Capitalism is more than an economic system, it is a form of life, a religion and an art form.
In capitalism many create wealth in order to transfer it to a few, this is the systemic purpose.
Capitalism destructs itself by design in order to rise again like Phoenix from the Ashes.
Then the few use this capital concentration to repeat the process and concentrate the capital into the hands of fewer with each repetition. The current form is often called “Neo-Capitalism”, a rather deceiving expression.
Let’s take a look at the legs that capitalism stands on and its tools for predetermined selfdestruction, it will help us to assess the current situation:
1. Religion:
Money shall be your god and you shall not have any other gods besides it, except those that can print money and determine interest rates. Interest rates are devine blessings.***
***Note: There were early attempts in the Middle East in the 8th century to abolish interest.
Islamic banking forbids the charge of interest. Banks would invest in caravans of merchants against a share of profits, so when the caravan got plundered by Alibaba and the 40 robbers the banks lost their capital. Other religions in that area did not have this flawed form of banking, they charged the merchants interest and reassured themselves by financing Alibaba and the 40 robbers. These were the origins of hedgefunds. Some of the 40 robbers were bankers which lead to the creation of the term “bankster”, alledgedly.
2. Economic system:
Various industries compete for the money of the consumer.
a. the Financial industry with its subsidiaries Media, Nuclear, Narcotics, Energy including Global Warming and Weapons.
b. Health industry
c. Food industry
d. Raw materials
e. construction, textiles, transport and a multitude of essential goods
f. gadgets and widgets
All these industries have their limitations, you can only eat so many portions of lentils, wear so many clothes, drive so many cars, but there is no limit to how ill you can get, how many diseases you can develop and how much capital the consumer needs to treat these.
Hence the Health industry provides the key to capitalistic success, “Capitalistic Medicine” will replace all other forms of medicine as a result, a fundamental necessity. I shall elaborate on this issue in later parts. I shall detail how the control over food production decides who is to live and for how long, at what level of health and for what purpose.
3. Art forms:
.1 The teachings of financial genius Charles Ponzi. Born in Parma, Italy in 1882, he founded the Securities Exchange Company, SEC, in Boston in 1920. In his honour institutions of today use the same initials and even a car manufacturer uses them as suffix for designated models (Mercedes 600 SEC, etc) popular in financial centres around the world. Many people in power seem to name their firstborn after him.
Charles developed the theory of “Exponential growth of money masses” expressed in the formula f = m3 (financial energy = money exponent 3). His SEC doubled investors’ money in 90 days. Nobels were still difficult to obtain at the time and Albert Einstein was never accused of plagiarism when he concluded that ordinary energy must be m2.
Charles died in an institution for the poor in Rio in 1949, posthumously elevated to martyr status, I guess.
.2 Credit Default Swaps, CDS. These work like this: There is a house, somebody else owns this house, you do not own it, but you take out insurance on it, so do hundreds of others, or thousands or more. Nobody can tell the exact amount of policies existing for that house, they are traded in the City of London.
The more policies exist, the likelier it will burn down.
This likelyhood determines the premium. Rumours can raise this premium from 0.2% to 0.4% in minutes. While our dear Charles still worked on the basis of doubling capital in 90 days modern capitalism can do this in minutes, that’s the beauty of it.
Now replace “the house” with Italian sovereign bonds, the insurance premiums are CDS.
Last week Italian bonds climbed to 7.5% interest and the CDS for those to 5.39%.
(see Part 6) Within hours profits of many hundreds and thousands of percents were made.
What caused this historically unprecedented event?
Rumours that Italy could go bankrupt and default. In that case it is better to pay 5.39% than to loose 100 or 50 through a haircut.
What are the risks of buying, trading in or issuing CDS?
a. Should the European Central Bank, ECB, underwrite all Italian bonds then the CDS become worthless. This can happen within seconds, but it also cannot happen as it would mean the end of the City of London as the ECB cannot favor Italy but would have to underwrite all EU bonds. Some 30% of Britain’s GDP comes from the City and CDS are the City’s prime product. Britain would be back to food stamps and Europe would loose a treasured customer, a paying consumer it cannot afford to loose.
b. Italy defaults, the CDS mature and all the banks are bust needing to be bailed out. Again this cannot happen. Should it happen we would be back to food stamps and the rest as for a.
c. Keep the zombie walking. As long as CDS can be traded you transfer capital from the poor, the tax payers of Italy and all other countries that need to serve their debt, to the rich. This is the preferred option of capitalism, you only pull the plug when the poor have no money left.
What does it take to bring a country down?
Take Greece as an example. It takes two players. No.1, the sovereign credit analyst of S&P, Marko Mrsnik, a Slovenian with office at Canary Wharf and responsible for evaluating Greece and No.2, Mohamed El-Erian, an Egyptian and ceo of Pacific Investment Company, PIMCO, in California.
PIMCO is the largest of a handful of investment companies that represent the rich, they play with $1.3tn (1300 billion) officially, the unofficial reserves are not known.
So when a small country (or larger one) plans to issue bonds its finance minister (or president) requests an audience with Mohamed. If Mohamed buys then Marko issues a credit rating accordingly. This rating determines the value of those bonds and assures that Mohamed has made a sound investment. Naturally the official path is Marko first and Mohamed thereafter.
The relation between Mohamed and countries also works the other way round. When Mohamed picks up the phone and says “Angela, I’ve got some uninvested $400bn sitting here that require a safe harbour”, then Angela will oblige and take the burden off Mohamed at 0.08% interest and no CDS needed. (see Part 6)
When Greece was downgraded by Marko in April 2010 PIMCO had sold all its Greek bonds by the end of 2009 already.
.3 What happened with Italy last week?
Berlusconi’s companies lost about 3bn Euros in value since the attack on Italy began.
Berlusconi decided to recover his losses. As president and head of the secret service he was certainly aware of the impending downgrade of Italy. Making a few hundred percent for himself and his masters became a formality. Pushing the price up to 5.39% was a performance that earns the respect of any capitalist.
This is absolutely legal, the state of Italy is not his private company, hence insider regulations do not apply. No politician of any country has ever been charged for equal actions.
Italy needs to refinance 307bn Euros worth of bonds in 2012, about half of this between February and April. These will become interesting times, not the time to be president and face an angry population. No doubt Berlusconi will be back thereafter for his 4th presidency.