The Endgame Of Financialization: Stealth Nationalization

Authored by Charles Hugh Smith via OfTwoMinds blog,

This is the new model of nationalization: central banks control the valuation of private-sector assets without actually having to own them lock, stock and barrel.

As you no doubt know, central banks don"t actually print money and toss it out of helicopters; they create a digital liability and use this new currency to buy assets such as bonds and stocks. Central banks have found that they can take control of the stock and bond markets by buying up as much as these markets as is necessary to force price and yield to do the central banks" bidding.

Central Banks Have Purchased $2 Trillion In Assets In 2017. This increases their combined asset purchases above $15 trillion. A trillion here, a trillion there, and pretty soon you"re talking real money--especially if you add in assets purchased by sovereign wealth funds, dark pools acting on behalf of monetary authorities, etc.

Gordon Long and I discuss this stealth nationalization in our latest video program, The Results of Financialization: "Nationalization" (35 min):

In the old model of nationalization, governments expropriated/seized privately owned assets lock, stock and barrel. When a central state nationalized an enterprise, it took total ownership of the asset.

In today"s globalized financial world, such crude expropriation is avoided for two reasons:

1. The entire point of the dominant neoliberal / neofeudal /neocolonial model is to maintain private ownership as a means of transferring the wealth to the New Aristocracy, i.e. the financier class. Government ownership certainly conveys benefits to the some are more equal than others functionaries atop the state"s wealth-power pyramid, but it doesn"t transfer the assets" income streams to private hands.

2. It sends the wrong message: central banks want private investors to do their bidding, i.e. to go along with the transfer of wealth and income from the many to the few (the New Aristocracy). Maintaining the system of private ownership enables the central banks to control the markets for these assets at the modest cost of a few handfuls of the loot being distributed to the small-fry owners of IRAs, 401K retirement accounts, etc.

In other words, what central banks want is not outright ownership, which is costly and troublesome; what central banks want is to control the markets on the cheap, with leveraged buying. In effect, central banks have been able to manage assets worth $150 trillion with a mere $15 trillion in well-timed (and loudly announced) asset purchases.

This is the new model of nationalization: central banks control the valuation of private-sector assets without actually having to own them lock, stock and barrel. Being the buyer of last resort--the Plunge Protection Team that buys every dip in whatever size is needed to stabilize valuations and then reverse the downturn into yet another rally to new highs--has worked for nine long years.

This success has bred a complacent faith in the central bank cargo-cult that there is no limit to central bank control of yields, valuations and market sentiment.

But as I"ve described here many times, financialization is a box canyon. Once you start down the path to the Dark Side of phantom wealth created by commoditized debt and leverage (i.e. financialization), there"s no turning back to the real world.

The central bank aircraft is flying into a canyon with walls 2,000 feet high at an altitude of 300 feet. Everything seems to be going splendidly until the central bank aircraft rounds a bend in the canyon and discovers the canyon ends in a rock face 2,000 high.

In a desperate attempt to escape the box canyon, central banks will ramp up their assets purchases of bonds to keep yields near zero, and of stocks to keep the bubble valuations high enough to support all the debt and leverage that"s been piled on the underlying collateral of the stock market: non-phantom net earnings.

Needless to say, attempting to control global markets via the issuance of trillions in new currency and using that currency to buy huge chunks of the stock and bond markets is an unprecedented experiment.

To continue the box canyon analogy: central bankers and their cargo-cult faithful are confident central banks are flying an F-18 with afterburners on max; climbing 1,700 feet in a near-vertical ascent should be no problem.

Those of us outside the cargo cult see the central bankers flying a Wright Flyer: innovative in its time, but inadequate to the task of controlling private-sector markets via stealth nationalization.

*  *  *

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Americans Refuge In "Matrix Of Rackets" Is Failing

Authored by Howard Kunstler via Kunstler.com,

You might not know it, given all the ambient noise of the moment, but beyond the torments of news and propaganda there is still something called the nation. It’s more than just a political compact. Until not long ago it was also a culture, an agreed-upon set of values, practices, and customs that amounted to an identity: I’m an American. If you canvassed the crowd in Yankee Stadium one summer afternoon in 1947, I imagine each person would answer that way rather than saying I’m a wounded war veteran, I’m a WASP, I’m an oppressed housewife, I’m a negro, I’m Italian, I’m a Jew, I’m a union member, I’m a communist, I’m queer, I’m a rape victim….

These days, the hardships of history are shattering the nation and our response politically has been to take refuge in a matrix of rackets. Most of these rackets are economic, because it’s the essence of racketeering to extract the greatest benefit possible from the object of your racket at the least cost to the racketeer. In plain English, it’s an organized way of getting something for nothing. The identity politics of our time is another form of racketeering — extracting current maximum benefits on claims of mistreatment, often bygone, specious, or only imagined.

And so one of the truly existential questions of the moment is whether we’ll continue to be a nation, even geographically, and a lot of sentient observers aren’t too sure. Apparently we’re not too sure we even want to be. This is why the campaign slogan of Hillary Clinton, “Stronger Together,” rang so false when the Democratic Party worked so diligently in 2016 to construct separate identity fortifications and then declared culture war on the dwindling majority outside the ramparts. And you’re surprised that Donald Trump won the election?

Trump won by making promises that he’ll never be able to keep under the current circumstances. The main promise was to restore the standard of living enjoyed in bygone decades by former industrial workers and clerks. His promise was based on a misunderstanding of history: the notion that the industrial organization of daily life was a permanent part of the human condition. You could detect by the early 21st century that this was not so anymore. That was exactly why we tried to replace it with an economy of rackets. When there’s nothing left, a lot of people are going to try to get something for nothing, because there’s nothing else to do.

Hence, the financialization of the economy. In the 1950s, finance made up about five percent of the economy. It’s mission then was pretty simple and straightforward: to manage the accumulated wealth of the nation (capital) and then allocate it to those who proposed to generate greater wealth via new productive activities, mostly industrial, ad infinitum. It turned out that ad infinitum doesn’t work in a world of finite resources — but the ride had been so intoxicating that we couldn’t bring ourselves to believe it, and still can’t.

With industry expiring, or moving elsewhere (also temporarily), we inflated finance to nearly 40 percent of the economy. The new financialization was, in effect, setting a matrix of rackets in motion. What had worked as capital management before was allowed to mutate into various forms of swindling and fraud — such as the bundling of dishonestly acquired mortgages into giant bonds and then selling them to pension funds desperate for “yield,” or the orgy of merger and acquisition in health care that turned hospitals into cash registers, or the revenue streams on derivative “plays” that amounted to bets with no possibility of ever being paid off, or the three-card-monte games of interest rate arbitrage played by central banks and their “primary dealer” concubines.

Some of what I’ve listed above may be incomprehensible to the blog reader, and that is because these rackets were crafted to be opaque and recondite. The rackets continue without regulation or prosecution because there is an unstated appreciation in government, and in the corporate board rooms, that it’s all we’ve got left. What remains of the accustomed standard of living in America is supported by wishing and fakery and all that is now coming to a climax as we steam full speed ahead into Murphy’s law: if something can go wrong, it will.

When all of America comes to realize that President Trump doesn’t know what he’s doing, it will make last November’s national nervous breakdown look like a momentary case of the vapors. What can go wrong awaits in markets, banks, currencies, and the immense dark pools of counterparty obligations that amount to black holes where notions of value are sucked out of the universe. There is so much that can go wrong. And then it will. And then maybe that will prompt us back to consider  being a nation again.

Mary Jo White Seriously Misled The US Senate To Become SEC Chair

Submitted by Pam Martens and Russ Martens via WallStreetOnParade.com,

Less than two weeks after Mary Jo White was nominated to become Chair of the Securities and Exchange Commission by President Barack Obama on January 24, 2013, White filed an ethics disclosure letter advising that she would “retire” from her position representing Wall Street banks at the law firm Debevoise & Plimpton. White wrote on this subject in great detail, stating:

“Upon confirmation, I will retire from the partnership of Debevoise & Plimpton, LLP. Following my retirement, the law firm will not owe me an outstanding partnership share for either 2012 or any part of 2013. As a retired partner, I will be entitled to the use of secretarial services, office space and a blackberry at the firm’s expense. For the duration of my appointment, I will forgo these three benefits, though I may pay for some secretarial services at my own expense. Pursuant to the Debevoise & Plimpton, LLP Partners Retirement Program, I will receive monthly lifetime retirement payments from the firm commencing the month after my retirement. However, within 60 days of my appointment, the firm will make a lump sum payment, in lieu of making monthly retirement payments for the next four years. Within 60 days of my appointment, I also will receive payouts of my interest in the Debevoise & Plimpton LLP Cash Balance Retirement plan and my capital account.”

Yesterday it was widely reported in the business press that Mary Jo White is returning to her former law firm as a partner representing clients who face government investigations. She will also fill the newly created position of Senior Chair of the law firm.

This news is highly significant because it would appear that the U.S. Senate was seriously misled by White’s ethics letter in its deliberations to confirm her as the top cop of Wall Street.

The news is also highly significant because it will mark the fourth time in four decades that Mary Jo White has spun through the revolving doors of Debevoise & Plimpton (where she represented serial law violators) to government service (prosecuting serial law violators). The timeline is as follows:

2002 to 2013: White is a Debevoise & Plimpton partner, representing some of Wall Street’s serially charged banks: JPMorgan Chase, UBS, Bank of America, Morgan Stanley;

1993 to 2002: White is U.S. Attorney for the Southern District of New York (where Wall Street is located);

1990 to 1993: White serves as First Assistant United States Attorney and Acting United States Attorney in the Eastern District of New York;

1983 to 1990: White is litigation partner at Debevoise & Plimpton, where she focuses on white collar defense work, SEC enforcement matters and other corporate work;

1978 to 1981: White works as Assistant United States Attorney in the Southern District of New York, where she became Chief Appellate Attorney of the Criminal Division;

1976 to 1978: White is Associate at Debevoise & Plimpton.

White’s representation in 2013 that she was retiring proved very financially beneficial to her. Her Partners Retirement Program entitled her to receive $42,500 per month or $510,000 per year. But as White writes in her ethics letter, (ostensibly as a gesture toward removing the conflict of receiving ongoing monies from her old law firm), Debevoise was going to give her a “lump sum” for four years of payments, or more than $2 million. The Partner’s plan was unfunded, meaning the law firm had to stay in business to make those payments. Getting a cool $2 million out of harm’s way is a smart financial move. On top of that, White indicated in her ethics letter that she was cashing out of the “Debevoise & Plimpton LLP Cash Balance Retirement plan and my capital account.”

Not only was Mary Jo White a deeply conflicted candidate for SEC Chair but her husband, John White, also represented the big Wall Street banks as a partner at Cravath, Swaine & Moore LLP. Under Federal ethics rules, the conflicts of the spouse become the conflicts of the government employee. None of this persuaded members of the U.S. Senate Banking Committee (many of whom are richly financed in their political campaigns by Wall Street) to reject Mary Jo White’s nomination. The lone dissenter in the Committee’s 21-1 vote was Senator Sherrod Brown, who stated:

“At a time when our Attorney General says that the biggest Wall Street banks are in many ways above the law and the SEC is blocking shareholders’ efforts to break up the banks that they own, we need regulators who will fight every day for taxpayers, Main Street investors, and retirees. But too often we have seen public servants who settle for the status quo, instead of demanding accountability.

“I don’t question Mary Jo White’s integrity or skill as an attorney. But I do question Washington’s long-held bias towards Wall Street and its inability to find watchdogs outside of the very industry that they are meant to police. Mary Jo White will have plenty of opportunities to prove me wrong. I hope she will.”

Mary Jo White did not prove Senator Brown wrong. During her tenure, the long-awaited Consolidated Audit Trail (CAT) failed to get up and running – allowing all of those high frequency traders and Dark Pools on Wall Street to continue to loot the investing public with impunity. White also allowed the big banks to continue their jaded practice of engaging in capital relief trades as her former law firm gushed that the deals could be “effective use of balance sheet capital as banking organizations adjust to the post-crisis regulatory paradigm.”

During White’s tenure, a 25-year veteran trial lawyer at the SEC, James Kidney, retired in March 2014. At his retirement party, he delivered a scathing critique of SEC management. Kidney said that “On the rare occasions when Enforcement does go to the penthouse, good manners are paramount. Tough enforcement – risky enforcement – is subject to extensive negotiation and weakening.” White brought along her Enforcement Chief at the SEC, Andrew Ceresney, from Debevoise & Plimpton. He also returned to the law firm.

By June of 2015, White’s management of the SEC was so problematic that Senator Elizabeth Warren sent her a harsh 13-page critique of her performance. Warren called out White’s failure to finalize rules requiring disclosure of the ratio of CEO pay to the median worker; her continuing use of waivers for companies that violate securities law; the SEC’s continued practice of settling the vast majority of cases without requiring meaningful admissions of guilt; and White’s repeated recusals from investigations because of her prior employment and her husband’s current employment at law firms representing Wall Street.

In February 2015, the New York Times reported that the conflicts of White and her husband had resulted in her recusing herself “from more than four dozen enforcement investigations.” Instead of an SEC Chair, that sounds like a part-time worker.

Given this demoralizing experience with the gold-plated Washington-Wall Street revolving door, one would have expected that President Trump, the man promising to drain the swamp in Washington, to have come up with a better plan for stewardship of the SEC. Instead, Trump’s doubling down. His nominee for SEC Chair is Jay Clayton, a law partner at Sullivan & Cromwell, which has represented Goldman Sachs since the late 1800s. On top of that, Clayton’s wife is a Vice President of (wait for it) Goldman Sachs.

Until there is meaningful legislative reform of political campaign financing and revolving door appointments, Americans will continue to be relegated to the status of dumb tourist in their own country.

Russia is a 3rd World Country - 13 SECRET FACTS EXPOSED

Since publishing exclusively on Zero Hedge our expose on Russia in order to "counterbalance" the propaganda out there from the deep state, we"ve learned that there is a deep FACT VOID about this mysterious culture and place called RUSSIA and requires a series of articles.  This is a topic not being covered elsewhere!  And as we explain in our best-selling FX book - the world isn"t 

Anyone who has ever been to Russia, that is - outside of a 5 star hotel in Moscow which isn"t any different than a 5 star hotel anywhere else - you don"t need to read an article like this to agree, that Russia is a 3rd world country, or debate about how big their missiles are.  Being a 3rd world country isn"t a bad thing.  And of all the third world, Russia is the fastest growing.  Remember, Russia was born in 1990, and is a capitalist market economy.  Russia has grown by huge leaps and bounds in the past 25 years.  But they lack the cultural background to make the switch to a fully market economy.  What does that mean - in other words?  There is a mentality that was programmed into their brains, during the Soviet Union, that still lives in Russia and with that mentality, having anything but the Soviet system is difficult or impossible.  The new generation of iphones and consumerism, albeit vulgar, will have better chances at adapting to a global market economy which is what Russia hopes to be.  The communist hardliners are dead and dying, and not being replaced.  In a system where everyone saved and money sometimes didn"t exist (such as during Perestroika, where workers were paid with tickets, not money - which could be bartered with neighbors for example if one family didn"t drink alcohol, vodka tickets could be traded for more meat, making Russians develop a natural talent for trading in dark pools).

For those who will argue about "what is a third world country" let"s use this article as a base guideline, Russia certainly meets the definitions here.

If everything in and of the state is basically and profoundly corrupt (which naturally prompts the question if there is any political state in the world that is not corrupt and thus Third World?).

If nothing really works but there is always ‘a way’.

If you have to pay the authorities when entering or leaving the country. If you have to do both you’re actually in a Fourth World country!

If the price of taxis are either totally negotiable or strictly determined by government regulations — amounting to the same.

If there’s always a taxi and a willing driver to be found.

If there are no ways of proving whether you’ve been drinking and/or speeding behind the wheel.

If the government doesn’t care whether you’ve been drinking and/or speeding.

If road patrols routinely consist of heavily armed military.

If the paint on the bathroom walls have been allowed to stain the shower tiles as well. In this particular respect, Italy, Spain and France would easily qualify as ‘Third World countries’. The Greeks and the peoples of the Balkan countries, on the other hand, don’t do this. I guess they admire the Germans and have to some degree been influenced by them.

If painting the doors also on the inside is considered an unnecessary expense.

Before claiming yourself a self-professed "Russian Expert" you should either be 1) from Russia or 2) speak Russian language fluently, and have lived there for a number of years or 3) have extensively studied all things Russian.  If you are none of these, and want to have a quick education on the subject, here"s a few places to start:

A History of Russia: New, Revised Edition - This is a MUST READ for any Russophile, student of Russia, or someone who wants to do business in Russia.  Probably, the reason this is one book written objectively that offers fresh perspectives is for the simple reason that it was written by a Russian intelligentsia in the United States, while at Yale University:

Vernadsky took a novel approach to Russian history, presenting it as a continuous succession of empires, starting from the Scythian, Sarmatian, Hunnic, and Gothic; Vernadsky attempted to determine the laws of their expansion and collapse. His views emphasized the importance of Eurasian nomadic cultures for the cultural and economic progress of Russia, thus anticipating some of the ideas advanced by Lev Gumilev.

Vernadsky became the leading American exponent of depicting Russia as much Asian and European, if not more so. He pointed out many strong cultural differences between Russia and Europe, and praised the success of Russian development along an independent path that revealed his own unique character. Vernadsky was a geographical determinist like his Yale colleague Ellsworth Huntington. They assumed that the characteristics of a land defined the character of the people and indeed of their government as well. For that reason Vernadsky was able to identify the roots of Russian culture in an ancient period long before the Slavic groups arrived. He thereby undercut the standard claim that modern Russia emerged from Kievan Rus. He emphasized the importance of the Mongol period (1238-1471), as the horde united the vast Eurasian plain under a single ruler. This gave tsarist Russia a strong centralized government as well as the deep distrust of Europe. Vernadsky was annoyed that Peter the Great tried to Westernize Russia, thereby distorting its natural character. He said Peter only succeeded in polarizing Russia into a Western oriented elite that stood in profound conflict with the Eurasian peasants. Indeed, Vernadsky argued that this polarization was one of the main weaknesses of the tsarist regime, making it incapable of dealing with the revolutionary movements of the early twentieth century. He celebrated the collapse of the European style parliamentary regime in the October Revolution of 1917 that brought the Bolsheviks to power. Vernadsky was not a liberal, nor was he a Communist sympathizer, but he did admire the Bolsheviks for rebuilding a strong Russia on non-European lines.[1]

Unnatural Deaths in the U.S.S.R.: 1928-1954 - This is a historical chronicle about the "real" deaths during this time period:

Who was worse, Hitler or Stalin?  In the second half of the twentieth century, Americans were taught to see both Nazi Germany and the Soviet Union as the greatest of evils. Hitler was worse, because his regime propagated the unprecedented horror of the Holocaust, the attempt to eradicate an entire people on racial grounds. Yet Stalin was also worse, because his regime killed far, far more people, tens of millions it was often claimed, in the endless wastes of the Gulag. For decades, and even today, this confidence about the difference between the two regimes—quality versus quantity—has set the ground rules for the politics of memory. Even historians of the Holocaust generally take for granted that Stalin killed more people than Hitler, thus placing themselves under greater pressure to stress the special character of the Holocaust, since this is what made the Nazi regime worse than the Stalinist one.

This is just a good start.  If you really want to know any culture - the only way is to go there, live there, do business there.  But for those with a short attention span, that enjoy throwing objects at their TV when the reporters tell them something they don"t like, here we go:

SECRET FACTS - RUSSIA IS A 3RD WORLD COUNTRY

1. 80% or more of the Russian economy is unknown.  This is because it all happens "under the table" to avoid taxes.  This will change probably, but as of now, workers are paid "white" and "black" salaries.  You can read about this here.  Auditors and government workers are bribed, wined and dined, when they inspect the books.  It"s a system everyone likes, that just "works" - but it is impractical to make economic forecasts for such a system.  This system is also on the highest levels, as oligarchs wealth is often owned by dead people.  Of course, this practice isn"t heavily documented, because the whole idea of this under the table system is to not leave any paper trail!  Businesses even keep a full set of "white books" and "real books" like the mob used to do.  Yes - this is business in Russia!  

2. Bankruptcy doesn"t exist.  There is no concept of bankruptcy.  There are even banks that offer really high interest loans (there are no usury laws) that will hire strong men to "scare" you into paying, which might include breaking a leg, burning down your shed or in extreme cases, maybe holding a relative in their "office" - yes this goes on and it"s not done by the MAFIA it"s done by the BANKS!  

3. Russian healthcare system is "not to Western standards" although it is "developing."  25% of males die before they are 55 years old, mostly due to alcohol.

4.  The primary currency used is physical rubles, that means PAPER.  When local people believe the Ruble will depreciate in value, they will exchange their paper Rubles for physical US Dollars or Euros and literally - keep them under the mattress.

5. You have never seen roads in such poor conditions.  Around the Kremlin, and in rich areas of Moscow, roads are OK.  Outside of this area, harsh Russian winter wreacks havoc on roads that were never built to European or US standards, as they would be in Chicago or Boston.  See this road in Volgograd:

This is why invading Russia has historically been impossible.  Of course, not all roads are like this - but many are.  

6. Only in Russia meme - Just google "Only in Russia" or checkout this article.

(Letters say "We watch you! - You must be 18+ to use this game)

7. Russia is not a pleasant country to live in.  The weather in winter is worse than in Canada, Wisconsin, Maine, or your average US northern city.  Only Alaska is comparable to Russian climate.  

8. Putin is not a dictator - he is just VERY popular.  But anyway, 3rd world countries usually have a "Putin" or "Castro" which is almost more than a President - a cultural leader.  Putin meets this criteria.  People keep photos of Putin on their walls.  They sell them, along with small busts of his head at every Metro station.  Russian people are simply crazy for Putin.  To understand this better here"s a WAPO article on the topic.

9. In Russia there is not such a thing as "consumer rights".  Grocery stores sell spoiled food.  There"s no "return policy."  

10. Corruption is just considered part of government life (see example here).  Finding a government official that was not corrupt, would be unusual.  For example, in a small town the government decides to "renovate" streets and parks, so they assess a special tax to residents (normally, there is no real estate tax in Russia).  But 90% of the collected money goes into the pocket of the officials, and little is left to clean up the streets.

11. The average pension in Russia is $148 USD.  The average Russian pension is paid IN CASH by Government official on a monthly basis, at the property of the pensioner.

12.  24% of the entire population HAS A BANK ACCOUNT.  In the USA about 95% of eligible persons (excluding children, illegal immigrants) have bank accounts.

13. If using the income disparity guage of what is third world, experts say in this report from CNBC that RUSSIA IS THE MOST UNEQUAL country in the WORLD - even MORE than the Arabs.  What happened after the collapse of USSR, the Russian Elite allowed the seizure or "privatization" of state assets by individuals who became "Oligarchs" which are the US equivalent of "Robber Barons" that literally inherited state owned assets because they were really, really, really, really, really, really lucky.  But the practical fact is that an Oligarch class is needed for any Capitalist society to flourish.

Russia has grown by huge amounts.  They have produced some of the world"s leading thinkers, scientists, artists, writers, composers, and other talent.  Now, the global Russian oligarch class challenges mainstream Western business.  But keep it all in perspective, Russia has a long way to go.  In the meantime, don"t worry about Russian hackers breaking into your home office.  They have problems of their own to solve.

Don’t believe us – read some of these books and articles:

Wall Street and the Bolshevik Revolution.  

Armand Hammer: The Untold Story

A People"s History of the United States

Clinton Cash: The Untold Story of How and Why Foreign Governments and Businesses Helped Make Bill and Hillary Rich

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