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Monday, July 1, 2013

The Upcoming Cage Match between Mark “Brutal Reckoning” Carney and Mario “Whatever it Takes” Draghi?

The big fight may be coming.

Rumors in London and Frankfurt suggest a massive battle will happen this summer. It has already been confirmed that a new foreign fighter has arrived in London and he has his sights set on shaking up the continent. Will this be the “Clash on the Continent” or the “Bash Up in Brussels”? This will not be jush clash of men, but a collision of fighting tactics never seen before in history.

Most excitingly, it will be an all Goldman Sachs MMA* cage match between Mark “Brutal Reckoning” Carney and Mario “Whatever it Takes” Draghi. (*Mean Money Authorities)
Are we ready to rumble? We have the cage - now we need the match!

Draghhi: I say Carney will last one round!
Both fighters have previously trained at the same Goldman Sach’s gym headquartered in New York. They are thought to be adherents of the Lloyd “Doing God’s Work” Blankfein school of combat techniques. This method of businessfighting apparently employs close combat and involves shaving the wool skin off of your clients opponents while keeping friendly eye contact with them the whole time. Whatever the outcome of the match, it looks like Goldman “Giant Vampire Squid” Sachs will be the winner.

Carney is hot right now. In his last outing at the G20 FSB Arena, Carney clashed with Jamie “I’m richer than you”Dimon. As a JP Morgan Chase banker, Dimon came out strong at the start, but later folded like a cheap hand tailored suit and wound up apologizing to Carney over the phone about his poor performance. He said he was as winded as a London Whale at end of the match. An observer to the battle, Mr T. Hobbes, described the fight as “nasty, brutish and short.”

Mario “Whatever it Takes” Draghi has a mixed record, although it should be noted his losses have come when he is in tag team events. In his February 2013 fight in Italy, Drahi was paired up with Mario “The Unelectable” Monti and they were fighting under the team name of “The Super Marios.” However, neither man came out looking good in front of the blood thirsty Italian election crowd. Having been defeated in the ring by tag team made up of a former comedian and a communist, it appears that Monti will quit fighting altogether.

Carney: This is the size of the hole I
will use to bury Draghi (Toronto Star Photo)
But Draghi is made of tougher stuff. When fighting on his own, he appears to be unbeatable. His first set of pubic matches in the summer of 2012 gained him the moniker “whatever it takes”. He used so many fancy tricks and unheard of tactics that his opponents simply fell silent and crawled out of the ring, hoping for a rematch at some point down the road.

Draghi's latest single match in Cyprus (March 2013) was simply brutal. His opponent, Mr Lankia Banka, was so badly beaten that he is in a coma and may remain there for ten years. Talk about your lost decade!

Although the Carney/Draghi match up has not been officially announced, the trash talk from the opposing camps points to a battle.

Carney has repeatedly pointed out that ring tactics such as long term low interest rates are not sustainable in a major match. He thinks this will produce fighters who are soon reduced to being Zombies. Classical moves are more his thing.

Draghi, on the other hand, appears to believe that any tactic in the ring is acceptable as long as you win each round. How Draghi will fare in a longer match is not clear as his fights so far have been knockouts in the first few rounds.

Supporters and opponents are already making their feelings clear. Carney may not be as popular with the City of London crowd as he was in Ottawa. However, he has already taken a shot at local detractors who think the long term QE twist move combined with long term low interest techniques are winners in the ring. These moves are all flash. Carney fired at them point blank when he said that his opponents “would do well to remember that marginal rate adjustments have non-negligible effects when leverage is high.” He appears to know that some of his detractors may be more over leveraged than they are willing to admit, so he does not fear them and may not listen to their advice. Ladbrokes says the they are not giving odds until the fight is actually annouced, but an insider said that initial indicators are that the fight may be too close to call.

Mocking Draghi and the Eurocrowd who think that the Euro contest is already over, Carney noted “now is not the time for complacency.” He thinks the real fight may be just starting in Europe.

Going on the offensive against Draghi’s tactics, Mark “Brutal Reckoning”Carney launched with a series of comments* designed to play to the masses assembling for the big battle. Among the most quotable were:

1. The bond market is there until it is not.

2. Low rates today do not necessarily mean low rates tomorrow.

3. Cheap money is not a long-term growth strategy.

4. Risk reversals when they happen can be fierce: the greater the complacency, the more brutal the reckoning.

5. Fiscal stimulus is turning to fiscal drag.

6. A massive deleveraging has barely begun across the industrialised world. Our institutions should not be lulled into a false sense of security by current low rates. These are extraordinary times.

7. The overall impact of QE may be more modest than previous interventions when market dislocations were more severe.
8. The conviction that interest rates will be low for long can lead to various types of risky behavior in the financial sector. Moreover, the presence of non-viable (or “zombie”) firms limited competition, reduced investment and prevented the entry of new enterprises.

9. An extended period of stability breeds complacency among financial market participants as risk-taking adapts to the perceived new equilibrium.7Indeed, risk appears to be at its greatest when measures of it are at their lowest.

Drahi appears to be unmoved by such statements ahead of the upcoming continental clashes. According to his trainer, he has developed some sort of derivative* process for the fight and he believes he can enter the ring having outsourced all of the risk to his opponent. He offered no explanation of how this miracle tactic was supposed to work.

Meanwhile, rumors coming out of Brussels suggest that another big fight night may be shaping up. The warm-up match will see Jeroen “Diesel Boom” Dijsselbloem squaring off against Pierre “I’m not really from Moscow”Moscovici.

The main match will be a tag team event. It will feature:
Merv “The Masher” King teamed up with Mark “Brutal Reckoning”Carney

Mario “Whatever it Takes” Draghi with Angela “(insert your favorite term here)” Merkel.

Talk about a clash!

*To see the views of Bank of Canada Governor Mark Carney on long term low interest rates Google: “Living with low for long” or see or
*For a simple explanation of derivatives and why they are financial weapons of mass destruction, see:
For more on the ill effects of low interest rates you can Google: ZIRP and Zombies - The Undead Bankers and Industrialists Walk among Us or see

Wednesday, April 10, 2013

Savers and Takers: The New Fault Lines and Social Unrest

An upcoming struggle is emerging in civil society.  It will be between those who have money but lack the political and financial power to defend it, and those who have the political clout to take it.

The Savers and the Takers.

This will happen because the capitalist system has been turned into a financialist system. The economy is no longer served by the banks and financial institutions.  We are now at a point where the banks force the economy to serve them.  Those who benefit are the financial class, their servants in the political class and the large international organizations such as the EU, the IMF and the World Bank.  Those who suffer are the rest of us who are trapped in the system and cannot find the means to escape it – but they do have small amounts of saved money or equity. 

Who are the savers? In short, it is those people who look to their own future and have taken decisions to set aside “value” from today and hold it for use tomorrow.  This includes those with savings deposits, private pension funds (401K, RRSP, ISA etc) and those who have equity in their homes. It also includes those who hold small physical amounts of precious commodities such as silver, gold and palladium.

The takers are those governments with unreasonably high debt levels and unfunded future liabilities. In cooperation with them are the major international banks that have over leveraged themselves as well as supra-international institutions such as the EU.

This meme – savers and takers – will shape much of the political and economic discourse over the next few years.  The existing examples of where this has occurred have been Greece, Spain, Ireland and Portugal.  How this all plays out is not clear, but there are lessons to be learned about the limits of the individual and social unrest.  

It may be that the takers themselves are those who will be responsible for a reset of the system which will produce chaos and then a new system (Capitalism 2.0 or something different?)  

The small time savers have their money stored in banks. As they are now beginning to realize, this may not be a safe plan. Having seen what happened in Cyprus and Spain and what is being planned in the UK, USA, Canada and Australia, they are getting worried.  As such, depositors are starting to remove their money from banks or are trying to figure out where else to store their wealth. 
This willingness to do whatever it takes on the part of the takers has a basic flaw.  The major banks are frequently leveraged out at 25: 1. This means they only have to lose some 4% of its deposits before they have liquidity problems. For more cautious banks that are leveraged out 15:1, this means they would only have to lose some 6% of their deposits before entering into crisis mode.  For those high risk institutions which can be leveraged out at 60:1, a two percent loss would start a bank run.
It can be seen that the savers - trying to guard what little they have - may start the run by taking out their savings. If only 4% or more of them do this, we are in trouble.

There is a lesson in all of this. 

It is tough to run a capitalist system with no real capital.  Real capital cannot be created by central banks simply “printing” money.  Real loans and real money have to be backed by real wealth or collateral.  It is clear that the ability to produce real collateral for loans is disintegrating as the standards are falling.
A Cyprus Style Bank Robbery
How will the takers take the money from the savers?
Multiple approaches exist. Among the most common or obvious are:

1. ZIRP –long term “zero interest rate policies” punish the savers and rewards the debtors.

2. Inflation is the silent thief and it is used by debtors to reduce the cost of repayment.

3. The Cyprus model – simply take the money directly.

4. The Spanish model – place an indirect tax on deposits using the banks as intermediaries.

5. The Australian Model – tax the private pension funds of those with more than $100,000.

6. The Canadian Model – force depositors into a bail-in.

7. The UK and USA model – use guaranteed deposit insurance money to bail out banks.

8. The bank model – use fees and huge spreads on interest rates (as much as 27%) along with fees on fear and the misspelling of products.

The Outlook

There is only one rule in economics that actually works:  That which cannot go on forever – won’t.

As such, the short term emergency policies of money printing and low interest rates will stop because they must.  When they do stop, the sins of more than 30 years of overspending and debt will have to be paid.

It is unlikely that either more austerity (belt tightening) or more stimuli can fix the current economic difficulties.  We are so far in debt in both sovereign and personal terms neither of these two models can assist. The austerity model (UK) is not doing so well and neither is the stimulus model (France).  The outcome is likely a major reset of the financial system which will cause much more trauma than the 2008 upset.  Savers beware and stand by for future shock.


Unless the banks and governments change the way they deal with the rest of civil society, we will be facing significant fault lines in our societies. The savers and the takers will find themselves increasingly at risk of social confrontation and social unrest.  The choice would appear to be between a long period of painful adjustment or a short sharp period of chaotic uncontrolled change.  Both will hurt.

Supporting material can be seen at:

The Canadian Model for takers: 

The UK and USA model for takers:

The Spanish model: 

Why derivatives are dangerous:

Austerity model not working:

The inversion of banks and the economy: 
ZIRP and Zombies:
A potential model for urban unrest and outcomes:

On a lighter note and just for fun, we are going to have an all Goldman Sachs MMA cage match between Mark “Brutal Reckoning” Carney and Mario “Whatever it Takes” Draghi.  Carney will be arriving at the Bank of England in July and this may lead to some interesting confrontations as ideas emerge on how to deal with fragile and fragmented economies.

Tuesday, April 9, 2013

Crack Cocaine: Cyprus and the Current Financial Crisis

A crack addict or meth-head can explain the whole situation.  It is that simple.

The headlines seem shocking. People living in Cyprus are losing their money, even though they thought it was safe in the bank.  The US government might shut down due to debt.  Banks are collapsing in Spain and the Netherlands. 
Cyprus bank line up during the recent crisis.
Patrick Gaz - Getty Images
For those without a significant political or economic background, the issues appear overwhelming.

The basic problem in the financial crisis is that governments, just like a crack addict, have overspent, they are in debt and cannot break the habit.  Worse still, they have made promises to pay for expensive projects in the future, but no money for them. Banks too have overleveraged themselves by making risky investments which could backfire. They thought they had outsourced the risks to others, but now they realize everyone is in the same mess and cannot pay either.  (See a simple explanation of derivatives and risk outsourcing with examples at:

So why don’t they fix the problem?
The answer is that they are addicted to debt and risky spending, just like a crack addict.

At first, the addiction to crack (debt) was just a recreational thing and only on the weekend. The money to pay for the crack came from the savings account and did not affect the overall financial situation.  But then the crack habit spread to the weekdays.  Soon, the funds in the savings account ran out, but the crack addict had a few credit cards with a cash advance capability.  This went on until the crack addict got a bank letter cutting off the credit cards.  No worries says the crack addict. He still has a line of credit on the equity in his heavily mortgaged condo and that can pay the credit cards.  Meanwhile, the crack addict overcharges for expenses at work. Auditing picks up on the fraud and fires him.  Our crack addict then borrows money from his family telling them about a sure bet for the future. Everyone then finds out he has lost his job and quits lending him money.  So he steals money from his sister’s house when there for dinner. 

This is your government on drugs!
Then he gets evicted, and our crack addict is reduced to stealing money on the street. His favored method is to steal money from savers as they withdraw cash from an ATM. But the police get wise to him, so the broken down crack addict just beats up old ladies and steals their purses to get that next fix and make it to tomorrow.  

He gets arrested.

Once in court, he tells the judge he is a good guy with a bad habit.  He gets sent to a rehab center paid for by the taxpayers.  He gets a financial bail out when he clears his debt through bankruptcy. So his creditors wind up losing all the money he used to pay for years of his crack usage. Once out of rehab, our newly reformed citizen gets a job in the financial district of the city where he lives. 

All is well, until he gets bored on the weekend and decides to head to the park to get some crack. Not a lot. It is just for fun. And is just for the weekend.......

This is where we are at now.  The governments and banks have used every tax, fee, loan, equity, money printing, bond and accounting deferral trick to keep spending.  But the tricks have run out. They cannot give up the the addiction, so they look around to see who still has money. And they are planning on just taking it the same way our crack addict did at the ATM.  (For an explanation of how this is possible, see: and

This will be the struggle for the immediate future as the addicts who need the money take it from those who have it.  
It is the savers versus the takers.  (See more on this at:

Sunday, April 7, 2013

B3M and the Next Revolution: How Central Bankers and Economists will Cause Political Chaos

An alternative view on the unnatural use of power.

These are the men who matter: Ben Bernanke of the US Federal Reserve, Mario Draghi of the European Central Bank, Mervyn King of the Bank of England and Mark Carney, currently the outgoing Governor of the Bank of Canada and the incoming Governor of the Bank of England.

Collectively they are B3M (Ben, Merv, Mario and Mark)
US Federal Reserve Chairman Bernanke (right)
pictured here with an American politican. (left)
The B3M central bankers have taken effective control of the economy as well as the financial and political system. This is both unnatural and unsustainable.  Unelected and unaccountable, the B3M wield more power over the lives and fortunes of people than any cabal in history.  Their machinations have either saved the Western world, or they have undermined it in a manner that not even the cynics cannot grasp. History will provide this answer – and maybe sooner than we think.
Band of Engladn Govenror King (left)
pictured here with a British politician (right)

We are told that we must trust, for they are wise men who have studied in the hallowed halls of the great academies. They are our betters – and as such we must listen, obey and follow.

They have stood on the docks of Amsterdam as the tulip bubble popped and they saw the heads role off French revolutionary guillotines  as the assignant currency failed.  They were there in 1866 when the Bank of England’s Governor stepped into the breach and they lived through the great depressions of the 1870s and the 1930s.  To them, the Shadow Chancellor is not a modern day Labour Party politician but rather the man that gave us Bagehot’s dictum.

ECB President Draghi (left) seen
walking with a German politican (right)

But I do not believe that they can integrate knowledge across boundaries – especially not the lofty walls that the academics have willingly built between politics and economy.  And by placing economics on top of politics, they have perhaps unknowingly committed unnatural acts. 

The bankers should serve the economy and the economy should serve the polity. 

Instead, the polity is used as a source of revenue to serve the economy which is now controlled by the bankers.  Natural market economics will not tolerate an inversion forever.

I am not B3M.  I don’t have a PhD in economics from Harvard or Princeton.  I am not a quant.  And no, I don’t have a Masters Degree in Economics.   I did work in the financial sector and I do understand a thing or two about risk. 
Bank of Canada Governor and
soon to be Bank of England
Governor Carney (left)
seen here with a Canadian politican. 

But risk was learned in my early days flying as an air crewman in rotary wing search and rescue aircraft in the North Atlantic. Carrying a gun in a war zone provided some insights into threats, risk and risk management.  On a single day’s travel in Bosnia alone there were as many as six different currencies required.  (There was a lesson about politics, war and money in there somewhere!)
What are the messages we need to send to the B3M as we move into an uncertain economic and  political future? These are the lessons I have learned from my betters whom I have had the honor to learn from, to follow and to lead:

1. Simple is good. Complicated can be fixed. Complexity kills.

2. No plan ever survives contact with reality or the enemy.  Plan for that.

3. If all else fails, the shortest answer is correct.

4. Occam’s razor is good.  Give folks a close shave with it now and again.

5. If you cannot explain your concept to an average kid in grade eight, you don’t understand it either.

6. It is all linked together:  Politics. The Economy. War. Nothing stands in isolation and they move together. 

And for the B3M this is the only economic and political rule that is always true:

7.That which cannot go on forever – won’t.  (ZIRP and QE)

Politics is ever the master science and economics will remain the dismal one if left in the hands of only economists.  At the end of the day, debased fiat currencies will dissolve. But power and politics will remain.  All those economic models the B3M learned at Princeton and Harvard failed dismally in 2000 and they failed again in 2008. But their so-called risk managers still do not see the train coming straight at them.  When will the B3M change their models so they can integrate knowledge across boundaries?

B3M and the Future Revolution

These men are students of the economy and finance.  They actually believe that there is a science called economics and they believe (hope?) that by changing an input variable they can control outcomes. But economics is not a closed environment and politics will forever change the value of the incoming variables.

They are not, alas students of politics, so thus we shall all suffer.

Ultimately though, it is the politicians who are at fault. Due to their idleness, corruption and dimness, they have allowed the B3M to convince them to turn over the levers of power.  The financial class now tells the politicians what to do and the masses of the polity have no one to serve them.

The politicians will eventually have to take responsibility again. Either the current group of politicians must awake and seize back their power and begin to serve the polity, or a new group of political leaders will emerge from the chaos of the upcoming economic collapse.

This is economics for the rest of us!

End of rant.

For a humourous look at how Governor Mark "Brutal Reckoning" Carney and ECB President Mario "Whatever it Takes" Draghi may meet in an All Goldman Sachs cage match fight this summer, see


Saturday, April 6, 2013

Should RBC be Outsourcing to Foreign Workers at this Time? Was TD Bank Hacked by the Qassam Fighters? Why do they Dislike the Kingdom of Saudi Arabia?

The Qassam Cyber Fighters claim they are attacking banks.  What do we know about this?

Is now a good time to be outsourcing IT functions?

***UPDATE 12April 2013:  The Qassam fighters say their next targets will be Key Bank and HSBC.  Their statement reads:

The cyber attacks against the U.S. bank are continuing. The Key bank and HSBC bank have gotten out of reach according to what the users and customers of the banks have been reported and can’t offer any services.
The best way for stopping the cyber attacks against the U.S. banks is removing the insulting film.

One victim of these attacks may be TD Bank which has a significant American presence in addition to its operations in Canada.  Spoke persons for TD and Keybank (American affiliate) have confirmed they were the victims of a DDOS cyber attack during the early afternoon of 21 March 2013.  The attacks were brute force and aimed at bank servers. Customers were affected by reduced service levels, but the attack did not appear to target customer’s accounts.  This is just one of many cyber attacks against large banks which have occurred lately. Whether this will affect other banks such as RBC or BMO is unclear.  RBC's involvement with the foreign workers scandal has shown that banks are still outsourcing IT functions at a time when they should be retrenching.

Logo from

TD Bank is not saying much, but the likely suspects in this case are the Izz ad-Din al-Qassam Cyber Fighters Brigade.  They have launched a series of successful DDOS attacks against American banks recently and may be expanding outwards.  The Qassam Cyber Fighers have made generic claims on claiming they are responsible for these  DDOS attacks.  See an example of a pastebin claim below.

A Few Words of Explanation about the Terms

What is a DDOS Attack?:  The term DDOS stands for distributed denial-of-service.  Think of it this way. Imagine you want to pull a prank on someone or disrupt their business.  You get 100 of your friends to all call the victim’s phone number at the same time.  Your friends don’t call just once. They dial the same phone number as fast as they can repeatedly for an hour – thus rendering your victim's phone number inaccessible to both him and any legitimate incoming calls trying to reach him. In short, by overwhelming the capabilities of the single phone line, your render it effectively inoperable, even though no damage is done and all the equipment keeps working.  The victim’s likely response is to take the phone off the hook and give up trying to call anyone or answer the ringing.
A DDOS cyber attack works much the same way.  You and your circle of colleagues try to render your victim’s computer system inoperable by overwhelming it with large number of inputs.  If a critical mass of inputs can be reached, the victim’s website or public facing services will collapse under the sheer volume of inputs.

Who Are the Qassam Cyber Fighters Brigade?  This self declared group of activist hackers (hacktivists) announced their campaign of attacks against banks on in the fall of 2012. They claim their activities are a response to the posting of a YouTube video by the American Pastor Terry Jones.  The video – The Innocence of Muslims – was regarded by many Muslims as both insulting and full of false information.  The Qassam Cyber Fighters have demanded the withdrawal of the video. They target bank operations, believing that this will cost the banks money during periods of shutdowns and this in turn will cause the banks to pressure the government to find a way of getting the issue resolved. The attacks have in fact been successful in that the video has been withdrawn from YouTube. The video does keep popping up on the Internet as others continue to distribute it. Mostly likely, the money and personal that support this effort can be traced back to Iran.

In addition to a dislike of American banks, it would also appear that the Qassam fighters have a strong dislike of the Kingdom of Saudi Arabia.  This would appear to support the idea that Qassam has an Iranian base rather than a Palestinian one.  The Palestinians are not likely to bite the hand that feeds (i.e. KSA).
Hmmm, is it possible that high politics are involved and not just concerns about one video?

What is Pastebin? is a website where you can store large or small amounts of text data online for extended periods of time. However, it has become a popular spot for hackers to announce their hacking exploits. Typically, when a hacker has obtained material from the inside of a company or from an email system, they will post the stolen material online as proof of their success. For example, when Anonymous hacked into the American private intelligence collection company STRATFOR in December of 2011, they posted customer's names, credit card numbers and security codes to prove that they had been successful in their massive hacking effort.  My name was included, so I am aware of the effectiveness of the system. 


In our modern world, we are critically dependent on banking systems. This is especially true of the payments and settlements servers that transact and balance off all the ATM, credit card, debit card and other financial transactions every day. Without these servers, the financial system and the economy would grind to a halt in 24 to 48 hours.  In short, your debit card won’t work, your credit card won't work and neither would the ATMs.  Imagine how rapidly civil order might decline if the systems do not recover quickly.  With RBC looking like they have outsourced IT functions overseas and to foreign workers, this raises questions about the stability of their systems.
What do the bankers themselves and those responsible for security think about the threat? One valuable insight into the views of the super rich and the political elites is the Davos Foundation annual meeting. This gathering of the super elites has expressed serious concerns about the stability of their own systems.  At the 2012 meeting they discussed cyber attacks and the “Dark Side of Connectivity.”  Their thought on this?  

The critical infrastructure  that underpins our daily lives increasingly depends on hyperconnected online systems. While significant resources have historically been needed to cause devastating consequences for geopolitical or corporate powers, it is increasingly possible for skilled individuals to do so remotely and anonymously through networked computer systems. As power shifts from the physical to the virtual world, a new paradigm for ensuring a healthy digital space must emerge.

They further add:
There are no proven secure systems, only systems whose faults have not yet been discovered, so trying to overcome “hackability” may be as hopeless as denying gravity. Instead, the goal should be finding ways for well-intentioned individuals to identify those faults and deploy remedies to end-users before would-be cyber criminals can discover and exploit them. (emphasis added)

When the super elites are concerned about such problems and openly say so, maybe the rest of us should take this seriously as well. 

This is economics for the rest of us!

For one example see:
For more on the “The Dark Side of Connectivity” see page 24 of the PDF report. It can be seen by going to the Davos Forum site at
Or go directly to the PDF version at:

Wednesday, April 3, 2013

Trouble at Canada's Big Banks? OSFI and Government Warnings

Canadians are known for being overly cautious and too polite.  Unless you give them a hockey stick….

Given this predilection for caution, Canada is also known for having stable but boring and the most reliable economy in the G8/G20 group of countries.

But is all well in the land of the midnight sun?  The Government is sending out warning signals.

In 2011, the Office of the Superintendent of Financial Institutions (OFSI) made some rather un-Canadian style comments. It was addressing the quality of the Boards of Directors sitting at Canada’s big banks.  Coming from Canada’s banking regulator, it was a shocking to hear that some banks lacked experience on their boards. Or as Stephen Jarislowsky,  CEO of Jarislowsky Fraser Ltd., said "I find that there are many directors who are extremely nice people and competent people, but very few bank directors who really know banking.”  Ouch!

This was followed in July of 2012 with further statements from OFSI raising concerns about the competencies of the boards with a particular focus on risk management. In January of 2013, OFSI again raised board the issue of the bank boards, including making improvements to the competencies of directors.

Most recently in March of 2013, OFSI publicly put the “too big to fail” label on Canada’s six largest banks.  This was surprising. Many industry observers had considered that only the Royal Bank of Canada would warrant the TBTF label.  As a result, these banks will have to maintain a larger capital buffer and be subjected to stricter regulatory oversight.

And then on 21 March 2013, Canada’s Finance Minister quietly dropped a bomb by including ‘bail-in’ provisions for Canada’s banks should they find themselves in financial trouble.  The bail-in procedures were buried on pages 144 and 145 of the budget and smothered in financial doublespeak, but the intentions are clear.  As only an economist could write, Canadians were told that there could be a very rapid conversion of certain bank liabilities into regulatory capital. Written in plain English, this means that depositor’s money could be grabbed fast to keep a bank going should it suddenly go broke. Presumably, small time depositors holding less than CDN$ 100,000 would be protected by the Canadian Deposit Insurance Corporation, but the budget does not enlighten us on this area. (See for more on this.)  

It may be cold comfort for Canadians, but the USA and the UK are making similar plans.  (See for more on this.)


Canada is not Greece or Cyprus, but sovereign and personal debt levels are a concern. Much of the so-called Canadian economic model from 2008 to 2013 has been funded though personal debt which has now risen to over 165% of income. Continuous low level interest rates mandated by the Bank of Canada has produced  a ZIRP (zero interest rate policy) which is distorting the economy and causing a mis-allocation of capital.  (See more on ZIRP and Zombies at


Canada’s ruling Conservative Party government is known to be a “banker and business friendly” outfit, so this is not an ideological attack. Indications exist that the Government and its regulators have genuine concerns about Canada’s financial and economic future.   Overall, the measures appear to be a response to internal problems (personal debt, TBTF banks, over dependence on commodity exports etc.) as well as external factors (EU ongoing financial crisis, US sovereign debt, PRC slowdown and monetary imbalances).

We are given to the impression that this is a government clearing the decks as the ship sails into a storm. 


(There remains the possibility that the Canadian government had its confidence shaken last year following a massive theft from the maple syrup cartel headquarters in Quebec.  Who knew Canada had a cartel?)


From Baby Credits to Carbon Credits: Climate Science and Economics

Leading voices in the climate debate, including President Obama’s science czar, were advocates of baby credits to control global cooling before they advocated carbon credits to control global warming.  An examination of their past views should be undertaken before more economic decisions are made. 

A 1976 CIA report stated global cooling
was a major threat.
Their arguments have proven false in the past and they have advocated other policies such as forced sterilization and baby swapping adoption services based on gender. These policies were advanced in the name of science and the environment, not for social engineering.
Consider John Holdren who is the Assistant to President Obama for Science and Technology, the Director of the White House Office of Science and Technology Policy, and a Co-Chair of the President’s Council of Advisers on Science and Technology.  He is an advocate of increased spending to fend off an impending climate crisis.  But his views are untrustworthy when you examine his past.  In order, he has argued that increased amounts of CO2 in the atmosphere causes:
1.  Global cooling and crop failures,
2.  Global warming, and finally
3.  Climate change.
Mr Holdren’s past views and his ‘scientific’ studies have proven flawed. What would our current society like if Mr Holden had been able to turn his ‘science’ into policy?
In 1968, Paul Ehrlich, a colleague of John Holdren and his future co-author, published The Population Bomb.  This book stated that the Earth had reached its maximum population and mass starvation would occur in the 1970s and 1980s.  This Malthusian view proved completely wrong, but it views are worth noting.  The main conclusion was:
The battle to feed all of humanity is over. In the 1970s and 1980s hundreds of millions of people will starve to death in spite of any crash programs embarked upon now. At this late date nothing can prevent a substantial increase in the world death rate. 
The message of fear was obvious.
One advocate of this new anti-population movement was John Holdren.  He also supported the “global cooling effect” which believed carbon emissions would cause temperature drops and crop reductions.
In 1978, it gets interesting.  John Holdren and Paul Ehrlich published a book titled  Eco-Science: Population, Resources, Environment 
In this book, Mr Holdren and Mr Ehrlich advanced their beliefs on global cooling. They stated action was needed in response to science.  Among the policies they identified to reduce global cooling and control population growth were:
1.  The creation of a “baby credits” trading scheme where individuals could trade their reproductive rights for cash with other individuals.  Couples with no babies could sell their ‘baby rights’ to other couples who wanted to have more babies than the state determined level. This baby credit trading scheme is an eerie predecessor to the carbon trading scheme now in place.
2.  Putting a birth control chemical in the world’s drinking water or food supplies to reduce fertility levels to rates they would determine were acceptable and implant young women/girls with birth control capsules when they hit the age of puberty . Later, the capsules could be withdrawn when the woman decided she wanted to have children (withing state proscribed limits.)
3.  Create financial lotteries with cash prizes that would only be open to childless people;
4.  Create an adoption system so potential parents who wanted a male child instead of a female could adopt what they wanted rather than “trying for another child.”  Unsuitable single mothers would also have to give up their children for adoption.
Both Mr Holdren and Mr Ehrlich believed that by the 1980s, global cooling would have a devastating impact and that the population would be demanding action.  Imagine what might have happened if those governments had acted on global cooling. Now, of course, we are told that schemes should address either global warming and/or climate change.
History is soon forgotten and policy makers tend to live in a time bubble where the past was last year and the future is the next election. But what lessons could be drawn from these events, given that the people involved in the past are now in positions of significant policy and spending influence? 
a. Before undertaking any spending programs or policies such as more carbon credit trading schemes,  reviews should be made of what these individuals and their colleagues have advocated in the past.
b. With respect to an individual spending project such as vehicle emissions, multiple sources of data should be reviewed to determine if ideological views have found their way into the discourse.
In the 1970s and 1980s, many mainstream scientists were making morally demands about how the rest of us should reshape our lives to meet their scientific views.  Now, in 2013, we are facing new demands for more radical polices from the same voices, albeit based on the exact opposite of what they believed earlier (cooling vs warming).
Those scientists who made these past projections about global cooling and mass starvation are frequently the same people who now occupy significant positions of influence. John Holdren is one of those people.  Before letting their voices gain any further influence, a review of their own views might be useful.

Saturday, March 30, 2013

Financialization Explained: Why you are being Robbed by the Big Box Stores?

Financialization is taking money out of your wallet and putting it into the hands of the banks and the financial industry.  How does this happen?

It is done by the process of financialization which works to the benefits of banks and the financial industry while killing the economic recovery and growth.

What is Financialization?

Tough question. But here is an example.

You purchase a new lawnmower or expensive clothinig in a large store.  The store tells you they will give you a 10% discount if you sign up for their credit card. You agree to the new credit card.  

The store believes that you will use their credit card for future purchases, but you will not pay off the full balance every month. Therefore, they will make money off you through the 18% to 28% interest rates on that card. Your 10% savings disappears rapidly as you pay these high interest rates.  
Smile! You were just financialized. This is now common throughout many business models.

In simple terms, the store is no longer operating on a capitalist model as it tries to sell you services and products which are better than its competitors. Instead, it is using a financialist model whereby they take your money over a longer period of time by driving you into debt . You are now working for them through the interest payments.  It is a legalized form of debt slavery.

Financialization as a Business Model – Why is this a Bad Thing?

This model hurts the overall economy. By putting more and more money into the hands of the banks and financial industry, less money goes into productive industries that create real employment and growth for everyone. In economic terms, it can be said that financialization is distorting the economy through the misallocation of capital into non-productive sectors. 

The Killer
Bankers formerly served the economy by assisting the flow and allocation of capital.  Now, the banking and financial industry has become so powerful that the economy and polity are serving it.  And it hurts everyone.

What can be Done?

Most politicians and regulators are unwilling to challenge the financial industry as the banks are so powerful that elected officials fear them.  (See )

As a consumer, you can choose to simply avoid using these systems.  Don’t get that new credit card from the hardware store or clothing store.  Pay cash or walk away. Buy from a locally owned store rather than a large franchise chain.  You will likely get better products and service and enjoy better value over the long term.  With food products, you are also safer and will remain healthier if you buy local. (See )

If you cannot afford to pay off the credit card each month, then do not buy more stuff. Wait until you can pay cash.  Look at your credit card statements and see how much you are paying in interest. Then figure out how much that is per year. You will be shocked at how much it costs you to have been financialized.  When you do buy something from a local store, use cash if you can. The credit card companies are charging three percent or more on every sale –so that is money leaving your community.

The next major financial crisis may cause a reset in the way we do business. When this happens is not clear, but the next crisis will be worse than the events of 2007 and 2008.  When the crisis does occur, there may be a new model put in place that removes the banks and financial institutes from their place at the top of the power hierarchy. 
Capitalism 2.0 anyone?  This is economics for the rest of us.


(To see fanancialization as described by the US Federal Reserve: ) 

Financialization is a process whereby financial markets, financial institutions and financial elites gain greater influence over economic policy and economic outcomes. Financialization transforms the functioning of economic system at both the macro and micro levels. Its principal impacts are to (1) elevate the significance of the financial sector relative to the real sector; (2) transfer income from the real sector to the financial sector; and (3) increase income inequality and contribute to wage stagnation. There are reasons to believe that financialization may render the economy prone to risk of debt-deflation and prolonged recession. Financialization operates through three different conduits: changes in the structure and operation of financial markets; changes in the behavior of non-financial corporations, and changes in economic policy. Countering financialization calls for a multi-faceted agenda that (1) restores policy control over financial markets, (2) challenges the neo-liberal economic policy paradigm encouraged by financialization, (3) makes corporations responsive to interests of stakeholders other than just financial markets, and (4) reforms the political process so as to diminish the influence of corporations and wealthy elites.