Thursday, January 13, 2011

“Financial markets” loan-shark mechanism at works

G Pytel

This is exactly tells you how the financial business works. Bonuses are a sideshow to what's going on in reality but also tells you whether bankers really deserve high pay, if any pay at all. Under a pretence of high finance these people implement primitive "good old" fraudulent mechanisms. If you are not perturbed and concerned about the future, you should be.

Posted by ant @ 12:19 PM (1150 views)
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7 thoughts on ““Financial markets” loan-shark mechanism at works

  • It’s worth remembering too that the ‘bond markets’ are rich individuals (or funds acting on their behalf) who made their money courtesy of government tax cuts, or failure to collect taxes from them, and corporate welfare. So the mechanism for increasing government debt is the very mechanism that makes possible loans to governments.

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  • general congreve says:

    Here’s the image from the article for those interested. Looks like the debt isn’t going anywhere.

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    The general thesis of the article is that public spending cuts make more money available to service interest, so the ‘bond markets’ force up yields as the bond issuer now has more ability to pay. Effectively the more you can afford to pay, the more you pay. Ultimately this approach will break the bond markets when the bond issuer defaults, so they’re on a hiding to nothing if the whole rising yield game is really being operated like this. Then again, if bankrupting the world and throwing it into chaos is your plan, so you can ride in on the white horse of the NWO and hoover up all global assets, then maybe it’s the best game to be in.

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  • GC – whether or not the game is being operated this way the point is not to worry about the endgame but to get rid of the parcel before the music stops.

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  • Isn’t this the same principle as people with poor credit ratings being charged higher rates? Surely this is well-known?
    A couple of weeks ago HPC carried an advert for a credit card for people with bad credit history – 36% APR.

    Maybe the article is just pointing out that the markets are no better than doorstep lenders.

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  • @cyril: you’re right. It is the same principle and indeed “markets are no better than doorstep lenders”. It is not that sophisticated job so high bankers salaries are a joke. Fire them all and next day you will get better people. The other point is that a massive part of current government debt is thanks to bankers. They first made the banks bust, pushed governments to rescue them and then punish with high bond yields governments for doing so. In a nutshell: the current financial industry has all the hallmarks of organised crime.

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  • @icarus,

    The bond market isn’t just rich individuals. Other investors include:
    * Foreign countries (think of China’s pile of US bonds)
    * Insurance companies (when you buy life insurance, you pay the premium up-front so insurers are sitting on a huge pile of cash)
    * Pension funds (they hold stocks when you are young, but as you approach retirement the fund shifts into safer bonds)
    * Annuities
    * Corporate savings
    * Ordinary savers

    You don’t have to be rich to buy bonds indirectly. Banks and other financial services companies sell fixed-term savings products (e.g. five years locked in at 5% per year); these are often backed by bonds. Also there’s the question of what constitutes rich. Although we always talk about the poor on here, there are also plenty of people in their 50s-60s-70s who have considerable savings, £100,000 or more, on top of their pensions. A bond provides a steady stream of income for them without the ups and downs of shares.

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  • drewster – I was painting on a broad canvas there. Of course there are institutional bondholders, but consider:

    The list of bondholders in Anglo Irish Bank, the one that caused most of the Irish sovereign debt, includes few if any obvious insurance companies and pension funds. The bondholders describe themselves as ‘Asset Management’, ‘Investment’ or ‘Investment Management’, ‘Wealth Management’, ‘Trust Investment’, ‘Capital Management’, ‘Private Wealth Management’ ‘Credit Managment’, so-and-so Partners etc.

    Historically the bond market in the US grew to prominence (and political influence) in the Reagan years, when wealthy individuals were created from supply-side tax cuts and the high interest rates of that time. The deficits resulting from those cuts gave the newly enriched an investment opportunity – the purchase of Treasuries to fund the deficits created by the tax cuts (and other forms of welfare for the rich).. The 2007 Survey of Consumer Finances in the US showed that the richest 5% (net worth) held over 82% of all stocks and almost 94% of all bonds, (although admittedly the high volume of bond trading in secondary markets complicates things). Wall Street also manipulates the supply of bonds, bills and notes of differing maturity through the Treasury Borrowing Advisory Committee (current chairman and vice-chairmen from JP Morgan Chase and Goldman Sachs).

    Given this and the increased concentration of wealth worldwide (including China’s ‘princelings’) and problems of pension funds, which were wrong-footed by Wall Street in the run-up to 2007, it’s a fair assumption that (a) bondholders are predominantly rich and (b) most wealth is accumulated through government policy (neoliberalism, tax cuts, privatisation,tax havens, banks and debt peonage etc.)

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