Issue 259: October 2008

in

 Troubles and Turmoil

Perhaps the most surprising and disturbing aspect of the current financial situation is that we were all carrying on as if the system was rational and stable. In reality, it is irrationality and volatility that bankers and investors, finance ministers and hedge fund managers bank on, literally – they play, and prey, on the rising and falling of the market. They would all be out of business if prices were stable and actually reflective of real costs. The important question is why the prices – of stock, whether that be livestock or mining company shares – rise and fall. The manipulators would prefer we not identify them, and indeed that is a challenge, though not an insurmountable one.

A more important challenge is drawing the line between the financial sector and the economy. Confusing the two is the essence of capitalism, which rests on the practice of extracting wealth out of the real economy and playing with it in the financial sector. The rich get richer not through interminable toil, but through gains in the financial market of stocks and bonds, with the result that “in all recent years, the pay increases for top executives far exceed the rate of inflation or the gains posted by most workers in Canada.” (G&M, 6/10/08) This remark accompanies a table showing the total ‘compensation’ paid to the CEOs of the 100 largest companies in 2007, including salaries, bonuses, shares and share options, running from $235,000 to $79.2 million.

Balloon Prick

‘Financial sector’ does not equal economy. A financial ‘product’ is not only inedible, it actually has no real existence. It’s a figment of the brokers’ and investors’ imagination. A real economy (‘oikos’ is the Greek word for house) is about how a household organizes its life together, including what it eats.

It is, therefore, a sign of hope that with the ‘food crisis’, the public has become increasingly interested in the real economy of food and how it is grown, where, and by whom, to the point of beginning to distinguish between the financial sector’s grasp of food and the real food economy. This is really the driver behind food sovereignty. It’s about feeding the family and trading the leftovers, not trading the staples and hoping to live on the profits – or, more likely, the losses.

We are looking forward to gaining more insights into the real food economy  at the National Assembly of Food Secure Canada in Ottawa November 7-10th. Under the title Reclaiming Our Food System: A Call to Action, it will showcase the ways in which Canadians are implementing food sovereignty in many different areas, from seeds to food banks. (More information at  www.foodsecurecanada.org.)

So as we watch the ‘financial sector’ spin out of control at the hands of men [sic] appropriating tens of millions of dollars as the companies they head –  or headed – collapse under a burden of debt, we need to remember that the financial sector is a pyramid game built on confidence.  The financial sector neither feeds nor clothes anyone anywhere.

“Since the credit crisis began more than a year ago, investors have been exposed to a murky world of synthetic securities, credit default swaps and structured investment vehicles, convoluted financial tools that even the savviest bankers don’t fully understand. . . With the help of swaps, risk is bought and sold like a commodity by often invisible actors, in a global market with scant regulatory oversight. A decade ago credit default swaps didn’t even exist. Today the market is colossal, worth roughly $50 trillion. . .  Risk has been shuffled around like the pea in a shell game so that no one knows where it ends up.”  – Barrie McKenna, GM 20/9/08

Round and round it goes:  AIG (American International Group) was “once among the most stable financial institutions in the US, turning out a steady stream of profitable quarters.” It is now a ward of the US Government (a taxpayer liability, in other words) after losing $13.16 billion in the first six months of this year stemming from its credit default swaps investments. It had a profit of $8.41 billion in the same period last year.

Coins down the Drain

The one big player that the US Government has not bailed out is Lehman Brothers Holdings, which has rented a 30-floor tower in London’s Canary Wharf development from Canary Wharf Group. If Lehman defaults on its rent, Canary Wharf Group is protected by an insurance policy with AIG. However, it is Songbird Estates, a publicly traded company that owns 60% of Canary Wharf Group, that would be the beneficiary. So round and round it goes.   – Source: GM, 17/9/08

The turmoil of the financial sector has been hard on some of the 400 wealthiest residents of the USA, whose average net worth is, or was, $3.9 billion. Collectively, that means that the 400 richest Americans have a net worth of $1.57 trillion, exceeding Canada’s gross domestic product.     – GM, 18/9/08

Wall Street’s five largest banks awarded a record $39 billion in bonuses last year.     – GM, 15/10/08

Why, then, not let these guys bail out the banks and ‘investment houses’ that have diverted all that money to them rather than sending the bill to the general public, i.e., US taxpayers?

To put this mess into perspective, we noticed that at the end of September, the US House of Representatives passed, and sent on to the Senate, a $612-billion (US) defense authorization bill while at the same time it was debating  the financial crisis and the proposed $700-billion bailout of Wall Street.

Which is the more impressive – or depressing – figure?  $700 billion (and a lot more by now) in an effort to save capitalism from itself, or $612 billion to defend it from .... whom?

 

#259: October 2008 TOC
Troubles and Turmoil: financial market meltdown
Warning: more parasites on the loose - investors move onto Saskatchewan farmland
Obesity - it's corporate obesity we need to worry about
Who gets what: Farm prices and costs - 2008 net farm income is gobbled up by agribusiness
And effects - industrial agriculture run-off causes dead zone
Selling Monsanto - massive propaganda campaign to push GE as the answer to hunger
Small-Scale Organic Seed Production - introducing a useful new publication
Meeting the Millennium Goals - UN President says we have to change the system to address food crisis; US foundations try on more of the same
GM sorghum test approved - Gates Foundation supports research on basic African crop
And not just Africa - Bayer CropScience pushes GE in India
Borneo's "miracle" - tropical rainforest regenerated in only 6 years
Bees - German bees seek urban refuge from GE crops, while Argentine honey crops decline
Paraguay's campesinos fight GE soy - landless and poor farmers occupy Brazilian-owned haciendas in self-protection