Tag Archives: Stock market

Wasn’t the Recession simply terrible?!

From the infamous 1931 sign above a bread-and-soup line showing a happy smiling family smartly dressed riding in their new car…
Dow Jones doesn’t “slide” below 10k… it “plunges.” OOPS.
The accompanying The baby turkeys look up to see the rain, mouths wide open, and drown trying to figure it out picture on AP shows a bunch of floor traders looking up like baby turkeys drowning in the rain, with their mouths wide open watching their each individual Apocalypse coming down, drop by drop. Same expression on their faces too.
Eat the rich.

Leave it to pirates to run honest bourse

rocket propelled grenade RPG-22With investment bankers trying to weasel another broker’s percentage from a carbon-credit trading system, comes a living example of rudimentary venture capitalism. In Haradheere, Somalia, there’s a stock market for pirates, by comparison, something benefiting all participants.

The pirate’s market is no middleman’s monopoly. It works just like the collectives of investors who floated Britain’s privateers and the Dutch East Indies Trading Companies, just two examples of crown-sanctioned adventure-mercenary conquerors. Had you wondered why the definition of “float” includes the economies participant to navigational buoyancy?

Got a boat, a weapon, a tip on an incoming treasure galleon? Invest the pirates with your contribution and reap a stake in the rewards. Every successive stock market since the formative times, from commodities, to insurance, to futures, etc, have well surpassed the illegitimacy and immorality of the seafaring pirate variety.

Sang the Pirate King in The Pirates of Penzance: Away to the cheating world go you, Where pirates all are well-to-do.

While the corporate media decries the savagery of the lawless Somali coastal enterprises, sophisticated traders descend upon COP15 to extort a cap-and-trade protection racket from a world desperate to arrest climate change.

The pirate bourse is a reminder of what purpose the stock markets used to play. If you had a money-making idea, and needed investors, that’s where you went. But to describe a business proposal as germinating from an idea, is to peddle platitudes defining entrepreneurship as being about intellectual innovation. In practice, business opportunities chiefly present themselves from licenses obtained from the state, to operate lucrative monopolies. It usually takes the combination of disproportionate profits and manageable risk to interest wealthy investors.

I think I enjoy this Somalia juxtaposition particularly because Wall Street can’t get a piece of the pirate action. Only those with real pirate commodities need apply. And of course, only those financiers brave enough to circulate in a “pirate’s lair” like Haradheere. So the suddenly infamous Dalsan Bank of Haradheere is basically for scrappers and warlords only, and certainly no whites need apply, unless it’s to be ransomed.

Here’s a snippet from yesterday’s Reuters article:

Piracy investor Sahra Ibrahim, a 22-year-old divorcee, was lined up with others waiting for her cut of a ransom pay-out after one of the gangs freed a Spanish tuna fishing vessel.

“I am waiting for my share after I contributed a rocket-propelled grenade for the operation,” she said, adding that she got the weapon from her ex-husband in alimony.

“I am really happy and lucky. I have made $75,000 in only 38 days since I joined the ‘company’.”

If it sounds like a personal testament for a get-rich-quick scheme, it is! But unlike the television infomercials, this bourse is grounded in providing a legitimate function in Somalia.

Note that the ransom from which Ms. Ibrahim expects to profit was paid for the release of a “tuna fishing vessel.” For those who want to judge the pirates like terrorists, the inconvenient characteristic about the Somali pirates is the role they play as coast guard for a national government not up to the task. Somalia’s inability to police its waters means that international boats visit to plunder the fisheries and dump toxic waste. Illegally, obviously. The fishing villages of Somalia suffer the most, and it’s from their workforces that the pirates recruit their expeditions. The pirates arrest the wrongdoers and assess large penalties and criminal fines before the lawbreaking crews are released.

the short end of the stick

hazelwood tally stick It was one of the greatest heists in history. The scene? London, 1660. The perpetrator? England’s King Charles the II. The loot? All the gold he could con out of the country’s goldsmiths, bankers and businessmen. The tool?
 
A tally stick.

Tally sticks were a brilliant invention, but they were also insidious as they formed the foundation for the fiat currency systems we still have today. One where the root of a currency’s value is in a promise from a faceless institution, and not in the actual value of an object.

Put into use about a thousand years ago, they were a common sense solution for a young gold-and-goods economy where gold was scarce. By the time of the heist they were used in everyday transactions.

Here is how it worked. When a loan was made, the debt was carved in a standard fashion on the surface of a small (preferably hazelwood) stick, and then the stick was split in half through the center of the carving. The longer end of the IOU was given to the purchaser, and its handle was called the “stock” — the root of the word’s use in today’s markets.

Even a mostly illiterate public could read the amount scratched into the wood, and the stick would only fit perfectly with its original other half. That way, when the debtor returned with the money (or goods) owed, the sticks would be matched and the debt would be “tallied.”

In that fundamental use, they worked perfectly. But of course, as is governments’ way, the King was tempted to stretch those bounds.

Charles II ruled at a time when royal power was still based on a divine mandate. His government and institutions — and indeed he himself — saw the king as the Chosen One, which was a real shame for him because it bound him to the laws of Christendom. And Christianity at the time still forbade lending or borrowing with usury (interest). When financing several failing wars against neighboring countries depleted royal coffers, Charles II needed some quick cash to continue living in kingly fashion.

King Charles II turned to the trusted tally and the keen idea of selling his (government) tallies (debt) at a discount. That way he could allow his lenders to profit without charging interest — the basis for government debt being sold at a discount today.

And the King could issue advance tallies for emergency spending, an idea that proved all too tempting. He sold the tallies collected by his Exchequer (tax collector), essentially trading future tax receipts to the country’s goldsmiths (bankers) for quick cash.

The tallies were receipts for taxes to be paid later in the year. This is a crucial part of the story: they weren’t trading on the value of the objects being traded, but on the cost of waiting for a return and the government’s ability to collect taxes and stay honest. If the government is not honest, this is an outright Ponzi scheme, one where new debt issue could theoretically pay for passing bills. For a while.

The King realized that he’d stumbled onto something big. He could wage all the war he wanted and pay his bills with the gold he got for hazelwood. The King spent and spent, and the goldsmiths’ vaults filled up with more and more sticks.

Goldsmiths were handing out certificates for fractional gold reserves and inflating the young economy in a con all their own. And since the King played along with their early building of a banking system, they played along with the sticks-for-gold investment strategy.

Over time, the market got wise to the game. Buyers started attaching larger and larger discounts to the King’s debt to offset the perceived risk in loaning money to the King. The discounts prompted the King to issue even more tallies, promising out more future tax revenues just to meet his short-term spending desires. But remember only the discount was changing here. So the mountain of taxes to be redeemed in order to pay off his debts grew in comparison, soon overwhelming the King’s income.

By the time the whole Ponzi scheme came to an end, the King’s sticks were trading at a 10% discount (to put that into perspective, short-term T-Bills are currently trading with discounts of one-tenth of one percent or less). The payments on his newer issues trading at that discount soon outmatched all the Kingdom’s tax revenues, effectively bankrupting his Exchequer and threatening to put the monarchy in the poorhouse.

So with the stroke of a pen, the King simply declared those debts illegal and ceased payment.

With that single stroke he stole most of England’s gold — having already spent it — and forced the young economy to fall flat on its face. The King’s various creditors ended up on “the short end of the stick” and all credit in the country evaporated very nearly overnight.

Pretty scary, huh? I’m glad such a thing could never happen today.