Only one firm matters

An extraordinary proportion of people with training and experience in finance have worked at the highest levels of every recent presidential administration. Four of the last six secretaries of the Treasury fit this description. In fact , all four were directly or indirectly connected to one firm: Goldman Sachs. This is hardly the historical norm : of the previous six Treasury secretaries, only one had a finance background .

In 2001, following revelations of accounting irregularities, Enron verged on collapse, which meant that Citigroup, a major lender, would lose a significant amount of money. Fulfilling a request made by Michael Carpenter, head of Citigroup’s investment banking unit, Rubin called Peter R . Fisher, then undersecretary of the Treasury and asked him to consider advising the bond – rating agencies against an immediate downgrade of Enron’s debt. In other words , Rubin (a Democrat ) lobbied Fisher (a Republican ) to help bail out Enron. ( So much for Washington’s ideological divide.)

What Rubin did was technically legal, as The Economist explained, only because Bill Clinton , in his last days as president , had canceled an executive order that barred top officials from lobbying their old departments for five years after leaving office.

Source: Zingales, Luigi. A Capitalism for the People: Recapturing the Lost Genius of American Prosperity (p. 68). Basic Books. Kindle Edition.

Today, of course, there is far more money riding on the models than in the 1980s – and when it comes to positive feedback, size matters. Indeed, another example of positive feedback is the relationship between the financial sector and regulators. As the sector increases in size, it gains more influence over the government; this allows it to change regulations in its favor, which allows it to grow even larger, and so on, until it becomes Goldman Sachs.

  • Sometimes called Government Sachs, because of the remarkable ability of its alumni to go straight into senior levels of government, perhaps related to the fact that the firm is a leading corporate donor to political campaigns (Baram, 2009). It is even better represented at central banks. Four of the Federal Reserve’s 12 regional banks  are currently headed by former Goldman Sachs executives. Only five banks have voting power, in a rotating fashion, and in 2017 ex-Goldmanites will hold four of these votes. Together with Mark Carney at the Bank of England and Mario Draghi at the European Central Bank, this means that interest rate decisions for much of the world’s economy are made by people who came from a single firm. Nothing to see here, move along.

Source: Wilmott, Paul; Orrell, David. The Money Formula: Dodgy Finance, Pseudo Science, and How Mathematicians Took Over the Markets (Kindle Locations 4524-4527). Wiley. Kindle Edition.

Steve Bannon on capitalism

In 2014 he did a live Skype interview for a conference on poverty at the Vatican. BuzzFeed ran it during the campaign under the headline “This Is How Steve Bannon Sees the Entire World.”

It shows an interesting mind at work.

The West is currently facing a “crisis of capitalism,” he said. The world was able to recover after the world wars in part thanks to “an enlightened form of capitalism” that generated “tremendous wealth” broadly distributed among all classes. This capitalism was shaped by “the underlying spiritual and moral foundations . . . of Judeo-Christian belief.” Successful capitalists were often either “active participants in the Jewish faith” or “active participants in the Christian faith.” They operated on a kind of moral patrimony, part tradition, part religious teaching. But now the West has become more secular. Capitalism as a result has grown “unmoored” and is going “partly off track.”

He speaks of two “disturbing” strands. “One is state-sponsored capitalism,” as in China and Russia. We also, to a degree, see it in America. This is “a brutal form of capitalism” in which wealth and value are distributed to “a very small subset of people.” It is connected to crony capitalism. He criticizes the Republican Party as “really a collection of crony capitalists that feel they have a different set of rules of how they’re going to comport themselves.”

The other disturbing strand is “libertarian capitalism,” which “really looks to make people commodities, and to objectify people, and to use them almost.” He saw this strand up close when he was on Wall Street, at Goldman Sachs . There he saw “the securitization of everything” and an attitude in which “people are looked at as commodities.”

Capitalists, he said, now must ask: “What is the purpose of whatever I’m doing with this wealth? What is the purpose of what I’m doing with the ability that God has given us . . . to actually be a creator of jobs and a creator of wealth?”

With both these strands, he says, the middle class loses ground. This has contributed to the “global revolt” of populism and nationalism. That revolt was fueled, too, by the financial crisis of 2008. None of those responsible on Wall Street were called to account: “No bonuses and none of their equity was taken.” The taxes of the middle class were used to bail them out. [Link]

This was taken from Peggy Noonan’s recent column in WSJ. Her column is titled, ‘Declarations’. The paragraphs capture the views of Steve Bannon on capitalism. Did not know that he used to be associated with Goldman Sachs too.

I would not characterise it as an ‘interesting take on capitalism’ as Peggy Noonan has done. It is a rather correct/apt view on capitalism. Clearly, a thinking man whom President Trump appears to have dumped in favour of his son-in-law, Jared Kushner. I hope appearances are deceptive.

Shareholder value maximisation

Just managed to read two white papers that James Montier had written in March. One was titled Six Impossible Things to do before breakfast’. He decided to disagree with his Chief Investment Officer, Ben Inker. My sympathies lie with James Montier. I wrote a short piece in January for MINT as to why this time might not be different as Ben Inker and Jeremy Grantham had been inclined to argue, lately. To be clear, there is no presumption that I am right (or James Montier is) and that they are wrong.

The other piece (slightly longer but not very and eminently readable, in any case) was about secular stagnation and neo-liberalism. Again, no marks for guessing where my sympathies lie. I am fully on board with James Montier. If you are reading it, do not miss footnote no. 12.

I was interested in the paper by Asker, et al that James Montier had cited. One complaint about Montier’s pieces is that the references are not fully cited. Not that one is complaining that these good pieces are being made available for free (just a registration required at and second, it is not that difficult to locate the cited works.

Asker’s piece (co-authored) is about private firms (unlisted) investing more than listed firms in the United States. Very interesting and useful empirical work. Shareholder Value Maximisation has been reinterpreted as Short-term Stock Price Manipulation, in reality and it runs counter to long-term Enterprise Value Added. Only capital investment generates long-term returns and not financial engineering.

All of these are the natural fallout of the neo-liberal agenda that has been in place since the Eighties to which the monetary policy of the Federal Reserve has contributed greatly.  Few at the expense of many and markets at the expense of society.

You can find Asker’s paper here and a presentation on the paper here.

One thought that Donald Trump would fix it, considering how effective and rousing his last campaign advt. was. But, it appears that it is all unravelling too fast. Well, that sad story is another subject for another occasion.

Dutch cows and capitalism

I read this news nearly a week ago. Nearly 500,000 Dutch cows are in danger of being killed because they generate too much manure and it is an environmental concern in that country!

It might appear as though environmental concerns are good ones to have. But, the problem has arisen because the feed for the cows contain chemicals (phosphate) added to make the cows more fertile, have better bones (and may be, ensure better yield of milk or

Related and unrelated: I listened to the interview of Sir James Goldsmith by Charlie Rose in 1994 when GATT (Uruguay round) was being hotly debated.

His simple message was that the economic doctrine of worshipping an economic index risked destroying western societies. He said then that, under the new rules of the game on globalisation, the poor in rich societies would be subsidising the rich in poor societies.

Some of us will have a mixed reaction to his message but his warning for the Western societies had turned out prophetic because profits of corporations took precedence over labour share of value added.

Global labour force, according to him, would break the compact between capital and labour in the Western world to the detriment of their societies.

Laura D’Andrea Tyson was another participant for some time.

Muenchau gets their goat

A good article by Wolfgang Muenchau. It was published on November 27 in FT. All it required to get the liberals’ goat was for him to mention ‘uncontrolled flows of people’. He was not suggesting appeasement. He wanted the so-called liberals to solve real problems rather than appearing to solve them with their own concentration of power in centralised bureaucracies. Post-Brexit, UK economy is doing fine and so far, US stocks and consumer confidence have held up well.

Should the UK and US economies falter in 2017, it would still be very silly to fault either Brexit or Trump because the causes were seeded with the policy responses to the crisis of 2008 and their persistence well after the sense of crisis has ceased. That has caused asset prices to diverge from economic fundamentals. When the divergence begins to close, economic consequences would follow inevitably because policymakers have made economies dependent on the fortunes of financial markets and asset prices rather than the other way around. That is what Wolfgang Muenchau means when he writes about solving the ‘problem of uncontrolled flows of capital’ too.

Hence, if these economies hit air pockets in 2017, don’t blame Brexit or Trump.

The so-called Liberal commentators have rediscovered the virtues of free trade and fiscal restraint after the US election. They are so inebriated by the exaggerated self-assessment of their intellectual prowess and contribution that they fail to see the hypocrisy of their shifting stances.

The lesson for the so-called Liberals in 2016 is to stop dealing in certitudes and to learn to be humble about what they do not know. Humans becoming humble about and becoming aware of what they do not know is a good starting point not only for public discourse but also for self-realisation.

It is a pleasant surprise to find Wolfgang Muenchau holding a mirror to them. No surprises that many do not like what they see.

The THIRD guy – Part 2

Now we are in November 2016. The question is where and what does this all lead to? That is the difficult part. Is Donald Trump truly an outsider who defied all the elites as described above and somehow sneaked through? Possible but is that plausible? I have no idea.

Or, is that the elites – as Brandon Smith claims – ‘allowed’ him to be elected such that a meltdown that they would engineer could be pinned on him? The premise is that post-meltdown, a new world order could be constructed or fashioned. One of the paragraphs from Part 1 is reproduced:

Giant multinational corporations, and their economic satellites, in alliance with governments and the big banks, are in the process of extending their influence on a global scale: they dream of a world central bank, global planning, and an international welfare state, with American troops policing the world to guarantee their profit margins.

I have a few problems with all of these, even with the analysis of Murray Rothbard:

(1) His point is that as long there is a State, it would remain forever captive to the interests of the powerful and the rich. The ‘Left’, ‘Right’ divides are artificial and for amusement value. Even engineered and allowed to rotate to keep up the pretense of alternative discourses such that no radically different discourse or personality comes in (imagine Trump). Fair enough. I can accept that. But, is there a feasible alternative? Can we go back to some idyllic world? Who will lead the world into an ‘idyllic’ alternative?  The moment someone is chosen to ‘lead’ the movement to the idyllic world, the seeds of an organised State are sowed. So, if there is no leader, how would the movement evolve organically? It does not seem possible to me.

In other words, I feel we are ‘doomed’to accept the ‘progress’ we have made – from self-organised communities to organised nation-States with all the benefits and consequences that flow from that.

On balance, it does not appear to have been such a bad thing, after all, for a vast majority of the global population. Of course, I do not know about the future. But, on the basis of the record so far, with all the wars and warts, millions have prospered and have seen their conditions get better. But, of course, we may be on the cusp of seeing all of that being undone. But, we do not know if that is a certainty. We can never know.

(2) If it is true that an outside organism (Donald Trump) had managed to sneak in by piercing the well-orchestrated charade of the Left-Right divide and therefore, if the so-called ‘globalists’ would want to destroy the world and pin it on him, then couple of questions arise:

(a) Won’t the elites be affected by it themselves? So many interconnected webs and networks have been formed that none can claim to know fully which string pulls what and brings down which edifice. May be, the elites know.

(b) Won’t they be better off trying to co-opt him, given (a) above?

(3) There is the final nagging question: These narratives (e.g., by Brandon Smith of Alt-Market) assumes that humans are in control always and that they move the coins on the board expertly, flawlessly, anticipating many and almost all the moves that will be made by others, etc. I am very sceptical of that.

By now, so many behavioural science experts have convincingly demonstrated that human brains are not equipped to handle complexity, to reason out and to arrive at logical conclusions. We simply do not have the capability. I sense that we might have unwittingly and inadvertently created far too much complexity than we can ever handle or even learn to handle. Take Brzezinski for example.

In the introduction to Murray Rothbard’s book, the following is mentioned and I have heard it from others too:

More than a decade after Rothbard wrote this book, identifying Brzezinski as a Trilateral executive director and “recently selected director of the CFR,” this establishment poster boy claimed credit for intentionally baiting the Soviets into invading Afghanistan—a fateful intervention that has changed U.S. policy in the Muslim world irreversibly.

So, how has it played out for America? Are the Americans feeling better off? Is the world better off? Are the Soviets/Russians worse off? We cannot even begin to answer these questions although Brzezinski might claim success for what he (supposedly) designed and achieved.

Things will take their own course and some will claim credit or deny culpability, post-facto. We will never know if they are being honest or not.

Sometimes, we assign too much credit to fellow human beings and to ourselves for having seen them through.

One thing can be accepted, however, from the works of Murray Rothbard, Carroll Quigley and Brandon Smith. Elites try to influence policies on either side of the aisle. They have no qualms about it. They have infiltrated both sides. Second, they may not always succeed but they do try to engineer outcomes regardless of larger consequence. Third, outsiders/underdogs have very little chance of breaking through with very few lucky exceptions. It is a lopsided world. 

Anyway, for the moment, we have to wait for the Trump Presidency to commence actually and see how it would play out, if it does. What would be the consequences in financial markets, in world economics and politics? I have no idea. Especially, if he turns out to be really the THIRD guy and not part of ONE that pretends to be TWO.

The THIRD guy – Part 1

When I read this paragraph attributed (to Carroll Quigley) who apparently was Bill Clinton’s mentor in the Q&A exchange with commentators by one Brandon Smith of the or website (Link), I was reminded to look for Murray Rothbard’s wonderful little pamphlet, ‘Wall Street, Banks and American Foreign Policy’ first published in 1984 and republished by the Ludwig von Mises Institute in 2011.

Before we get there, here is the passage from Carroll Quigley:

The argument that the two parties should represent opposed ideals and policies, one, perhaps, of the Right and the other of the Left, is a foolish idea acceptable only to doctrinaire and academic thinkers. Instead, the two parties should be almost identical, so that the American people can ‘throw the rascals out’ at any election without leading to any profound or extensive shifts in policy.

The introduction by Anthony Gregory is interesting in itself:

The idea that corporate interests, banking elites and politicians conspire to set U.S. policy is at once obvious and beyond the pale. … But to make too fine a point of this is
typically dismissed as unserious conspiracy theorizing, unworthy of mainstream consideration.

In the left’s unflinching loyalty to social democracy and economic intervention and the right’s invincible love for the military and support for corporate America we see why we are allowed to decry corruption and special interests, but not dig too much deeper than that, lest we be relegated to the periphery of respectable discussion.

It should be clear that the name of the political party in power is far less important than the particular regime’s financial and banking connections.

The economic and imperial interests behind America’s response to 9/11 go far beyond the neocons and their diversion in Iraq.

(A) Now, specific illustrations of names and their connections from the introduction by Anthony Gregory:

The revered Teddy Roosevelt “had been a Morgan man from the beginning,” with family, business and political ties to the banking giant. Roosevelt’s “first act after the election of 1900 was to throw a lavish dinner in honor of J.P. Morgan,” and many of his policies, from the 1903 Panama coup to the trust busting of Standard Oil, were huge blessings for Morgan interests.

Cheney, it might be noted, was also a member of the Trilateral Commission—that elite club founded by David Rockefeller that came to dominate the halls of power beginning in the Carter administration. … In addition to Cheney, Trilateral members who have risen or remained high in American government since 1984 include Fed Chairman Alan Greenspan, George H. W. Bush, his national security adviser Brent Scowcroft, Bill and Hillary Clinton, and Clinton cabinet members Lloyd Bentsen (Treasury), Warren Christopher (State Department) and William Cohen (Defense).

Goldman Sachs accounted for over $994,000 of Obama’s war chest. Lehman Brothers was the origin of $395,600, a record amount for the company second only to what Hillary Clinton received. Out of 20 of his biggest sources of campaign money, eleven were investment banks or closely associated law firms. Justin Raimondo noted in 2008 that Obama’s fat cat donors included top executives from Wachovia, Washington Mutual, Citigroup, Deutsche Bank, Merrill Lynch, Bank of America, J. P. Morgan, Chase, Morgan Stanley and Countrywide.

(B) This is from the ‘Introduction to the 1995 Edition’ written by Justin Raimondo:

The inflationary trends resulting from the creation of assets tend to increase the ratio
of external financing to internal financing in large corporations and, as a consequence, the ultimate decision-making power of banking institutions increases over the activities of industrial corporations.

In my view, the above point is an extremely powerful and insightful one, if one cared to spend time reflecting on it.

It was Mises who pointed out that government intervention in the economy invariably leads to yet more intervention in order to “fix” the havoc wreaked—and there is a certain logic in the fact that it was the original culprits who decided to “fix” the distortions and disruptions caused by their policies with further assaults on the market mechanism.

The thought expressed by Raghuram Rajan in his book, ‘How to save capitalism from capitalists?’, it appears, had been expressed by Murray Rothbard before, says Justin Raimondo:

This explains the strange historical fact, recounted at length and in detail by Rothbard, that the biggest capitalists have been the deadliest enemies of true capitalism.

The theme below appears to have been picked up by Brandon Smith of

Giant multinational corporations, and their economic satellites, in alliance with governments and the big banks, are in the process of extending their influence on a global scale: they dream of a world central bank, global planning, and an international welfare state, with American troops policing the world to guarantee their profit margins.

Is this where the Universal Basic Income fits in?

After the long battle to create a central bank in the U.S., the high priests of high finance finally seized and consolidated control of domestic economic policy. It only remained for them to extend their  dominance internationally, and for this purpose they created the Council on Foreign Relations, and, later, the Trilateral Commission.

Justin Raimondo is careful to delineate his analysis from the standard ‘conspiracy theory’ framework:

To say that the House of Morgan was engaged in a “conspiracy” to drag the U.S. into World War I, when indeed it openly used every stratagem, every lever both economic and political, to push us into “the war to end all wars,” seems woefully inadequate. This was not some secret cabal meeting in a soundproof corporate boardroom, but a  “conspiracy” of ideas openly and vociferously expressed.

(C) Now, in the main body of the report by Murray Rothbard, he goes through several proofs of appointment that would defy the neat ‘Right’ and ‘Left’ cleavage. Indeed, many grassroot workers would appear foolish. Sample what Rothbard writes about John F. Kennedy:

When John F. Kennedy assumed the office of President, the first person he turned to for foreign policy advice was Robert A. Lovett, partner of Brown Brothers, Harriman, even though Lovett had backed Richard Nixon.

Secretary of the Treasury in the Kennedy Cabinet was C. Douglas Dillon, of Dillon, Read and the Rockefeller Foundation. Dillon saw no problem in serving for eight years as Ambassador to France and as a State Department official during the Eisenhower
Era, and then segueing to the Democratic Kennedy Cabinet. Like Lovett, he too was chosen even though he had been a big contributor to the Nixon effort of 1960.

Two important foreign policy actions of the Kennedy administration were the Cuban Missile Crisis and the escalation of the war in Vietnam. Kennedy was advised during the Cuban missile crisis by an ad hoc group called the Ex Comm, which included, along with his official major foreign policy advisers, Robert A. Lovett and John J. McCloy. In the Vietnam War, Kennedy brought in as Ambassador to South Vietnam the Boston Brahmin and Morgan oriented Henry Cabot Lodge, who had been Eisenhower’s Ambassador to the United Nations and who had run for Vice-President on the Nixon ticket in 1960.

Murray Rothbard documents the role and influence of the Trilateral Commission under Jimmy Carter quite thoroughly. Just a sample:

Jimmy Carter was invited to become a member of the Trilateral Commission shortly after it was formed, and he agreed enthusiastically. Why did the Trilaterals appoint an obscure Georgia governor with admittedly no knowledge of foreign affairs? Ostensibly because they wanted to hear the views of a Southern governor. Far more likely, they were grooming him for the Presidency and wanted to instruct him in trilateralism. Carter took instruction well, and he wrote later of the many happy hours he spent sitting at the feet of Trilateral executive director and international relations expert Zbigniew Brzezinski.

What these facts remind us is that many members of the Public who are railing (big time) against Donald Trump are missing the point that he might be representing a genuine discontinuity from this ‘Two is one’ arrangement that has survived and flourished for a long time. What does it mean for the world? I attempt some answers (or confess to inability) in part 2.