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War of finance

From: David Ruccio

Seven years after the global financial crash, we’re still in the midst of a full-scale war of finance.

On one side of the Atlantic, U.S. Court of Claims Judge Thomas Wheeler found that former AIG head Hank Greenberg was indeed correct in claiming the government overstepped its legal boundaries in its “unduly harsh treatment of AIG in comparison to other institutions” that was “misguided and had no legitimate purpose.” The ruling basically confirmed the Fed’s right to create a gigantic bailout of Wall Street but denied its ability to actually determine the use of the funds by the “taking of equity” in essentially worthless financial institutions like AIG.

Finance thus continues to win the war in the United States.

And, as Ambrose Evans-­Pritchard [ht: sw] explains, finance is engaged in all-out war in Europe.

Rarely in modern times have we witnessed such a display of petulance and bad judgment by those supposed to be in charge of global financial stability, and by those who set the tone for the Western world.

The spectacle is astonishing. The European Central Bank, the EMU bail­out fund, and the International Monetary Fund, among others, are lashing out in fury against an elected government that refuses to do what it is told. They entirely duck their own responsibility for five years of policy blunders that have led to this impasse.

They want to see these rebel Klephts hanged from the columns of the Parthenon – or impaled as Ottoman forces preferred, deeming them bandits ­ even if they degrade their own institutions in the process.

The European Central Bank is actively inciting a bank run in Greece and threatening to throw that country out of the euro zone if it resists the demands of the creditors, represented by the troika, without ever seriously considering the proposals put forward by the democratically elected Syriza government.

The truth is that the creditor power structure never even looked at the Greek proposals. They never entertained the possibility of tearing up their own stale, discredited, legalistic, fatuous Troika script.

The decision was made from the outset to demand strict enforcement of the terms agreed in the original Memorandum, which even the last conservative pro­Troika government was unable to implement ­ regardless of whether it makes any sense, or actually increases the chance that Germany and other lenders will recoup their money.

At best, it is bureaucratic inertia, a prime exhibit of why the EU has become unworkable, almost genetically incapable of recognising and correcting its own errors.

At worst, it is nasty, bullying, insistence on ritual capitulation for the sake of it.

The troika, in other words, is acting like a unified debt collector, and is willing to go so far as to threaten to topple a democratically elected government to set an example that, in Greece and elsewhere in Europe, finance is willing to do anything and everything to win the war.

See post on original website

  1. Larry Motuz
    June 30, 2015 at 4:26 am

    Excellent ‘gist’ of the matter.

    • Larry Motuz
      June 30, 2015 at 4:29 am

      Should have added that

      As it happened – Yanis Varoufakis’ intervention during the 27th June 2015 Eurogroup Meeting
      by Editor

      might be read as a companion piece.

  2. June 30, 2015 at 6:41 pm

    Well written, David. “Finance thus continues to win the war in the United States” and Europe not just because the terms of reference of judges have been restricted by lawyers to the interpretation of the letters of their laws rather than to justice, but by good men doing nothing about the covertly private creation of fraudulent money being unconstitutional (in the USA: the UK constitution is conveniently “unwritten”), despite its occasional historic recognition and recent exposure in documentaries like “The Money Masters” and “The Inside Job”.

    Good men in academia have continued to handicap themselves by failing to recognise that money is a form of information, and has no real power so long as we don’t believe it has the value it claims to have, and that the paradigms of information science not only exist but have largely outmoded the Newtonian celestial mechanics of force paradigm on which economic and political theory are still based. Money does not expand willy-nilly into unbounded space but follows well defined types of communication channel which determine the ordering of its distribution.

    We don’t expect to hit objects in space by shooting a gun at them: we send guided missiles (or better, remote sensors) in which error information is used to correct errors as they occur rather than to mislead enemies. Children play games to revel in their own powers (cf. Egmont on Varoufakis’ intervention 27 June 2015); grown-ups have learned how to design reliable information systems but so far have not learned how to ensure the significance and truth of the information they contain.

    Newton’s mistake lay in his timeless Cartesian dimensional system. Honest economists as well as con-men, despite being warned that “all that glitters is not gold” and “the love of money is the root of all evil”, have at least since the time of Moses misled themselves and childish, power-hungry politicians by judging the value of money by appearances and pre-scientific arithmetic. Not seeing that Cartesian directions can be to as well as from us; that values can be negative as well as positive; that money is not debt but a credit limit; that our debts are not to the banks which rate our credit-worthiness and manage our IOU’s but to the world and society which supplies our needs. Nor can our debt be repaid other than by our regenerating what we consume (i.e. earning our keep). Return of our IOU’s by merchant creditors merely allows debts incurred by our purchases to be accounted for.

    The answer to the war of finance is thus honest money, defined in constitutional law as an IOU. Let us laugh at the children playing in their stock markets and mock parliaments with their “fool’s gold”, but let adults accept that real trade can be (and is being) conducted perfectly well with a “credit card” system in which interest payments are only incurred as a penalty for unjustifiable late payment. Neither banks nor the government create credit money: this is created by and local to us when we spend it and not circulated but written off when we have earned it. All the need for and problems with saving, insurance, pensions and crime simply disappear.

    This is not the place to spell out the details of the whole system, in which the credit limit is adjusted in line with increasing skills and committed repayment, but clearly the immediate needs of the Greek people can be met with a ration of credit distributed to all who are in employment, distress or earning their keep in some other way.

    The outstanding question is, whether Varoufakis has thought of this, and if not, how can a blogger even on this site bring it to his attention?

  3. July 1, 2015 at 3:50 pm

    Ditto and the hazards of diprosopus
    Comment on ‘War of finance’

    “Diprosopus (Greek two-faced) is an extremely rare disorder whereby parts or all of the face are duplicated on the head. Few two-faced animals have survived …. One of the most famous was Ditto, a pig. Ditto was raised to adulthood, but died of pneumonia caused by food inhalation when breathing through one muzzle while eating with the other.” (Wikipedia, https://en.wikipedia.org/wiki/Diprosopus)

    Like Ditto, economics has two faces: a political and a scientific face; and the two are at war. Political economics pushes an agenda, theoretical economics tries to figure out how the actual economy works. Political economics has hijacked theoretical economics.

    As a result, theoretical economics is in rather poor condition. Neither Walrasianism, nor Keynesianism, nor the rest is acceptable when the scientific criteria of material and formal consistency are applied. Hence, economics has nothing to offer in the way of real scientific value.

    In the beginning, economists defined themselves as political economists. However, note how J. S. Mill draw a clear line between politics and science.

    “A scientific observer or reasoner, merely as such, is not an adviser for practice. His part is only to show that certain consequences follow from certain causes, and that to obtain certain ends, certain means are the most effectual. Whether the ends themselves are such as ought to be pursued, and if so, in what cases and to how great a length, it is no part of his business as a cultivator of science to decide, and science alone will never qualify him for the decision.” (Mill, 2006, p. 950)

    It is fair to say that not only Orthodoxy is in the grip of politics but Heterodoxy, too. Hence, economics is entirely out of science.

    David Ruccio’s post is a case in point. It is not about economics proper, but about the use of economic institutions in a ‘war of finance.’ My point is not whether this description is true/false, but that with this war report we are in the realm of politics and have left economics far behind.

    My question is what Heterodoxy stands for at the moment and what it should be in the future. My idea is clear and simple: (i) Heterodoxy should replace Orthodoxy as the superior scientific approach, and (ii), economics as a scientific discipline should refuse to be the useful idiot in any politician’s war whatsoever.

    These were Ditto’s last words: One face is more than enough.

    Egmont Kakarot-Handtke

    Mill, J. S. (2006). A System of Logic Ratiocinative and Inductive. Being a Connected
    View of the Principles of Evidence and the Methods of Scientific Investigation,
    volume 8 of Collected Works of John Stuart Mill. Indianapolis, IN: Liberty Fund.

    • July 1, 2015 at 7:57 pm

      “My question is what Heterodoxy stands for at the moment and what it should be in the future”.

      I like that. This someone else has sent me I find seductive, subject to reservations about Chechnya and the black hole rather than people’s efforts keeping the economy moving:


      • July 2, 2015 at 8:14 am

        When one thinks about it, what Putin did to Russian Chechnya is much the same as Asad is doing to dissident Syria, by now also essentially Muslim. Britain is now again thinking of bombing the Muslims, but would surely do better to try winning friends and influencing people in the direction of peaceful co-existence. (As indeed the Troika should have been doing in Europe).

    • July 2, 2015 at 7:46 am

      Re-reading the J S Mill quote in this splendid contribution by Egmont, I noticed an interesting ambiguity. By “certain”, does Mill mean one assured with 100% probability, or merely a particular one, not actually specified?

      I don’t think I agree with Mill, anyway. “Even as such” (i.e. not allowing for the fact that he is also a man and citizen), scientific discoveries are often made by scientifically minded people in the course of their employment as advisors on technological development, where they have to rule out some lines of development due to unwanted side effects. As an information scientist I am not only thinking of my own experience but in particular of the great scientists Heaviside and Shannon, both engaged in the development of reliable communication, where there is an inevitable choice between efficiency and reliability (i.e. certainty of outcomes only if one is able to and actually do make good failings, as they occur).

      • July 2, 2015 at 10:11 am

        Re-reading David Ruccio’s article, note the relevance of the above to his quotation from Ambrose Evan’s-Pritchard:

        “At best, it is bureaucratic inertia, a prime exhibit of why the EU has become unworkable, almost genetically incapable of recognising and correcting its own errors.”

        Seeking a more humorous (if wry) take on the crisis, I found http://thearchdruidreport.blogspot.co.uk/ also on this week about the correct use of language, having last week looked at mixed Catholic reactions to Pope Francis’s “conservative” warnings about what we are doing to the world’s ecology. Greer ends naively saying “ideas come first and the technologies follow”. Actually, new technologies (e.g. flying) are attempted, and new ideas correct their failings (e.g. turbulence at the ends of wings, c.f. the turned up wing-tips on some modern jets).

        Apologies for a string of after-notes, but they seem worth sharing. How embarrassing when others don’t join in!

  4. BC
    July 2, 2015 at 3:45 pm

    Economics is politics. Politics is war by other means. War is the business of empire. War is good business for imperialists. Ergo, economics is the political rationalization for global militarist-imperialist expansion.

    Further, the US and increasingly other western economies have become hyper-financialized in that unprecedented debt/asset bubbles result in total net annual flows to the financial sector equaling total annual output of the economy. Thus, all US labor product, profits, and gov’t receipts are pledged to the top 0.001-1% owners of the net flows to the financial sector in perpetuity. The economy can no longer grow less the claims to the rentier caste.

    Therefore, the US arguably is a militarist-imperialist, rentier-socialist corporate-state owned by the top 0.001-1% who have largely become untouchable and thus unaccountable to anyone but themselves.

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