Blog on the Run: Reloaded

Saturday, September 27, 2014 6:40 pm

How Koch Industries could blow up financial markets again

If you liked 2008, you’ll love what could happen next:

Koch is also reaping the benefits from Dodd-Frank’s impacts on Wall Street. The so-called Volcker Rule, implemented at the end of last year, bans investment banks from “proprietary trading” – investing on their own behalf in securities and derivatives. As a result, many Wall Street banks are unloading their commodities-trading units. But Volcker does not apply to nonbank traders like Koch. They’re now able to pick up clients who might previously have traded with JPMorgan. In its marketing materials for its trading operations, Koch boasts to potential clients that it can provide “physical and financial market liquidity at times when others pull back.” Koch also likely benefits from loopholes that exempt the company from posting collateral for derivatives trades and allow it to continue trading swaps without posting the transactions to a transparent electronic exchange. Though competitors like BP and Cargill have registered with the CFTC as swaps dealers – subjecting their trades to tightened regulation – Koch conspicuously has not.

So, basically, Koch can now do to the nation’s and the world’s commodities markets what it has done to our air and water. And Congress, its morals and environmental concerns lubed by tens of millions in Koch lobbying money, is letting the company go right ahead and do that. And it will do it; the company’s regulatory and criminal record is one of almost unrelieved violations, punctuated only by fines that, while perhaps big in historical terms, are no more than a minor annoyance to the company’s balance sheet. More than enough evidence exists to level a RICO charge against CEO Charles Koch.

That a massive company with such a troubling record as Koch Industries remains unfettered by financial regulation should strike fear in the heart of anyone with a stake in the health of the American economy. Though Koch has cultivated a reputation as an economically conservative company, it has long flirted with danger. And that it has not suffered a catastrophic loss in the past 15 years would seem to be as much about luck as about skillful management.

What Congress does not seem to grasp is that luck and hope are not plans. Meanwhile, Koch Industries is doing its own planning:

In “the science of success,” Charles Koch highlights the problems created when property owners “don’t benefit from all the value they create and don’t bear the full cost from whatever value they destroy.” He is particularly concerned about the “tragedy of the commons,” in which shared resources are abused because there’s no individual accountability. “The biggest problems in society,” he writes, “have occurred in those areas thought to be best controlled in common: the atmosphere, bodies of water, air. . . .”

But in the real world, Koch Industries has used its political might to beat back the very market-based mechanisms – including a cap-and-trade market for carbon pollution – needed to create the ownership rights for pollution that Charles says would improve the functioning of capitalism.

In fact, it appears the very essence of the Koch business model is to exploit breakdowns in the free market. Koch has profited precisely by dumping billions of pounds of pollutants into our waters and skies – essentially for free. It racks up enormous profits from speculative trades lacking economic value that drive up costs for consumers and create risks for our economy.

That is a business model for whose banning we have more than sufficient justification. Koch Industries is the industrial and financial equivalent of a serial killer. It has killed many times, and left unimpeded, it is certain to kill again many more times.

Wednesday, November 10, 2010 8:16 pm

Why Tom Levenson wants to have Benjamin Franklin’s baby and you might, too.

Filed under: Cool! — Lex Alexander @ 8:16 pm
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Levenson, writing at Balloon Juice, analyzes a role Ben Franklin played in the American Revolution that is certainly not as well understood or widely taught in American history as it should be: His ideas about money and finance, from anti-counterfeiting tricks to currency inflation, made the American Revolution financially possible against the world’s wealthiest empire.

Obviously, we’re not in the same economic circumstances as we were in 1775, but the desperation level is recognizable. And Franklin’s thinking and logic both are applicable to a certain extent today and are totally at odds with all the ideas of the fringe-right-wing, IGMFY crowd. Levenson writes:

Benjamin Franklin, the greatest mind of the founding generation of the American experiment (yes, I rank him ahead of Jefferson), approved of sharply progressive taxation to pay for crucial functions of government. 

More particularly:  Franklin understood and approved of the idea that the inflationary tax created by the collapse of the infant American dollar not just did but should hit the rich harder than the poor.

It made sense, he argued that these wealthy men should bear a proportionately greater share of the cost of the war, not just or even primarily because they had more scratch to spare, but because they had the most to gain from independence.

The connection from revolutionary times to ours is obvious, right?

If not: over the last decade we’ve fought two wars and transferred an enormous amount of capital from the middle class to the rich – and the wealthiest among us, have not been asked (or rather, have refused) to make any even remotely proportional contribution to the nation’s security and long term fiscal health.

Franklin would have been appalled.  He knew, as plenty do still, that achieving great common purpose takes cash and commitment from the whole damn society.  When the wealthiest opt out, take their stacks of coins and go home, they may protect their short-term interests – but they kill, however fast or slow, whatever hopes we may have of advancing to that “more perfect union” he and his first imagined.

So you can take your money and go home, but from beyond the grave, Ben Franklin will say you’re not a real American if you do.

Monday, September 14, 2009 9:48 pm

Updating the classics

Filed under: We're so screwed — Lex Alexander @ 9:48 pm
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I’ve started re-reading “Les Miserables” because I hadn’t read it since high school and it just felt like time. Starting on page 50 of my battered paperback edition, I found this passage:

HISTORY OF AN IMPROVEMENT IN JET-WORK

… From time immemorial the special occupation of the inhabitants of M—— sur M——- had been the imitation of English jets and German black glass trinkets. The business had always been dull in consequence of the high price of the raw material, which reacted upon the manufacture. At the time of Fantine’s return to M—— sur M—– an entire transformation had been effected in the production of these “black goods.” Towards the end of the year 1815, an unknown man had established himself in the city, and had conceived the idea of substituting gum-lac for resin in the manufacture; and for bracelets, in particular, he made the clasps by simply bending the ends of the metal together instead of soldering them.

This very slight change had worked a revolution.

This very slight change had in fact reduced the price of the raw material enormously, and this had rendered it possible, first, to raise the wages of the laborer — a benefit to the country — secondly, to improve the quality of the goods — an advantage for the consumer — and thirdly, to sell them at a lower price even while making three times the profit — a gain for the manufacturer.

Thus we have three results from one idea.

In less than three years the inventor of this process had become rich, which was well, and had made all around him rich, which was better. … he had drawn a fortune for himself, and a fortune for the whole region.

Ask yourself how many of today’s CEOs would behave in such fashion, rather than having measuring contests with one another over how many multiples of the lowest-paid worker’s salary they can pay themselves. Oh, sure, there are some out there, don’t get me wrong. (And Warren Buffett at least tries to make money for other people, although at $98,750 a share as of today’s close, his Berkshire Hathaway stock ain’t exactly priced for the little guy.) But are such CEOs common enough that we see them portrayed routinely in our news and entertainment media?

No, they’re not. And any CEO, real or fictional, who publicly tried to do what Victor Hugo’s fictional CEO did — or even what Henry Ford did — would, in today’s financial world, be mocked by the pundits of CNBC as a sucker.

Thursday, September 10, 2009 9:00 pm

Quote of the day, Schools of Economic Thought edition, with accompanying rumination

Filed under: I want my money back. — Lex Alexander @ 9:00 pm
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“The Chicago School was bought and paid for by the economic elite. It was created and nurtured for the purpose of looting the world and getting the rest of us to accept it. Nobody should make the mistake of thinking that these folks have been chastised by events in the real world. They have not been paid to be humble.”

– commenter dcnataro at Hullabaloo

* * *

The fact that former Fed Chairman Alan Greenspan told Congress about a year ago, in the middle of an ongoing financial collapse, that his entire world view had been fatally flawed was a news story for about one day. I did not understand that.*

I thought it should have been a much bigger, longer-lasting story because of the questions it raised and the implications that flowed inevitably from it. Greenspan’s admission undermined an entire way of thinking around which, during the past 30  years or so, has emerged the closest thing to consensus that America can produce these days on a complicated topic.

That consensus is not only that free markets are good but also that the markets we have actually are free. That consensus is not only that people are rational but that they also consistently act rationally. That consensus is that those concepts lead more or less inevitably to general prosperity and that our differences are merely at the margins.

Well, we’ve learned a few things in the past year or three.

For one thing, we’ve learned that free markets lead inevitably, if not quickly, toward monopoly unless acted upon by outside forces.

For another, we’ve learned that in many, if not most, areas, we don’t have anything close to a perfectly free market. For example, in most states, one or two health insurers hold the overwhelming majority of people in those respective states and that there are, for all intents and purposes, monopolies in many states (including N.C., where Blue Cross Blue Shield predominates) in the market for health insurance for individuals.

We’ve learned that all manner of  insider trading goes on on Wall Street every day with no legal, financial or practical repercussions and that, more generally, retail investing is a rigged game.

We’ve learned that people — consumers and business people alike — do not act rationally at all and in fact frequently act in ways diametrically contrary to their own best interests. In a system based on the presumption that everyone’s acting in his own best interest will result in the greatest good for society as a whole, this fact ought to be raising many more troubling questions than it does.

And we’ve learned that the true financial elite are more loyal to one another than they are to their employees, their stockholders or — particularly in the case of certain current and former Goldman Sachs employees — their countries. Worse, they actually believe that they’ll be able to avoid the consequences when, not if, things get dramatically worse worldwide, so they make ever more irrational decisions that are making bad things worse at ever-increasing speed.

I honestly don’t want to see torches and pitchforks. I honestly don’t want to see the bodies of investment bankers dangling from lampposts. But I fear we’re closer to that than we think, and a lot closer to it than the investment bankers think.

Money can protect you from a lot of things. But it can’t protect you from everything. And in some circumstances that aren’t as unlikely as I’d prefer, it can’t protect you at all.

Friday, March 6, 2009 7:10 pm

“Wreaking havoc on the sorry *ss of finance”

Filed under: I want my money back. — Lex Alexander @ 7:10 pm
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What happens when a leftist decides to stop being tactful? For one thing, he becomes pretty freaking funny. John Emerson, at the new Trollblog, explains, for example, that we don’t need a finance czar, we need Finance Cossacks!

Quasi-related: If you’re going to have social collapse, Dmitry Orlov says, do it right.

Tuesday, September 30, 2008 8:58 pm

Because dead stockbrokers are floating face-down in the streets of Greenwich

Filed under: Aiee! Teh stoopid! It burns! — Lex Alexander @ 8:58 pm
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Former Democratic Senate candidate and current idiot Ned Lamont says to the Hartford Courant of the current financial turmoil, “This is our Katrina.”

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