Archives for posts with tag: money

Let me make something clear.
Crystal clear!

Money, and its ‘derivatives’ – from ‘capital’ to ‘financial market’ and ‘stock exchange’, are the tools we used to get where we are now.
Without them we would be still foraging in the woods.

Only something rather insidious has started to eat the whole scaffolding from inside.
Same process has been happening with weapons. We invented them for hunting. Then used them for self protection. Against large beasts and fellow humans.
Finally, after using them to conquer and defend our liberty, we used them to subjugate others. To impose our will upon some other people.

In other words, we used guns to shoot ourselves in the foot.
Both as hapless individuals and as a cultural species.

Money – and its derivatives, have suffered the same degradation.
We used it, at first, to coordinate our efforts.
The Stock Exchange had been an excellent way to coordinate otherwise disparate means. Very few of the corporations who have changed the world into what it is now – for good and for bad, wouldn’t have come to life without the money which fuel them.
Nowadays, too many of those who trade on the Stock Market do it in a ‘barren’ manner.

They do not contribute anything but extract value.
The inside traders being only the visible part of the iceberg.
Which iceberg might tank the whole contemporary ‘arrangement’.

If we keep sleeping during our watch.
And there’s no one else on deck…

“Capitalism has generated massive wealth for some, but it’s devastated the planet and has failed to improve human well-being at scale.”

Drew Hansen, Unless It Changes, Capitalism Will Starve Humanity by 2050,
Forbes, feb. 9, 2016.

I’m afraid we are dealing with a huge confusion.
Capitalism hasn’t generated anything and hasn’t starved, nor fed, anybody.
People did!

Capitalism is nothing more, nor less, than a particular manner in which we, ‘the people’, relate to property while ‘the free market’ is one of the manners in which economies are run.

And here’s the place where things become ‘murky’.

‘Oekonomia’ is Greek for ‘making ends meet’.

“The annual labour of every nation is the fund which originally supplies it with all the necessaries and conveniencies of life which it annually consumes, and which consist always either in the immediate produce of that labour, or in what is purchased with that produce from other nations.

According therefore, as this produce, or what is purchased with it, bears a greater or smaller proportion to the number of those who are to consume it, the nation will be better or worse supplied with all the necessaries and conveniencies for which it has occasion.

Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations, 1776

The way I read it, Smith sees ‘wealth’ as people’s/nation’s ability to supply for their ‘necessaries and conveniencies’.
In other words, ‘to make ends meet’.

How we define our needs, the manner in which we choose to fulfill them and what we are disposed to ‘spend’ in the process… is our responsibility.

What is it that we need/want?
A healthy planet? Clean air/water/soil and a fair opportunity for each of us to earn their keep?

Or a dog eats dog type of contest for ‘who has the biggest pile of money’?

Capitalism can encompass both.

Unfortunately, the second scenario has nothing to do with ‘making ends meet’.
On the contrary!

What do we want?


When do we want it?


How do we get it?

By being efficient.
‘Give as little as you possibly can while taking as much as you can possibly grab.’

And who’s going to get the job done?



I don’t think the American Dream is in anyway toxic.
The real problem arises from what those who have fulfilled their dreams choose to do afterwards…
It’s one thing that if from some point on the ‘winners’ start helping others to fulfill their dreams and quite another if they keep fulfilling (gorging on) they own dream long past the ‘waking hour’…

Most probably Michael Clark is right, things started to go South from the moment the American Dream had been corrupted from ‘I dream to make it out’ to ‘I’ll stop at nothing in my quest to the top and nothing else matters’.

And no, I’m no fan of Big government.
If the urge to help doesn’t come from within it doesn’t help any if an outside agent keeps pestering you. It doesn’t matter who is ‘number one’, private or government, it’s the very fact that we, as a species, still have the obsession to reach that position that’s dragging us down.

Clark, Michael, “Is the American Dream toxic?“:
Dolmanian Sarchis, “Why keep wasting money on toothless constitutional monarchies?“:

New York Times has published recently an article about various unexpected effects of automation. The way I see it the whole thing can be boiled down to:

“Artificial intelligence has become vastly more sophisticated in a short time, with machines now able to learn, not just follow programmed instructions, and to respond to human language and movement.

At the same time, the American work force has gained skills at a slower rate than in the past — and at a slower rate than in many other countries. Americans between the ages of 55 and 64 are among the most skilled in the world, according to a recent report from the Organization for Economic Cooperation and Development. Younger Americans are closer to average among the residents of rich countries, and below average by some measures.”

The point is that ‘classic’ automation freed the individual from the repetitive chores that transformed man into a machinery, as depicted by Chaplin in ‘Modern Times’, and allowed him to pursue more challenging/interesting ways to ‘make ends meet’. The current phenomenon turns the tide in exactly the opposite direction, demeaning the individual to the role of a ‘servant’ for the almighty machine. That’s why people become less and less skillful and, even worse, less and less proud about what they do for a living.

Dangerous situation.

Extreme fragility, dead ahead.

Just prior to the Great Depression an American accountant, Ralph Elliot, had taken Charles Dow’s insight about economic cycles a step forward and came up with the ‘Wave Theory’.
I won’t enter into details here but I have to give you some broad outlines.
Charles Dow: In any market, prices evolve in trends – sustained moves towards the main direction fragmented by ‘reactions’ that run contrary to the trend. According to Dow there are three categories/levels of trends: major, intermediary and minor. The major trends cannot be manipulated and comprises three phases: ‘accumulation/distribution’, ‘public participation’ and ‘panic’. The names are self explanatory but if you want to read some more please click here.
Ralph Elliot: (If a certain asset is traded by a large enough number of traders so that market could be considered ‘free’) Price action is fractal in nature and hence can be broken down and analyzed as such. While Dow identified 3 levels of trending Elliot uses 9 but both ‘agree’ that each action in the direction of the analyzed trend is followed by a reaction contrary to that direction.

Robert Prechter, the brain behind ‘Elliot Wave International’, ” the largest independent financial analysis and market forecasting firm in the world” – the guys from whom I borrowed the picture above – has been using successfully the ‘Elliot Wave theory’ for some 40 years now.
And here comes the really interesting part. Besides building Elliot Wave International as a market analysis company Prechter also founded The Socionomics Institute, a think tank that starts from the assumption that the markets are driven by the prevalent social mood (sentiment) that dominates at any given moment and not all the way around as it is usually believed. Prechter posits that markets go down when/because ‘people are afraid’ and not ‘people start to panic after the market has begun to go down’.
For some people this whole process is a tug of war between greed and fear. It makes a lot of sense but we still lack an explanation about why at some points the bulls are stronger than the bears and at some-other points the situation is completely turned over. Reason was supposed to take care of business at all times, wasn’t it?
Now some of you will tell me that Daniel Kahneman and others have provided ample proof that the market is far from being rational... OK, I agree with that but still, we continue to need an explanation for why the market behaves for so long as if it were reasonable only to break down exactly when everybody was so happy – as it constantly did, from the Tulip Mania in the the XVII-th century Holland to the last financial melt down.

Now please remember two things that I already mentioned.
– One of Charles Dow’s assumptions was that ‘major trends cannot be manipulated while the lesser ones might
– (If a certain asset is traded by a sufficient number of traders so that market could be considered ‘free’). Here I was presumptuous enough to introduce my own experience into the equation. After I was introduced to the Elliot Wave theory I found out that it worked (meaning that I could use it successfully – statistically, of course) for indices or other frequently traded symbols while it is completely useless for illiquid ones.

I started to understand what’s going on only after reading Nassim Taleb’s Antifragile.
The gist of this book is that for a system to remain viable, to conserve it’s chances to survive, it has to keep open as many options as it possibly can.
Does it make any sense to you?
To be alive means being able to make decisions, as freely as possible. If you are forced to make one thing or another then you are not free anymore, right? If you have at least the slightest opportunity to choose among two or more possibilities then it means that you still have a sparkle of life in you! Stephen Hawkins, tied in his wheelchair for so many years, is alive just because he choose not to be overwhelmed by his condition while so many of us are (brain) dead because we indiscriminately follow fads, fashions, habits, you name it. The moment we give up our individual autonomy and enroll into a crowd (read ‘herd’) we might have the impression of becoming safe, or at least safer, but in reality we are already headed for the slaughterhouse.

It is somewhat true though that ‘there is safety in numbers’. And no, I’m not contradicting myself. The bigger the crowd the harder it is for someone to control it (take it to the slaughterhouse, by will or by error) and the greater the chances for an individual to escape an unforeseen  predator. So you need a really big crowd if you want to have a survival situation, a reasonably viable system.

If we look back in history – no magical solution can be found there, only a long list of errors – we’ll see that empires never fail to crash, authoritarian regimes survive for considerable shorter periods than the more democratic ones and that the more powerful a fad was the least it survived. And all these situations fit perfectly Taleb’s theory: the less open options a system has the less able it is to survive. The emperor is but a single man, who inevitable ends up being ‘naked’, no matter how capable it is – and people notice it sooner or later. Also the more an authoritarian a regime the less are the ordinary people inclined to contribute to the welfare of the community.
And something else. When a fad becomes intense enough the people involved become blind to any other alternatives but those prescribed by those convinced that they have a lot to gain by keeping that fad alive. That’s why it is very hard for a social ‘vicious circle’ to be broken until enough people hit the rock bottom. No grown up will voluntarily shout ‘the emperor is naked’ because he thinks he has nothing to gain from this. As strange as it may seem it is rather hard for the regular Joe, who’s afraid of the emperor, to understand that the entire kingdom becomes a laughing stock for the rest of the world if the emperor is known to stroll naked through the public square.

Now please take a second glance at this picture.
Extreme fragility, dead ahead.

What does it suggest?
That there is a certain correlation between income being concentrated in fewer and fewer hands and the probability of a market crash?
But correlation is not causation!
No, it isn’t. Not unless we can find a reasonable story for what may ’cause’ that correlation! Explain it, that is!

By now I’m almost convinced that most of you have already ‘got’ it.
Concentration of revenue means concentration of decision power. As less and less people (proportionally) remain in ‘powerful’ positions they not only command a higher proportion of the aggregated revenue of the entire community but they also control in a greater measure the destiny of that community.

No, I don’t think that ‘they’ are ill intended. ‘They’ live here too. They are not idiots, otherwise they wouldn’t have reached/been able to retain those lofty positions. So no, I don’t think they are willingly leading us to disaster.

The problem is that they are too few! No individual human being is able to make a considerable number of decisions in a short period time. That’s the very reason why we have consultants and so on, right? The problem is that ‘consultants’ only give advice, they cannot/are not allowed to make actual decisions. And the fewer are the people wielding real power the more the rest of us become mere consultants…

And according to Taleb’s theory and to an immense number of historical occurrences the less people are involved in the decision making process the higher are the chances for a catastrophic error to ‘reset’ the entire system.

PS I. Funny for a conclusion like that to be drawn from a picture published by somebody who caters for those ‘working’ hard to get as rich as possible, isn’t it?
On the other side…if these people considered the issue to be important enough to write about it … maybe it’s worth a moment of our precious time.

PS II Never say never!
I don’t think we are necessarily facing another economic melt-down in the immediate future. It might happen, of course. It will happen – sooner or later, of course again, but there is no sure way of telling when.
What I’m trying to suggest here is that there is a very strong possibility that in the near future we’ll witness a considerable change in how we manage the economy and in the way we relate to the concept of ‘money’.

“Middle Class doesn’t understand wealth”:

“Few people in the middle class really understand the mindset of the richest people.

After all, if they did, they would be among the top earners as well.

“Among the many money issues misperceived by the general public is the notion that acquiring great wealth is more about showing off than creating choices. While money certainly brings status, it’s acquired mostly for the purpose of attaining personal liberty.It’s impossible to be truly free without wealth. The middle class is controlled by employment, government, and other entities with superior resources that dictate what they can and can’t do. It’s tough to make a moral stand for freedom when you’re worried about making your next mortgage payment.Rich people can afford to stand up and fight oppression. They can afford to buy their way out of unhealthy work environments, bad bosses, and other unpleasant situations. They have the means to enlist the best doctors when they get sick, and they are able to make themselves as comfortable as possible when they can’t get well. When they want to raise money for business, politics, or charity, a few phone calls to their rich friends is all it takes. If they need more money, they throw a party or host an auction and charge $1,000 a ticket. The examples of how much money buys freedom are endless.Start thinking about the freedoms you’ll gain when you are wealthy!

“It’s impossible to be truly free without wealth. The middle class is controlled by employment, government, and other entities with superior resources that dictate what they can and can’t do. It’s tough to make a moral stand for freedom when you’re worried about making your next mortgage payment.

Rich people can afford to stand up and fight oppression. They can afford to buy their way out of unhealthy work environments, bad bosses, and other unpleasant situations. They have the means to enlist the best doctors when they get sick, and they are able to make themselves as comfortable as possible when they can’t get well. When they want to raise money for business, politics, or charity, a few phone calls to their rich friends is all it takes. If they need more money, they throw a party or host an auction and charge $1,000 a ticket. The examples of how much money buys freedom are endless.

“The rich really are different”

“This one-room house was about a mile away from any road. It had no floor, no latrine, no electricity, no running water, no windows. Twelve people lived in it, all under the age of 25, and every one of them were born in that house.
  Several of the kids were showing signs of malnutrition. Their only source of water was a fetid stream that was polluted with cholera.

 There were a lot of houses like this, but this one was the worst.

  When I tell my friends in the States about this place their responses are always “Wow. That’s sad.” or something like that.
   What my friends don’t do is ask questions like, “How do they do such-and-such?” The questions never occur to my working class friends because this level of poverty is foreign to them.

  Sure, people in America understand the fear of not being able to find work, or losing their homes, or having their kids go to bed hungry.
   But that isn’t 3rd world poverty. So while working class Americans empathize, they can’t understand it in a day-to-day way.

  As for the super wealthy, who have never experienced the fear of losing a home, or missing a meal, they simply have no associated experience.
  They say to themselves, “I work hard. Why can’t you?”
And one thing you can’t hold against the super wealthy on Wall Street and elsewhere is that a lot of them do work hard and put in long hours.
   What they don’t understand is simply not having opportunity. Something their lives are filled with. They don’t have empathy because everyone they have ever met has succeeded if that person worked hard.”


See what I mean? Both articles amply demonstrate one thing and one thing only. ‘Having it’ or ‘not having it’ dramatically changes one’s perspective on almost all things.

Why did I bother with such ‘common knowledge’?

Because this is NOT AT ALL ‘common knowledge’. Had it been common it would have created mutual understanding, as it is it creates a wider and wider chasm.

People knowing that something exists doesn’t mean ‘common knowledge’. It becomes so only after enough of those people have an at least partially overlapping view of that something.

Karl Marx’s version or Max Weber’s?

“the difference between truth as the “unhiddenness of beings” and truth as the “correctness of propositions” (Martin Heidegger)

Only after reading (again) the Essence of Truth I started to grasp the huge mistake made by Marx and his followers.
His declared motives were ‘the emancipation of the oppressed’ and if we are to grasp his work we need to read him in this key.

Only this way I could finally understand why for him ‘capital’ means exclusively ‘trade-able wealth’, money or things easily measurable in monetary units.
Only this way I could finally understand why for him ‘capitalism’ was exclusively about personal profit and hence despicable.

All this had happened because Marx wasn’t really interested in understanding how capitalism works, what it means and how it generated a medium in which creative and hard working people could make better use of the available resources than in previous social settings.
Marx was a man of a mission (it’s not that clear for me if he considered himself a saint that was meant to free the working class, a con-man who swindled a lot of money from Engels under the pretext of helping the poor or both at the same time) and we need to accept that almost all he did write was dedicated to this mission of his, whatever that was.

On the other hand Max Weber was also a man of a mission only his was different from Marx’s.
What he set out to do was to understand the inner workings of capitalism, how it came about and what consequences it might have.

““The most trifling actions that affect a man’s credit are to be regarded. The sound of your hammer at five in the morning, or eight at night, heard by a creditor, makes him easy six months longer; but if he sees you at a billiard table, or hears your voice at a tavern, when you should be at work, he sends for his money the next day; demands it, before he can receive it, in a lump. ‘It shows, besides, that you are mindful of what you owe; it makes you appear a careful as well as an honest man, and that still increases your credit.’ “

This is a brief excerpt from Weber’s “The Protestant Ethic and the Spirit of Capitalism” – retrieved, ironically, from an internet site run by “marxists”,
Weber is quoting here Benjamin Franklin in an attempt to make us understand what is the true spirit of capitalism.
At the first glance we might say it corresponds closely to what Marx had said about the subject – that it all boils down to money – only after further consideration it becomes apparent that while Marx had stopped there, at ‘money’, Weber and Franklin had seen way deeper than that.

Capitalism is not that much about mere money as it is about credit. Trust that is.

No one would extend credit without trust, no one would enter a contract without mutual trust and so on.

So what would it be? Which version of capitalism would you prefer?
The one in which we would strive to get hold of as much money as possible or the one in which each of us is held responsible by the others for his actions and holds those around him responsible for their actions – this being the only manner in which real trust can be established among us?

Please note that in reality these two sides of capitalism are like the two hands of a working man. For a short time one can get along with only one of them but no sane individual would prefer to live, and work, with only one hand, right?

Then how come our obsession about mere money has come to trump almost everything else?


Yesterday I shared this picture on FB.

One of my friends asked me:
“How do you define “greed”. In the movie “Wall Street” Michael Douglas has this great speech saying that “greed is good” meaning that passion for things in life is good. Where is the line between greed and passion? Does that line look differently depending on where you are in the deal chain?”

This was my answer:
“This one is simple.
If you are willing to do your best in order to get something then you’re passionate ABOUT that something.
If you are ready to ‘step on corpses’ to reach your goal then you are ‘greedy’ FOR that something.”

Another friend commented:
“Well I have a problem with this; the Catholic church is one of, if not the richest organization in the world, how does the pope plan on distributing the assets? The church generally asks for 10% of your income to be ‘donated’; not mandatory but one of the heftiest taxes around. Practice what you preach.”

Me again:
“It seems that Romanians have already solved this conundrum.
We have a saying that goes like this: “Do what the priest says, not what he does!” ”

Thank you guys!

This is something I wrote a couple of years ago, when I started to understand that the financial market had gone wildly astray. I’ve been tinkering at it since and I’m still not happy with it but I need to post it as a stepping stone for what I’m going to publish next.

Money appeared, at first, as a trade facilitator: instead of changing five measures of grain for one of oil one started to use as an intermediary step of the process whatever the local civilization called “money”, from shells to beads to holed pebbles or whatever else.
Then some people wanted to delay consumption, stock for “black days”, or wanted to trade further apart so they “invented” gold.
It was not only generally accepted, relatively easy to divide without sizable loses but also practically indestructible. This was fine from the monetary point of view but created the illusion that gold (and later money) is the supreme value per-se and not only as long as we humans invest it with value (functionality).
Do you remember the alchemists trying to transform everything into gold? What if they succeeded? Probably we would have roofed our houses with some very cheap and everlasting gold shingles.
Since it was indestructible it created another illusion: that its role/value will last forever. And so, for some two thousand years, until let’s say 1100 AD, gold, as money, played its role as trade facilitator and hoarding device.
Until then resources available to the society had been allocated at the discretion (whim?) of the local ruler (the “strongest” guy around), maybe pretending to have divine blessing for deciding this or that. For example the feudal system consecrated that the king ruled who had the use of what piece of land or of whatever other natural resource.

An old habit had resurfaced at the same time, civilizations restarted to trade goods and ideas between them.  (Christian and Islamic around the Mediterranean Sea, for example). The advent of new transportation technologies created new opportunities for travel and trading. This is why a quantity of gold (money) became itself a resource, albeit not a natural one.
You could use it to start a trading cycle yourself or you could “rent” it to somebody else, for a fee – the interest – so that someone could do the actual buying, transporting/transforming and reselling.
Money, and interest, took on a new role. The amount of interest asked was specific to each occurrence – if I trust you are a capable (of doing whatever you are trying to do) person then I’m going to ask a smaller interest from you. In the end a lender gets paid for assessing risk – at the end of the day some deals get sour, some get through, and if the risks were correctly measured – and the corresponding interests asked – the investor/lender ends up with some profit. Meanwhile the same lender does another thing: he is distributing resources among the competing entrepreneurs and so the ones that are more creditworthy can start their businesses a little easier.
This way resources  are no longer allocated at the whim of a single person – the feudal lord – but by the business  acumen and experience  of  a  multitude of  operators, the “free market” – theoretically  a more natural, and thus  more efficient,  process.

As a consequence money was no longer a mere trade facilitator and a humble hoarding device but also a resources allocating tool. In a way, money (and interest) started to measure not only value but also trust, which became by itself a kind of resource.
Remember this is roughly the same time when “paper/fiat money” started to appear, at first having a gold equivalent and dispensing with it later. And ‘paper’ money have value (and are accepted as tender) only as long as people have reasons to trust the country that printed it.
But this whole line of reckoning presumes that the “efficient market hypothesis” is true – this would translate into the assumption that the risks are measured rationally and as a consequence the resources are appropriated reasonably. Not entirely true, is it? Elliot’s Wave Principle says it’s not, Nicholas Nassim Taleb says it’s not, George Soros (The New Paradigm for Financial Markets – The Credit Crisis of 2008 and What it Means) concurs and so on.
A symptom of this lack of reason is the financial effervescence that is, only now, starting to ebb out. People “foregot” that money is a second class resource (only as long as people think it is and that it has any value) and started to treat it as a first class/real one. As a consequence inflation is perceived as inherently bad and not as a normal mechanism for economic adjustment and, more importantly, people now want to obtain “money”, and lots of it, directly from “money”.
No transformation whatsoever, the cycle “money traded for resources transformed into merchandise and traded back into money” is replaced by money conned from one hand to another. Until very recent days quite a lot of people were convinced they could retire with no (little) public pensions and that they’ll be able to live of the revenue (and not the capital itself) received from investing whatever small fortune they had saved (delayed consumption), or inherited.
This meant that these people had to enter the “resources (trust) allocating” game, the ‘financial market. Since most of them didn’t have the necessary skills they relied on others: bank or fund managers or even the CEO-s of the companies whose stock they had bought. And all these managers, under pressure, started to (mis)use a lot of instruments, originally designed as insurance/hedging, in order to make money out of thin air (speculation).
That’s how the derivative markets became bigger than the spot market. Making an analogy we can consider speculators as some kind of carnivores whose very important role is to keep the herds in top condition by culling the misfits. The benefit of the ‘landlord’, the one who from time to time hunts himself (buys or sells stock), is that the herds (companies) are OK, don’t get degenerated and don’t overgraze. But no sane landlord, not until now at least, would consider lions’ meat (or whatever else might be obtained from them) as a desirable food but only hunts (gets involved with paper issued by highly speculative investment funds) them for sport or when they threaten the well being of the herds. So why am I not surprised by the last moves in the world of investment banking? Or even banking in general?

follow the money

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