Financial Gotterdamerung in Shepherd's Bush, the Eurozone and Beyond.

The Shepherd's Bush Blog has asked the famous financial commentator Siegfried Line to outline the dynamics of the present  financial threats to all those in Shepherd's Bush and the rest of the world.  Here is his analysis:

You ask "what is going on in the world?".  The answer is that we are in the middle of a financial and political crisis. In general everyone has too much debt, both private individuals and states (sovereign debt) but finding a way out is proving to be difficult because:

1. The destruction of assets resulting from the 2008/9 financial crisis has reduced productivity in western economies and this has reduced the tax take. Consequently governments cannot sustain the spending of previous years without building up a lot of debt (usually borrowed in government bonds or Sovereigns)

1b. A lot of states (almost all western states) have chosen to reduce their spending (fiscal discipline) this has reduced economic activity and reduced taxes further. Conseqauently the state debts are not reduced as had been hoped. This has been made worse because a large number of states have decided to do this at the same time so trade and economic activity is further depressed. (ie it looks although Keynes was right, in a period of economic recession one needs to stimulate the economy not retrench by reducing government spending - this is a rerun of the 1930s when Hoover in the US and a Tory/Liberal coalition (!) in the UK, introduced harsh fiscal measures to deal with government deficits after the depression. The result was their economies did not recover until World War II !! ie after 1939)

2. The Eurozone has particularly serious problems.

2a.The structural problem at the heart of the Euro project is that, unlike in the US, there is no fiscal union. This means that different Eurozone members have different fiscal regimes (tax and spend) and these differences cause strains in difficult times. The most obvious problem in Greece is the very poor ability of the state to collect tax which is bound to create problems. Although the US is divided into states with different laws there is a common tax regime and much spending (eg defence and health) is determined in Washington. The US $ is consequently very sound despite the economic recession.

2b The lack of fiscal union is exacerbated in states like Greece, Italy, Ireland and Spain because of what might be called their financial culture. In the past when there were economic recessions these countries devalued their currencies thus making their goods cheaper to export, encouraging their purchase and  so stimulating their economies. BUT because they are now members of the Eurozone they cannot devalue so instead the only way out is fiscal ferocity, ie vast cuts in government spending and steep rises in taxes. Again this is a downward spiral: it reduces economic activity, causes a rise in unemployment and impoverishes the people.  Again there is a reduction in tax take so the deficits do not go away. This has happened in Greece. It is a similar situation to that which caused the UK to abandon the Gold Standard in 1931.

2c. National governments within the Eurozone should have encouraged Greece to carry out an orderly default on Greek bonds which would have reduced the debt burden and the spiral of decline. They have not done this (or have only done so in a very minor way) because their banks hold large quantities of Greek bonds so it would be bad for banks as they would have to write down billions of Euros on their books (ie admit the value of the bonds was nil). So the EU actions so far have been called a bank bailout rather than a  bailout of governments issuing the bonds. (This is because the 21% "haircut" the banks would suffer under current plans - the PSI - is much less than the losses they would suffer if they sold the bonds for their present value on the open market). This failure of robust action by the Eurozone governments has led to a loss of confidence in peripheral countries bonds. 

2d. Overall the Eurozone can easily pay off Greek debt because core countries Germany, Netherlands, Finland, Denmark are  so productive and in positive balance. So if there was a Eurobond this could be used to finance all the countries of the Eurozone.  However the "core" countries are becoming more nationalistic and do not want to fund Greeks who they regard as lazy, corrupt and spending all day on the beach and the Germans contrast this with the incredible reconstruction of their country since 1945. This is important because attitudes are returning to those earlier in the 20th Century (or indeed as someone in the FT pointed out to the peace of Westphalia in 1648   which reduced the influence of the Roman Church giving way to nationalism). Nationalism in turn led to the horrors of the Second World War which was so awful idealists decided it should never happen again and their answer was European Union. Chancellor Merkel holds the key but has elections in the next year and is afraid of alienating her electorate. For a Eurobond the interest rate would be higher than that issued by the German government so would be negative for the Germans but is otherwise  generally regarded as the simplest effective measure that should be taken to shore up the bond markets of the peripheral countries.


 2e. The ECB (European Central Bank) has purchased bonds of vulnerable countries so their prices rise and yields drop and this has given some support but much more is needed especially if Spain, Portugal and Italy become further involved..

2f. Greece could leave the Eurozone but it would be very disruptive and  probably more disruptive than a default. Greek banks would crash as would the economy as a flight of capital out of the country took place.The biggest risk is that financial markets would in these circumstances sell the bonds of other peripheral Eurozone countries (Italy, Spain, Portugal, Ireland) Selling the bonds means that interest rates rise in these countries putting even greater pressure on these countries to finance the day to day working of government but also raising interest rates for companies and individuals trying to borrow money to pursue projects that would enhance growth. So again the result would be a depression in economic activity a decline in taxes raised and greater overall deficits.

If the strains on peripheral countries became too great and their bond yields all rose to intolerable levels the Euro might have to be abandoned which would lead to a mega financial crisis with unpredictable outcomes. This is because the Euro is woven into the material of the international financial system. An enourmous amount of unwinding  would have to occur. The new currency of the core countries, or a rump core countries would shoot up as capital fled to the core making trade difficult for these countries. I think the destruction of the Euro is unlikely because the effects would be so dire. On the other hand I  would be more hopeful if the Eurozone ministers and parliaments would show some sign that they are capable of getting  their act together.  Given the problems the Eurozone governments are having mastering the situation there must remain a substantial risk that we will experience the worst financial crisis since the bursting of the South Sea Bubble.

3. Problems with Weak Banks.
3a. There is some 6,300 million of Sovereign Eurozone debt about half of which is potentially suspect if full blown crisis were to occur. Much of this is held by Eurozone and other banks. Further banks are at risk if they have lent to holders of doubtful Sovereign debt so there is a problem of contagion.


3b. Many Eurozone banks are weak on reserves and risk collapsing if Sovereigns started defaulting. Supporting the banks is thus a key secondary problem of the crisis but one through which the general public might first experience the crisis as runs on banks started and some collapsed denying retail depositors their funds.

4. The US has problems of its own, mostly a stalled economy interlinked with a drastic and continuing fall in house prices which has sapped consumer confidence. As it is the world's economic power house this alarms people. The big fall in the markets on Wednesday and Thursday  21st September was triggered by the US Federal Reserve bringing in further US bond buying of long term bonds to keep interest rates as low as possible. It seems the accompanying justification painted such a dire picture of the US economy that it may have been the trigger - but there was a lot of bad news about and a lot of tension in markets so I think it was just the excuse to sell...!  The Fed should have printed more US $ to ward of deflation but seems to have been cowed by the right wing of Congress (T party etc) one of whose members called Federal Reserve actions on QE "Treasonous". 

5. To a large extent these are political crises. The politicians in Eurozone cannot agree on what action to take and are dithering and do not seem to know what to do and this makes things worse as market confidence in the Eurozone bonds is further undermined. The vile politics in US Congress is also a problem for the US where the Republicans seem determined to push their view and seem to have abandoned  compromise regardless of the consequences. 

Overall there is a real danger of a spiral of declining productivity and rising debt - a debt trap. Individuals are also trying to pay down debt so are not consuming so this causes economic slow down too.

I do not know where all this will end but it does not look good. The only good thing about things being really bad is that it ups the pressure on our political classes to do something about it so their is a positive feed back mechanism there.

Siegfried Line, Sunday 25 September 2011. Riechen, Kreis Sinsheim, Germany.

A Sense of Entitlement: The Death of the Commercial Music Industry.

A sense of entitlement has been the bogey that emerged in full splendour from the financial crisis.  At the centre of the problem is the payment of rent to individuals with access to streams of income and capital.  In this tradition the rent is taken by individuals regardless of  their merit, regardless of the benefit of their work to the wider community and regardless of any special effort expended by them. The act of taking is based solely a sense of entitlement.  The Commercial Music Industry (CMI) is another group which suffers from feelings of entitlement.  In this case their case is pushed by a strong public relations lobby which is prepared to do much cultural damage in pursuit of its ends.

Their target is the freedom and power of the web which is now a powerful part of our culture. The lobby cites legal rights but these are relict because the special service they were able to provide, which was the provision of music on various sorts of disc, (vinyl, compact or mini) and tapes, has been superseded. They ignore the history of music making over the last few centuries.  Before electricity, music was originally played by amateurs in their own homes, at fetes and celebrations, by choirs in churches and no money was involved. Music could also be heard  played by professional musicians in concert halls who were paid for each performance by those who heard it.

Discs were a wonderful thing because any single performance by an individual musician or a group could be reproduced many times for a negligible sum and sold en masse  for previously undreamed of profits. Well now technology has moved on and music can be spread on the internet for negligible cost. But the CMI believes it is forever entitled to its substantial rent from music because it has failed to notice that the way music is distributed is changed. So it is using its remaining funds to lobby our parliamentarians to put an end to change by restricting our use of the internet.

We should make music ourselves and encourage the more talented amongst us to work away at music, and post it on the net in multifarious ways. To some extent this is already happening but more is needed.  The discipline is to put the CMI finally out of its misery by not downloading anything at all, paid or unpaid. Their companies can then quietly go into liquidation and the loud self-righteous pronouncements of their professional spokespeople will flow down the plug hole too.

We can even pay our friends for special occasions if we wish. A wonderful example of this was a recent performance of Handel's oratorio Judas Maccabeas  organised by the Handel Society. The amateur chorus each paid £20 to participate, the orchestra was paid and the audience was composed of only ten or twenty people! So here money went to professional musicians to succour them whilst the chorus had a wonderful time, the publishers of the score made income too but  best of all the glorious music of Handel was celebrated.

With a few notable exceptions, working as a musician has always been a difficult and poorly paid lively hood. Much of the money generated by the CMI went to shareholders, senior executives and grasping "agents". . Somehow the CMI has managed to make us focus on the very few who have made millions so we believed that, as far as the musicians are concerned, the streets of the CMI is paved with gold rather than lean contracts and lives of penury

The copyright acts remain law and one supposes law is worth adhering to for the sake of stability in our society.  But that may be changing too. It was notable that during the Chilcott  enquiry one Tony Blair, who has a lawyer's training (and a strong sense of entitlement himself), seemed to be saying that there was no such thing as laws but only arguments. This was in the discussion about justifying launching an attack on Iraq.  If he is right this blogger and the politicians who espouse the rule of law are misguided and much more than we thought may be up for grabs. If you disagree I refer you to Mr Tony Blair who is just the sort of person that one would expect the PR departments of the CMI to admire..

Whatever the case, don't download commercial content but instead encourage your talented musical friends and listen live! The challenge will then be for the CMI to come up with something positive or die. It has been argued that Hitchcock through an act of genius. the production of Psycho saved the cinema when it was threatened by the advent of  TV. See for example: http://www.ft.com/cms/s/2/30dfd0d2-32de-11df-bf5f-00144feabdc0.html

So CMI get off our backs; look at the reality of your entitlement, stop complaining and enriching lawyers; stop threatening impoverished families with huge fines; instead, come up with something brilliant and life enriching - it you can remember how.

Darwinism - The Divide Between Disciplines.

Inhabitants of Shepherd's Bush have become aware that there is a scrap going on between philosophers at present over the validity of the theory of Darwinian Evolution. A book has been published by two well thought of Philosophers but they have based their ideas on the concept of  phenotype rather than genotype. Biologists today would never use the idea of phenotype but only genotype so that they can look at evolution in terms of the underlying genes rather than the final manifestation of those genes which is the phenotype.  This has led to a misunderstanding. See:http://bostonreview.net/BR35.2/darwin_exchange.php

See comment 27 in the discussion which is as follows:


Free riding is not a counter example of natural selection as stated by Fodor and Piatelli-Palmarini. The confusion may be caused because they have developed their arguments based upon the phenotype rather than the underlying genotype.


If gene A is linked to gene B and gene B is selected for under certain conditions, then gene A survives too. Therefore Gene A is adapted to survival through its link to gene B. Free loading can be an adaptation too.


It must be remembered that many genes are not manifested in the phenotype, perhaps they are recessive or do not code, but the dynamics of natural selection still acts upon them and we can see how it is resolved in the example above. 

I do not believe that those biologists promoting Darwinism today would do so using the phenotype, they would use the genotype.

It seems that to be learned in more than one discipline today is a very difficult feat, no wonder most inhabitants of Shepherd's Bush keep well clear of these arguments.

The David Debkatome Interview: The History of O.

 Local Cyclist at Home in Shepherd's Bush.

In an exclusive interview Camelia Lamb of the Shepherd's Bush Blog Interviews David Debkatome.

Camelia Lamb: Today we are very fortunate to have visiting us in Shepherd's Bush, David Debkatome a security specialist in Middle East affairs. Welcome David!

David Debkatome: Thank you, it's good to be here, actually its just like being in the Middle East, I see here in The Bush different bits of the Middle East all drawn together so I feel really at home here, you've got the small souk, Bab al Damasq, Arab food stores and an enormous shopping mall full of people from the Gulf in addition to typical Arab street cafes.

C.L.: Good, glad you feel at home. Now you're a specialist in Psychological Profiling, let me ask you first what did you think of the note written by O to Sir John?


D.D. I really think that the nice Mr Osama is trying to pull his shamagh over the eyes of Sir John and he is nowhere near Cave 245C or whatever number it was.

The situation is as follows: apart from the occasional audio tape and videotape  nothing has been heard of  O for years.  This is very odd because Arabs, like O, love to talk and gossip and if he was in the interior, village or small town in an Arab country the news would have got around because it would be a matter of general interest. This rules out most of the rural and small town Arab world including Yemen and Sudan.

Furthermore being sociable O would find survival in a remote and isolated spot difficult so this rules out deserts from the Talimakan to the Empty Quarter to Antarctica, the Sahara and N. Africa.

It is possible to be living in a small bubble with close friends and possibly bodyguards, otherwise  isolated in a city - hiding in the crowd. He is therefore likely to be in a city where he can hide in the crowds and where he does not stick out.

C.L.: So which city do you favour as a likely destination?

DD: First it is important to realise how important beards are here. O is unlikely to shave off his beard because of its strong association in his mind with his identity as a man of the Islamic nation. That will be part of his integrity and he will not sacrifice this to reduce any risk to himself.

He would only tolerate an Islamic country. Although his second in command is an Egyptian, Saudis in general do not admire Egyptians and for that reason O would find it difficult to live in Cairo which is probably the ultimate crowd n which to loose onself. Also Egyptians tend not to have beards so he would be noticeable there too.

He would find difficulties in Shia communities because he is known to be prejudiced against them. That rules out Lebanese and Iranian cities, but also the Paraguay, Brazil, Argentina border area with large immigrant Lebanese populations..

He would stick out like a Bromeliad covered tree in South East Asian Islamic states so they are out too.

A city with a weak or sympathetic intelligence service would help O. This makes Syria, Saudi Arabia, Israel, the US and most European countries, Iraq unlikely choices. But in any case he would not have smuggled himself to any Western state because of his clear detestation of Western Culture and beliefs.

Assuming he possesses good false documents to allow himself to operate in his chosen location, we are left with  large population centres in Pakistan and Arabia.   The most likely Arabian city suitable would be Dubai because of its size, ethnic diversity and ease of access and excellent communications.  But Dubai might be too western for his taste and Doha be favoured being Wahabi too. However Doha is relatively small with an even smaller Arab population, so it would be difficult to remain unknown.

C.L.:Surely David, it would be difficult for him to hide himself  in these Arabian cities?

D.D. Well he could be most himself in Dubai or other large Arab city such as Kuwait City. Interestingly all the photographs we have of him show him in a tightly woven turban. The turban is not characteristic of his native country Saudi Arabia but it is worn in the southern part of the Peninsula of Arabia and hints at O's identification with Yemen as the fatherland of the Arab aristocracy if one can use such a word in the Arab context. There are also hints of the 'alum, the educated Islamic leader in this form of dress - particularly the tightness of the turban. He has cultivated the image that everyone has of him from videos and photographs, that of a long faced man in a tightly tied rather high turban. This gives him the opportunity to wear a Saudi head dress  at all other times, where the cloth hangs loose all around the head with only parts of the front of the face exposed - above all this form of head dress keeps the sun from the face and therefore the view of others too. He would  look very different wearing his head dress in the Saudi style.

Otherwise the Pakistani cities would be easiest because of the ambiguous attitude of the security services to militant Islamic followers and the huge and diverse populations of several cities there. Photographs suggest O is prepared to wear  versions of Pakistani and Afghani local dress. Overall though I go for an Arabian city. Remember that Serbian leaders have survived for years on their home ground evading capture and beards played quite a roll there too!

C.L.:Yes thank you David. Now to the History of O, I believe you have some particular ideas on how he became radicalised many years ago?

DD: Yes indeed. The time of his radicalisation was, as with so many, when he was 18 and 21 years old. He was then a student at King Abdul Aziz University in Jeddah. In November 1979 the Mecca mosque, just 40 Km from Jeddah,  was taken over by force by a multi-ethnic group headed up by a member of a local tribe, the Oteiba whose tribal area is just East of Jeddah, the traditional heart of Wahabism - small villages with gardeners indicating their thrift by wearing short shirts showing their lower shins. It was an attempt to start a revolution throughout Saudi Arabia. It must be remembered that the royal family had used the puritanical teachings of the 18c teacher Mohammed Abdul Wahab to take over and to control the Kingdom. The problem they had was that the standards set out by Wahabism were so strict the royal family was not seen as living up to them.  The uprising ultimately failed but the government found it very difficult to deal with, especially taking control of the Mosque without destroying it.. Finally they were forced to bring in foreign troops, Jordanians and the French. It was necessary to get special dispensations from the religious authorities to kill in the sacred place and to allow non-muslim troops into the forbidden city. Eventually the revolutionaries were driven out or killed and there were many stories of prisoners being subsequently dropped into the sand deserts and left there to die. It is not certain if these stories are true but they were widely believed at the time. The whole episode would have been radicalising for an impressionable young man like O. His obsession with keeping foreigners out of the Arabian peninsula, which has been so oft repeated in his propaganda, was probably originally aroused by  the authorities in the kingdom allowing in unbelievers to take life in the mosque - the holiest place in Islam.

The second effect of this for O was that as part of the crackdown afterwards many young radicals who were not actually involved in the siege were encouraged to go and fight in Afghanistan against the Soviets. O was one of these young radicals. This strategy probably saved the royal family at that time but exported the radicals and their particular form of Wahabism into Afghanistan and then beyond after the Soviets vacated.

C.L.: So the rest is history?

DD: Well yes and no. It is generally forgotten today that the religious movement started as an attempt at reformation within Islam, one group trying to recruit others to its more puritanical form.  Almost by accident O and his Egyptian second in command realised they could be most successful at this if they attacked totemic symbols in Western countries - sort of recruitment advertisements. So the attacks the West has suffered are very much a side show, although one which O clearly relishes.

And the future?

DD: Like the  religious conflicts in Europe at the end of the mediaeval period we can expected a long and protracted period of reformation within Islam with accompanying conflicts of various sorts, theological, ideological, and physical and this could continue for up to sixty years. For example one of the mythologies going around at the time of the Siege of Mecca was that a monster would come out of Mecca with the head of a man and the body of a beast and in one hand it would have a signet ring and in the other a rod. The beast would sort the Muslims, beating down the bad and stamping with a positive mark the good Muslims using the signet ring. the West did not figure in this vision.  Western countries need to realise the dynamic here and avoid costly strategic mistakes which focus aggressive energy onto themselves and turn themselves into targets.

C.L.:Well thank you David, that was most informative. We hope you enjoy the remainder of your stay here in Shepherd's Bush.

DD: Thank you, it was a pleasure to talk to you, and I'm now going out to explore more of the market!

The nice Mr Osama Replies to Sir John:

Mr Osama,
Cave 325C,
Afpak.


Dear Sir John,

Yes! I recognise you from your facebook site, how nice to hear from you.

Unfortunately my Secretary made an error and I am not in Dubai but in Afpak. My secretary has now departed for a journey  to the Garden which has many palm trees!

You may find me if you travel to Afpak and ask the first man you meet, who is not in uniform but carrying a grenade launcher, for cave 325C, he will be pleased to direct you. Be sure to get right cave because there is a lot of rotting munitions in caves 325A, B and D.

I look forward to our meeting.

Mr Osama.

Sir John Sawers Writes:

Burgess Court,
Albert Embankment,
London SE1

Dear Mr Osama,

We have been following your ideas and activities for some time with great interest and enthusiasm and would like to take this opportunity to make contact with you with a view to arranging a meeting to discuss you future plans.

If you would be kind enough to let us know which Palm tree you are sitting under in Dubai  we would join you  shortly.

Yours in confidence,

Sir John

A Reply to Ms Benighted from the nice Mr Osama.

From: Mr Osama,
The Date Palm,
Dubai.

Dear Angela,

I thank God for you and your Bonkers Bankers. Surely God knows all. You and the Bonkers Bankers have made my efforts at fighting the Crusaders seem a very little thing, for you have surely weakened the very foundations of their castles and yet are unrepentant and do not recognise what you have done. Surely God first misleads those he wishes to destroy!

But because  your service in the destruction of the hypocrites has been so great I offer you my protection through my hand in marriage. When the hypocrites and unbelievers have been destroyed then I shall send for you and you will follow me dressed in a burqa covering of the best quality Harris Tweed, then I shall always know when you are with me - my English wife. This will protect you from your people when you have confounded them.  When you join our nation you will celebrate by taking the name Leila and I shall walk with you in the beauty of the moonlight over the sand dunes there when we have removed the falsehood from the peninsula. There we will enjoy the beauty of the dawn...[ etc etc  3 pages in much the same vein edited out here Ed.]

In the meantime you must advise me on ideas which I have had. How can I set up my Umm al Shaitan Mortgage Backed Securities based upon Palestinian housing in Gaza and East Jerusalem? Also I wish to set up an Iblis Bond to help finance our martyrs, like the precipice bonds which you sell to your old people they will promise much but become valueless at a certain moment. Then I would like you to develop the Zuqqum credit default swap which will confound all those who purchase them thus speeding the day of reckoning which God has promised.

May you yet do more good things,

Mr Osama.