Saturday, October 11, 2008

Black Swans and Viking Kittens

Conspiraloons could be forgiven for pointing to the application of 2001 Terror Law powers to seize Icelandic assets this week and crying out 'I told you so!!'

Fans of 1950s British comedy could also be forgiven for thinking that there's more than a little whiff of The Mouse That Roared about this week's outbreak of distractive shenanigans between the British and the Duchy of Grand Fenwick Icelandic government

It's a real shame that The Mouse on Wall Street never got filmed

The Icelandic armed forces sailing into action - fear them for they are mighty

There is something genuinely comical about a country with 200 times the population of Iceland, with a claim to being one of the great financial centres of the world, getting reamed quite so badly by inhabitants of a tiny little volcano surrounded by fish

What isn't so funny, or is if you enjoy reading about people who had more money than you losing their life savings, are some of the stories coming out from Kaupthing Singer & Friedlander (Isle of Man) depositors who have almost certainly lost everything they had in the bank.

(It's worth bearing in mind that many UK-based banks won't open accounts for non-residents and so a lot of people who have retired or are working abroad open offshore accounts out of necessity. Any sense of schadenfreude on reading about their losses will almost certainly be misplaced in at least some cases)

And, reading through some of the KS&F depositors' stories, it seems fairly clear that KS&F were disappearing customers' money, presumably over to Iceland, days before the bank's parent went bust - which is what is technically known as thieving

This is the tip of the iceberg. The majority of people, in debt up to their eyeballs, are already in the bag. The harvesting of the minority of people who actually have a decent amount of cash put away has begun.

The number of people who will lose money in collapsing banks (taking their deposits but not their loans with them) might turn out to be small. That's a relatively crude and obvious way of thieving from people

The number of people who will lose out due to hyperinflation and hyperdeflation, a much more refined method of thievery, certainly won't be

One thing that did strike me as curious when reading through the KS&F customer stories is how could people shrewd enough to accumulate such relatively large sums be so daft as to stick everything they had accumulated into a single shonky bank

One of the answers to that question is that a fair few of them aren't that shrewd at all

For the last fifteen years or so virtually any Muppet who assumed risk, particularly property risk, made money

If you were prepared to take on multiple mortgages on multiple properties it was virtually impossible not to make a stonking profit off the back of the relentless price rises

A cautious nature, or any sense of decency and restraint, were positive handicaps

(It wasn't an income thing. In the course of a previous life I met a fair few people who had built up scarily leveraged property portfolios off the back of little or no income. They did, however, all have boundless and totally unjustified optimism for their lucrative future, along with a capacity to fib shamelessly at strategic moments)

Even if you do have a cautious nature, the quality of your assessment of risk is highly reliant on the information you are fed by mainstream sources

And, until a couple of weeks ago, the chances are your average punter was more scared of the risk of, say, Islamic Terrorism and roving bands of Internet-based paedophiles than getting fucked up the arse by the banking system

Well, shucks, gee, we live and learn don't we

I can't help noticing that Nassim Taleb is starting to pop up on tele a fair bit lately. Ah well, only about five years too late...



not anonymous said...

great post stef,

fuck that is some crazy stuff on" some of the stories coming out from Kaupthing Singer & Friedlander (Isle of Man) depositors" ,,,link

jezuss some serious life savings vanished,some girl lost over 2 million.

Stef said...

/ creates 'Crunch porn' tag

paul said...

re: schadenfreude:
I've been getting a bit of 'you'll be happy now'
Needless to say, I'm not.

not anonymous said...

Is Switzerland next?

The Swiss economy is dwarfed by the size of its leading banks, and there are growing worries about their health. The government says everything is fine, but some disagree.

Banking giant UBS's troubles could ripple across the entire Swiss economy.

Banking giant UBS's troubles could ripple across the entire Swiss economy.
They exist also in Zürich: "Masters of the Universe." You can recognize these money-moguls from their swanky rides -- their Porsches, their Audis, their BMWs. And yet recently these chariots of high finance have been spotted being sold to auto dealers at fire-sale prices -- a sure sign that the bank crisis has arrived here too.,1518,583181,00.html

Stef said...

If I were shorting small countries/ Duchies I'd stick with islands

The Isle of Man/ Guersney/ Jersey aren't looking too good. Lots of hot money on deposit and, as evidenced by the KS&F farrago, fuck all deposit protection worthy of the name. The TT* machines in Douglas will have been humming away with outbound traffic all week

New Zealand would also be worth a flutter - lots of lovely hot Yen and Swiss, borrowed at 1% and invested in NZ at 8%, pumping up property prices (and therefore domestic mortgages) and the trade deficit nicely - all being tugged back to the lands of cuckoo clocks and sushi shortly

*Telegraphic Transfer not Tourist Trophy

Stef said...

re. the schadenfreude thing

I tried to explain to a few House Price Crash forum aficionados a while ago that the crash they hoping and waiting for would not benefit them much, if at all

After the ordinary people who've borrowed money get cleaned out, the next obvious targets are the ordinary people who've managed to save some money

And, even if you do manage to hold onto a few more crumbs than your neighbours, who really fancies living in a society where the majority of people around them are fucked

I would suggest only small number of people look forward to that prospect. Sadly, they're the ones running the show

not anonymous said...

as the financial coup d’état continues from the boys who brought you 911,,more fun and games a comin in the next few months.

The world financial system is teetering on the "brink of systemic meltdown", the head of the International Monetary Fund (IMF) has warned in Washington.

Dominique Strauss-Kahn said the crisis was being fanned by fears over debt-ridden banks but added rich nations had so far failed to restore confidence.

not anonymous said...

Finance ministers from the Group of Seven leading world economies, including the UK and US, said they stood ready to pump public money into banks in order to prevent them from collapse.

It leaves the G7 – which also includes Japan, France, Italy and Canada – open to start buying bank shares with taxpayers' cash.

not anonymous said...

get this

Saturday, Oct 11, 2008

Italian Prime Minister Silvio Berlusconi said political leaders are discussing the idea of closing the world’s financial markets while they “rewrite the rules of international finance.”

“The idea of suspending the markets for the time it takes to rewrite the rules is being discussed,” Berlusconi said today after a Cabinet meeting in Naples, Italy. A solution to the financial crisis “can’t just be for one country, or even just for Europe, but global.”

I´d say there is a concerted effort to tighten the shackles!

paul said...

I think the berlusconi/sarkozy axis will find substantial opposition from the boxheads, as they don't seem to be in any hurry to take any more shit.

Stef said...

Time to raid the piggy bank?

not anonymous said...

I said in the comments a few days ago that things were gathering momentum,,it certainly seems so.

WASHINGTON (Reuters) - The White House on Friday dismissed suggestions that U.S. markets would be suspended so international financial rules could be rewritten amid the turmoil that has gripped markets for weeks.

"There are absolutely no plans or discussions to interfere with the functioning of markets in the United States," White House spokesman Tony Fratto said in response to a question about the idea raised by Italian Prime Minister Silvio Berlusconi.

The Italian leader, who is set to meet U.S. President George W. Bush on Monday, later played down the idea.

check this out.

Glenn Beck World WHAT?

not anonymous said...

Bill Cooper on 911

fuck me.

Bill Cooper predicted and sussed out 911 before it happened,0n the 28th June 2001

not anonymous said...

new Bretton Woods

Banking shares across the G7 nations could be suspended tomorrow as governments mount a desperate effort to implement rescue packages designed to repair the battered global financial system.

Oct. 11 (Bloomberg) -- Italy may push for the abolition of hedge funds, a $2 trillion industry, when it takes over the Group of Seven presidency from Japan next year, Finance Minister Giulio Tremonti said.

``They are dark and opaque,'' Tremonti told reporters in Washington. ``They are demented'' and do not ``conform to the laws of capitalism.'' Asked if that means Italy would go so far as to propose abolishing them, he said it's ``something we will talk about.''

not anonymous said...

something I don´t understand.They say that one of the main problems is that Banks will not lend money to each other,,,why won´t they??maybe they don´t have any cash to lend,,,the whole thing has become an abstraction,,we know its only bits of paper,,,but what about trade and stuff.Who has made the decision that banks will not lend to one another?

Anonymous said...

2008 No. 2674 Banks And Banking
The Kaupthing Singer & Friedlander Limited Transfer of Certain Rights and Liabilities Order 2008

may be of interest to other law bores out there ...

Sinclair said...

Re: Whether Switzerland is next?

From The Prudent Investor:

The Financial Times has a highly useful interactive map of Europe's banking giants and lists their assets in relation to the GDP of their respective home countries. 11 European banks hold assets exceeding their country's GDP by up to six times, the map shows.

Icelandish Kaupthing bank tops the list with €53 billion in assets. That is 6.23 times the GDP of Iceland.

Second comes Swiss UBS with €1,424 trillion in assets.
That is almost 5 times the Swiss GDP.
A look at the map explains why European governments and the ECB are keen not to let one of these giants fail as the ripples would almost immediately reverberate through the economy and sink their counterparties.

not anonymous said...

ok here are some links that solves the puzzle of money,,just about.

Modern Money Mechanics & other Federal Reserve Publications Explained.

video from wrh

the book

not anonymous said...

fascinating stuff.

the original document.MODERN MONEY MECHANICS
A Workbook on Bank Reserves and Deposit Expansion

anon 22:41 said...

The six Stages of Grief:


Anonymous said...

Talking of Taleb

From his webpage

Checkout "Quotes & Warnings that the Imbeciles Chose to Ignore"

and a rant on Newsnight