GameStop and Bailouts

The ruling class is shocked, shocked, that gambling is going on at Robinhood, the stockmarket app that helped rocket failing retailer GameStop into the stratosphere and apparently ruined hedge fund Melvin Capital that had shorted GameStop.

Of course, for us deplorables this is all great fun, and "far-right" writer Vox Day, wants to go all the way and suggests

One thing is clear from all of this. The America public is not going to support another bank bailout once the next financial crisis begins. They'd rather see Wall Street burn, and rightly so.

Er, no. The trouble is that when Wall Street burns, we the people get nuked. Big time. As in the Great Depression, when the Fed failed to bail out the banks. As in the Great Recession of 2008-09, when Little Ben Bernanke failed to bail out Lehman Brothers.

Yes, I'd like to see the malefactors of great wealth taught a lesson they will never forget. But I don't want to be caught in the blast zone.

And as far as I can determine, it is just not possible to design the credit system so there is no chance of a meltdown.

Most credit, as far as I can see, is the anticipation of income in normal trade. Thus, a merchant borrows money against the sale of his merchandise at a future date. The question is: how much borrowing is safe? One hundred percent of the anticipated sale price? Fifty percent?

The problem is that, 99 times out of 100, borrowing 100% of the anticipated sales price is perfectly safe. Until the day that your ship gets wrecked, or the market price of the merchandise takes a tumble before you sell it.

Then, if the merchant doesn't have other resources, he is bankrupt and his creditors may go bankrupt and their creditors go bankrupt, and so on.

It is all explained in Walter Bagehot's Lombard Street. Everything is copacetic in the credit system so long as borrowers make their payments and that loans can be liquidated by selling the collateral. But if the borrower can't pay, or the sale of the collateral isn't enough to liquefy the defaulting loan, then you got trouble right here in River City.

Bagehot's Big Idea in Lombard Street is that the central bank should be the "lender of last resort." So when a financial institution goes broke the central bank steps in and buys it. Thus the illiquid debt of the defaulting institution is diluted in the capital of the central bank. But Bagehot recognizes a further risk. What if the central bank can't absorb the defaulting debt of the defaulter? Well, the answer is that the central bank is backed up by the state, and its ability to issue debt.

But what if the state doesn't have the capital or the "confidence" of the market? Like, say Venezuela? 

Exactly. That is why it is best to make sure that the credit system does not allow hedge funds and other reckless investors to put the whole system at risk. That is why an ordinary stock investor is only allowed to borrow 50 percent of a stock's value "on margin." That is why, back in the day, before the gubmint got into the act with Fannie Mae, Americans could only borrow 50 percent of the value of a home.

Yes but what if the Wall Street smarties have come up with another way of "laundering" low-quality debt like they did back in the 2000s with their derivatives and credit default swaps. It looked like a good idea until it wasn't.

That is probably the Big Problem. Wall Street smarties are always thinking up new ways of sailing too close to the wind. And usually, their folly is only discovered after it is too late, and the system is already in meltdown. This is what happened with default swaps and derivatives in the 2008 meltdown. It turned out that the financial legerdemain did not in fact make all those high-risk mortgage bonds into low-risk bonds. Oh dear.

That is why we are always going to need that "lender of last resort."

Here's the thing though, as you can see from my report on the 2008 bailouts. The biggest item was not the bailouts, of monies lent to weakened banks and financial mastodons. The biggest item was $16.9 trillion in guarantees for money market mutual funds.

Yeah. And the cool thing about the guarantees was that the Federal government didn't have to shell out a penny in debt or outlays. All that was needed to keep the money market mutual fund business going was the guarantee that the Feds would keep it lubricated. How cool is that?

Very cool, until our ruling class figures out how to take advantage of it.

Yarvin: Trump Never Had a Chance; Plus He's Incompetent

Now that Trump is returned to Florida, Curtis Yarvin reminds us that Trump's job as president was to be a King. Unfortunately, he doesn't have the skills and attributes to be a king.

Trump has never shown any particular gift for management or delegation, and he has the attention span of a rabid chipmunk. 

Nor did any of his people know how to be a king and actually run the government.

But then, Yarvin continues, what authority does the president have anyway? Practically none, especially if he is going up against the System and its bureaucracy.

With regard to the System he references a 900-person Zoom call of all the lefties where they coordinated the street action -- or lack of street action -- after the election. Wow. I get that the lefties all somehow coordinate like a flock of birds.

With regard to the bureaucracy he notes the case of Trump and a Pennsylvania lawmaker getting together, in a "Plot" with a mid-level Justice Department appointee to maybe get a bit of investigating on the Big Steal. But the other bureaucrats shut it down.

So, in fact, the left's Activist Central decides what goes down, or does not go down in the streets, and the permanent bureaucracy decides what goes down in the actual government. Presidents need not apply.

Who knew?

So, the benefit of Trump is that he did get to do some pro-Commoner stuff for four years, and in the aftermath the lefty Activism Central were part of the System, and the bureaucrats showed their teeth.

If we didn't know how the System worked before, we do now.

Bottom line is, of course, that the current System of the ruling class ain't going down until it runs out of money and thus can't keep all its bureaucrats and its activists on-side.

So of course the Biden administration is executive-ordering the agenda of the lefty Activism Culture. In particular because, since President Biden is in mental decline he really lacks the horsepower to moderate his lefty crazies.

And of course the bureaucracy is not going to apply the law to its own and to the lefty activists that break the law.

Says Yarvin about Trump's real achievement.

[The left] has succeeded brilliantly in pretending to be the underdog. Thanks to Trump, and to its response to Trump, this charade seems no longer viable.

So now the left will have to be upfront about power: that it has the power, that it believes in power, and that you'd better behave because power.

It's a start. 

Biden's Two Front War: Climate Change and Systemic Racism

Everybody knows that fighting a two-front war is a Very Bad Thing. It was Germany's fate in both World War I and World War II. And it didn't go well.

Now, the Biden administration is proposing to fight both climate change and systemic racism. All at once.

Now, according to my theory, governments exist to protect us from enemies foreign and domestic. So your average foreign war is all about protecting the people from the furriners. And your average civil war, or political campaign or witch-hunt, is about the domestic enemies and traitors and witches.

Of course most wars and most politics are ginned-up rubbish, because if you don't have a war you don't have a reason for all that taxing and spending and borrowing.

But still: only one war at a time, Senator.

For instance, after 9/11 we had unity in the United States for about a year because all Americans were united to Do Something about crazed Islamic terrorists. But after a while normal politics resumed and our Democratic friends went back to posting ReDefeat Bush bumper-stickers on their Subarus.

Good old FDR had a grand old time uniting Democrats against the dastardly Republicans from 1933 till 1939. Although, in fact, the scapegoat President Hoover was a pretty progressive Republican in favor of government solutions for most everything, just like FDR.

But then, when FDR wanted to get into World War II, suddenly we were all Americans, united to defeat the Japs and the Huns. Democrats, Republicans? We were all Americans.

Now, I am wondering if President Biden should be making a decision about which war he wants to fight. Does he want to save us from the nightmare of climate change and unite all Americans to fight that existential threat? Oh, how glorious that day will be when climate change has been arrested and our human community saved! Or does he want to hunt down and cancel all the racist-sexist-homophobes wherever they may be found? Oh, the wonders of an America purged of all the white oppressors by the noble allies!

Because if President Biden wants to fight both existential perils, then maybe he is Literally Hitler. Too dumb to avoid getting himself into a two-front war.

Of course, I realize the difficulty of the president's position. He is the leader of the party that includes a whole barrel full of different activist interests. Every educated woke person must be into activism, and the key is to find a new activist field for your very own. But when all these activisms all come to power... Well, it is the job of a wise leader to make wise decisions about which activist agenda to concentrate on.

(Yes, I know. If he were really wise he would tell all the activists to take their activisms and put 'em where the sun don't shine.)

Of course, it is a bit of a problem when the president is already well advanced into senile dementia, and is merely the creature of his activist staff. It becomes hard to make sensible, strategic, decisions that are good for the Democratic Party and good for the United States of America.

Actually, of course, I believe that the president is making a mammoth strategic error by not concentrating all his power on the post-COVID economic recovery. Never mind all the activist rubbish about climate change and systemic racism.

Now I am a retired guy and my IRAs are doin' fine thank you very much what with all the money printing and such.

But, just between you and me and don't tell your wokie neighbor who won't get it, I think that tens of millions of Americans have had their lives blitzed into oblivion by the COVID economic shutdowns. And it is going to take years to dig them out the the hole we have pitched them into.

Correction: In my belief many of the tens of millions of Americans will never recover from the hell that they were pitched into. Shades of the Great Depression and the Skid Rows that resulted. And, I believe, this fact will very likely transform American politics.

Yep. I reckon that President Biden is making a strategic error, and his court historians will have their work cut out for them if they expect to give him an honorable place in the history books.

Whatabout the Next Crash?

Now that we are First and Ten with the Biden administration and we learn that President Biden is at 50 percent mental capacity, let's talk about the real question.

What happens at the end of the current deficits and money printing?

There's a piece at American Spectator about this. Donald Devine quotes a bunch of experts that say there is nothing to worry about. Not yet. Then he makes his prediction:

My prediction is that Biden’s control of executive and legislative branches will produce a short economic boom in 2021, followed by a big bust in 2022 that takes down the whole progressive edifice with it.

One of the problems he sees is the modern "repo" market.

“In repo, broker-dealers, hedge funds and banks construct short-term transactions. You put up collateral — Treasury bills or sometimes less-pristine instruments — with an agreement to buy them back the next day or week for slightly more, and invest the proceeds in the interim.”

The question is: what happens when things turn South?

But eventually, iffy collateral sneaks into the system. That’s also fine, until markets hit an inevitable rough patch, like, say, March 2020. No one will take the junky stuff anymore, and everyone scrambles for good collateral. So there’s a mad dash, a brawl really, to buy Treasuries — like musical chairs with six to eight buyers eagerly eyeing one chair.

If this sounds too complicated, let me give you Walter Bagehot and his 1873 book Lombard Street: A Description of the Money Market. 

As I understand Bagehot -- he was the founding editor of the London Economist -- the credit system needs the following to work:

All loans must be properly collateralized so that the borrowed money can be recovered if the borrower defaults.

All borrowers must be able to service their loans.

If either of these things breaks down, then you got trouble, right here in River City. If both things break down you got nuclear Armageddon.

For instance, in the runup to the Crash of 2008 we had the US government encouraging low down-payment mortgage loans. See the problem? If there is a downturn in home prices then some of those low-down payment loans can't be liquidated if the borrower defaults.

Then, in addition, the US government was encouraging, even mandating, that lenders lend to borrowers -- such as minority borrowers -- with low credit ratings, i.e., borrowers with a higher than normal risk of not making the payments.

So when the Fed tightened up on credit in 2006 many borrowers with adjustable-rate loans couldn't make their payments and because their homes came on the market the price of homes went down and banks could not recover the principal when liquidating defaulted loans.

And so you get a credit crisis where traders in the system don't want to trade in securities with "iffy collateral."

Then you get a credit meltdown which, according to Bagehot, can only be stopped by a central bank, a "lender of last resort" buying up distressed loans. It can do this because the assumption is that the central bank has, as capital, the whole wealth of the nation to back it up. You can see how the central bank acting as "lender of last resort" solves the crisis. It buys up dodgy debt, and pays for it with newly printed money that people trust more than the dodgy debt. So the panic subsides.

Usually, however, the guy in charge of the central bank, being a mere ruling-class courtier, partially flubs the "lender of last resort" bit. So, in the Great Depression of 1929-33 the Federal Reserve did not bail out the Bank of United States when it failed in 1931, probably because it was a Jewish bank. In the Crash of 2008, Little Ben Bernanke decided in September that he did not have the authority to bail out Lehman Brothers. 

The incompetence of the courtiers means that the credit crisis goes on longer and is deeper than necessary and ordinary people get wiped out.

The question you may ask is whether in the next credit crisis the market will believe that the central bank can in fact act as lender of last resort, or whether the problem is so big that it is beyond the ability of the Fed or the IMF to turn bad debt into good debt.

Here's an interesting factoid. In the 2008 crash the US government had an actual $700 billion TARP bailout program to bail out the banks where is borrowed and spent actual money. But it "guaranteed" about $16 trillion in money market mutual funds.

I wonder if the whole bailout could have been done with a "guarantee." It would have been a whole lot cheaper.

But there is something else to worry about. It is "MMT," or Modern Monetary Theory. It is Keynesianism on steroids and supported by lefties like Bernie Sanders and AOC and says that pedal-to-the-metal with debt and spending is OK for government. At least for now.

The real question is: what do you do when the balloon goes up? Gold? Bitcoin? And whatabout any asset that is held in a financial institution that you access over the Internet? How hard would it be in a great crisis for the government to seize 23.2 percent of all assets at Fidelity and Vanguard? When everything is just a record in a database.

The Future of Government: New and Exciting Enemies!

I've been cudgeling my brain over the past few weeks about the Biden administration's two big agenda items: Climate Change and Systemic Racism. What is really going on here?

And I now realize that it is quite simple.

Government has only two jobs: to protect us from enemies foreign and domestic. But today there really are no foreign enemies. And, really, there are no internal enemies. Not like in the old days of bandits and robbers.

So what is government to do? It doesn't have anything to do any more. It should go out of business.

But that would never do, so it has to make it up. It has to make up external enemies and internal enemies, and wind us up into a frenzy of fear and loathing.

That is what climate change is all about: a monstrous external threat. OMG! Not even a foreign enemy: a global enemy. And not even a human enemy but the very planetary climate itself: Gaia, if you like. Really, it is genius. Why, our ruling class does not even have to march into harm's way. It merely has to hand out highly paid jobs to its educated gentry supporters all across the land, and hand out subsidies to its gentry voters for electric cars and solar panels on the roof. And of course all the gentry supporters are down with that. They believe! Oh Gaia, do they believe!

That is what systemic racism is all about: a monstrous internal threat. Imagine: right here in River City there are dark hordes of white supremacists and white oppressors, just waiting for the chance to descend upon traditionally marginalized peoples with their assault rifles and their patriarchy. But government is up to the challenge! It will conduct critical race theory training sessions throughout the land! It will teach the systemic racists a lesson they will never forget. Gentry supporters will have jobs, maybe millions of jobs to be teaching the deplorables and the white supremacists and the systemic racists a lesson. And, when they feel like a rest, they can erect another Black Lives Matter sign in the front yard.

When you think about it, you have to admit: it's brilliant. Strictly speaking we don't really need much government, because in the modern era things are so safe that we don't need no stinkin' government plodding around saving us from enemies foreign and domestic.

But now we have enemies that make the old enemies of the world look like pikers. The global threat of climate change makes all the old enemies, the Nazis, the Commies, the Islamic terrorists, look like nothing. It's not just those human enemies but something far bigger, far more threatening: the end of life on this Earth. Unless we act now.

The threat of systemic racism is just as bad. There is no telling what those shadowy white supremacists and conspiracy theorists might get up to next week. So we must declare war on them, re-educate them, purge them from the public square.

But what do we do about it? Honestly, I don't know. The whole setup is so brilliant, and so tempting for our educated ruling class that I don't think they will give up on it short of utter political annihilation.

In other words, we Commoners have to teach our educated betters that, if they don't climb down from their war on climate and their war on bitter clingers, we will strip them of all their powers and credentials and honors and pensions and make them go out and get a job, like the rest of humanity.

And we may -- just for the fun of it, not from malice -- put them on one-day suspensions from Twitter just to remind them that what goes around comes around.

Where is the New Miguel Cervantes When You Need Him

You all know Miguel de Cervantes. He was the cheeky chappie that wrote Don Quixote in 1605, making fun of the whole medieval romance genre.

I agree. That was really meanie-jelly-beanie. You literary snobs are always trying to deep-six the latest genre. I mean, sci-fi, fantasy: who needs it, darling. How about a bit of plotless James Joyce for breakfast?

Anyway, Cervantes was pretty harmless. Despite his fun and games we are still having great fun reading about King Arthur and his Knights of the Round Table. Not to mention Frodo and Co. And, apart from Parsifal (as in Sir Percival) Richard Wagner spent his whole career unearthing Nordic and Teutonic myths. Although, according to the late Roger Scruton, Wagner recast the pagan myths in a post-Christian mold designed by German philosopher Feuerbach and then changed his mind and used the mold designed by Schopenhauer. Fun!

But, dear God. We need our modern Cervantes now. To write the uplifting story of Don Qui-wokey, and his heroic battle against the windmills, er, the pipelines, of Keystone XL.

See that's the way I experience the left's Activism Culture. It is like a medieval romance. Back then, the medieval romance enabled dumb scions of the barony to imagine themselves as noble knights saving helpless maidens from dragons and evil castellans, and searching for the Holy Grail. Now we have the mindless romances celebrating the delta-minus rich-kid morons bravely trying to stop capitalism in its tracks with Heroic Acts of Activism against the Polluters! Peaceful Protests against the Fossil Fuel Companies! Marches Against White Supremacy! And OMG, fracking is polluting the water supply! Not.

I fear, alas, that we are some years, maybe decades, before the American people will help us racist-sexist-homophobes send the systemic racist climate Don Qui-wokeys to where the sun don't shine. Because apart from us bitter-clinger deplorables, the rest of America is either embarrassed by populist nationalism, or enjoying their bennies as Little Darlings of the ruling class. Oh, and don't forget the Wokey Allies.

Only thing is that if I were to tell the story I would forget Soy Qui-wokey and make the story into a remake of the Parsifal legend, with Soy Parsifal -- the pure fool -- starting out as the child of an activist lesbian couple. The young lad naturally yearns, as xe plays mostly-peaceful-protest games with xis non-gendered pals, to get to activism school and take xis place in the glorious community of social justice activists bending the arc of history towards justice. Oh the glorious day when xe begins his first internship at the Climate Justice Matters NGO funded by tech billionaire George Porous! Oh, the joy of the day when xe has finishing xis "trained Marxist" training, and knelt before xer Marxist trainer and got xis Soyship in the Global Active-hood of Pajama-Persons and can lead xer first real Mostly Peaceful Protest.

One day, years later, he is driving his electric car in the forest on the way to a protest against an oil pipeline, reciting the chants he will lead, when he accidentally runs over a swan crossing the road. The local yokel Gurnie O'Mans curses him out for a fool. Having stopped his electric car -- whose battery is getting dangerously low -- he observes a number of bedraggled men by the side of the road. Who are these bums, he asks Gurnie? These men, Soy Parsifal, were once frackers, but they lost their jobs ten years ago in the first days of the Biden administration, and because of the shame of being fossil fuel workers, have been canceled and cannot get jobs in the soy economy.

Well, that's a start. We'd have to have a Kundry, Soy Parsifal's liberal activist mother who is now a sour and angry cat lady. Whatabout the Fisher King, Am-trump-as, wounded by the impeachment spear flung by the wicked witch Soya Nancy? A chorus of feminist flower maidens? And whatabout the evil magician Klingsor? What is he up to?

Of course, before the activist Soy Parsifal can heal the wounded Am-trump-as he must learn the error of his ways, and discover how activism is a path of cruelty, a Trail of Bloody Tears, that has killed more people in history than all the Genghis Khans and Hitlers -- put together. He must renounce activism forever, and bring his angry cat lady mom Kundry back into the light. That would be a story!

Then, and then only can Soy Parsifal eat his first meal of meat, and renounce his Soyish ways, and come to the castle of King Am-trump-as, and heal the king's wound, and light the light in the eyes of the MAGA faithful once more, and Make America Great Again. Once more.

"Ain't I a stinker!" ©1950 Bugs Bunny.

The Decline and Fall of the Progressive Empire

Today I am starting a new topic, the decline and fall of the present ruling class. But let's steal the words of Edward Gibbon, he of The History of the Decline and Fall of the Roman Empire.

Why did the Roman Empire decline and fall? According to academic Michael Mann in The Sources of Social Power, it began to decline when its modus operandi no longer worked. Up until the second century AD the Roman Empire fed on conquest and slavery. Its army would conquer a new province and the empire would feast on the plunder and the slaves. But then the Empire got too big, and the frontiers too far away from the center. And so the potential for conquest and plunder started to dry up.

But whatabout the empire in which we live? And what do we call it, anyway? Liberal Empire? Lefty Empire? White Supremacist Empire? Capitalist Empire? Empire of the Educated?  I think I will stick with Progressive Empire for the time being.

The reason I prophesy the decline and fall of the present regime is that its anthems, its agendas, are getting rather threadbare.

There seem to be two justifications for political power. The first is the promise of physical protection. This obviously goes back to the apes, that the males protect the band and its food-growing territory from invaders. I consider this a male thing. The second is the promise of protection from evildoers within society, the backstabbers and gossipers that are the bane of every woman's life. I consider this a female thing.

In the last century, the century of the educated ruling class, our rulers have heroically defended us -- or rather we have defended our rulers -- from the menace of Kaisers, of Hitlers, or Commies, of oil sheiks. Golly, where would we have been without them! But now our leaders are promising, at enormous expense, to protect us from climate change.

You know what I think? I think our rulers are running out of reasons to protect us. This climate change thingy depends on the predictive computer models of gubmint scientists -- which are completely different from the divinations of the temple priests and soothsayers of old, completely different. In other words, climate change looks and feels like a scam.

In the last century, the century of the educated ruling class, our rulers have heroically defended us -- or rather we have defended our rulers -- from the internal menace of monopolists, exploiters of labor, Southern racists, and now patriarchs, white supremacists and the menace of systemic racism.

You know what I think? I think our rulers are running out of moral menaces with which to terrify us. The proof is in the moral narrative of "allyism," that America is composed of "oppressed peoples, allies, and white oppressors." What "white oppressors?" Educated white liberals in the schools, universities, and journalism? Heavens no, those are all allies. Evil corporate moguls? Heavens no, those all pay their indulgences to Black Lives Matter. Would they be Trump Car Paraders and crazed Qanon cultists wearing viking costumes in the US Capitol? Yep, that must be it.

But why? Why is our ruling class singing such ridiculous anthems to their rule? What is really going on? Is it a conspiracy?

I think it is because the basis of human social cooperation has been transformed.

I think the old system, of male defense of the border, and female defense of the hearth, made complete sense back in the days of the chimps: that's what Nicholas Wade says in Before the Dawn. And more or less sense in the days of the hunter-gatherers, and even down through the agricultural age. You needed brave warriors to defend the food-growing land, and you needed moral arbiters to sort out troublesome youths and quarreling women.

But not any more.

Loot and plunder of the neighbor's lands? But wealth today is in intangible capital, ideas and techniques.  Loot and plunder does not pay, except in the internal taxation and regulation systems by which today's rulers fleece their own sheep, not the neighbor's sheep.

Calling sinners to repentance? But today's market economy rewards trust and names and shames cheaters and defaulters in a hundred different ways. Oh yeah, we need a few cops to crack heads here and there; but the vast majority of people go with the program, because there is a huge benefit in doing so, and a huge penalty for being identified as untrustworthy.

Obviously this new situation is so brand new as to be breathtaking. It has really taken hold only in the last 200-300 years, whereas the agricultural age extended for, say, max, 50,000 years, and the hunter-gatherer age a million or so, and the chimps for tens of millions of years.

We cannot expect our rulers, our neighbors, and ourselves to have suddenly adapted to the new setup. We are programmed for another age.

Instead, we should expect everyone -- from noble lords to cathedral priests to young punks to the nice ladies next door -- to keep punching the old buttons, and being completely flummoxed when the old actions don't have the desired effect.

But, "scientists say," the future belongs to those that adapt. And the number of people adapting, "experts agree," will be a minority. This will mean, "ethicists believe," a profound change in human society.

Because, as I say, every story is a survivor story.