Wednesday, September 16, 2009

The Shock Doctrine

Lehman died so TARP and AIG might live

Naomi Klein's book with that title (mine) argues that those in power make big changes in their own interests when some major event (usually contrived) causes panic and the mark is thereby softened up for the ensuing sting. According to this article the collapse of Lehman a year ago was a contrived event which panicked Congress enough to make it loosen the purse strings and shower largesse on Bernanke's and Paulson's banking mates.

Posted by icarus @ 01:56 PM (1140 views)
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20 thoughts on “The Shock Doctrine

  • Serendipity_my Ass! says:

    This has happened a number of times before in the past – as the elite tighten the noose on the unwary and the unthinking. Examples of the gambit and times when it has been used before are shown in The Money Makers DVD – well worth watching as it flags up the likely next steps.

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  • This article is a work of fiction and supposition. Not one shred of proof is offered. Most of the articles’ credibility rests on the reader believing that not one member of congress (or their 1000’s of advisors) knew that the Fed could buy commercial paper. Of course they knew. It’s been documented and understood for a long time.

    A far more plausible explanation is that Dick Fuld was an animal who loved big risks. The government probably thought that someone should pay so why not choose the biggest risk taker in town. Just like the article, I have absolutely no proof for this theory but it’s a more plausible explanation.

    Forget all the dark deeds…we had a shit government and so did they. That’s all there is to it

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  • flashman, you seem to understand the machinations of the City and its denizens, perhaps you could answer a question. I read today that Goldman Sachs has an automated buying programme, whereby it constantly buys shares, therefore pushing the price up, until that is someone puts a stop or there is an automated stop programmed in. My question is twofold, firstly is this myth or reality? and secondly does this not constitute market manipulation and therefore fraudulent behaviour, or are the masters of the universe not constrained by the same rules of business the rest of us are???

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  • charlie brooker says:

    ” . . . when some major event (usually contrived) causes panic and the mark is thereby softened up for the ensuing sting.”

    My ex-wfie did this to me : she threatened suicide with a knife to her wrist if I didn’t promise to buy property for us in her home country. I thought she was depressed that we weren’t conceiving a baby. Fearing she was suicidal, I duly paid out for the property hoping to make her feel better – as any good husnband would, only to find out she was having an affair with a gangster who then tried to murder me. I lost everything except my life.

    Turned out she couldn’t conceive anyway. Her sister told afterwards she’d had an abortion long before we got married – a truth she conveniently didn’t mention before getting betrothed. How do I feel? Like I’ve been the victim of a long and tortuous multiple rape. That’s how I feel.

    Well, I hope you enjoyed my little story, because the same thing has happened to each and every one of you. No,iIt wasn’t a trecherous wife that f0cked you; it was the bankers.

    As I was saying to Dr Rowan Williams in my email to him this morning: Sociopaths, who needs ’em?

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  • bystander: yes, programme trading (sometimes called black box trading) does exist and has grown considerably over the last ten years or so. However programme trading does not just buy. It also sells. Its purpose is to make profit and not necessarily to push the market up.

    An institution hires the best people it can to create a ‘black box’ that gives them the edge over their competitors. It is really no different to BMW or Nike making the best product they can to profit at the expense of their competitors.

    The market manipulation accusation is really not valid. Every trade moves the market to some extent but moving the market is usually just a consequence of trying to make money. Money is made in the markets by outsmarting all the other participants and program trading is used to facilitate this. The big boys are using increasingly sophisticated technology, which is why I often urge caution to anyone considering a bit of trading

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  • Flashman – do you know why they waited so long to guarantee commercial paper?

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  • Unfortunately I don’t. Maybe it was their least favourite option? I imagine we’ll know what happened in 20 years or so.

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  • reckon its completely true…..the automated trading arm at goldman sachs was responsible for the dotcom boom and the oil spike to $147

    In fact goldman sachs retire their employees in early 40’s to then go into ‘public service’…they are like something out of the dinci code!

    allegedly

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  • taffee: there were millions of people involved in the dotcom boom. I bought a few bits and pieces myself. Some of these articles, like the one in Rolling Stone, are very compelling. When I was a kid, the BBC put out an April 1st documentary showing that spaghetti grows on trees. Millions of people believed it. No one involved in the cooking or spaghetti business believed it because they had the appropriate knowledge. In the same way, no one in the financial business believes the Goldman stuff

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  • Flashman – Whitney’s argument relies heavily on the question of why Bernanke/Paulson waited to long to fix the commercial paper market. If you can’t answer that then you can’t be confident that the srgument is fiction. If everyone in Congress knew that the problem was centred on the commercial paper market why didn’t they tell / suggest to B & P that they just go ahead and fix it?

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  • icarus: I was pointing out that there is no proof offered in this article.

    I didn’t say, “Everyone in Congress knew that the problem was centred on the commercial paper market”.

    Here’s what I actually said “Most of the articles’ credibility rests on the reader believing that not one member of congress (or their 1000’s of advisors) knew that the Fed could buy commercial paper”.

    I made this comment because in the article: “What Mr. Bernanke apparently forgot to tell Congress back then is that the Fed has the authority to directly buy commercial paper from financial and non-financial companies”.

    My point was … and is, that it doesn’t matter if the Fed supposedly forgot to tell them this. They already knew it. It’s common knowledge so the central tenant of the article that the congress was somehow hoodwinked about the Feds ability to buy commercial paper, is not valid.

    There is no proof offered in this article and its central tenant is flawed so it cannot be taken too seriously. Anything is possible of course but without proof, it’s just a stab in the dark

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  • flashman….you don’t know goldman sachs then!

    They were short selling mortgage backed securities while flogging them to their clients,they have a whole building in the US dedicated to their auto trading arms and algorithms…there are always million involved in any scam,but no-one realises they are all contrived

    newspapers,traders,tv etc etc ..for intsnace goldman ramped up oil stating $100 then $200….4 months later they said it could fall to $25!

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  • Flashman – proof – there’s the rub. It’s the very nature of these shenanigans – if they were shenanigans – that they leave behind no paper trail. That’s why perpetrators can call their detractors’ arguments ‘conspiracy theories’. I think the central tenet of Whitney’s argument was that it took so long to fix something that was easily fixable and which caused such much havoc. B&P certainly seem to have left Congress feeling that something big had to be done and quickly.

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  • Also, he’s saying that Congress was led to believe that Lehman’s demise caused the problems in the markets and that another Lehman-type event could be catastrophic.

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  • Epistemological aside…

    ** Not really all that relevant of course, as under the assumption what we are observing is a close representation of reality then paper trails and the like are considered evidence. **

    Proof?
    There is no proof of such a thing as proof.
    On the basis of Williamson’s argument against the sceptic [ Williamson 1997 ]: Any and all knowledge is evidence.
    The eternal sceptic will respond that this implies either no knowledge or a fundamental truth, known to all capable of knowledge. The later would therefore be sub-conscious knowledge; that is knowledge we posses but of which we are not aware. There is, therefore, no evidence for conscious knowledge itself and without any concrete knowledge there is no way to prove anything. [ 🙁 ] – For example, on what evidence does one base the knowledge that one is thinking?

    /end of irrelevant aside, please resume…

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  • 666 – how do we know it was irrelevant?

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  • One way or another the genii is out of the bottle now. The precedent of “too big to fail” is now well and truly established to the extent that the majority view is that letting Lehman collapse was a “big mistake”. So that’s it then…no more constraints, just do as you will if you are a major financial institution. In fact, when you fu3k up, the more power and money you have, the more compelling the argument for socialising your losses becomes. Conspiricy or not, the results look the same to me. Raped by the worlds financial autocracy. If this isn’t a call to arms for the man in the street, I don’t know what is…unless it effects value of my house, of course! We’re all totally emasculated by the enterprise culture!

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  • No matter what part of the economic spectrum you subscribe to, the reality is that huge amounts of our money to be spent on education, health and so on has been given to the banks. The banks will lend some of it back to us at interest.
    Really this point can’t be repeated enough times and to enough people.

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  • shipbuilder, damn right! The notion that the children of the poor could hope to better themselves or ordinary people expect some security in sickness, old age and unemployment have, since Thatcher, been derided and are now treated like an accidental little delusion suffered by an ingnorant generation before the road to the sunlight uplands of free market was magically thrown open to us.
    The gulf in this society is now massive and will not be fixed by voting for any alternative offered as they all represent the same interests…none of them the interests of the average wage earner of course. The big delusions are i) the belief that any elected politician in the UK has the power to really change things anymore and ii) those that really run things give a fock. “They” cannot because “they” are constitutionally incapable of doing so, being corporations. The sole purpose of a corporation exists is to make a profit. So, a legal “person” with a lot more power than any individual (or, indeed, many states), with a purely psycopathic personality. No conspiricy theory needed, it is designed this way. How can this possibly have a happy ending? Smash it up!

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  • Back to GS black-box trading. It was interesting the gs were quoted as saying that the theft of their algorythms (by that russian – I think – employee) meant that someone then had the potential to manipulate the markets! So if what they say is true about this programme, then are we to believe that gs wouldn’t use it themselves to manipulate the market to their advantage?! Oh I’m being silly now, of course they’d police themselves and never take advantge.
    Ergo GS does and is manipulating markets!

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