Wednesday, June 16, 2010

State Sponsored Muggings

Team Macro Man are going to be scattered to the four winds for the next few days so the posts may be sketchy. But there are a few things that are troubling us. Apologies to the readers who like graphs and quant analysis because here are some ponderances.

As expressed in "the view from the top" the basic game of pass the parcel of debt has seen the music stop with the sovereigns holding it and sweating like they had a packet of anthrax in their laps. Quite right too. Since then liquidity has been solved as far as we can see, but solvency hasn't. Of course it was too simple to assume that the West would knuckle straight down and earn enough back from the rest of the world, either by producing more efficiently or devaluing their currency and inflating their way out of their obligations. Before we even get to that stage we have to go through the Robin Hood phase.

The private sector got bailed out out the expense of the State and the State are now looking for a way of getting their money back. The difference between the private sector and the State is that the State can change the rules whenever they want leaving the private sector with little choice other than to comply or run away. The State is never quite as direct as to say, "Give us our money back or you'll feel the chill of my steel" but the messages coming from many sources are now pretty much as good as.

If you are going to go and mug a rich corporate the first thing to do is to make sure that the voters are on your side. So first the PR machine kicks in -

Banks are evil, right? So they are first on the list. Even if the too obviously named "Robin Hood tax" doesn't directly fire up, the PR machine appears to be cranking up again for another attack. If you saw the UK's Channel 4 "Dispatches" program on Tuesday night you couldn't have lined up a more anti-banking lot to "expose the evils that still lie within". Alistair (Scapegoater) Darling, Paul(Got to sell equities at the bottom) Myners, a Priest (can't not trust a priest. hmmmm) and some ex-head hunters kick it all off to the point I was surprised their wasn't a new set of City riots yesterday. A right old shoeing of the banks is on the cards and they will comply with the demands. The wallets are already about to be handed over. Mugging done, next please.

Large corporates. Well Well Well. BP. Oh dear Christ what a completely sad affair all round. But for Mr State it was like finding a man comatose in a dark alley with a trunk of gold. Obama didn't even look twice at the likes of Halliburton, or the less well off bystanders. He had the advantage that the guy on the floor was an out-of-towner too (well he was wearing a coat made in a foreign land), with few local friends. The cost of the clean up is going to be huge and diverse but in the really big picture every one of the billions of dollars spent and compensated by BP is money into the whole US economy. Whether it be just paying the guy's who are doing the cleaning up, or compensating the fishermen whose seafood isn't being caught and sold, or the tourist operator, via the money that the would-be buyer of that seafood /holiday has spent on substitution elsewhere. It's money from a large corporate's savings into the system. BP is a special case but it does hint how the large corporate is under the same cosh and ultimate fate as the banks, given half a chance.

Direct taxation muggings are on the increase too. Wealthy individuals are legging it out of high tax regimes where it is easy to do so, and more importantly the marginals are being deterred from entering them or are returning to their native roots. Without tax normalisation you'd have to be a very devoted Singaporean to want to spend the rest of your days in London. Macro Man's own departing gift to the survey lady in LHR departures was along the lines of "You've driven me away".

As for regulation - Just have a look at what the Germans are trying to do. If you can't beat 'em, tie 'em up in so much red tape they won't be able to breath. Reminds me of the French when told they HAD to allow imports of videotape recorders from Japan in the early 80's, despite their interests in Thomson. So they bottlenecked the imports by making them all go via one office of only 9 people in Poitiers. Class!

So with the State squeezing the individual, the corporates, the banks, anyone else they can defame and mug and strapping the rest up in red tape, what are the alternatives?

Well the only real alternatives are to:

a) Pay up

b) Attack the mugger and send him packing - Now this is going to be an interesting development in Europe if the populace of, say, Greece decide that they won't pay and boot out the government. You can bring in as many academics and IMF superheroes as you like but if Georgiou Public doesn't understand it he may not agree and decide to bring in a government that sticks 2 fingers up at the creditors.

c) Run Away - But where to? Now this is where I unleash the shackles of reality and think big-

You want an unregulated, cheap , empty and undeveloped country you can effectively buy and start again in. Somewhere to build the new Singapore of the European time zone, unsaddled by monstrous debt and irrevocable old laws (Dubai), yours for the moulding. I have had in the back of my mind for many years that a large consortium of the mega-rich, private and corporate, should buy Eritrea from its owners and build a low tax, regulation free Utopia. The Country motto being Caveat Emptor and the only rule being, in Mad Max style, "Bust a deal , face the wheel". Oh, and "No Spitting" because I've always liked that one. It would immediately place responsibility solely on the purchaser to do their due diligence with no crying to rating agencies, government or personal claim lawyers if they cock-up. A secondary insurance market would naturally evolve ( Like CDS's) to cater for those that didn't want to bother with their own due diligence and this would be a measure of "implied" risk rather than the "theoretical" risk that rating agencies uselessly peddle. But at least that would pay out, unlike a ratings agency which just shrugs. As for security against the hoards of upset western nations suddenly pissed off at somewhere else attracting all the money? Well, next-door in Somalia are a bunch of easy to rent guys who for the last 20 years have been running rings around all-comers. Job Done..

Madness over. However, there is one country that is quietly shaping up to be a pretty good contender for the role of off-shore Europe..... The new Carthage. Have you seen what Libya are up to these days?


gdd9000 said...

Just nitpicking, but it's REVERSE Robin Hood. Robin was nice enough to steal from the rich and give to the poor. We've milked the poor here in the US, and given it to the bankers.

phoenixwoman said...

In a mugging, usually the mugger is not extracting his own money from the victim's wallet.

In other words, the metaphor leaves something to be desired.


Nemo Incognito said...

The obvious problem here is that while some were forced to take money and then paid it back in full with interest (the goalkeeper and their ilk) money was extended to entities that are comically insolvent and are unlikely to ever really recover (GSEs, Greece, etc). Its hardly fair to claim that extending credit to organizations with a liquidity problem was dumb since their collapse wouldn't have been great, its the guys that have got cash and have no hope in hell of coming back that should be the real object of frustration.

scepticus said...

This post made me think of this:

Market man said...

But how can there be such opposition to Kevin Rudd's 40 per cent 'resources super profits tax' when what is essentially happening is a formalisation of what Obama is doing to BP. Who wants to wait for a disaster like this near to the Great Barrier Reef?

Leftback said...

Speaking of comically insolvent GSEs, FNM and FRE to be delisted. Not a good day for longs in Macro Man's ever-popular TURDS index.

Of course GSEs won't be that comic when LB and his fellow taxpayers have to stump up for another bailout.

D. L. Bailey said...

Goodbye, Macro Man - and good riddance, it turns out.

I've enjoyed this blog over a couple years, but sadly it turns out that Macro Man, while amusing, is just another soul lost to the Cult of Selfishness.

Have fun "going Gault," Macro Man. Turns out I won't miss you for a second.

VandalsStoleMyHandle said...

No need for any M&A...Eritrea is already a low-tax, regulation-free utopia...housing is probably cheaper than London too, and build quality is comparable.

Leftback said...

Could be a rough week in Madrid.

First the golden boys lose 0-1 to Switzerland and then there is this little problem with the bonds.... oh well, they still have sunshine, Manchego and Rioja. Which helps, obviously, when you have 25% unemployment.

RN said...

Goodbye, Macro Man - and good riddance, it turns out.

I've enjoyed this blog over a couple years, but sadly it turns out that Macro Man, while amusing, is just another soul lost to the Cult of Selfishness.

Have fun "going Gault," Macro Man. Turns out I won't miss you for a second."

Wow, no kidding. I'm all for "greed is good" and all that, but to say that Obama trying to get BP to pay for the gigantic shitpile it's leaving all over the US is somehow big govt. going after corporations as a revenue source, holy fuck, what complete and utter bullshite.

This blog belongs in the toilet.

Leftback said...

One or two of you chaps need to engage your sense of humour while reading some of the more tongue-in-cheek posts at the Macro Man blog. Perhaps an occasional perusal of Private Eye might be in order to prepare one's irony detector...?

scepticus said...

I thought that cartoon was quite funny.

So was the post!

Polemic said...

Right, lets see if we can rescue this blog before it gets flushed.

Re Gault or Galt - I assume you are referring to the character in Ayn Rand's "Atlas Shrugged" which I haven't read but have had brought to my attention after this post. Thank you, I will now read it.

The overall message I am trying to convey is that countries with horrendous deficits are going to see greater interference in all walks of life by the State. Individuals and big business alike. Which leaves them with the 3 choices I listed - . go along with it, fight it, or leave.

Rather than approaching this from a selfish vs unselfish approach, the "run away" option is only an extrapolation of what we are already seeing around us. The rich are running for their tax havens and corporations have already moved their manufacturing bases to countries with looser regulations and cheaper production costs. My inference is that there comes point where the Head Office and all the remaining staff find it of benefit to move as well, leaving nothing left in the home country. This has already occurred with many small high value, easily transportable companies away from the UK and we regularly hear of threats from the big boys to do likewise. Unfortunately businesses do have a tendency to take the path of selfishness, unless being perceived as being unselfish brings them selfish benefits.

As for the BP case. As I said this is a hugely sad event and has whipped up emotions everywhere. Yes of course those at fault should be made to foot the bill, but the speed and scale of the emotional venom employed by Obama has been notable to the point of threatening diplomatic rifts between the UK and USA. I am asking if the speed and ferocity of this attack is a symptom of the State's political eagerness to satisfy a growing backlash against big corporations ( banks of oil co's or any perceived untouchable) by a populace facing a bleak economic future, married with the growing and worrying trend towards nationalism we see around the world.

The Sheriff of Nottingham is always the villain and Robin Hood is always the hero.

Back to who is being mugged. I really wish that the mugger was surgical enough to extract only his money back. But he's clumping a lot of innocent bystanders too.

I hope this goes someway to explaining a post which has whipped up much more ire than I ever intended it to. I am sorry about that.

Polemic by name , polemic by nature I guess..


Polemic said...

Oh and scepticus ! So did I ! ..
Did it really come across like that? .. Bugger. thats not REALLY how I meant it . ... . but anyway . Nice one, Thanks.

scepticus said...

"Thank you, I will now read it. "

no, don't do that.

Polemic said...

thanks for the advice . I won't then..unless it has pictures. Do you think it has pictures? Or only words? nahh dont worry then... can't be arsed. Ascot tomorrow.. got to get some kip...any one got any tips?

checkmate said...

In the kind of vitriol Obama would use "f..k 'em".
I understood your theme and it makes a valid point for discussion.
Trying to separate out justifable action from political self interest in issues like this is an argument with no right answer.Only a viewpoint.At least you made the point with humour albeit it appears to have been wasted upon some of the deadwood.

D. L. Bailey said...


Point taken on the spelling of the Rand character name. Conveniently, your response mollifies me to the extent I now wish you would have fun going "Gault" as in "Captain Gault".

But I'm mollified only to that extent. Sadly, your commonplace, predictable sentiments still make what would otherwise be valuable wit replaceable.

To speak casually about leaving the cradle of modern democracy because it costs too much bespeaks a near-unforgivable lack of circumspection. Your work, the markets you trade in and even you yourself are a thing of that democracy - a thing now "sharper than a serpent's tooth". But do explore the "libertarian" delights out there in the third world. I understand the infectious skin diseases are in bloom this time of year.

Running away is not what "we are seeing" it is what people who should know better and behave better - like you, apparently - are *doing*. It is not an economic inevitability but another choice in a long line of similar choices - like flagging ships and oil rigs in places where law is bought.

If the "Head Office" don't see themselves importing state- and gangster-capitalist corruption along with the outsourced goods and services, that's because they choose not to. As for my President's attitude towards BP, I would say - on a not-unrelated note - that those who create systemic risk always hope they can evade responsibility and then, when they can't any longer, they always feel unfairly "singled out".

Well, that's the way it goes. BP chose make more money by adding to the system-wide risk of deep-water oil-rig blowout. That means they chose to risk being the one whose rig blew out but it also means they chose to profit from spreading risk to the entire Gulf. Some oil companies won that bet. BP did not.

Risks and benefits are not distributed with precision - particularly when people practice to profit from wanton recklessness. Why should government be "surgical"?

scepticus said...

oh, I see - polemic is macroman (a b or c). How confusing. Nothing wrong with multiple anonymous identities, I have plenty.

in which case, definitely read the boring bitch ayn rand assuming you have the time.

possibly there is a graphic novel version, in fact I'm sure there must be given the amount of socially challenged young white men coughing up objectivist tarballs on the interlink.

cartoons are always preferable IMO to bloomberg screenshots. Much more real world data in the former.

Polemic said...

thanks for that checkmate..

scepticus said...

ok now you've made me feel bad. very clever..

great blog BTW.

scepticus said...

one more thing to continue your theme of running away, what happens when herds of prudent institutional investors (and hedgies) crowd into a decreasing number of safe havens?

As you pointed out recently, the door is a rather tight squeeze, and presumably sooner or later there will be a burly doorman.

Thorium238 said...

WOW I don't read Macro man for a day and he sets the world on fire!!!

On BP it’s a bit like the drunk, failed alcoholic blaming the "Off License" for selling him the booze. If America did not have an insatiable appetite for products and systems using oil. In the process using up all the easy to get at stuff, BP would not be out on the wild frontier trying to recover it from 5 miles down in a mile of hurricane prone ocean!

Blaming BP before we know whether; Transocean were using a drill crew promoted beyond their capabilities; or Halliburton had used the wrong Cement, Mud, and casing type etc. is all too easy for a White House and government apparatus that is clearly still “owned” by Halliburton. As anybody who has worked in the industry will tell you the “company”; in this case BP is far removed from the actual day to day activity on the rig. It’s the Oil Service Companies, the on the spot experts, who have the discretion. If I’d been Peter Hayward in front of that Cttee, I probably would not have been so discrete as to suggest we wait the outcome of the expert investigation. I could go on but my spleen, unlike the well, is temporarily vented.


Thorium238 said...

Sorry Peter, I of course meant Tony Hayward, that bloke at BP!

Richard said...

"In a remarkably sharp column in the New York Times, Matt Bai reminds us that Obama "has established a remarkable pattern of regularly scolding the titans of American industry. "Last year, he derided reluctant lenders as 'fat cats' and called the bonuses of A.I.G. executives an 'outrage'; more recently, he attacked health insurers as greedy and accused the owners of a West Virginia mining company of putting 'their bottom line before the safety of their workers.'

"Taken together, such public indictments would seem to make Mr. Obama's administration the most populist, at least in its rhetoric, since Franklin D. Roosevelt's."