Showing posts with label JP Morgan. Show all posts
Showing posts with label JP Morgan. Show all posts

Saturday, 10 August 2013

Richard Dawkins and the far right extremists



Regular readers will know that I am not a fan of Richard Dawkins and his garbled anti-religious rhetoric. I have no ideological objection to non-religious stances, and greatly admire the work of other proponents of atheism such as the brilliant science-fiction writer Isaac Asimov and the wonderfully impassioned popular scientist Carl Sagan. I find Dawkins' sanctimonious and divisive evangelism for the atheist cause intensely annoying. Not only are many of his arguments dreadfully weak from a philosophical perspective, his regular appeals to mock the religious with "naked contempt" have inspired a new breed of intolerant secular atheists that enjoy nothing more than dragging the level of any science, religion or ethics based debate down to the level of pitiful mud slinging and endless reiterations of the infuriatingly weak spaghetti monster / sky pixies / cupboard elves argument. ("You postulate something I don't believe in, so I should be able to postulate something that neither of us believe in, which should be considered as equally valid").

I've often stated that I believe that the important distinction should not be between those that believe in the possibility or probability of some higher force they think of as "God", and those that don't. The useful distinction should be drawn between those that are respectful and tolerant of other ideas and those that are disrespectful and intolerant. Thus the Quaker, the sceptical agnostic, the new age hippy spiritualist, the ignostic, the scientifically minded deist and the friendly old Church of England organist probably belong on one side of the debate, and the shrill "you're all mentally ill so I'm going to ridicule you" atheist ranters join the delusional Islamist fanatics, the religious theocrats, the far-right Islamophobes and the Westboro Baptist Church on the other side.

One of the things I've stated in the past is that the rise in evangelical atheism has coincided with the rise of the bonkers pseudo-economic theory of neoliberalism, which promotes greed (or "rational self-interest" as they define it) as the only virtue, and rejects other traditional virtues such as charity, modesty, egalitarianism and justice as grotesque aberrations. It seems that in western culture, faith in the absurd deity-like "invisible hand of the market" (which is one of the articles of faith of neoliberal economic theory) is gradually replacing faith in the traditional conceptions of God.

Another thing that links neoliberalism and evangelical anti-theism is the desperation to dress up irrational faith based philosophies in the language of rationality. Hence the neoliberal rebrands "greed" as "rational self-interest", and misappropriates the Work of Charles Darwin in order to justify their favoured philosophy of "survival of the fittest" social organisation. Often the evangelical anti-theist also attempts to claim the rational high ground, whilst simultaneously maintaining faith in the philosophically unjustifiable position of certainty in the non-existence of "God" (however it is defined).


Of course I am not saying that all non-believers have embraced right-wing neoliberal crony capitalist ideas, but many have, including it seems, Richard Dawkins. The fact that Dawkins is a vocal supporter of the Liberal-Democrats is evidence enough that he approves of neoliberal economic theory (given that just like the Tories and Labour, the Lib Dems have also been usurped by a bunch of devout adherents of neoliberal pseudo economics). Another indicator that Dawkins is an ideological neoliberal is his association with AC Grayling's New College of the Humanities, which charges ludicrous US style fees of £18,000 a year for degree courses. If involvement in the extreme end of the grotesque commodification of higher education isn't a clear indicator that Dawkins has bought into the ideology of neoliberalism, and the commodification of everything, including knowledge, I'm not sure what would be?

Dawkins has positioned himself as the spiritual leader of the atheist movement, and millions upon millions of people have bought into his contrarian pseudo-philosophical atheism, making him a multi-millionaire in the process. Because of this fame and popularity he is in an immensely powerful position when it comes to the dissemination of ideas. When Dawkins promotes an idea, tens, or hundreds of thousands of people listen to him. It is bad enough that he has willingly ingratiated himself into the political establishment, given their fixation with the pseudo-scientific philosophy of neoliberalism, but it is his coalition building efforts with the extreme right of the political spectrum that should really get the alarm bells ringing.

In June 2010 Dawkins uploaded a video from a far-right extremist called Pat Condell, one of several that he has posted to his site over the years. If you are fortunate enough never to have witnessed one of Pat Condell's video blogs, you're bloody lucky. That Condell is so immensely popular with the reactionary right means that if you haven't ever come across his work at all, in all probability you either have a very select group of intellectually coherent friends, or you've never really got into social media and checking your updates.

In his video monologues Condell comes across as sufferer of an incurable case of Angry White Man Syndrome, with the main symptoms being a stunningly reactionary mentality, philosophical illiteracy, and extreme cognitive dissonance. Some of his video blogs actually make my head hurt from the sheer scale of cognitive dissonance.
Condell presents his pre-prepared video monologues in a grotesquely contrived style with a constant patronising tone, which he maintains incessantly as he drones on and on, spouting his philosophically illiterate bile. He comes across as a kind of Al Murray's pub landlord charactor, but utterly devoid of all satire, irony ,effective timing or any kind of humour whatever. 

Seriously, try a few minutes of one of his monologues and see if it's desperately infuriating gibberish that it sets your mind ablaze with criticisms of the sheer cognitive dissonance, or whether you find it so balanced and plausible that you would deliberately share it with your friends. This is exactly the thought process that Dawkins has gone through. The only difference being that he wouldn't just be annoying a few of his "thinkie" Facebook friends by enjoying and sharing such extreme-right bile, he's repeatedly decided to share Condell's extremist views with tens, or hundreds of thousands of people at a go.


In the video blog that Dawkins approved of so much that he shared it with his hundreds of thousands of acolytes, Condell rants for six straight minutes about the evils of Islam. Throughout the video that Dawkins deliberately uploaded to his own site, Condell uses the philosophically bogus trick of ascribing personality traits to the entire religion of Islam. It is a shamefully weak debating strategy to ascribe to the concept of an entire religion, traits that are shared only by a minority of its followers. This personification technique is a crap debating strategy, and anyone that is attuned to spotting philosophical bollocks should be able to spot it for the gibberish that it is. That Dawkins didn't spot it, or that he allowed confirmation bias to completely over-rule the critical judgement that he is supposedly so famous for, simply because he agreed with the anti-religious slant, illustrates the fact that Dawkins is not the great logical thinker and champion of reason that so many (including himself) make him out to be.

In the video that Dawkins liked so much that he decided to share it with his followers, Condell made a number of inflammatory remarks, used soaring hyperbole and generated absurd feats of revisionism. If describing Islam as a nothing more than a "political ideology of hate" and making the case that it should be banned entirely as a kind of terrorist thought crime is not even a little bit concerning to you, you probably would have though that George Orwell's 1984 sounded like a rather splendidly organised utopia, had you ever actually bothered to read it, wouldn't you?

Here are a few more extracts from the extremist video that Dawkins shared on his website:

"Islam makes no secret of its desire to exterminate the Jews" (note the personification of an entire religion technique)
"Islam is a bigger threat to our freedom than Naziism ever was"
One of Condell's most revisionist statements was that "we were all more or less on the same side against the Nazis", which is demonstrably untrue. Either Condell is so ignorant of history that he knows nothing of the British Union of Fascists, the Anglo-German Link, the huge investments in Nazi Germany by American banks (such as JP Morgan and Chase Bank) during World War Two and the shockingly anti-semitic Right Group secret society amongst Tory MPs and the English aristocracy. We certainly weren't united against Nazism during the rise of Naziism in the 1930s because there was a powerful and growing pro-Nazi extreme right-wing lobby in the UK all the way up until the declaration of war.

It hardly seems surprising that a man representing the extreme-right of the UK political spectrum is so keen to pretend that the right wing have always opposed Nazism, when the opposite is true. Whether Condell is just far to ignorant to know of this stuff (a possibility), or that he deliberately airbrushed it all from his story of how right-wingers like him have always opposed Nazism, the actual facts render his claims extremely high-order revisionism.

In another section of the Dawkins approved video Candell uses his absurd personification technique to claim that Islam "rejects" and "despises" America, and he goes further, claiming that "any Muslim that denies this is a liar". He's stating the case that his philosophically illiterate interpretation of the concept of Islam simply cannot be countered by anyone, not even people that have devoted their life to study of it's scriptures! Condell is claiming to be more of an expert on Islamic theology than any devout Muslim that has ever dared to interpret their own faith in a non-violent way! Condell is essentially making the childish argument that "Islam [as a concept] is committed to 'stealth jihad', and that's definite! no comebacks, not listening anymore [fingers in ears] nah-na na-na-nah!".

It seems that Dawkins is prepared to endorse any kind of anti-religious content no matter how extreme and incoherent it is from an analytic point of view. He's quite clearly bought into the pathetic "the enemy of my enemy is my friend mentality".

Perhaps the Dawkins apologist might try to assume that Dawkins didn't know who Condell was: That he knew nothing of Condell's extreme-right views: That perhaps he posted the Condell clips as some kind of accident? However it is absolutely clear from a below-the-line comment in response to a query over his endorsement of such an extreme-right viewpoint, that Dawkins knows exactly who Condell is and that he endorses his views. Dawkins replied:

"I think it is well arguable that Islam is the greatest man-made force for evil in the world today. Pat Condell is one of the few with the courage to say so. [source
So Dawkins is familiar enough with Condell's work, and agreed with it to such an extent, that he would go as far as describing the man as an exceptionally courageous individual, in defence of the decision to share these extreme-right islamophobic views with followers of the Richard Dawkins Foundation page. The content of the Condell speech that Dawkins endorsed to his followers and then justified is bad enough, but some of Condell's other views are whirlwind displays of cognitive dissonance.

One of Condell's most famous causes is unyielding support for the Dutch fascist Geert Wilders. It is beyond doubt that Wilders is an Islamophobic with extremist views. He believes that the Koran should be banned, along with the religion of Islam, that immigration of Muslims into the Netherlands should be stopped and that a mandatory repatriation (ethnic cleansing) programme for Muslims should be initiated. 


Condell's defence of Wilders is the same one that Wilders uses to defend himself. The argument is that is is an outright attack on Wilders freedom for anyone to describe him as a right wing extremist, even in sanitised forms such as as "far-right" (rather than "fascist" or "extreme-right Islamophobe").

The cognitive dissonance is appalling.

Wilders wants to designate an entire religion as "thought crime", ban books, and to begin a programme of ethnic cleansing, yet the anyone describing these views as "right-wing" or "totalitarian" is the sworn enemy of freedom!

How pugnaciously biased would you have to be to think of the man that wants to burn books, ban ideas and deport people as the brave freedom fighter, and think of the journalist that dares to present these views as "perhaps a bit extreme" as the dangerous extremist fanatic, hellbent on curtailing people's freedoms?

That Dawkins lends his support to such an individual shows how tolerant of extremist views he is, as long as the extremists happen to reside in his camp. Dawkins also uses the uses the
same kind of freedom of speech justification as used by Condell and Wilders, to defend extremist right-wing views. In one of his supportive posts for Condell, Dawkins wrote that:
"That some people say they are 'offended' by something is never a good reason for censoring it." [source]
Isn't that a statement that could equally be applied to statements of religious bigotry or obscene religious practices? If the head of some warped Islamist theocracy was designating another religion a thought crime and calling for it to be banned entirely and it's adherents to be discriminated against, Dawkins would be criticising it in a flash. But because it's the view of the leader of a Dutch political party or a right-wing Youtube celebrity atheist, these views are courageous and must be protected by freedom of speech.

As for Dawkins view on Wilders, here's a quote, which is quantified only by a threatened future withdrawal of support should Wilders transgress some kind extremeley nebulously defined "mustn't be a fascist" clause):

"if it should turn out that you are a racist or a gratuitous stirrer and provocateur I withdraw my respect, [but now] I salute you as a man of courage, who has the balls to stand up to a monstrous enemy" [the full text can be seen here]

The Dawkins clause in this statement of support for Wilders' right to spout fascist ideas is a thing of wonder. The clause is written as if working tirelessly to promote the idea that people should be discriminated against, treated as thought criminals and ethnically cleansed on the basis of their religious heritage (as Wilders has repeatedly), is hardly sufficient to justify the moderate description "gratuitous stirrer" or "provocateur", let alone more apt descriptions such as "dangerous fanatic with totalitarian tendencies", "Islamophobic far-right cause célèbre" or "scary militant nutter".

The two main problems with the preceding excuses presented by Dawkins to cover his open praise for Widers can be summised as:

1. In the amount of time it took to write all of those get-out clauses, Dawkins could easily have established for himself that Wilders is a far right extremist committed to ethnic cleansing and the "Constitutional protection of the dominance of the Judeo-Christian culture of the Netherlands", which must surely be an appalling prospect to any atheist. 
 2. That Dawkins comes out with such lengthy and convoluted disclaimers, strongly suggests that he did already know of Wilders' extremist views, but created the fiction of ignorance in order to heap praise upon the someone he knows to be an extreme-right fascist.
Here's an outline some of the policies promoted by Wilders and his PVV party (the fifth one should surely get the old atheist alarm bells ringing even if the blatant fascism underpinning the others doesn't.
  • 1. The Koran should be banned, and possession of it be made a criminal offense. 
  • 2. Criminals (like people that own a copy of the Koran for example) should be subject to mandatory deportation, even if they are citizens. 
  • 3. Immigration of people with Muslim heritage should be totally stopped. 
  • 4. Repatriation schemes to send people with Muslim heritage back to their "country of origin" should be started. 
  • 5. "Constitutional protection of the dominance of the Judeo-Christian culture of the Netherlands" should be enacted.
That Dawkins is so eager to position himself with these guys suggests he is willing to accept (and even defend) the exactly same kind of barbaric tribalism that he lambasts whenever it presents as a religious trait. As long as the extremist and totalitarian rhetoric comes from within his own camp (some kind of nebulously defined "atheist community") he'll not only immunise it from criticism, but he'll openly promote it too. If you're religiously minded and you transgress, then Dawkins will lambast you as an enemy of freedom, but if you're on his side of the debate, whatever vile nonsense you spout should be celebrated and rigorously protected by appeals to freedom of speech.

If, as you're reading this, you're already preparing to begin the construction of a "how very dare you criticise Dawkins" type defence of Dawkins stance alongside these extreme-right Islamophobes, that doesn't actually address any of the points raised in this article, you're probably suffering from confirmation bias in the same way Dawkins himself is when it comes the extremists he treats as allies and refers to in glowing terms. Because you like his message of atheism and his intolerance toward religion, you'll put up with and even defend ideas that you would decry if they happened to present as religious bigotry.


Just to return to my own view for a moment before I conclude, I'd like to reiterate that I have every respect for many people that maintain the atheist stance, including members of my family, firm friends and several of my favourite authors, but I have no tolerance for right-wing extremists and fanatical totalitarians or their apologists, whether they happen to be religiously minded or not.

In my view I'm on the tolerant respectful side of the debate with the majority of atheists and the majority of religiously minded people, whilst Dawkins is positioning himself with right-wing fanatics like Condell and Wilders on the extremist team alongside religious bigots, Islamist crazies, the puritanical social zeolots that he's made himself staggeringly wealthy by criticising. If there's one thing I'd like you to take from this article, it would be the idea is that although the our personal views are a fundamental part of the debate, the more important distinction is not so much the kind of view (atheist - theist; left-wing - right-wing, capitalist - anti-capitalist ...) it is the manner in which the views are expressed (libertarian - totalitarian; moderate - extremist).

Dawkins' stunningly hypocritical "freedom of speech" justifications for the disemmination of extremist right-wing ideas leads to the conclusion that Dawkins is a man hopelessly riddled with confirmation bias who couldn't spot a philosopically bogus argument if it hit him in the face. This inability or cognitive unwillingness to critique extremist and intolerant views, and his eagerness to promote them and defend them using appeals to freedom of speech leaves us with the question of how it is possible, given such a glaring lack of critical faculties and such a bad case of confirmation bias, that he has managed to position himself as the world's foremost critic of religion?

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Richard Dawkins and the slave trade
                   
 

Saturday, 29 June 2013

The JP Morgan vision for Europe

In May 2013 the US financial giant JP Morgan released a progress report outlining their take on what they call the "Eurozone Adjustment".

The standout passage of this document can be found on page 12, where they explain what they think is wrong with Europe (quoted below). Note there is absolutely no mention of financial instability caused by countless recklessly over-leveraged financial institutions gambling on crap like Spanish property, Irish bank bonds and Greek sovereign debt, and absolutely no talk of financial sector reform either. The JP Morgan narrative adheres very closely to the Great Neoliberal Lie technique, where the real causes of the financial crisis are played down or ignored completely in favour of the misleading narrative that social welfare spending caused the crisis. Here's the section in question:
"The political systems in the periphery [of the Eurozone] were established in the aftermath of dictatorship, and were defined by that experience. Constitutions tend to show a strong socialist influence, reflecting the political strength that left wing parties gained after the defeat of fascism. Political systems around the periphery typically display several of the following features: weak executives; weak central states relative to regions; constitutional protection of labor rights; consensus building systems which foster political clientalism; and the right to protest if unwelcome changes are made to the political status quo. The shortcomings of this political legacy have been revealed by the crisis. Countries around the periphery have only been partially successful in producing fiscal and economic reform agendas, with governments constrained by constitutions (Portugal), powerful regions (Spain), and the rise of populist parties (Italy and Greece)."
So, the problems that JP Morgan have identified in Europe are strong legislatures (or "weak executives" as they put it) strong regional representation, protected labour rights, strong constitutions and political systems that rely in part upon consensus building instead of dictatorship. They also identify the rise of democratic populist parties and the public right to political protest as major impediments to their "Eurozone Adjustment" objectives.

JP Morgan make it absolutely clear that they would like to see European states remodeled with much more powerful, dictatorial and centralised executives, they want to see the destruction of labour rights and they are certainly not keen to allow populist anti-austerity parties or public protest to get in the way of this agenda.

Essentially what this document demonstrates is that JP Morgan see the decline of European fascism since the 1940s and its replacement with mixed-economy social democracies as a great disappointment, that they are determined to steer Europe back towards fascism and that they are intent on using the financial sector meltdown as an excuse to use the utterly false Great Neoliberal Lie narrative to justify this pro-fascist agenda.

The motivation for a major financial organisation like JP Morgan to promote the fascistic remodeling of Europe should be absolutely obvious. States administered by powerful centralised and dictatorial executives are far more easily influenced by corporate interests than governments constrained by strong legislatures, fair judicial systems, strong regional representation, robust organised labour and popular freedom of protest, all enshrined by a durable constitution.

To put it more simply, a state with a centralised and dictatorial government is far more malleable than a state in which the government must balance the interests of corporate interests with those of organised labour, regional interests and the public at large. If labour rights are eroded, local government weakened and the right to popular protest is curtailed, the enforcement of corporate interests becomes much easier. All the corporations need do is financially coerce (or economically straitjacket) the cetralised executive branch of government in order to gain almost complete power over whole national economies.

Returning to the quoted section of the JP Morgan report, we can clearly see that they do not like consensus building governments that abide by their constitutions and protect civil liberties, in fact they disparage this kind of co-operative approach as "clientalism" [sic] (err I believe they meant clientelism).

In reality, the general concept of clientelism isn't the problem to JP Morgan at all. The problem is that under the social democratic model, government "clientelism" towards corporate interests is curtailed. The corporate lobby don't want the states of Europe to function as the clients of the general public through strong local democratic government (and the checks and balances offered by a robust legislature), through strong labour organisation, or through the liberty to protest. JP Morgan seem to want the states of Europe to act as exclusive clients of the corporatist agenda.
Perhaps Nazi propaganda minister Joseph Goebells
would be proud to know that his big lie technique
is still being used to defend fascism to this day.

In effect, the JP Morgan complaint isn't about clientelism at all, it is a complaint of "wrong-clientelism". It is a complaint that in their view, the states of Europe must not be allowed to act as the client of the public by allowing citizens involvement in economic policy making (through democratic processes, strong labour representation or liberty to protest) because this kind of public interference acts as an impediment to their beloved corporate agenda. JP Morgan would prefer to see the states of Europe act exclusively in the interests of the corporate lobby, and imposing illiberal, anti-democratic or even fascistic socio-economic reforms is an agenda they seem to fully endorse.

It is absolutely obvious why corporate interests like JP Morgan would dearly love to see the rights to to protest and organise labour severely curtailed. By pushing for the the dismantlement of the means of resistance, they can minimalise and marginalise social opposition to the corporatist agenda they wish to see enforced by these corporate client states, no matter how socially or economically harmful or unpopular the corporatist agenda may be to the state in question.

Just in case you think it sounds utterly far fetched that an American financial institution may be attempting to undermine democracy and liberty in Europe in order to impose fascistic regimes more favourable to their commercial interests, just consider the history of JP Morgan themselves. Not only did JP Morgan actively invest in Nazi industry (through the automotive company Opel and other subsidiaries) well into the Second World War, they were also compensated for their losses by the American taxpayer when they were forced to divest (several other American corporations such as Standard Oil maintained their investments in Nazi Germany for several years after the US joined the war against Germany!). Chase Bank (which merged with JP Morgan in 2000) were one of Wall Street's most enthusiastic investors in the Nazi economy, even providing direct assistance to Hitler's Nazi regime in the late 1930s. Chase and JP Morgan were the only two American banks which stayed open in France during the Nazi occupation there.

JP Morgan has a proven history of collaboration with fascist regimes in Europe. If JP Morgan supported and profited from the rise of the Nazi party in Germany, and suffered no adverse financial consequences for it (even getting a US taxpayer funded tax rebate to cover their losses when they were forced to divest their Nazi assets and first dibs to reacquire their Nazi assets after the war was over), is it any surprise that they favour the imposition of an illiberal and fascistic political agenda on the states of Europe once again?


Since I've strayed onto the topic of the Second World War, I'll finish with a quote often attributed to one of the fascist dictators that JP Morgan seem to be getting nostalgic about; Benito Mussolini.
"Fascism should more appropriately be called Corporatism because it is a merger of state and corporate power."

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OR


Saturday, 23 June 2012

Credit Default Swaps explained


Following financial sector deregulation in the US,
the CDS market grew exponentially
Credit Default Swaps are complex financial derivatives.
 
Although forms of Credit Default Swap had been in existence from at least the early 1990s, the financial giant JP Morgan is widely credited with creating the first modern Credit Default Swap in 1994.

In 2000, neoliberal financial sector deregulations in the United States meant that the Credit Default Swap market was exempted from virtually all regulation.

The Commodity Futures Modernization Act of 2000, (which was also responsible for the Enron loophole) specifically stated that CDSs are neither futures nor securities and so are outside the remit of the SEC and CFTC.  After these deregulations, the Credit Default Swap market grew exponentially. In 2000, the market was worth $0.9 trillion. By the time the global financial sector insolvency crisis occurred in 2008, the CDS market was worth more than $30 trillion (more than 15x the size of the entire UK economy at the time).

The easiest way to imagine a CDS is to think of it as a kind of financial sector insurance. The similarity between a traditional insurance policy and a CDS is that the buyer pays a premium and in the case that one of the specified events occurs (a company goes bankrupt, a currency loses value, a state defaults) the buyer receives a payment from the issuer of the contract.

The main difference between an insurance policy and a CDS is that the buyer of a CDS does not necessarily have to own the financial product they are "insuring", in fact the buyer does not need to have even suffered any financial loss at all in order to claim their payout. This creates a situation where Credit Default Swaps can be used to speculatively bet against troubled entities. In the last days before the American bank Bear Stearns went bankrupt, a large number of Credit Default Swaps were purchased on their stock, and during the Greek economic crisis a huge market for Credit Default Swaps on Greek government bonds developed.

These kinds of speculative CDS contracts, where the buyer is not interested in taking out insurance against the failure of one of their investments, but simply making a profit out of someone else's misfortune are often called Naked Credit Default Swaps. It has been estimated that Naked Credit Default Swaps account for over 80% of the global CDS trade.

To put Naked Credit Default Swaps into a simple context, lets use the analogy that they are like strangers buying insurance on your house because they think that there is a strong possibility that it will be robbed or attacked by arsonists. Since there is no need for the owners of the Naked Credit Default Swaps to have any financial interest in your house, lets say 200 speculators buy this kind of insurance on your house. The first and most obvious problem with this situation is that in the case that the house is attacked by an arsonist, the issuer of all of the Naked Credit Default Swaps is going to face an insurance payout 200 times the size of the actual economic damage of your house fire, because they must pay out over and again on the same event. This kind of multiplication effect contributed to the collapse and subsequent taxpayer bailout of the American insurance giant AIG, which issued hundreds of billions of dollars worth of CDS contracts without bothering to hedge against the possibility that the reference entities might lose value, meaning that when the 2008 financial sector meltdown hit, they faced CDS payouts in excess of $100 billion on the collapse of Lehmann Brothers bank alone.

The AIG collapse and taxpayer funded bailout illustrates another fundamental difference between CDS policies and ordinary insurance policies. In order to sell home/car/travel/contents/life/health insurance, the insurer must comply with strict insurance industry regulations and demonstrate that they actually have the capital reserves to pay out on the policies they have been issuing. There are no such constraints on issuers of CDS policies, meaning that AIG issued billions of dollars worth of CDS contracts with no obligation to actually maintain the credit reserves necessary to pay out on them. After the financial sector meltdown AIG received a $182 billion bailout from the government, At least $90 billion of which went towards payouts on AIG's unhedged Credit Default Swap policies. Most of this taxpayer funded cash mountain went to pay out on Naked Credit Default Swaps owned by large American and European banks, including Goldman Sachs which received a $12.9 billion taxpayer funded windfall.

The second problem with Naked Credit Default Swaps is that they actually provide a financial incentive for the buyers to then do whatever they can to increase the probability that the troubled assets that they are betting against will fail. In our analogy, the 200 strangers who have bought insurance policies on your house now have a financial incentive to increase the chances that your house burns down, since they have nothing to lose in financial terms from a house fire on a property that they don't own, and a lot to gain. They don't necessarily have to turn to arson and burn it down themselves, however they could easily ensure that all the local arsonists and vandals have your address and a good supply of petrol and matches.

there are two particularly egregious examples of financial institutions using Naked Credit Default Swaps to profit from the misfortune of their own clients. In 2001 the American financial giant Goldman Sachs received a $300 million payment from Greece for helping the country to hide the true extent of their debts from the European regulators. This deal shows that staff at Goldman knew that the Greek economic situation was far worse than the official figures stated. At the same time as they were helping Greece to cook their books they were also buying up Naked Credit Default Swaps on Greek assets, meaning that they would make large profits if the true extent of the debts they were helping Greece to hide became public. To return to the analogy, Goldman Sachs knew the Greek house was likely to burn down, as they had helped them to hide the fact that it was full of financial dynamite from the European safety inspectors, using this insider knowledge they bought a load of CDS insurance policies and waited for the financial bomb to explode and the cash to start rolling in.

Another example of firms betting against their own clients can be seen in the sub-prime mortgage crisis. Many American banks packaged up their worst mortgages into financial instruments called Collateralised Debt Obligations, paid the Credit Ratings Agencies to stamp them with AAA, top grade ratings then sold them on to their customers as valuable assets, rather than the toxic sub-prime junk that they knew they actually were. Packaging toxic junk as valuable assets and selling it to your unsuspecting customers is bad enough, but many banks went even further by taking out Naked Credit Default Swaps on the dodgy assets they had just sold. Returning to the house insurance analogy once again, this is as if an estate agent had made a hefty profit selling you a dangerously constructed house that they knew would be certain to burn down within a couple of years, then taken out insurance policy to make sure they made another profit when the fire actually happened.

There are currently debates in the United States and Europe about whether speculative uses of credit default swaps should be banned, however there is vociferous opposition from the financial sector players who have been allowed to use these products to make huge profits on other people's misery. Financial misery that in many cases they actively helped to create. The case for the regulation of the CDS market is an undeniably strong one, especially given that the American business magnate Warren Buffet (who is hardly some kind of socialist free market critic) described derivatives bought speculatively as "financial weapons of mass destruction".

The huge obstacle to sensible regulation of the CDS market is that the financial interests of those who would lose out under a properly regulated system have enormous influence over western political systems. The UK is run by a political party that is majority funded by the financial sector, meaning that the Tory party happily kicked UK financial sector reform into the long grass and spend hundreds of thousands of taxpayers' money on actively opposing virtually all new financial regulations proposed by the EU.

In America Barack Obama has surrounded himself with the very same bankers and economists who were at the epicentre of the global economic meltdown. People who were instrumental in the creation of the highly unstable derehulated financial sector in the first place. Any effort to regulate the CDS market in the US would be seen as a huge political u-turn and an admission of responsibility for the global economic crisis for whichever party did it, since both the Democrats and the Republicans introduced ideologically driven measures designed to remove regulation from the CDS market.


 Another Angry Voice  is a "Pay As You Feel" website. You can have access to all of my work for free, or you can choose to make a small donation to help me keep writing. The choice is entirely yours.