rigorousintuition.ca

The capitalist state is owned and operated by the capitalist class. Under conditions of stability and productivity, it represents capital-in-general. This often means that it has to suppress or even eliminate certain fractions of capital – whose range of view is limited by its own business cycle – in order to ensure continued power by the class as a whole.

In the classic Brando film “Burn,” based loosely on the history of Haiti, the colonial military commander orders an entire island colony set ablaze, including its lucrative sugar plantations, in order to crush a Black proletarian rebellion. One of the island’s capitalists pleadingly objects that the commander has wiped out the island’s profits. The commander then explains that the destruction of the island is necessary to send the message to other workers on the rest of the colonized islands, and that this “pacification” is required to ensure profits for all, not just over the next business cycle, but for the next decade.

June 19 (Bloomberg) -- Six decades ago, the U.S. Treasury wanted to shut down the Bank for International Settlements, saying it helped finance the Nazis. Today, Jean-Claude Trichet and Ben S. Bernanke are transforming the organization into one of the world's most powerful networking clubs.

With hedge funds and private equity firms pumping record sums of money around the world economy, central bankers fret that investors are taking on too much risk. As a result, the bankers are increasingly turning to the Basel, Switzerland-based BIS, the oldest international financial institution, for research and advice, and to coordinate damage-control plans.

``Markets are increasingly global, and central banks are not,'' said Willem Buiter, 57, a former member of the Bank of England's Monetary Policy Committee. ``So there's a huge vacuum to be filled.''

Banks and investment banks whose health is crucial to the global financial system should operate under a unified regulatory framework with "appropriate requirements for capital and liquidity", according to Timothy Geithner, president of the Federal Reserve Bank of New York.

"At present the Fed has broad responsibility for financial stability not matched by direct authority and the consequences of the actions we have taken in this crisis make it more important that we close that gap," Mr Geithner says, in an excerpt of a speech to be delivered today at the Economic Club of New York.

In his speech, Mr Geithner will also say the Fed is examining whether to make "permanent" some of the new liquidity facilities put in place during the credit crisis, and called for central banks to establish a "standing network of currency swaps, collateral policies and account arrangements" to bolster liquidity during a future crisis.

NEW YORK (Reuters) - Financial firms face a "new world order" after a weekend fire sale of Bear Stearns and the Federal Reserve's first emergency weekend meeting since 1979, research firm CreditSights said in a report on Monday.

More industry consolidation and acquisitions may follow after JPMorgan Chase & Co (JPM.N: Quote, Profile, Research) on Sunday said it was buying Bear Stearns (BSC.N: Quote, Profile, Research) for $236 million, or deep discount of $2 a share, a fraction of the $30 price on Friday and record share price of about $172 last year.

In the event of future consolidation, potential acquirers identified by CreditSights include JPMorganChase, Wells Fargo, US Bancorp, Goldman Sachs and Bank of America (BAC.N: Quote, Profile, Research), once it works through its recent agreement to acquire Countrywide Financial Corp., (CFC.N: Quote, Profile, Research) the largest U.S. mortgage lender.

``The tectonic plates beneath the world financial system are shifting, and there is going to be a new financial world order that will be born of this,'' said Peter Kenny, managing director at Knight Capital Group Inc., the Jersey City, New Jersey-based brokerage that handles about $1 trillion worth of stock transactions a quarter. ``It's an ugly and painful process.''

From Five to Two

The five New York-based securities firms that dominated Wall Street have been reduced to two: Goldman Sachs Group Inc. and Morgan Stanley. While both firms are scheduled to report a drop in third-quarter earnings this year, their business has remained profitable throughout 2008 -- unlike Lehman and Merrill.

justdrew wrote:so... everyone is expecting a stock market meltdown, but who's going to be buying all these discounted stocks? it seems to me people would just choose not to sell and volume will be low on trades of shares outside the financial/insurance sector.

Guys, this is the greatest redistribution / grab / concentration of wealth in history

First, they create insane credit and profit immensely off it
Next, they pass their end to the Fed and get cash back
Next, they get taxpayers to pony up for the debt
Next, they get taxpayers to pony up for the attrition going on
Next, they pass equities into the central bank and get cash back
Next... ?

I'm sure I left out plenty of lines above, perhaps someone can fill in more.

However... this weekend was a big scam ("look at the monkey, look at the monkey, systemic risk, danger Will Robinson") to get everyone fixated on Lehman while Merrill was going down, their sleight of hand is causing us to watch where the debt is going... rather than watching where the money is going. We are fixated on lines in the sand ("1200 is going to break, going down, going down") while the game is being run right before our eyes. We are thinking we're gods by pocketing thousands, while our collective pockets are being picked for trillions.

The Hideous Stripper Cruise Ship Disaster.

We were strolling along the beach about halfway to the first jetty when I realized something was slightly off, like the jangling of nerves only moments before a horrible accident... when the danger is felt not seen.

It was approaching low tide and the waves were coming in rough and lumpy, breaking with a weird, deadened flop. No, this is wrong, I thought. This is not happening. Not in front of my son. He's only twelve!

Each time a wave rolled in, it carried with it dozens of hideous gelatinous blobs, spitting them up onto the beach as if the ocean itself was choking on its own vomit.

Tristan suddenly bolted ahead and picked up one of the jiggling, spherical blobs, examining it with wide-eyed wonderment and awe the way only a twelve-year-old can. "Creeping Jesus!" I yelled. "Put that filthy thing down, you don't know where it's been."

It must be the storm, I thought. Yes, the storm. Clearly, a cruise ship of strippers must have capsized in the storm, and after the shark attacks all that was left were these silicone breast implants washing up everywhere. There were thousands of them. It was a tragedy beyond comprehension and explanation, especially to a twelve-year-old boy. He'd have to come to understand it on his own terms.

"Here, dad" he said, casually tossing the breast implant, which I made out to be about a size C, at me. "It's a dead jellyfish," he said with a shrug. And so it was. Quod erat demonstrandum.


You may be wondering what this has to do with Lehman Brothers (LEH), or Merrill Lynch (MER), or American International Group (AIG). At first, I was too. But the sea is a magnet for portentous signs, and thousands of dead jellyfish washed up on the shore of a beach in New Jersey is perhaps the perfect symbol of where we are in this credit cycle.

What Does It All Mean?

Jellyfish are simple and dumb. They lack basic sensory organs and instead rely on a primitive nervous system structure to perceive stimuli. They are carnivores, but they are also passive by design, and so ultimately they are no match for the strong ocean currents that can define their lifespan.

In other words, the meaning of thousands of dead jellyfish washing up on a beach is simply this: sometimes the dumb get caught in a storm, and when they do, punishing them is nature's way. There's nothing remarkable about that insight, except that punishing the dumb is sometimes a deeply disturbing and unpleasant spectacle.

This is true whether we're watching dead jellyfish wash ashore in New Jersey or dead investment banks soil the streets of Manhattan.

"Stagflation is now a dwindling threat..."

Indeed. The Financial Times ran an op-ed this morning discussing this "dwindling threat," and noting, correctly, that "unless core inflation rates start to jump or the falls in commodity prices to reverse, central bankers can shift attention from inflation."

The reality is that this debt destruction and revulsion, which began more than a year ago in a small corner of Wall Street responsible for packaging and trading obscure products built around subprime mortgages, has transmogrified into a full scale debt deflation.

The jellyfish on Wall Street are washing ashore. The stinging tentacles of credit have now dissolved. All that's left are gelatinous globs that resemble artificial breast implants in both shape and symmetry. And if you think about it, that's how it should be; the striking resemblance between a dead jellyfish and a silicone breast implant. An empire built on inflated credit. Yes, I like that. It perfectly captures the artifice of synthetic growth...  an empire built for nothing but the sake of appearance and purposeless pleasure. But hot damn, it was fun while it lasted.

you'll remember from Jeff's posts how the Bank of America was always one of the names in those money laundering stories-