank robbers of all time. As for basing pay on current revenues and not profits over extended periods of time, then that is a clear case of market failure --  
  The banksters have been able to sell the “talent” myth to justify their outsized pay because they are the only ones able to deliver the type of GDP growth the U.S. economy needs in the short term, even if that kills the U.S. economy in the long term. You’ll be gone, I’ll be gone.  
  Unfortunately, many countries go broke pursuing war, if not financially, then morally (are the two different? – this post suggests otherwise).

I occurs to me that the U.S. is also in that flock; interventions justified by grand cause built on fallacy, the alpha and omega of failure. Is the financial apparatchik (or Nomenklatura, a term I like which, as many from the Soviet era, succinctly describes aspects of our situation today) fated also to the trash heap, despite the best efforts of the Man of the hour, Ben Bernanke?

 

Introduction

Financialization is a Damocles sword hanging over the neoliberal society

While I believe in usefulness of capital markets, it is clear that they are double edge sword and that banks "in a long run" tend to behave like sociopathic individuals. Mr. Capone may have something to say about danger of banks :-).That means that growth of financial sector represents a direct threat to the stability of the society (Keynesianism and the Great Recession )

Without adult supervision, as it were, a financial sector that was already inherently unstable went wild. When the subprime assets were found to be toxic since they were based on mortgages on which borrowers had defaulted, highly indebted or leveraged banks that had bought these now valueless securities had little equity to repay their creditors or depositors who now came after them. This quickly led to their bankruptcy, as in the case of Lehman Brothers, or to their being bailed out by government, as was the case with most of the biggest banks. The finance sector froze up, resulting in a recession—a big one—in the real economy.

Neoliberal revolution, or, as Simon Johnson called it after "quite coup" (Atlantic), brought political power to the financial oligarchy deposed after the New Deal. Deregulation naturally followed, with especially big role played by corrupt Clinton administration.  Positive feedback loops creates one financial crisis after another with the increasing magnitude. "Saving and loans" crisis followed by dot-com crisis of  2000, which in turn followed by the collapse of financial system in 2008, which looks somewhat similar to what happened in 1927.  No prominent financial honcho, who was instrumental in creating "subprime crisis" was jailed.  Most remained filthy rich.

Unless the society puts severe limits on their actions like was done during New Deal,  financial firms successfully subvert the regulation mechanisms and take the society hostage.  But periodic purges with relocation of the most active promoters of "freedom for banks" (aka free market fundamentalism) under the smoke screen of "free market" promotion does not solve the problem of positive feedback loops that banks create by mere existence. That's difficult to do while neoliberal ideology and related neoclassical economy dominates the society thinking (via brainwashing), with universities playing especially negative role -- most of economics departments are captured by neoliberals who censor any heretics. So year after year brainwashing students enter the society without understanding real dangers that neoliberalism brought for them.  Including lack of meaningful employment opportunities.

Of course, most of high level officers of leading finance institutions which caused the crisis of 2008-2009 as a psychological type are as close to  gangsters as one can get. But there is something in their actions that does not depend on individual traits (although many of them definitely can be classified as psychopaths), and is more related to their social position.  This situation is somewhat similar to Bolsheviks coup d'état of 1917 which resulted in capturing Russia by this ideological sect.  And in this sense quite coupe of 1980 is also irreversible in the same sense as Bolsheviks revolution was irreversible:  the "occupation" of the country by a fanatical sect lasts until the population rejects the ideology with its (now apparent) utopian claims.

Bolshevism which lasted 75 years, spend in such zombie state the last two decades (if we assume 1991 as the year of death of Bolshevism, its ideology was dead much earlier -- the grave flaws in it were visible from late 60th, if not after the WWII).  But only  when their ideology was destroyed both by inability to raise the standard of living of the population and by the growing neoliberal ideology as an alternative (and a new, more powerful then Marxism high-demand cult) Bolsheviks started to lose the grip on their power in the country. As a result Bolsheviks lost the power only in 1991, or more correctly switched camps and privatized the country. If not inaptness of their last General Secretary, they probably could last more. In any case after the ideology collapsed, the USSR disintegrated (or more correctly turn by national elites, each of which wanted their peace of the pie).

The sad truth is that the mere growth of financial sector creates additional positive feedback loops and increases structural instability within both the financial sector itself and the society at large. Dynamic systems with strong positive feedback loops not compensated by negative feedback loops are unstable. As a result banks and other financial institution periodically generate a deep, devastating crisis. This is the meaning of famous Hyman Minsky phrase "stability is destabilizing".

In other words, financial apparatchiks (or Financial Nomenklatura, a term from the Soviet era, which succinctly describes aspects of our situation today) drive the country off the cliff because they do not have any countervailing forces, by the strength of their political influence and unsaturable greed. Although the following analogy in weaker then analogy with dynamic systems with positive feedback loops, outsized financial sector can be viewed in  biological terms as cancer.

Cancer, known medically as a malignant neoplasm, is a broad group of diseases involving unregulated cell growth. In cancer, cells divide and grow uncontrollably, forming malignant tumors, and invading nearby parts of the body. The cancer may also spread to more distant parts of the body through the lymphatic system or bloodstream. Not all tumors are cancerous; benign tumors do not invade neighboring tissues and do not spread throughout the body. There are over 200 different known cancers that affect humans.[1]

Like certain types of cancer they depend of weakening "tumor suppressor genes"  (via "Quiet coup" mechanism of acquiring dominant political power) which allow then to engage in uncontrolled growth, destroying healthy cells (and first of all local manufacturing).   

The other suspicion is the unchecked financialization always goes too far and the last N percent of financial activity absorbs much more resources (especially intellectual resources) and creates more potential instability than its additional efficiency-benefits (often zero or negative) can justify. It is hard to imagine that a Hedge Fund Operator of the Year does anything that is even remotely socially useful to justify his enormous (and lightly taxed) compensation. It is pure wealth redistribution up based on political domination of financial oligarchy.  Significant vulnerabilities  within the shadow banking system and derivatives are plain vanilla socially destructive. Yet they persist due to inevitable political power grab by financial oligarchy  (Quiet coup).

Again, I would like to stress that this problem of the oversized financial sector which produces one devastating crisis after another   is closely related to the problem of a positive feedback loops. And the society in which banks are given free hand inevitably degrades into "socialism for banks"  or "casino capitalism" -- a type of neoliberalism with huge inequality and huge criminality of top banking officers.  

Whether we can do without private banks is unclear, but there is sound evidence that unlike growth of manufacturing, private financial sector growth is dangerous for the society health and perverts society goals.  Like cult groups the financial world does a terrific job of "shunning" the principled individuals and suppressing dissent (by capturing and cultivating neoliberal stooges in all major university departments and press),  so self-destructing tendencies after they arise can't be stopped within the framework of neoliberalism. In a way financial firm is like sociopath inevitable produces its  trail of victims (and sociopaths might be useful in battles exactly due to the qualities such as ability to remain cool in dangerous situation, that make them dangerous in the normal course of events).

This tendency of society with unregulated or lightly regulated financial sector toward self-destruction was first formulated as "Minsky instability hypothesis" -- and outstanding intellectual achievement of American economic Hyman Minsky (September 23, 1919 – October 24, 1996). Who BTW was pretty much underappreciated (if not suppressed) during his lifetime because his views were different from  orthodox (and false) neoclassic economic theory which dominates US universities, Like flat Earth theory was enforce by Catholic church before, it is fiercely enforced by an army of well paid neoliberal economics, those Jesuits of modern era. Who prosecute heretics who question flat Earth theory even more efficiently then their medieval counterparts; the only difference is that they do not burn the literally, only figuratively ;-)

Minsky financial instability hypothesis

Former Washington University in St. Louis economics professor Hyman P. Minsky had predicted the Great Recession decades before it happened.  Hyman Minsky was a real student of the Great Depression, while Bernanke who widely is viewed as a scholar who studied the Great Depression, in reality was a charlatan, who just tried to explain the Great Depression from the positions of neo-classical economy. That's a big difference.

Minsky instability hypothesis ("stability is destabilizing" under capitalism) that emerged from his analysis of the Great Depression was based on intellectual heritage of three great thinkers in economics (my presentation is partially based on an outstanding lecture by Steve Keen Lecture 6 on Minsky, Financial Instability, the Great Depression & the Global Financial Crisis). We can talk about three source of influence, there authors writing of which touched the same subject from similar positions and were the base of Hyman Minsky great advance in understanding of mechanics of development of financial crisis under capitalism and the critical role of financial system in it (neoclassical economics ignores the existence of financial system in its analysis): 

  1. Karl Marx influence
  2. Irving Fisher influence
  3. Joseph Schumpeter influence

Karl Marx influence

Minsky didn't follow the conventional version of Marxism  . And it was dangerous for him to do so due to McCarthysm. Even mentioning of Marx might lead to strakism fromthe academy those years.  McCarthy and his followers in academy did not understand the difference between Marx great analysis of capitalism and his utopian vision of the future. Impliedly this witch hunt helped to establish hegemony of neoclassical economy in economic departments in the USA.

While Minsky did not cited Marx in his writings and did use Marx's Labor Theory of Value his thinking was definitely influenced by Marx’s critique of  finance. We now know that he read and admired the Capital. And that not accidental due to the fact that his parents were Mensheviks -- a suppressed after Bolshevik revolution more moderate wing of Russian Social Democratic Party that rejected the idea of launching the socialist revolution in Russia --  in their opinion Russia needed first to became a capitalist country and get rid of remnants of feudalism. They escaped from Soviet Russia when Mensheviks started to be prosecuted by Bolsheviks.

And probably the main influence on Minsky was not Marx's discussion  of finance in Volume I of Capital with a "commodity" model of money, but critical remarks scattered in   Volumes II & III (which were not edited by Marx by compiled posthumously by Engels), where he was really critical of big banks as well as Marx's earlier works (Grundrisse, Theories of Surplus Value) where Marx was scathing about finance:

"A high rate of interest can also indicate, as it did in 1857, that the country is undermined by the roving cavaliers of credit who can afford to pay a high interest because they pay it out of other people's pocket* (whereby, however, they help to determine the rate of interest  for all) and meanwhile they live in grand style on anticipated profits. 

Irving Fisher influence

The second source on which Minsky based his insights was Irving Fisher. Irving Fisher’s reputation destroyed by wrong predictions on stock market prices. In aftermath, developed theory to explain the crash and published it in his book  "The Debt Deflation Theory of Great Depressions". His main points are:

According to Fisher two key disequilibrium forces that push economic into the next economic crisis are debt and subsequent deflation

Joseph Schumpeter influence

Joseph Schumpeter was Joseph Schumpeter has more positive view of capitalism than the other two. He authored the theory of creative destruction as a path by which capitalism achieves higher and higher productivity. He capitalism as necessarily unstable, but for him this was a positive feature -- instability of capitalism the source of its creativity. His view of capitalism was highly dynamic and somewhat resembles the view of Marx (who also thought that capitalism destroys all previous order and create a new one):

Unlike Marx, who thought that the periodic crisis of overproduction  is the source of instability (as well as  gradual absolute impoverishment of workers), Minsky assumed that the key source of that instability of capitalist system is connected with the cycles of business borrowing and fractional bank lending, when "good times" lead to excessive borrowing leading to high leverage and overproduction and thus to eventual debt crisis (The Alternative To Neoliberalism ):

Minsky on capitalism:

The idea of Minsky moment is related to the fact that the fractional reserve banking periodically causes credit collapse when the leveraged credit expansion goes into reverse. And mainstream economists do not want to talk about the fact that increasing confidence breeds increased leverage. So financial stability breeds instability and subsequent financial crisis. All actions to guarantee a market rise, ultimately guarantee it's destruction because greed will always take advantage of a "sure thing" and push it beyond reasonable boundaries.  In other words, marker players are no rational and assume that it would be foolish not to maximize leverage in a market which is going up. So the fractional reserve banking mechanisms ultimately and ironically lead to over lending and guarantee the subsequent crisis and the market's destruction. Stability breed instability.

That means that fractional reserve banking based economic system with private players (aka capitalism) is inherently unstable. And first of all because  fractional reserve banking is debt based. In order to have growth it must create debt. Eventually the pyramid of debt crushes and crisis hit. When the credit expansion fuels asset price bubbles, the dangers for the financial sector and the real economy are substantial because this way the credit boom bubble is inflated which eventually burst. The damage done to the economy by the bursting of credit boom bubbles is significant and long lasting.

Blissex said...

«When credit growth fuels asset price bubbles, the dangers for the financial sector and the real economy are much more substantial.»

So M Minsky 50 years ago and M Pettis 15 years ago (in his "The volatility machine") had it right? Who could have imagined! :-)

«In the past decades, central banks typically have taken a hands-off approach to asset price bubbles and credit booms.»

If only! They have been feeding credit-based asset price bubbles by at the same time weakening regulations to push up allowed capital-leverage ratios, and boosting the quantity of credit as high as possible, but specifically most for leveraged speculation on assets, by allowing vast-overvaluations on those assets.

Central banks have worked hard in most Anglo-American countries to redistribute income and wealth from "inflationary" worker incomes to "non-inflationary" rentier incomes via hyper-subsidizing with endless cheap credit the excesses of financial speculation in driving up asset prices.

Not very hands-off at all.

Steve Keen is probably the most well know researcher who tried to creates model of capitalist economy based on Minsky work (  http://www.debtdeflation.com/blogs/manifesto/ )

John Kay in his January 5 2010 FT column very aptly explained the systemic instability of financial sector hypothesis: 

The credit crunch of 2007-08 was the third phase of a larger and longer financial crisis. The first phase was the emerging market defaults of the 1990s. The second was the new economy boom and bust at the turn of the century. The third was the collapse of markets for structured debt products, which had grown so rapidly in the five years up to 2007.

The manifestation of the problem in each phase was different – first emerging markets, then stock markets, then debt. But the mechanics were essentially the same. Financial institutions identified a genuine economic change – the assimilation of some poor countries into the global economy, the opportunities offered to business by new information technology, and the development of opportunities to manage risk and maturity mismatch more effectively through markets. Competition to sell products led to wild exaggeration of the pace and scope of these trends. The resulting herd enthusiasm led to mispricing – particularly in asset markets, which yielded large, and largely illusory, profits, of which a substantial fraction was paid to employees.

Eventually, at the end of each phase, reality impinged. The activities that once seemed so profitable – funding the financial systems of emerging economies, promoting start-up internet businesses, trading in structured debt products – turned out, in fact, to have been a source of losses. Lenders had to make write-offs, most of the new economy stocks proved valueless and many structured products became unmarketable. Governments, and particularly the US government, reacted on each occasion by pumping money into the financial system in the hope of staving off wider collapse, with some degree of success. At the end of each phase, regulators and financial institutions declared that lessons had been learnt. While measures were implemented which, if they had been introduced five years earlier, might have prevented the most recent crisis from taking the particular form it did, these responses addressed the particular problem that had just occurred, rather than the underlying generic problems of skewed incentives and dysfunctional institutional structures.

The public support of markets provided on each occasion the fuel needed to stoke the next crisis. Each boom and bust is larger than the last. Since the alleviating action is also larger, the pattern is one of cycles of increasing amplitude.

I do not know what the epicenter of the next crisis will be, except that it is unlikely to involve structured debt products. I do know that unless human nature changes or there is fundamental change in the structure of the financial services industry – equally improbable – there will be another manifestation once again based on naive extrapolation and collective magical thinking. The recent crisis taxed to the full – the word tax is used deliberately – the resources of world governments and their citizens. Even if there is will to respond to the next crisis, the capacity to do so may not be there.

The citizens of that most placid of countries, Iceland, now backed by their president, have found a characteristically polite and restrained way of disputing an obligation to stump up large sums of cash to pay for the arrogance and greed of other people. They are right. We should listen to them before the same message is conveyed in much more violent form, in another place and at another time. But it seems unlikely that we will.

We made a mistake in the closing decades of the 20th century. We removed restrictions that had imposed functional separation on financial institutions. This led to businesses riddled with conflicts of interest and culture, controlled by warring groups of their own senior employees. The scale of resources such businesses commanded enabled them to wield influence to create a – for them – virtuous circle of growing economic and political power. That mistake will not be easily remedied, and that is why I view the new decade with great apprehension. In the name of free markets, we created a monster that threatens to destroy the very free markets we extol.

While Hyman Minsky was the first clearly formulate the financial instability hypothesis, Keynes also understood this dynamic pretty well. He postulated that a world with a large financial sector and an excessive emphasis on the production of investment products creates instability both in terms of output and prices. In other words it automatically tends to generate credit and asset bubbles.  The key driver is the fact that financial professionals generally risk other people’s money and due to this fact have asymmetrical incentives:

This asymmetry is not a new observation of this systemic problem. Andrew Jackson noted it in much more polemic way long ago:

“Gentlemen, I have had men watching you for a long time and I am convinced that you have used the funds of the bank to speculate in the breadstuffs of the country. When you won, you divided the profits amongst you, and when you lost, you charged it to the bank. You tell me that if I take the deposits from the bank and annul its charter, I shall ruin ten thousand families. That may be true, gentlemen, but that is your sin! Should I let you go on, you will ruin fifty thousand families, and that would be my sin! You are a den of vipers and thieves. I intend to rout you out, and by the grace of the Eternal God, will rout you out.”

This asymmetrical incentives ensure that the financial system is structurally biased toward taking on more risk than what should be taken. In other words it naturally tend to slide to the casino model, the with omnipresent reckless gambling as the primary and the most profitable mode of operation while an opportunities last.  The only way to counter this is to throw sand into the wheels of financial mechanism:  enforce strict regulations, limit money supplies and periodically jail too enthusiastic bankers. The latter is as important or even more important as the other two because bankers tend to abuse "limited liability" status like no other sector.

Asset inflation over the past 10 years and the subsequent catastrophe incurred is a way classic behavior of dynamic system with strong positive feedback loop.  Such behavior does not depends of personalities of bankers or policymakers, but is an immanent property of this class of dynamic systems. And the main driving force here was deregulation. So its important that new regulation has safety feature which make removal of it more complicated and requiring bigger majority like is the case with constitutional issues.

Another fact was the fact that due to perverted incentives, accounting in the banks was fraudulent from the very beginning and it was fraudulent on purpose.  Essentially accounting in banks automatically become as bad as law enforcement permits. This is a classic case of control fraud and from prevention standpoint is make sense to establish huge penalties for auditors, which might hurt healthy institutions but help to ensure that the most fraudulent institution lose these bank charter before affecting the whole system.  With the anti-regulatory zeal of Bush II administration the level of auditing became too superficial, almost non-existent. I remember perverted dances with Sarbanes–Oxley when it was clear from the very beginning that the real goal is not to strengthen accounting but to earn fees and to create as much profitable red tape as possible, in perfect Soviet bureaucracy style.

Deregulation also increases systemic risk by influencing the real goals of financial organizations. At some point of deregulation process the goal of higher remuneration for the top brass becomes self-sustainable trend  and replaces all other goals of the financial organization. This is the essence of  Martin Taylor’s, the former chief executive of Barclays,  article FT.com - Innumerate bankers were ripe for a reckoning in the Financial Times (Dec 15, 2009), which is worth reading in its entirety:

City people have always been paid well relative to others, but megabonuses are quite new. From my own experience, in the mid-1990s no more than four or five employees of Barclays’ then investment bank were paid more than £1m, and no one got near £2m. Around the turn of the millennium across the market things began to take off, and accelerated rapidly – after a pause in 2001-03 – so that exceptionally high remuneration, not just individually, but in total, was paid out between 2004 and 2007.

Observers of financial services saw unbelievable prosperity and apparently immense value added. Yet two years later the whole industry was bankrupt. A simple reason underlies this: any industry that pays out in cash colossal accounting profits that are largely imaginary will go bust quickly. Not only has the industry – and by extension societies that depend on it – been spending money that is no longer there, it has been giving away money that it only imagined it had in the first place. Worse, it seems to want to do it all again.

What were the sources of this imaginary wealth?

In the last two of these the bank was not receiving any income, merely “booking revenues”. How could they pay this non-existent wealth out in cash to their employees? Because they had no measure of cash flow to tell them they were idiots, and because everyone else was doing it. Paying out 50 per cent of revenues to staff had become the rule, even when the “revenues” did not actually consist of money.

In the next phase instability is amplified by the way governments and central banks respond to crises caused by credit bubble: the state has powerful means to end a recession, but the policies it uses give rise to the next phase of instability, the next bubble…. When money is virtually free – or, at least, at 0.5 per cent – traders feel stupid if they don’t leverage up to the hilt. Thus previous bubble and crash become a dress rehearsal for the next.

Resulting self-sustaining "boom-bust" cycle is very close how electronic systems with positive feedback loop behave and   cannot be explained by neo-classical macroeconomic models. Like with electronic devices the financial institution in this mode are unable to provide the services that are needed.

As Minsky noted long ago (sited from Stephen Mihm  Why capitalism fails Boston Globe):

Modern finance, he argued, was far from the stabilizing force that mainstream economics portrayed: rather, it was a system that created the illusion of stability while simultaneously creating the conditions for an inevitable and dramatic collapse.

...our whole financial system contains the seeds of its own destruction. “Instability,” he wrote, “is an inherent and inescapable flaw of capitalism.”

Minsky’s vision might have been dark, but he was not a fatalist; he believed it was possible to craft policies that could blunt the collateral damage caused by financial crises. But with a growing number of economists eager to declare the recession over, and the crisis itself apparently behind us, these policies may prove as discomforting as the theories that prompted them in the first place. Indeed, as economists re-embrace Minsky’s prophetic insights, it is far from clear that they’re ready to reckon with the full implications of what he saw.

And he understood the roots of the current credit bubble much better that neoclassical economists like Bernanke: 
As people forget that failure is a possibility, a “euphoric economy” eventually develops, fueled by the rise of far riskier borrowers - what [Minsky] called speculative borrowers, those whose income would cover interest payments but not the principal; and those he called “Ponzi borrowers,” those whose income could cover neither, and could only pay their bills by borrowing still further.

As these latter categories grew, the overall economy would shift from a conservative but profitable environment to a much more freewheeling system dominated by players whose survival depended not on sound business plans, but on borrowed money and freely available credit.

Minsky’s financial instability hypothesis suggests that when optimism is high and ample funds are available for investment, investors tend to migrate from the safe hedge end of the Minsky spectrum to the risky speculative and Ponzi end. Indeed, in the current crisis, investors tried to raise returns by increasing leverage and switching to financing via short-term—sometimes overnight— borrowing (Too late to learn?):

In the church of Friedman, inflation was the ol' devil tempting the good folk; the 1980s seemed to prove that, let loose, it would cause untold havoc on the populace. But, as Barbera notes:

The last five major global cyclical events were the early 1990s recession - largely occasioned by the US Savings & Loan crisis, the collapse of Japan Inc after the stock market crash of 1990, the Asian crisis of the mid-1990s, the fabulous technology boom/bust cycle at the turn of the millennium, and the unprecedented rise and then collapse for US residential real estate in 2007-2008. All five episodes delivered recessions, either global or regional. In no case was there a significant prior acceleration of wages and general prices. In each case, an investment boom and an associated asset market ran to improbable heights and then collapsed. From 1945 to 1985, there was no recession caused by the instability of investment prompted by financial speculation - and since 1985 there has been no recession that has not been caused by these factors.
Thus, meet the devil in Minsky's paradise - "an investment boom and an associated asset market [that] ran to improbable heights and then collapsed".

According the Barbera, "Minsky's financial instability hypothesis depends critically on what amounts to a sociological insight. People change their minds about taking risks. They don't make a one-time rational judgment about debt use and stock market exposure and stick to it. Instead, they change their minds over time. And history is quite clear about how they change their minds. The longer the good times endure, the more people begin to see wisdom in risky strategies."

Current economy state can be called following Paul McCulley a "stable disequilibrium" very similar to a state  a sand pile.  All this pile of  stocks, debt instruments, derivatives, credit default swaps and God know corresponds to a  pile of sand that is on the verse of losing stability. Each financial player works hard to maximize their own personal outcome but the "invisible hand" effect in adding sand to the pile that is increasing systemic instability. According to Minsky, the longer such situation continues the more likely and violent an "avalanche".

The late Hunt Taylor wrote, in 2006:

"Let us start with what we know. First, these markets look nothing like anything I've ever encountered before. Their stunning complexity, the staggering number of tradable instruments and their interconnectedness, the light-speed at which information moves, the degree to which the movement of one instrument triggers nonlinear reactions along chains of related derivatives, and the requisite level of mathematics necessary to price them speak to the reality that we are now sailing in uncharted waters.

"... I've had 30-plus years of learning experiences in markets, all of which tell me that technology and telecommunications will not do away with human greed and ignorance. I think we will drive the car faster and faster until something bad happens. And I think it will come, like a comet, from that part of the night sky where we least expect it."

This is a gold age for bankers as Simon Johnson wrote in New Republic (The Next Financial Crisis ):

Banking was once a dangerous profession. In Britain, for instance, bankers faced “unlimited liability”--that is, if you ran a bank, and the bank couldn’t repay depositors or other creditors, those people had the right to confiscate all your personal assets and income until you repaid. It wasn’t until the second half of the nineteenth century that Britain established limited liability for bank owners. From that point on, British bankers no longer assumed much financial risk themselves.

In the United States, there was great experimentation with banking during the 1800s, but those involved in the enterprise typically made a substantial commitment of their own capital. For example, there was a well-established tradition of “double liability,” in which stockholders were responsible for twice the original value of their shares in a bank. This encouraged stockholders to carefully monitor bank executives and employees. And, in turn, it placed a lot of pressure on those who managed banks. If they fared poorly, they typically faced personal and professional ruin. The idea that a bank executive would retain wealth and social status in the event of a self-induced calamity would have struck everyone--including bank executives themselves--as ludicrous.

Enter, in the early part of the twentieth century, the Federal Reserve. The Fed was founded in 1913, but discussion about whether to create a central bank had swirled for years. “No one can carefully study the experience of the other great commercial nations,” argued Republican Senator Nelson Aldrich in an influential 1909 speech, “without being convinced that disastrous results of recurring financial crises have been successfully prevented by a proper organization of capital and by the adoption of wise methods of banking and of currency”--in other words, a central bank. In November 1910, Aldrich and a small group of top financiers met on an isolated island off the coast of Georgia. There, they hammered out a draft plan to create a strong central bank that would be owned by banks themselves.

What these bankers essentially wanted was a bailout mechanism for the aftermath of speculative crashes -- something more durable than J.P. Morgan, who saved the day in the Panic of 1907 but couldn’t be counted on to live forever. While they sought informal government backing and substantial government financial support for their new venture, the bankers also wanted it to remain free of government interference, oversight, or control.

Another destabilizing fact is so called myth of invisible hand which is closely related to the myth about market self-regulation. The misunderstood argument of Adam Smith [1776], the founder of modern economics, that free markets led to efficient outcomes, “as if by an invisible hand” has played a central role in these debates: it suggested that we could, by and large, rely on markets without government intervention. About "invisible hand" deification, see The Invisible Hand, Trumped by Darwin - NYTimes.com.

The concept of Minsky moment

The moment in the financial system when the quantity of debt turns into quality and produces yet another financial crisis is called Minsky moment. In other words the “Minsky moment” is the time when an unsustainable financial boom turns into uncontrollable collapse of financial markets (aka financial crash). The existence of Minsky moments is one of the most important counterargument against financial market self-regulation.  It also expose free market fundamentalists such as "former Maestro" Greenspan as charlatans. Greenspan actually implicitly admitted that he is and that it was he, who was the "machinist"  who helped to bring the USA economic train off the rails in 2008 via deregulation  and dismantling the New Deal installed safeguards. 

Here how it is explained by Stephen Mihm in Boston Globe in 2009 in the after math of 2008 financial crisis:

“Minsky” was shorthand for Hyman Minsky, an American macroeconomist who died over a decade ago.  He predicted almost exactly the kind of meltdown that recently hammered the global economy. He believed in capitalism, but also believed it had almost a genetic weakness. Modern finance, he argued, was far from the stabilizing force that mainstream economics portrayed: rather, it was a system that created the illusion of stability while simultaneously creating the conditions for an inevitable and dramatic collapse.

In other words, the one person who foresaw the crisis also believed that our whole financial system contains the seeds of its own destruction. “Instability,” he wrote, “is an inherent and inescapable flaw of capitalism.”

Minsky believed it was possible to craft policies that could blunt the collateral damage caused by financial crises. As economists re-embrace Minsky’s prophetic insights, it is far from clear that they’re ready to reckon with the full implications of what he saw.

Minsky theory was not well received due to powerful orthodoxy, born in the years after World War II, known as the neoclassical synthesis. The older belief in a self-regulating, self-stabilizing free market had selectively absorbed a few insights from John Maynard Keynes, the great economist of the 1930s who wrote extensively of the ways that capitalism might fail to maintain full employment. Most economists still believed that free-market capitalism was a fundamentally stable basis for an economy, though thanks to Keynes, some now acknowledged that government might under certain circumstances play a role in keeping the economy - and employment - on an even keel.

Economists like Paul Samuelson became the public face of the new establishment; he and others at a handful of top universities became deeply influential in Washington. In theory, Minsky could have been an academic star in this new establishment: Like Samuelson, he earned his doctorate in economics at Harvard University, where he studied with legendary Austrian economist Joseph Schumpeter, as well as future Nobel laureate Wassily Leontief.

But Minsky was cut from different cloth than many of the other big names. The descendent of immigrants from Minsk, in modern-day Belarus, Minsky was a red-diaper baby, the son of Menshevik socialists. While most economists spent the 1950s and 1960s toiling over mathematical models, Minsky pursued research on poverty, hardly the hottest subfield of economics. With long, wild, white hair, Minsky was closer to the counterculture than to mainstream economics. He was, recalls the economist L. Randall Wray, a former student, a “character.”

So while his colleagues from graduate school went on to win Nobel prizes and rise to the top of academia, Minsky languished. He drifted from Brown to Berkeley and eventually to Washington University. Indeed, many economists weren’t even aware of his work. One assessment of Minsky published in 1997 simply noted that his “work has not had a major influence in the macroeconomic discussions of the last thirty years.”

Yet he was busy. In addition to poverty, Minsky began to delve into the field of finance, which despite its seeming importance had no place in the theories formulated by Samuelson and others. He also began to ask a simple, if disturbing question: “Can ‘it’ happen again?” - where “it” was, like Harry Potter’s nemesis Voldemort, the thing that could not be named: the Great Depression.

In his writings, Minsky looked to his intellectual hero, Keynes, arguably the greatest economist of the 20th century. But where most economists drew a single, simplistic lesson from Keynes - that government could step in and micromanage the economy, smooth out the business cycle, and keep things on an even keel - Minsky had no interest in what he and a handful of other dissident economists came to call “bastard Keynesianism.”

Instead, Minsky drew his own, far darker, lessons from Keynes’s landmark writings, which dealt not only with the problem of unemployment, but with money and banking. Although Keynes had never stated this explicitly, Minsky argued that Keynes’s collective work amounted to a powerful argument that capitalism was by its very nature unstable and prone to collapse. Far from trending toward some magical state of equilibrium, capitalism would inevitably do the opposite. It would lurch over a cliff.

This insight bore the stamp of his advisor Joseph Schumpeter, the noted Austrian economist now famous for documenting capitalism’s ceaseless process of “creative destruction.” But Minsky spent more time thinking about destruction than creation. In doing so, he formulated an intriguing theory: not only was capitalism prone to collapse, he argued, it was precisely its periods of economic stability that would set the stage for monumental crises.

Minsky called his idea the “Financial Instability Hypothesis.” In the wake of a depression, he noted, financial institutions are extraordinarily conservative, as are businesses. With the borrowers and the lenders who fuel the economy all steering clear of high-risk deals, things go smoothly: loans are almost always paid on time, businesses generally succeed, and everyone does well. That success, however, inevitably encourages borrowers and lenders to take on more risk in the reasonable hope of making more money. As Minsky observed, “Success breeds a disregard of the possibility of failure.”

As people forget that failure is a possibility, a “euphoric economy” eventually develops, fueled by the rise of far riskier borrowers - what he called speculative borrowers, those whose income would cover interest payments but not the principal; and those he called “Ponzi borrowers,” those whose income could cover neither, and could only pay their bills by borrowing still further. As these latter categories grew, the overall economy would shift from a conservative but profitable environment to a much more freewheeling system dominated by players whose survival depended not on sound business plans, but on borrowed money and freely available credit.

Once that kind of economy had developed, any panic could wreck the market. The failure of a single firm, for example, or the revelation of a staggering fraud could trigger fear and a sudden, economy-wide attempt to shed debt. This watershed moment - what was later dubbed the “Minsky moment” - would create an environment deeply inhospitable to all borrowers. The speculators and Ponzi borrowers would collapse first, as they lost access to the credit they needed to survive. Even the more stable players might find themselves unable to pay their debt without selling off assets; their forced sales would send asset prices spiraling downward, and inevitably, the entire rickety financial edifice would start to collapse. Businesses would falter, and the crisis would spill over to the “real” economy that depended on the now-collapsing financial system.

From the 1960s onward, Minsky elaborated on this hypothesis. At the time he believed that this shift was already underway: postwar stability, financial innovation, and the receding memory of the Great Depression were gradually setting the stage for a crisis of epic proportions. Most of what he had to say fell on deaf ears. The 1960s were an era of solid growth, and although the economic stagnation of the 1970s was a blow to mainstream neo-Keynesian economics, it did not send policymakers scurrying to Minsky. Instead, a new free market fundamentalism took root: government was the problem, not the solution.

Moreover, the new dogma coincided with a remarkable era of stability. The period from the late 1980s onward has been dubbed the “Great Moderation,” a time of shallow recessions and great resilience among most major industrial economies. Things had never been more stable. The likelihood that “it” could happen again now seemed laughable.

Yet throughout this period, the financial system - not the economy, but finance as an industry - was growing by leaps and bounds. Minsky spent the last years of his life, in the early 1990s, warning of the dangers of securitization and other forms of financial innovation, but few economists listened. Nor did they pay attention to consumers’ and companies’ growing dependence on debt, and the growing use of leverage within the financial system.

By the end of the 20th century, the financial system that Minsky had warned about had materialized, complete with speculative borrowers, Ponzi borrowers, and precious few of the conservative borrowers who were the bedrock of a truly stable economy. Over decades, we really had forgotten the meaning of risk. When storied financial firms started to fall, sending shockwaves through the “real” economy, his predictions started to look a lot like a road map.

“This wasn’t a Minsky moment,” explains Randall Wray. “It was a Minsky half-century.”

Minsky is now all the rage. A year ago, an influential Financial Times columnist confided to readers that rereading Minsky’s 1986 “masterpiece” - “Stabilizing an Unstable Economy” - “helped clear my mind on this crisis.” Others joined the chorus. Earlier this year, two economic heavyweights - Paul Krugman and Brad DeLong - both tipped their hats to him in public forums. Indeed, the Nobel Prize-winning Krugman titled one of the Robbins lectures at the London School of Economics “The Night They Re-read Minsky.”

Today most economists, it’s safe to say, are probably reading Minsky for the first time, trying to fit his unconventional insights into the theoretical scaffolding of their profession. If Minsky were alive today, he would no doubt applaud this belated acknowledgment, even if it has come at a terrible cost. As he once wryly observed, “There is nothing wrong with macroeconomics that another depression [won’t] cure.”

But does Minsky’s work offer us any practical help? If capitalism is inherently self-destructive and unstable - never mind that it produces inequality and unemployment, as Keynes had observed - now what?

After spending his life warning of the perils of the complacency that comes with stability - and having it fall on deaf ears - Minsky was understandably pessimistic about the ability to short-circuit the tragic cycle of boom and bust. But he did believe that much could be done to ameliorate the damage.

To prevent the Minsky moment from becoming a national calamity, part of his solution (which was shared with other economists) was to have the Federal Reserve - what he liked to call the “Big Bank” - step into the breach and act as a lender of last resort to firms under siege. By throwing lines of liquidity to foundering firms, the Federal Reserve could break the cycle and stabilize the financial system. It failed to do so during the Great Depression, when it stood by and let a banking crisis spiral out of control. This time, under the leadership of Ben Bernanke - like Minsky, a scholar of the Depression - it took a very different approach, becoming a lender of last resort to everything from hedge funds to investment banks to money market funds.

Minsky’s other solution, however, was considerably more radical and less palatable politically. The preferred mainstream tactic for pulling the economy out of a crisis was - and is - based on the Keynesian notion of “priming the pump” by sending money that will employ lots of high-skilled, unionized labor - by building a new high-speed train line, for example.

Minsky, however, argued for a “bubble-up” approach, sending money to the poor and unskilled first. The government - or what he liked to call “Big Government” - should become the “employer of last resort,” he said, offering a job to anyone who wanted one at a set minimum wage. It would be paid to workers who would supply child care, clean streets, and provide services that would give taxpayers a visible return on their dollars. In being available to everyone, it would be even more ambitious than the New Deal, sharply reducing the welfare rolls by guaranteeing a job for anyone who was able to work. Such a program would not only help the poor and unskilled, he believed, but would put a floor beneath everyone else’s wages too, preventing salaries of more skilled workers from falling too precipitously, and sending benefits up the socioeconomic ladder.

While economists may be acknowledging some of Minsky’s points on financial instability, it’s safe to say that even liberal policymakers are still a long way from thinking about such an expanded role for the American government. If nothing else, an expensive full-employment program would veer far too close to socialism for the comfort of politicians. For his part, Wray thinks that the critics are apt to misunderstand Minsky. “He saw these ideas as perfectly consistent with capitalism,” says Wray. “They would make capitalism better.”

But not perfect. Indeed, if there’s anything to be drawn from Minsky’s collected work, it’s that perfection, like stability and equilibrium, are mirages. Minsky did not share his profession’s quaint belief that everything could be reduced to a tidy model, or a pat theory. His was a kind of existential economics: capitalism, like life itself, is difficult, even tragic. “There is no simple answer to the problems of our capitalism,” wrote Minsky. “There is no solution that can be transformed into a catchy phrase and carried on banners.”

It’s a sentiment that may limit the extent to which Minsky becomes part of any new orthodoxy. But that’s probably how he would have preferred it, believes liberal economist James Galbraith. “I think he would resist being domesticated,” says Galbraith. “He spent his career in professional isolation.”

Stephen Mihm is a history professor at the University of Georgia and author of “A Nation of Counterfeiters” (Harvard, 2007). © Copyright 2009 Globe Newspaper Company.

 

Some important albeit random (and overlapping) points about instability of financial system

The first thing to understand is that attempt to weaken positive feedback looks via regulation, approach that can be called  “regulation as a Swiss knife” does not work without law enforcement and criminal liability for bankers, as there is an obvious problem of corruption of regulators. In this sense the mechanism of purges might be the only one that realistically can work.

In other words it’s unclear who and how can prevents the capture of regulators as financial sector by definition has means to undermine any such efforts. One way this influence work is via lobbing for appointment of pro-financial sector people in key positions. If such "finance-sector-selected" Fed chairman does not like part of Fed mandate related to regulation it can simply ignore it as long as he is sure that he will be reappointed. That happened with Greenspan.  After such process started it became irreversible and only after a significant, dramatic shock to the system any meaningful changes can be instituted and as soon as the lessons are forgotten work on undermining them resumes.

In essence, the Fed is a political organization and Fed Chairman is as close to a real vice-president of the USA as one can get.  As such Fed Chairman serves the elite which rules that country, whether you call them financial oligarchy or some other name. Actually Fed Chairman is the most powerful unelected official in the USA. If you compare this position to the role of the Chairman of the Politburo  in the USSR you’ll might find some interesting similarities.

In other words it is impossible to prevent appointment of another Greenspan by another Reagan without changes in political power balance.  And the transition to banana republic that follows such appointment is irreversible even if the next administration water boards former Fed Chairman to help him to write his memoirs.  That means that you need to far-reaching reform of political system to be able to regulate financial industry and you need to understand that the measures adopted need vigilant protection as soon as the current crisis is a distant history.

Additional reading

Several other source of financial instability were pointed out by others:

There are some outstanding lectures and presentation on YouTube on this topic. Among them:

See an expended list at Webliography of heterodox economists

Dr. Nikolai Bezroukov


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[In casino capitalism] financial institutions make a living screwing over their customers so their biggest concern is how to avoid losing lawsuits when they get sued

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And Why History Will Repeat Itself

[Nov 15, 2018] More Americans Died From Drug Overdoses In 2017 Than Guns, Car Crashes, Suicide Together

This is definitely looks like the USSR trajectory with alcoholism. When people feel that they are not needed they start to behave in self-destructive ways.
Nov 15, 2018 | www.zerohedge.com
Authored by Anna Giaritelli via The Washington Examiner,

Drug overdoses led to more deaths in the U.S. in 2017 than any year on record and were the leading cause of death in the country, according to a Drug Enforcement Administration report issued Friday .

More than 72,000 people died from drug overdoses in 2017 , according to the NIH -- about 200 per day. That number is more than four times the number who died in 1999 from drug abuse: 16,849.

The figures are up about 15 percent from 63,632 drug-related deaths in 2016.

Since 2011, more people have died from drug overdoses than by gun violence, car accidents, suicide, or homicide, the DEA report stated.

In 2017, 40,100 people died in vehicle incidents; 15,549 were fatally shot, not including suicide; 17,284 were homicide victims, though an unspecified portion of this number includes gunshot victims; and nearly 45,000 committed suicide.

The DEA attributed last year's uptick in deaths to a spike in opioid-related fatalities. The agency said 49,060 people died as a result of abusing opioids, up from 42,249 in 2016.

Of those opioid deaths, synthetic opioids were responsible for nearly 20,000. More people died from them than heroin. The DEA report said synthetic fentanyl and comparable types of drugs are cheaper than heroin , making them more attractive to buyers.

The DEA also found heroin-related drug overdoses had doubled from 2013 to 2016 because manufacturers illegally producing synthetic fentanyl have laced the heroin with opioids.

President Trump declared the opioid epidemic a "national emergency" in October 2017. Last month, he signed a comprehensive bill that included $8.5 billion in funding for related projects to reduce addiction and deaths.

Attorney General Jeff Sessions noted one positive trend in the study.

"Preliminary data from the CDC shows that drug overdose deaths actually began to decline in late 2017 and opioid prescriptions fell significantly," Sessions said in a statement.

[Nov 13, 2018] Crude Crashes As Saudi Abandons OPEC Production Curbs

Nov 13, 2018 | www.zerohedge.com

Saudi Arabia has fully complied with OPEC+ agreement in every month through May. Since then it has cut supply, but by less than it pledged to curb. October is 1st time it has increased output above the starting point.

WTI has now retraced 60% of the two-year uptrend...

WTI Crude is now down over 6% YTD to its lowest since Dec 2017.

[Nov 13, 2018] "I understand your house is on fire ."

Nov 13, 2018 | twitter.com

[Nov 12, 2018] DEA And ICE Hiding Secret Cameras In Streetlights

Modern technology makes many things possible, but it does not make them cheap... The camera needs to work in pretty adverse conditions (think about the temperature inside the light on a hot summer day, and temperature at winter) and transmit signal somewhere via WiFi (which has range less then 100m) , or special cable that needs to be installed for this particular pole. With wifi there should be many collection units which also cost money. So it make sense only for streetlights adjacent to building with Internet networking. And there are already cameras of the highway, so highways are basically covered. Which basically limits this technology to cities. Just recoding without transmission would be much cheaper (transmission on demand). Excessive paranoia here is not warranted.
Nov 12, 2018 | www.zerohedge.com

According to new government procurement data, the Drug Enforcement Administration (DEA) and Immigration and Customs Enforcement (ICE) have purchased an undisclosed number of secret surveillance cameras that are being hidden in streetlights across the country.

Quartz first reported this dystopian development of federal authorities stocking up on "covert systems" last week. The report showed how the DEA paid a Houston, Texas company called Cowboy Streetlight Concealments LLC. approximately $22,000 since June for "video recording and reproducing equipment." ICE paid out about $28,000 to Cowboy Streetlight Concealments during the same period.

"It's unclear where the DEA and ICE streetlight cameras have been installed, or where the next deployments will take place. ICE offices in Dallas, Houston, and San Antonio have provided funding for recent acquisitions from Cowboy Streetlight Concealments; the DEA's most recent purchases were funded by the agency's Office of Investigative Technology, which is located in Lorton, Virginia," said Quartz.

Below is the list Of contract actions for Cowboy Streetlight Concealments LLC. Vendor_Duns_Number: "085189089" on the Federal Procurement Database:

Christie Crawford, who co-owns Cowboy Streetlight Concealments with her husband, said she was not allowed to talk about the government contracts in detail.

"We do streetlight concealments and camera enclosures," Crawford told Quartz. "Basically, there's businesses out there that will build concealments for the government and that's what we do. They specify what's best for them, and we make it. And that's about all I can probably say."

However, she added: "I can tell you this -- things are always being watched. It doesn't matter if you're driving down the street or visiting a friend, if government or law enforcement has a reason to set up surveillance, there's great technology out there to do it."

Quartz notes that the DEA issued a solicitation for "concealments made to house network PTZ [Pan-Tilt-Zoom] camera, cellular modem, cellular compression device," last Monday. According to solicitation number D-19-ST-0037, the sole source award will go to Obsidian Integration LLC.

On November 07, the Jersey City Police Department awarded Obsidian Integration with "the purchase and delivery of a covert pole camera." Quartz said the filing did not provide much detail about the design.

It is not just streetlights the federal government wants to mount covert surveillance cameras on, it seems cameras inside traffic barrels could be heading onto America's highways in the not too distant future.

And as Quartz reported in October, the DEA operates a complex network of digital speed-display road signs that covertly scan license plates. On top of all this, Amazon has been aggressively rolling out its Rekognition facial-recognition software to law enforcement agencies and ICE, according to emails uncovered by the Project for Government Oversight.

Chad Marlow, a senior advocacy and policy counsel for the ACLU, told Quartz that cameras in street lights have been proposed before by local governments, typically under a program called "smart" LED street light system.

"It basically has the ability to turn every streetlight into a surveillance device, which is very Orwellian to say the least," Marlow told Quartz. "In most jurisdictions, the local police or department of public works are authorized to make these decisions unilaterally and in secret. There's no public debate or oversight."

And so, as the US continues to be distracted, torn amid record political, social and economic polarization, big brother has no intention of letting the current crisis go to waste, and quietly continues on its path of transforming the US into a full-blown police and surveillance state.


wuffie , 9 minutes ago link

I previously worked for one of these types of federal agencies and to be fair, $50,000 doesn't buy a lot of video surveillance equipment at government procurement costs. The contractor doesn't just drill a hole and install a camera, they provide an entirely new streetlight head with the camera installed.

SantaClaws , 36 minutes ago link

It would be nice if they put some of this technology to work for a good cause. Maybe warning you of traffic congestion ahead. Or advising you that one of your tires will soon go flat.

Obviously that won't happen, so in the meantime, I can't wait to read next how the hackers will find a way to make this government effort go completely haywire. As if the government can't do it without any help. At least when the hackers do it, it will be funny and thorough.

21st.century , 56 minutes ago link

Besides the creepy surveillance part, some of the street light tech is interesting . lights that dim like the frozen food section - when no one is in front of the case --- RGB lighting that shows the approximate location for EMS to a 911 call ( lights that EMS can follow by color)

basic neighborhood street lights are being replaced by LED -- lights in this article.

Hey, I have street lights AND cameras on the same poles at the shop/mad scientist lab/ play house.

but- surveillance -- the wall better have these lights -- light up the border !

Oldguy05 , 1 hour ago link

This is yesteryears news. Shot Spotter has microphones that can pick up whispered conversations for 300 feet for a long time now, while triangulating any gunshot in a city...

[Nov 12, 2018] France The Incredible Shrinking President by Guillaume Durocher

Nov 12, 2018 | www.unz.com

I personally don't understand the French electorate on these matters. Macron in particular did not promise anything other than to deliver more of the same policies, albeit with more youth and more vigor, as a frank globalist. Who, exactly, was excited at his election but is disappointed now? People with a short attention span or susceptibility to marketing gimmicks, I assume.

It is hard to talk about the French media without getting a bit conspiratorial, at least, I speak of "structural conspiracies." Macron's unabashed, "modernizing" globalism certainly corresponds to the id of the French media-corporate elites and to top 20% of the electorate, let us say, the talented fifth. He was able to break through the old French two-party system, annihilating the Socialist Party and sidelining the conservatives. The media certainly helped in this, preferring him to either the conservative François Fillon or the civic nationalist Marine Le Pen.

However, the media have to a certain extent turned on Macron, perhaps because he believes his "complex thoughts" cannot be grasped by journalists with their admittedly limited cognitive abilities . Turn on the French radio and you'll hear stories of how the so-called "Youth With Macron," whose twenty- and thirty-somethings were invited onto all the talk shows just before Macron became a leading candidate, were actually former Socialist party hacks with no grass roots. Astroturf. I could have told you that.

Macron has made a number of what the media call "gaffes." When an old lady voiced concern about the future of her pension, he answered : "you don't have a right to complain." He has also done many things that anyone with just a little sense of decorum will be disgusted by. The 40-year-old Macron, who has a 65-year-old wife and claims not to be a homosexual, loves being photographed with sweaty black bodies.

... ... ...

So there's that. But, in terms of policies, I cannot say that the people who supported Macron have any right to complain. He is doing what he promised, that is to say, steaming full straight ahead on the globalist course with, a bit more forthrightness and, he hopes, competence than his Socialist or conservative predecessors.

Link Bookmark In truth there are no solutions. There is nothing he can do to make the elitist and gridlocked European Union more effective, nothing he can do to improve the "human capital" in the Afro-Islamic banlieues , and not much he can do to improve the economy which the French people would find acceptable. A bit more of labor flexibility here, a bit of a tax break there, oh wait deficit's too big, a tax hike in some other area too, then. Six of one, half a dozen in the other. Oh, and they've also passed more censorship legislation to fight "fake news" and "election meddling" and other pathetic excuses the media-political class across the West have come up with for their loss of control over the Narrative.

Since the European Central Bank has been printing lending hundreds of billions of euros to stimulate the Eurozone economy, France's economic performance has been decidedly mediocre, with low growth, slowly declining unemployment, and no reduction in debt (currently at 98.7% of GDP). Performance will presumably worsen if the ECB, as planned, phases out stimulus at the end of this year.

There is a rather weird situation in terms of immigration and diversity. Everyone seems to be aware of the hellscape of ethno-religious conflict which will thrive in the emerging Afro-Islamic France of the future. Just recently at the commemoration of the Battle of Verdun, an elderly French soldier asked Macron : "When will you kick out the illegal immigrants? . . . Aren't we bringing in a Trojan Horse?"

More significant was the resignation of Gérard Collomb from his position as interior minister last month to return to his old job as mayor of Lyon, which he apparently finds more interesting. Collomb is a 71-year-old Socialist politician who has apparently awakened to the problems of ethnic segregation and conflict. He said in his farewell address :

I have been in all the neighborhoods, the neighborhoods of Marseille-North to Mirail in Toulous, to the Parisian periphery, Corbeil, Aulnay, Sevran, the situation has deteriorated greatly. We cannot continue to work on towns individually, there needs to be an overarching vision to recreate social mixing. Because today we are living side by side, and I still say, me, I fear that tomorrow we will live face-to-face [i.e. across a battle lines].

It is not clear how much Collomb tried to act upon these concerns as interior minister and was frustrated. In any case, he dared to voice the same concerns to the far-right magazine Valeurs Actuelles last February. He told them: "The relations between people are very difficult, people don't want to live together" (using the term vivre-ensemble , a common diversitarian slogan). He said immigration's responsibility for this was "enormous" and agreed with the journalist that "France no longer needs immigration." Collomb then virtually predicted civil war:

Communities in France are coming into conflict more and more and it is becoming very violent . . . I would say that, within five years, the situation could become irreversible. Yes, we have five or six years to avoid the worst. After that . . .

It's unclear why "the next five or six years" should be so critical. From one point of view, the old France is already lost as about a third of births are non-European and in particular one fifth are Islamic . The patterns of life in much of France will therefore likely come to reflect those of Africa and the Middle-East, including random violence and religious fanaticism. Collomb seems to think "social mixing" would prevent this, but in fact, there has been plenty of social and even genetic "mixing" in Brazil and Mexico, without this preventing ethno-racial stratification and extreme levels of violence.

I'm afraid it's all more of the same in douce France , sweet France. On the current path, Macron will be a one-termer like Sarkozy and Hollande were. Then again, the next elections will be in three-and-a-half years, an eternity in democratic politics. In all likelihood, this would be the Right's election to win, with a conservative anti-immigration candidate. A few people of the mainstream Right are open to working with Le Pen's National Rally and some have even defended the Identitarians. Then again, I could even imagine Macron posing as a heroic opponent of (illegal . . .) immigration if he thought it could help get him reelected. Watch this space . . .


utu , says: November 8, 2018 at 9:55 pm GMT

How many immigrants from Africa come to Europe depends only on political will of Europeans. The demography of African has nothing to do with it. Europe has means to stop immigration legal and illegal. Macron talking about how many children are born in Africa is just another cop out.
utu , says: November 8, 2018 at 11:04 pm GMT
Armed force 'led by former MAFIA boss' causing dramatic reduction in migrants to Italy

https://www.express.co.uk/news/world/844213/italy-close-migrant-shut-down-mafia-libya-Sabratha-un-election-eu-tripoli-summer-turkey

Italy passes sea rescue of 1,000 to Libya as EU nations hold informal talks on migration

https://www.thejournal.ie/migrants-italy-eu-spain-meeting-4089279-Jun2018/

FKA Max , says: Website November 9, 2018 at 8:07 pm GMT
@Dieter Kief I love Macron, too!

A few months ago I claimed that Emmanuel Macron has/holds an ""Alt Right" worldview" due to him having had interactions with an influential member of the French Protestant Huguenot minority in France: http://www.unz.com/article/collateral-damage/#comment-1955020
[...]
Macron : Germany is different from France. You are more Protestant, which results in a significant difference. Through the church, through Catholicism, French society was structured vertically, from top to bottom. I am convinced that it has remained so until today. That might sound shocking to some – and don't worry, I don't see myself as a king. But whether you like it or not, France's history is unique in Europe. Not to put too fine a point on it, France is a country of regicidal monarchists. It is a paradox: The French want to elect a king, but they would like to be able to overthrow him whenever they want. The office of president is not a normal office – that is something one should understand when one occupies it. You have to be prepared to be disparaged, insulted and mocked – that is in the French nature. And: As president, you cannot have a desire to be loved. Which is, of course, difficult because everybody wants to be loved. But in the end, that's not important. What is important is serving the country and moving it forward.

http://www.unz.com/article/the-elites-have-no-credibility-left/#comment-2042622

French army band medleys Daft Punk following Bastille Day parade

notanon , says: November 9, 2018 at 8:25 pm GMT

Who, exactly, was excited at his election but is disappointed now? People with a short attention span or susceptibility to marketing gimmicks, I assume.

people controlled by the media

the media are the main problem

[Nov 12, 2018] Trump Or Cheney WSJ Asks Who's The Real American Psycho

Notable quotes:
"... Would you rather have a professional assassin after you or a frothing maniac with a meat cleaver? ..."
Nov 12, 2018 | www.zerohedge.com

After a screening of "Vice" Thursday, I asked McKay which of our two right-wing Dementors was worse, Cheney or Trump.

"Here's the question," he said.

"Would you rather have a professional assassin after you or a frothing maniac with a meat cleaver? I'd rather have a maniac with a meat cleaver after me, so I think Cheney is way worse.

And also, if you look at the body count, more than 600,000 people died in Iraq. It's not even close, right? "

[Nov 11, 2018] LaRouche, Soros, and the New York Times A Strange S ance on 43rd Street LaRouchePAC

Nov 11, 2018 | larouchepac.com

The flailing New York Times attempted, frantically, to reassemble George Soros into something resembling a respectable person in its November 1st edition. The made-up claims and artifices used by the Gray Lady in this respect would tickle Edgar Allen Poe who chronicled such an effort in his short story, "The Man Who Was All Used Up." If you know Poe's story, he encounters a pile of clothing and artificial limbs lying on the floor which begins speaking to him. A man then slowly assembles himself using all artificial parts. As is typical of this newspaper, the actual George Soros is nowhere to be found in the article.

The Times describes Soros' fanatical drive to turn the United States into an opium den as "drug reform." His disgusting crusade which looted Russia and subverted its intelligentsia on behalf of the City of London is described as "service" on behalf of the United States. His currency speculations which also destroyed whole countries are described as "intriguing" investment decisions. The Times goes out of its way to mischaracterize Soros' confessed adolescent role under the Nazis, working under forged identity papers in his native Hungary, to confiscate the property of his fellow Jews. In a CBS 60 Minutes interview about this perfidy, Soros admitted it, and stated that he had no guilt or regrets. Had he not acted in this way somebody else would have, he said. The experience formed his character. The Times' only reference to this well-known but inconvenient reality is to state that Soros lived under the Nazis as a "Christian." But, what can you expect from a newspaper which openly praised Adolph Hitler in his early incarnations?

The central purpose of the Times piece is name calling: pinning an anti-Semitic label on those who think Soros is evil, particularly President Donald Trump. The fact that Soros is funding British spy Christopher Steele's post-FBI existence, and the fact of Soros' continued direction, participation, and funding of the regime change operation against the President including many of the operations of RESIST, of course, have nothing to do with Trump's dislike of George and are never mentioned to the reader. In this exercise, the Times also omits the Israeli government's recent characterization of George Soros. While condemning recent anti-Semitic incidents in Hungary, the Israeli Foreign Ministry emphasized that its statement was not "meant to delegitimize criticism of George Soros, who continuously undermines Israel's democratically elected governments by funding organizations that defame the Jewish state and seek to deny it the right to defend itself." Finally, the Times asserts that all of the facts now in circulation about George Soros are attributable to Lyndon LaRouche and unnamed Eastern European tyrants. They link to the New York Times coverage of LaRouche's criminal conviction. But even the footnote to that linked article makes clear that the Grey Lady can't even do straight news coverage of a court case when it comes to their bete noire, Lyndon LaRouche. As the corrective footnote explains, LaRouche was not convicted of substantive fraud charges, like the Times article about that event asserted. Rather, the footnote explains, LaRouche was convicted of a broad conspiracy. In truth, this was exactly the same type of Klein conspiracy Robert Mueller is now using against the Russians he indicted for an alleged small bore social media campaign in 2016. Klein conspiracies are famously abusive uses of the conspiracy laws which allow prosecutors to cheat and convict people of made up crimes.

The Times' futile reconstruction effort of course fails, miserably. Soros is, simply, a man who is all used up. The stuff people recount about him is provably and devastatingly true. The only error made by his detractors is to believe he has any kind of power anymore. He only has his money and such fame as comes from being a thoroughly British project –an aging and overused hitman for the failing City of London.

[Nov 10, 2018] Burying The Other Russia Story: WSJ Editors Expose The House Democrats' Real Plan

Notable quotes:
"... Adam Schiff will shut down the probe that found FBI abuses. ..."
"... Credit for knowing anything at all goes to Intel Chairman Devin Nunes and more recently a joint investigation by Reps. Bob Goodlatte (Judiciary) and Trey Gowdy (Oversight). Over 18 months of reviewing tens of thousands of documents and interviewing every relevant witness, no Senate or House Committee has unearthed evidence that the Trump campaign colluded with Russia to win the presidential election. If Special Counsel Robert Mueller has found more, he hasn't made it public. ..."
"... But House investigators have uncovered details of a Democratic scheme to prod the FBI to investigate the Trump campaign. We now know that the Hillary Clinton campaign and the Democratic National Committee hired Fusion GPS, which hired an intelligence-gun-for-hire, Christopher Steele, to write a "dossier" on Donald Trump's supposed links to Russia. ..."
"... Mr. Steele fed that document to the FBI, even as he secretly alerted the media to the FBI probe that Team Clinton had helped to initiate. Fusion, the oppo-research firm, was also supplying its dossier info to senior Justice Department official Bruce Ohr, whose wife, Nellie, worked for Fusion. ..."
"... This abuse of the FBI's surveillance powers took place as part of a counterintelligence investigation into a presidential campaign -- which the FBI also hid from Congress. Such an investigation is unprecedented in post-J. Edgar Hoover American politics, and it included running informants into the Trump campaign, obtaining surveillance warrants, and using national security letters, which are secret subpoenas to obtain phone records and documents. ..."
Nov 10, 2018 | www.zerohedge.com

Via The Wall Street Journal

Adam Schiff will shut down the probe that found FBI abuses.

Arguably the most important power at stake in Tuesday's election was Congressional oversight, and the most important change may be Adam Schiff at the House Intelligence Committee. The Democrat says his top priority is re-opening the Trump-Russia collusion probe, but more important may be his intention to stop investigating how the FBI and Justice Department abused their power in 2016. So let's walk through what we've learned to date.

Credit for knowing anything at all goes to Intel Chairman Devin Nunes and more recently a joint investigation by Reps. Bob Goodlatte (Judiciary) and Trey Gowdy (Oversight). Over 18 months of reviewing tens of thousands of documents and interviewing every relevant witness, no Senate or House Committee has unearthed evidence that the Trump campaign colluded with Russia to win the presidential election. If Special Counsel Robert Mueller has found more, he hasn't made it public.

But House investigators have uncovered details of a Democratic scheme to prod the FBI to investigate the Trump campaign. We now know that the Hillary Clinton campaign and the Democratic National Committee hired Fusion GPS, which hired an intelligence-gun-for-hire, Christopher Steele, to write a "dossier" on Donald Trump's supposed links to Russia.

Mr. Steele fed that document to the FBI, even as he secretly alerted the media to the FBI probe that Team Clinton had helped to initiate. Fusion, the oppo-research firm, was also supplying its dossier info to senior Justice Department official Bruce Ohr, whose wife, Nellie, worked for Fusion.

House investigators have also documented the FBI's lack of judgment in using the dossier to obtain a Foreign Intelligence Surveillance Act (FISA) warrant against former Trump aide Carter Page. The four FISA warrants against Mr. Page show that the FBI relied almost exclusively on the unproven Clinton-financed accusations, as well as a news story that was also ginned up by Mr. Steele.

The FBI told the FISA court that Mr. Steele was "credible," despite Mr. Steele having admitted to Mr. Ohr that he passionately opposed a Trump Presidency. The FBI also failed to tell the FISA court about the Clinton campaign's tie to the dossier.

This abuse of the FBI's surveillance powers took place as part of a counterintelligence investigation into a presidential campaign -- which the FBI also hid from Congress. Such an investigation is unprecedented in post-J. Edgar Hoover American politics, and it included running informants into the Trump campaign, obtaining surveillance warrants, and using national security letters, which are secret subpoenas to obtain phone records and documents.

Mr. Nunes and his colleagues also found that officials in Barack Obama's White House "unmasked" Trump campaign officials to learn about their conversations with foreigners; that FBI officials exhibited anti-Trump bias in text messages; and that the FBI team that interviewed then Trump National Security Adviser Michael Flynn reported that they did not think Mr. Flynn had lied about his Russian contacts. Mr. Mueller still squeezed Mr. Flynn to cop a guilty plea.

All of this information had to be gathered despite relentless opposition from Democrats and their media contacts. Liberal groups ginned up a phony ethics complaint against Mr. Nunes, derailing his committee leadership for months. Much of the media became Mr. Schiff's scribes rather than independent reporters. Meanwhile, the FBI and Justice continue to stonewall Congress, defying subpoenas and hiding names and information behind heavy redactions.

There is still much more the public deserves to know. This includes how and when the FBI's Trump investigation began, the extent of FBI surveillance, and the role of Obama officials and foreigners such as Joseph Mifsud, a Maltese academic who in spring 2016 supposedly told Trump campaign adviser George Papadopoulos that Russia held damaging Clinton emails. When he takes over the committee, Mr. Schiff will stop asking these questions and bless the FBI-Justice refusal to cooperate.

Senate Republicans could continue to dig next year, but Mr. Mueller seems uninterested. Attorney General Jeff Sessions in March asked Utah U.S. Attorney John Huber to look into FBI misconduct, but there has been little public reporting of what he is finding, if he is even still looking. Justice Inspector General Michael Horowitz is investigating, though that report is likely to take many more months.

* * *

All of which puts an additional onus on Mr. Trump to declassify key FBI and Justice documents sought by Mr. Nunes and other House investigators before Mr. Schiff buries the truth. A few weeks ago Mr. Trump decided to release important documents, only to renege under pressure from Deputy AG Rod Rosenstein and members of the intelligence community.

Mr. Sessions resigned this week and perhaps Mr. Rosenstein will as well. Meantime, Mr. Trump should revisit his decision and help Mr. Nunes and House Republicans finish the job in the lame duck session of revealing the truth about the misuse of U.S. intelligence and the FISA court in a presidential election.

[Nov 10, 2018] Russian State-Owned Bank VTB Funded Rosneft Stake Sale To Qatari Fund

Notable quotes:
"... Later, it emerged that QIA and Glencore planned to sell the majority of the stake they had acquired in Rosneft to China's energy conglomerate CEFC, but the deal fell through after Beijing set its sights on CEFC and launched an investigation that saw the removal of its chief executive. The investigation was reportedly part of a wide crackdown on illicit business practices on the part of private Chinese companies favored by Beijing. ..."
Nov 10, 2018 | www.zerohedge.com

Authored by Irina Slav via Oilprice.com,

Russian VTB, a state-owned bank, funded a significant portion of the Qatar Investment Authority's acquisition of a stake in oil giant Rosneft , Reuters reports , quoting nine unnamed sources familiar with the deal.

VTB, however, has denied to Reuters taking any part in the deal.

"VTB has not issued and is not planning to issue a loan to QIA to finance the acquisition," the bank said in response for a request for comment.

The Reuters sources, however, claim VTB provided a US$6 billion loan to the Qatar sovereign wealth fund that teamed up with Swiss Glencore to acquire 19.5 percent in Rosneft last year. Reuters cites data regarding VTB's activity issued by the Russian central bank that shows VTB lent US$6.7 billion (434 billion rubles) to unnamed foreign entities and the loan followed another loan of US$5.20 billion (350 billion rubles) from the same central bank.

The news first made headlines in December, taking markets by surprise, as Rosneft's partial privatization was expected by most to be limited to Russian investors. The price tag on the stake was around US$11.57 billion (692 billion rubles), of which Glencore agreed to contribute US$324 million. The remainder was forked over by the Qatar Investment Authority, as well as non-recourse bank financing.

Russia's budget received about US$10.55 billion ( 710.8 billion rubles ) from the deal, including US$ 270 million (18 billion rubles) in extra dividends. Rosneft, for its part, got an indirect stake in Glencore of 0.54 percent.

Later, it emerged that QIA and Glencore planned to sell the majority of the stake they had acquired in Rosneft to China's energy conglomerate CEFC, but the deal fell through after Beijing set its sights on CEFC and launched an investigation that saw the removal of its chief executive. The investigation was reportedly part of a wide crackdown on illicit business practices on the part of private Chinese companies favored by Beijing.

solidtare , 30 minutes ago link

Took z/h almost 2 years, and of course from a tertiary source - Reuters

John Helmer nailed this scam 2 years ago, and got hammered for it