Robert Paterson's Weblog

Anyone else see how odd that this is? Top 50 Hedge Fund Managers Earn $29 Billion last year - Millions to lose Homes and Jobs

We live now in a society where manipulating markets is the pinnacle. In the past, even the robber barons and union busters like J P Morgan, Henry Ford and Rockefeller built capacity and ultimately created millions of jobs for regular people.

Today, those at the top of the pile suck the work out of society. The Times ask below whether Hedge Fund need more regulation. I think that the Times misses the point. People are bitter because, the system sucks work out of America. Now even working as a sales clerk for the Gap or on the counter at MCD is in jeopardy.

I am not sure that a society can survive for long as most people are forced into hopelessness while a handful live like Croesus.

Hedge fund managers, those masters of a secretive, sometimes volatile financial universe, are making money on a scale that once seemed unimaginable, even in Wall Street’s rarefied realms.

One manager, John Paulson, made $3.7 billion last year. He reaped that bounty, probably the richest in Wall Street history, by betting against certain mortgages and complex financial products that held them.

The richest hedge fund managers keep getting richer — fast. To make it into the top 25 of Alpha’s list, the industry standard for hedge fund pay, a manager needed to earn at least $360 million last year, more than 18 times the amount in 2002. The median American family, by contrast, earned $60,500 last year.

Combined, the top 50 hedge fund managers last year earned $29 billion. That figure represents the managers’ own pay and excludes the compensation of their employees. Five of the top 10, including Mr. Simons and Mr. Soros, were also at the top of the list for 2006. To compile its ranking, Alpha examined the funds’ returns and the fees that they charge investors, and then calculated the managers’ pay.

Now look at the other side of the coin: (Thanks Jon)

Via Karl Denninger's Market Ticker blog

.Step back for a second and remove the name "America" from where this is happening.

Walk up to a random person and describe all of the above (summarized directly below), leaving the name off.

Massive liquidity injections made to cover up the intentional lying of financial institutions, refusal to declare a loss when its a loss, a property bubble (intentionally blown by that nation's central bank through willful blindness to what amounts to a gigantic ponzi scheme in the credit markets) that has popped and is dragging down values by more than 20% in a single year's time (with no bottom in sight), 97% of the auctioned properties going back to lenders because they rigged the bidding and refused to accept the offered amount, and a government where literally millions of dollars in bribes, er, "campaign contributions" are made by PACs set up by the very companies that are doing the lying - and a government that not only allows this to go on but gives some parts of this den of thieves preferential tax status.

Then add in that virtually every large financial institution in the nation has intentionally moved billions of dollars of "assets" into a bucket called "Level 3" not because they can't get a price but because they didn't like the price they were quoted. So instead of recognizing the value (or lack thereof) that the market says these assets have (and which, by the way, is right in line with what has happened to them in previous recessions) they instead simply stuff them in the closet and stick a wholly-made-up price tag on them, calling that their "value". Oh, and then these same firms pay their executives bonuses based on these claimed "values"!

Finally, in the financial sphere, some of these firms allegedly "sell" off tens of billions of loans for 90 cents on the dollar, but they finance the purchase, yet account for it as a "true sale", and oh by the way, those loans were originally made to the same people who bought them back. The accountants wink, nod, and call this an "arms length" business transaction.

Due to all of this intentional fraud and deceit that nation's currency has declined in value by 40% in the last three years and is still falling, with some market analysts predicting a further 30% decline in the next year or two, and a full 10% of that currency decline has occurred in the last three months.

The nation's people have figured it out, driving consumer confidence to generational lows. They are being laid off at the rate of tens of thousands a month, yet the government claims that unemployment is modest and the nation's economy is "fundamentally strong."

Finally, tell them that this nation claims inflation is running "3%" (and adds that to their senior citizens entitlement checks) when over the last year meat has gone up in price by 30%, milk 35%, eggs have doubled, gasoline and diesel have doubled, and some basic crude goods have gone up in price four times over (e.g. flour) Add to this that this same government has mandated that 30% or more of the corn being grown be turned into fuel and put into the fuel tank of that nation's cars, driving these price increases in foodstuffs even harder.

What would you call a country like this?

The Food Crisis - Watch out! - Local Resilience

My attention was caught this morning by a headline in the NYT Saying that the Finance Ministers were more worried about the food crisis than the credit crisis.

History tells us that they are correct. The Ancien Regime in France staggered along for decades with all sorts of debilitating failures. The system, like ours, had become unresponsive to core problems, had overspent on foreign wars, had become financially bankrupt and had coddled the super rich versus the lower classes.

But the regime continued. Until a food crisis.

These problems were all compounded by a great scarcity of food in the 1780s. A series of crop failures caused a shortage of grain, consequently raising the price of bread. Because bread was the main source of nutrition for poor peasants, this led to starvation. The two years previous to the revolution (1788-89) saw bad harvests and harsh winters, possibly because of a strong El Niño cycle^[11] caused by the 1783 Laki eruption at Iceland^[12]. The little ice age was also affecting agriculture: many other areas of Europe had adopted the potato as the staple crop by this time, whereas the French generally refused it as a dirty food or the devil's food. The potato was more resilient to the colder temperatures during the little ice age and also could not be easily destroyed by scorched earth warfare^[13]. A normal worker earned anywhere from 15 to 30 sous a day while skilled workers received 30 to 40 sous. A family of four would need about 2 loaves of bread a day to survive. The price of bread rose by 88 percent in 1789, going from 9 sous to 14.5/15 sous^{[citation needed]}. Many peasants were relying on charity to survive. The peasantry became a class with the ambition to counteract social inequity and put an end to food shortages. The 'bread riot' evolved into a central cause of the French Revolution. Mass urbanization coinciding with the beginning of the industrial revolution led residents to move into French cities seeking employment. French cities became overcrowded and filled with the hungry and disaffected. The peasantry suffered doubly from the economic and agricultural problems.

Not eating, seeing your family starve is the tinder for revolt.

The peasants do not lead the revolt, but they generate the energy.

As we think of the scale and the permanence of our system, think back as to how Europeans would have seen the permanence of the monarchy and aristocracy in 1789. On the day that Bastille fell, Louis wrote in his dairy "Rien" Nothing had happened of note for him that day. We cannot imagine our system not being here anymore. But I think that we are on the edge.

Oil/energy, food, the credit system - the foundations of our world are all in full over-stretch - the lever for a tip is I think the weather. Who can have confidence that the weather will be kind to us.

I feel as if we are all in some Chekov play. Sitting around in our Dacha in the country talking about the joys of a return to Petersburg. When all around us vast storm clouds are gathering that will sweep all our lives and how we live away.

So what can we do?

I think that John Robb is onto the only idea that has any chance - Local Resilience. I was in Ukraine in 1997. Under the Soviet System, power was maintained by Moscow by designing in dependency locally. There was never all the parts of a functioning system in any region. You had to depend on Moscow to be complete.

At the heart of local resilience are 2 items - energy and food. If you have to depend on others for these - you are fucked.

The power and energy distribution systems are incredibly vulnerable in North America and in Western Europe. Western Europeans are dependent on Russia for their marginal energy now. We take this for granted as being OK!!

We in North America depend on a grid that is at breaking point. I recall in Montreal 30 years ago, a break in one major line from Labrador, putting the whole city into the cold and dark. The same happened in Wellington NZ for weeks in the summer! Imagine being cut off from electricity for more than a week and living in a big city!

My fear that there is no local energy future for those that live in the big cities. They exists because of the grid. There is no alternative. But for a place like PEI there is.

A distributed power system is essential to cope with the global break that will occur. On PEI we could have a system that was self sufficient. Not all about wind either. Nearly every river has a dam that had been used for a local hydro system. Here is Scales Pond.

What if we had an Energy Independence Plan? What if part of that plan was to refurbish our hydro system that used to supply a lot of local power? Hydro, wind, biofuel, horses! Yes horses. We could not only cope, we could do well.

On PEI, the good news is that, if we got serious, we could be energy self sufficient in 10 years. What a project! Think of the jobs. Think of how it would feel. Think of what it would mean.

So what about food? We are OK on PEI surely?

Here is the reality. We on PEI, a major farming community, have 2 days of food in the food distribution system. Think we cannot have starvation here? Shut the bridge for 10 days and see what happens. See how farcical our situation is?

Our food system is designed to make fries for the global market. Our whole livestock sector has collapsed because it was designed to sell to the global market.

READ MY LIPS - there is no future is aiming for a global food market in meat of fries. There is however a local market that will be more secure. Part of what we have to do is to accept this and to then design a string local system that will connect growers to buyers and make it easy for both.

Eating local is not just a hippie new age idea - it's a strategic essential. We can do this. We can decide that food security is important and design, as with energy a mixed and deep local system.

The key will be as I said a local system but also I think a shift to hyper local. Part of this will involve I think urban agriculture.

Ukrainians have a lot of experience of living in a farm paradise and starving because of systemic failure. Their survival strategy - everyone has a Dacha plot - a 1/4 acre intensive food garden.

On Friday in the late 1990's, the buses would be crammed with women going out to tend the plots. Without this, they would have starved. The Cubans did the same after Russian aid was cut off. Their agriculture was like PEI's. They grew a commodity crop, sugar and tobacco for export.

When the Russians could no longer buy and no longer give them oil in return - Cuba was facing collapse. The response was to get behind the most exciting urban agriculture system in the world today.

Cuba is just like PEI. It had lost the ability to feed itself in exchange for a commodity that ended up having no value. Overnight, it had to prevent starvation but had no money to buy food from outside. Cuba had only one choice, grow local or die.

We will be faced with this I am sure.

Want to find out how to do this, go to Cuba.

On PEI as part of the "Independence Strategy" we have to really get behind a local market system that will pull local production up and create the back bone of our insurance policy.

I am loving the new government's idea of One Island. I think that this is a precursor to "Independence Day" when we actively plan to become independent of the industrial system that holds us in thrall.

It's more than money. When a society as a whole feels that they have lost their place, its health and will collapse.

Reflect for a moment please on this slide. What is shows is the effect of losing control, power and status on health. The death rates for men in Russia shot up after the collapse of the Soviet Union. What happened? The loss of a sense of control and power.

We know from Dr Marmot's work, that this is the single most important determinant of health. We see here that this applies not just to a workplace or a city but to entire societies.

I think that our "SYSTEMIC DEPENDENCY" on PEI is the most powerful force that we have that is driving so many to have such poor health, learning and social problems.

The  research shows that individual resiliency is largely driven by societal resiliency.

Look at how Cuba with a very low GDP shines in health compared to the major economies of Latin America.

What this slide shows is how Japan began to feel powerful again in the world after its defeat in the war. As it felt its power, look at how life expectancy climbed.

If we want to reduce the threat to our society by healthcare costs that are out of control, if we want to protect our society from the risk of the upcoming energy crisis and food crisis, then we can make the largest contribution by looking at becoming more independent as a society.

This one, but complex act, fixes all. As we as a society become more independent and resilient, so do we as its citizens.

An Escort's View of the Spitzer Affair

When some describe my blog they call it "eclectic". But I think that I have a central theme and that is how culture affects us all.

A blogger that I enjoy following is called the English Courtesan - she of course a rather different view about humans and sex than many others.

Here is her perspective on Governor Spitzer - I find her refreshing, humane and realistic.

Lantern Bearers in a Dying World?

"We are the lantern bearers, my friend; for us to keep something burning, to carry what light we can forward against the darkness and the wind".

I am just completing the 4th book by Rosemary Sutcliff on Roman Britain. They are making me feel very sad for they foreshadow and then tell the story of the end of a great civilization.

Civilizations can and do fail. They fail after a long series of shocks that seem to be recovered from and then one day - yes in a day - they fail.

The underpinning of our modern world is our financial system. For all those who are worried this week abut other things I am reminded of the thought that I read somewhere - It is foolish to worry about your haircut if you are in the tumbril on the way to the guillotine.

The Fed's job right now is to prevent the house of cards from crashing. It's not abut saving the bankers it is about saving us. I am not sure that it can be done. We can save One Northern Rock and One Bear Stearns but not hundreds.

My friends in the news rooms - there is only one news story right now - the fall of Rome.

Maybe all some of can really do is to do our best to pick up our own parts of the pieces. This was the only avenue left in post Roman Britain. This is the Arthur Legend in reality - an attempt to keep alive the embers of the light for another time in the future.

Success - Lonliness - Sex - Spitzer - Public Media

David Brooks really nails it today as to why so many Type A men - who are so often found at pinnacle positions - get themselves into so much trouble.

To get so high on the greasy pole, they have to use other people. Often they use their own families. But at some point, having lost any semblance of intimacy, they feel lonely. Deeply lonely. Sex gets confused with intimacy - that authentic sharing with another that we all hunger for. Sex is confused with power - for using power is all they know. Sex is seen as a transaction - for all life is a transaction to this type.

So what has this to do with public media Rob?

It is this - our need for connection - a connection that makes us whole and human - is I think the greatest need that we all have. It is so great that people like Mr Spitzer will risk everything to find it.

Transactions - read "mere Content" - don't do it.

Stations and producers that can offer "Contact" - a relationship to the program/station and between listeners/viewers that enables them to feel connected are going to do very well.

I see signs of this with Bryant Park. My day makes it hard to listen as much as I would like. But the Twittering between the staff and between the core Diner Listeners and between all of us is creating a kind of "family" where I am interested in the lives of the others and where I am feeling this connection. This is just a baby step now but you know it when you feel it.

I think that we now live in a world starved for real intimacy. This hunger catches up with us - we must satisfy it before we die - is this what mid life crisis is all about?

All real economies are based on scarcity. If intimacy is the most needed and most scarce part of life - then those that offer it will do well.

Is media intimacy a product of having a large budget? I don't think so - maybe the opposite? As we have more resources, we add in more inhuman process.

So here maybe a landscape ideally suited for Public Radio and TV - The big guys cannot follow you here - for they are the transactional world.

Is this our Creditanstalt? - Carlyle Crisis

When the Creditanstalt Bank folded in 1931 - the depression really took hold - credit dried up.

Is the collapse of a major fund controlled by Carlyle a sign of our own credit crunch?

LONDON — Shares of Carlyle Capital plunged on Thursday, losing most of their value, after the company said it expected its lenders to promptly take over all its assets after discussions with banks to refinance the fund failed.

Carlyle Capital, an Amsterdam-listed affiliate of the Carlyle Group, the private equity fund, said it “has not been able to reach a mutually beneficial agreement to stabilize its financing.” Its shares fell more than 70 percent Thursday. They have fallen more than 90 percent since the company’s problems became public last week.

“It has become apparent to the company that the basis on which lenders are willing to provide financing against the company’s collateral has changed so substantially that a successful refinancing is not possible,” Carlyle Capital said in a statement late Wednesday.

Carlyle Capital invested in triple-A rated mortgage debt issued by Fannie Mae and Freddie Mac, and like other investment vehicles it had leveraged its capital aggressively, borrowing $31 for every dollar of equity. As of February, it had $21.7 billion worth of assets in its investment portfolio. But as those investments lost value, creditors demanded that it put up more and more money in margin calls. A $150 million line of credit from its parent, the Carlyle Group, was not enough to keep it out of trouble as lenders demanded more collateral to back up their loans.

By Wednesday, it had already defaulted on about $16.6 billion of debt and some lenders started to liquidate assets. Talks to halt liquidations and revive the fund’s finances failed Wednesday night after the value of collateral declined further, prompting additional margin calls worth $97.5 million.

Greek Tragedy - Conrad Black

In Oedipus Rex, it is the King's arrogance that in the end brings him down. But in the next book, now blind, he can see.

I have this feeling that the most important part of Lord Black's life is just beginning. It will not be atonement but redemption

Sabotage?

One cable - a problem

Two cables - a mystery

Three cables?????

Reports say that Egypt, Saudi Arabia, Qatar, the United Arab Emirates, Kuwait, Bahrain Pakistan and India, are all experiencing severe problems.

Nations that have been spared the chaos include Israel -- whose traffic uses a different route -- and Lebanon and Iraq. Many Middle East governments have backup satellite systems in case of cable failure.

Stephan Beckert, an analyst with TeleGeography, a research company that consults on global Internet issues, said the damaged cables collectively account for the majority of international communications between Europe and the Middle East.

The Messy World Arrives on PEI

As the ME crews work shift after shift, they must be reaching a point where they cannot do much more - the task ahead of them is daunting. I think that the army will have to be called in. Apparently they are now on call.

It's quite an experience to find out how dependent we are on electric power and how vulnerable our infrastructure is.

We are not alone. In China, millions have been stranded by a snow storm. Power will be rationed for years in South Africa. The Internet is 60% down in the middle east and India.

Unstable weather and years of underinvestment in infrastructure are combining to create conditions that threaten our way of life.

When will the financial crisis be over - Capitulation?

When will the crisis be over? I spent a lot of time with my Uncle Robert last week who is nearly 80 and was and is a genuine expert in the markets who grew up in the depression and was an architect and builder of much of the system we live in today.

His advice "Look for 'Capitulation'" Capitulation is what we see in the picture above. Thousands of men who had been fighting all out to defend their country walking home without guards.  Capitulation is is when all hope is passed and all resistance is seen as being futile.

We will know the bottom when all hope is lost and we seem to have lost everything. The good news, yes there is good news even here, is that from the ashes rises a better place as it did in Germany. The lesson will have been learned.

So what will the lesson have to be? You cannot sacrifice the place that you live in for the idea of global markets. People live near you in your place. They and this place have to be in good shape.  Your people and your place have to be your priority. If they have nothing and are noting - you have nothing and you are nothing.

Our lesson is that we have given up this core principle for life for an abstract idea of global markets that are somehow meant to help us all.  But we are finding that it only helps a handful of people.

1. In the search for cheap stuff/food we no longer have jobs at home in manufacturing or on farms that will feed a family. To have cheap stuff and food - we have created a vast underclass who have no way of making a decent wage. We have then given them cheap credit and high expectations.

2. All the money now made from the stuff buy and the cars we drive goes to the oil producers and the new manufacturers - they have to get a return on this vast ocean of cash and this cash at first was put back into the banking system

3. The banks lent this Tsunami of cash to people who should never borrow - the very people that have had their jobs and the hope of jobs taken away from them. We deluded ourselves in doing this by using financial engineering. We have taken financial engineering too far and deluded ourselves that we could lend vast sums to this underclass and get away with it.

So now we pay the piper.

The American underclass - created by getting rid of their jobs - is now in even worse trouble than can be imagined as is our financial system.

Tax breaks and cheap credit mean nothing to those that have no income or access to credit.

Sorting out banks who cannot find title to their assets because title is so confused by the engineering is next to impossible.

So what to do?

The issue is the flows. (by Greg Palast)

We have to take back our manufacturing jobs. We have to take back making and marketing our food locally. We have to reduce our need for oil.

Ah but that means the end of globalization? Ask who has gained from it? India now has more billionaires than the US but it too has an even larger underclass than before.

I think that history will tell us that Globalization has benefited only a very small group and has impoverished more - and its impact on the environment will impoverish yet more as the real costs, to ecosystems and to water, finally come home. For it is not just the workers in the west who are exposed. What will China be like in 20 years time if they continue on their current path? What will India be like if Wal-Mart take over the food distribution system?

If I became the new president or the new premier of PEI, I would make my first priority - Energy Independence and Food Security. From that would come not only a shift in the Flows but as important millions of new real jobs. Much of the work will be in the new local food and energy sectors.

In 1918, Germany did not learn the lesson and we all had to go through round II. In 1945, they did. By 1955 Germany was on a roll.

I don't think we can prevent the collapse that is coming. But we can work hard to make sure that we learn the lesson. Then we can offer our children hope.