Monday, October 17, 2011
Econned
Been reading Econned, a new book by Yves Smith. Explains in great detail, with plenty of stories, how the "scientific" theories of economics have been used as the basis for the 30-year reign of evil in Western capitalism. Verifies most of the things I've been seeing from the outside, such as the replacement of profit motive by share price and the totally criminal attitude of the bankers.
Smith gives a commonsense explanation for the superiority of non-profit or privately held companies over share-based companies. I'd been seeing the effects of the difference: when your aim is higher share price, you merge, acquire and manipulate instead of serving customers. Smith discusses those consequences at some length and also gives the basic cause, which I hadn't understood. When you're privately held, you're using your own money for capital, and you care what happens to your own money. When you're market-based, you're using Other People's Money for capital, and you don't give a shit what happens to them. (Yet another example of the broken circle, the total failure of the feedback loops that used to form the 'invisible hand'. Without negative feedback any organism or organization is doomed.)
[Incidentally, great verification of the difference on NPR's Talk of the Nation program today. Question is "Who's Hiring?" Answer is: Not small businesses. They're either too small to have employees, or they're failing at the same rate as they pop up. No net growth. And certainly not evil treasonous share-based corporations; they're stealing American jobs and shipping them to China and India as fast as they possibly can. The only net growth is in mid-sized privately held companies, which are running steadily and growing slowly. Because they're small enough to have personal connections to employees and customers, they serve both well.]
The problem with business and government being 'blinded by science' is a lot worse than I thought! One example:
This equation represents the value of a derivative that was sold to quite a few suckers who should have known better. The suckers weren't old ladies in Palm Beach, they were investment departments at banks and insurance companies who presumably knew something about math.
I could see in about 5 seconds that the resultant payout of the derivative was always exactly zero at the time when it was invented. (In the last couple years it could be nonzero because LIBOR has become a tiny number, but that wasn't anticipated.)
Parsing it out: [LIBOR X 1/LIBOR] = 1. [LIBOR to the 4th x LIBOR to the -3rd] = LIBOR. So the middle part equals [1-LIBOR], which was always a negative number until rather recently. Multiply and divide this negative number by various positive stuff (NP, 7, days, 360) and you still have a negative number. The maximum of 0 and any negative number is always 0.
Basic algebra, not fancy calculus. It's painfully obvious. And yet: "The client was paying $4 million a month for three years for the privilege of having a perfectly worthless contract."
The situation exactly parallels the "global warming" scam, where equations and data that can be immediately spotted as false continue to bamboozle every government, every university, and every media outlet in the world.
Been reading Econned, a new book by Yves Smith. Explains in great detail, with plenty of stories, how the "scientific" theories of economics have been used as the basis for the 30-year reign of evil in Western capitalism. Verifies most of the things I've been seeing from the outside, such as the replacement of profit motive by share price and the totally criminal attitude of the bankers.
Smith gives a commonsense explanation for the superiority of non-profit or privately held companies over share-based companies. I'd been seeing the effects of the difference: when your aim is higher share price, you merge, acquire and manipulate instead of serving customers. Smith discusses those consequences at some length and also gives the basic cause, which I hadn't understood. When you're privately held, you're using your own money for capital, and you care what happens to your own money. When you're market-based, you're using Other People's Money for capital, and you don't give a shit what happens to them. (Yet another example of the broken circle, the total failure of the feedback loops that used to form the 'invisible hand'. Without negative feedback any organism or organization is doomed.)
[Incidentally, great verification of the difference on NPR's Talk of the Nation program today. Question is "Who's Hiring?" Answer is: Not small businesses. They're either too small to have employees, or they're failing at the same rate as they pop up. No net growth. And certainly not evil treasonous share-based corporations; they're stealing American jobs and shipping them to China and India as fast as they possibly can. The only net growth is in mid-sized privately held companies, which are running steadily and growing slowly. Because they're small enough to have personal connections to employees and customers, they serve both well.]
The problem with business and government being 'blinded by science' is a lot worse than I thought! One example:
This equation represents the value of a derivative that was sold to quite a few suckers who should have known better. The suckers weren't old ladies in Palm Beach, they were investment departments at banks and insurance companies who presumably knew something about math.
I could see in about 5 seconds that the resultant payout of the derivative was always exactly zero at the time when it was invented. (In the last couple years it could be nonzero because LIBOR has become a tiny number, but that wasn't anticipated.)
Parsing it out: [LIBOR X 1/LIBOR] = 1. [LIBOR to the 4th x LIBOR to the -3rd] = LIBOR. So the middle part equals [1-LIBOR], which was always a negative number until rather recently. Multiply and divide this negative number by various positive stuff (NP, 7, days, 360) and you still have a negative number. The maximum of 0 and any negative number is always 0.
Basic algebra, not fancy calculus. It's painfully obvious. And yet: "The client was paying $4 million a month for three years for the privilege of having a perfectly worthless contract."
The situation exactly parallels the "global warming" scam, where equations and data that can be immediately spotted as false continue to bamboozle every government, every university, and every media outlet in the world.
Labels: the broken circle
¶ 7:02 AM
