Archive for Bank for International Settlements

More Zany Bank For International Settlements Mad Libs

Posted in Cryptojournalism, economics, politics with tags , , , on July 1, 2011 by The Cryptojournalist

Where were we?

When we last left Basel, we were ducking truth bombs and parsing language.  The first three parts of this comical stagecoach can be found here, here and here.  Since you’re jumping in at the end, take the time to catch up.

For those caught up, here’s another comical stagecoach.

If there were an open vote taken of the global Jewry for King of the Jews, Mel Brooks is my slam dunk choice.  He’d wear the crown with honor.

Sometimes words speak louder than actions

Before I start making Spaceballs references, let’s get back to the 2010/11 Annual Report from the Bank for International Settlements.  Buckle up for some reading you’ll never get around to.

Inflation is the arch nemesis of central bankers.  They’d rather amputate toes than experience rising inflation.  I keed, I keed.  Nobody prefers an amputation.  Still, central banks in general dislike inflation:

…central banks must remain highly alert to a buildup of inflationary pressures. They should do so even if the evidence may seem at odds with conventional estimates of domestic economic slack and domestic wage developments.

Credit where credit’s due: this is a warning.  It is not some bit of advice.

Don’t see how this will play in the U.S.  We’ve got plenty of domestic slack.  This much is true.  Just today, the Commerce Department reported a 0.6 percent drop in construction.  On the heels of the ‘human capital’ truth bomb lobbed by the BIS, I’d anticipate that number getting worse.  So-called conventional estimates will be downwardly revised as time proceeds.  As for domestic wages, well, aren’t wages flat for the bulk of the last decade?  How does a central bank grapple with inflation in an economy experiencing prices rising across commodities?  Prices are rising as wages stay flat.  Meaning?

There’s a hitch in trying to stifle inflation:

How much tighter does monetary policy need to be to keep inflation in check?  Estimated Taylor rules, which link the level of policy rates to inflation and the output gap, indicate that policy rates are too low.

I know, I know…..isn’t the output gap a fictional figure?  Yes.  Not to economists, who employ it for things such as the Taylor Rule.  Maybe Michael Bay thinks his explosions are real.  I’d think he’s brighter than that, but who knows.  The man did cut his teeth in the advertising business.  What exactly is the Taylor rule, then?

Glad you asked.  See that, how I presumed you asked about the Taylor rule?  Quite presumptuous.  The Taylor rule, it turns out, is one more fancy semantic rhetorical trick.  It’s the compartmentalizing of language.  You see this most vividly in, of all places, baseball.

BABIP.  VORP.  SKRIZZLE.  That would be batting average of balls in play, value over replacement player and a neologism for scrilla.  Droves of baseball fans speak like this now.  “Well, Troy Tulowitzki has a 17.8 VORP.  He’s worth all the skrizzle the Rockies paid.”

As time chugs along, people delve deeper into topics, creating new and more contrived phrases and anagrams along the way.  I mean, isn’t that the basic premise of cryptojournalism?  Cryptojournalism?  Only in a world of Taylor rules and VORP.

What is the Taylor rule, then?  Bless you, the Federal Reserve, for providing this awesome explanation of Taylor rules.  The Federal Reserve explains it a couple of ways, initially stating:

Taylor rules are simple monetary policy rules that prescribe how a central bank should adjust its interest rate policy instrument in a systematic manner in response to developments in inflation and macroeconomic activity. They provide a useful framework for the analysis of historical policy and for the econometric evaluation of specifc alternative strategies that a central bank can use as the basis for its interest rate decisions.

The Fed reiterates in closing, “Taylor rules offer a simple and transparent framework with which to organize the discussion of systematic monetary policy.”  Simple and transparent, sounds great.

Ever so gracious, they provide a simple and transparent explanation of the classic Taylor rule.  This is discovered on the heels of the decision to adjust interest rates based on inflation and economic activity.  Take a look for yourself.

Clear as the fog over San Francisco Bay

In time, a generalized Taylor rule was crafted.  Bring your A game for this one, suckers.

Can't make this stuff up

When someone with an MBA in economics stumbles on this page, I hope they can put all that in layman’s terms in the comments.

Here’s the beauty of the Taylor rule.  It proves to be essentially useless.  Seems that internationalist bankers have an especially wry sense of humor.

“Taylor rules have proven valuable for historical policy analysis.”

“However, interpretations of historical policy based on information that was unavailable to policymakers when policy decisions were made is of questionable value.”

“Policy prescriptions from a fixed rule are distorted as the inputs to the rule are revised from those originally available to policymakers, and therefore counterfactual comparisons of alternative policy rules can be misleading when they are based on revised data.”

“Shit!  If only we’d known!”

Sounds like the plight of America’s greatest hero: Captain Hindsight.  The hero for the modern age could do no wrong.  Until he second guessed himself one time too many.

Journalism has seen better days

Indecision clouded his vision.  Exactly like Faith No More.

Jack Brolin always had a knack for hindsight.  When his gift became a curse, the bottom fell fast and hard.

The Huffington Post/AOL merger devastated Captain Hindsight

Counterfactual comparisons can be misleading?  So are you telling me the X-Men didn’t defuse the Cuban Missile Crisis?  Spoiler alerts aside, if you were so inclined (I am) to, you could say the Taylor rule, in some instances, do nothing more than distort the market with shoulda, woulda, coulda’s?

Captain Hindsight parties with bank regulators. Who knew?

Feeble analogies aside, this compartmentalizing of speech we see developing is, to use an industry term, trickeration.  Case in point:

In the near term, the recovery of risk-taking and innovation across various dimensions will pose an important challenge for authorities as they consider whether and how to deploy the tools at their disposal to address potential threats to financial stability.

Dimensions, eh?  Didn’t realize I’d have to tap MC Escher and Stephen Hawking for assistance in the money market.  Much as I hate it, I sort of love it.  Hinging on that one word, dimensions, are countless ways to spin an argument or make a point.  Flexible language as a cornerstone of an industry which relies heavily on the theory of hedging makes perfect sense.

Another truth bomb.  Really, more a truth BB.

…risk can be transmitted through unexpected channels…

Let’s put a misconception to rest right now.  You’re not going to catch crotch turkeys off a toilet seat.  That’s a myth.

Financial disarray is more likely to occur on the can.  Mmmmmm, hyperbole, you are manna from the Gods.  The game has been cat and mouse since humans verbalized words for ‘cat’ and ‘mouse’ and figured how to analogize.

Read this.  Then tell me if you think a cross-border bank resolution regime sounds like a fancy word for toll booth:

Outstanding issues include dealing with systemically important institutions, designing more effective cross-border bank resolution regimes, and addressing the risks relating to shadow banking activities. Meeting these challenges will be the focus of the next phase of global regulatory reform.

Also on the menu: a delectably smooth camembert, a wild duck foie gras and sumptuous organic strawberries and fresh rhubarb.

In case you missed the memo on planetary integration:

….many of the analytical questions that concern policymakers can be answered with institution-level data collected on a globally consolidated basis.

“Yes, let me try the rhubarb and strawberries, and could you please bring me a glass of cucumber water?”

Institution-level data collection on a global basis sounds like it would be a lot of bureaucratic legwork.  What exactly are policymakers and their data mining teams supposed to be looking for?  How much access are we talking about?

ability to monitor leverage ratios…consistently across different parts of the financial system would represent a big step forward in tracking systemic risk. It would require, at a minimum, internationally comparable measures of total assets and equity for individual financial institutions. Importantly, the measure of total assets would have to include all off-balance sheet positions that could affect a bank’s capital.

That’s quite a bit of access.  Were regulators to begin peering off-balance sheet, there is little good they’ll find.  You do not keep good assets off-balance sheets, do you?  Then again, counter-intuitive  semantics, the simple and transparent Taylor rule and the like, are par for the course.

In ‘a’ perfect world central banks, there would be this degree of access.  I love punchlines:

In practice, any such attempt would be ruled out by the amount of data required, the cost of collection, and the confidentiality issues it would raise.

Great, glad we got that cleared up.  It is tricky to discern why there is such talk of opening the books followed by the blunt declaration it’s not possible.  Chalk it up to thinking idealistically while being realistic.

It turns out that is not pragmatism.  Dexterously ambivalent is more like it:

The task is to find a data mix that will give policy analysts a detailed enough picture of key institutions and their activities.

Can’t get a detailed picture?  Well, you’re going to settle for detailed enough.  When the next crisis happens to have evaded diligent, well-meaning regulators and policymakers, that’s when the dreams of fuller access pushes to the fore.  Disguise the limit!  Err, that should say the skies the limit!  Classic treacherous tactic: always shoot for the moon in hard negotiations.  You may get it, but when you don’t it leaves a wide berth around which to work.

While I wanted to leave this alone, things do not take place in a void:

Given the confidentiality issues, much of this detailed information will have to remain in the hands of supervisory teams charged with systemic risk analysis.

Hacker’s f’n dream, right there.  That’s the whole spiel.  Everyone should be very wary of so much information being collected into so few hands.  If the IMF is prone to hackers, who’s secure?

Neoluddites.

You’ve been a wonderful audience, thanks again for coming.  And if you’re celebrating Independence Day this weekend, remember the Founding Fathers.  They wanted people to independ on themselves.  Independ on yourself, and you’ll be aces.

Digging Into The Mother Of All Grande Enchiladas

Posted in Cryptojournalism, economics, politics with tags , , , , , , , on June 30, 2011 by The Cryptojournalist

And God said he should send his one begotten son to lead the wild into the ways of the man – Tupac Shakur

All along, I should have known it could inevitably come to this.

2pac saw this coming years ago

Before we get to Hobo With A Shotgun or the Bank For International Settlements Annual Report, it’s time for a trip down memory lane.  To Boston, at the beginning of 1999.  It was the second semester of my freshman year, and I was about to take a class that would blow the port holes out of the submarine deep within my id.

Topics in Myth was the class and it was the stuff of legends.  One of the luxuries of studying communications was a lot of semantic get out of jail free cards.  Rather than taking a drab English class, Topics in Myth would suffice as an English requirement.  Score!  I didn’t have a clue what I was getting into.  Let’s start with Scorpio.

Whoops, wrong Scorpio

One of the grand perks of Topics in Myth was the class was taught once a week in a three hour block.  First day of class, we watch Dirty Harry.  Kids, if you were born after 1987, it’s Clint Eastwood at his best.  His evil foe is a no-goodnik by the name of Scorpio.  One scene in particular was forever seared into my mind from that film.

God bless YouTube, cause here it is.

As you watch it, seems pretty straightforward.  Scorpio hired this guy to beat him up (to frame Harry, but that’s not important now).  Only after the film, when Professor Ruck (Boston University students, take his class.  Mind blowing doesn’t begin to describe the experience) begins explaining thematic qualities, did I realize what I really saw.  Or, what I should have seen.

I can remember his explanation clear as day.  “Note the glove.  Highly eroticized, akin to fist fucking.”

This will only hurt for a minute

Flabbergasted downplays how far that came out of left field.  There were about ten people I knew all sitting in one row together.  The bewilderment that struck everyone was a sight to see.

Without venturing too deep into my college studies, the class was captivating.  For a while, it ruined my movie watching experience (and anyone unfortunate enough to be watching alongside) thanks to constantly picking out Ruckian themes.  Most of which were actually Jungian themes, from Carl Jung.  Ruck had his own unique twists, but it was a lot of Jung from Man and His Symbols.

Anyhoooo, that brings us to Hobo With A Shotgun.  All I can say is thank you Nova Scotia.  Trailer Park Boys, and now this?  Amazing.  For those who put any stock in the notion Americans are the funniest people in the world, give me a second here.  I’m getting a little choked up and emotional having to say this.  *Deep breaths*

OK, I’m here.  Canadians are really the funniest people in the world.  There, I said it.  But people just lump us all together.  Y’know, like how white people generalize anyone from Latin America as Mexican.  People see a funny white guy who speaks understandable English (Lookin’ at you, Great Britain) and they assume he’s American.  Bigots.

Putting on my Ruckian cap to analyze Hobo With A Shotgun, it turns into a hysterical warning.  This is the police state, sans government.  Or so the legend goes.  There is a hospital in Hope Town, but the staff is summarily executed by mercenaries in Thunderdome gear.  One could joke, if they were a cryptojournalist, it’s the equivalent of Mad Max getting an MBA, then getting a job at the World Bank.    A skewed lampoon of what people think is the worst case scenario of the future, that’s Hobo With A Shotgun.  And hysterical.  Quite hysterical.

Which brings us to the BIS Annual Report.  We’re finally there.  If you have not read the recaps of the General Manager’s speech or the Per Jacobsson speech, shame on you!  Go read ‘em.  Don’t worry, I’ll be here.

[Smoking a cigarette]

You’re back?  Good.  Before I get into cryptojournalizing (is that a word?  It is now) the annual report, I want to sum up important points.  The BIS in a nutshell.

Take it as you will

Am I saying our money has become nothing more than a vending machine trinket?  Are we all trapped in a virtual plastic vending machine egg?  Will we ever get hoverboards, like promised in Back To The Future II?

There are a few major points the BIS tries hammering home.  Implementing Basel III (which aims to boost capital requirements globally, coupled with stronger regulation), improving macroprudential global financial regulatory infrastructure, taming interest rates and warnings for central banks and sovereign governments to reduce the debt they’re holding is the acorn-sized nutshell.

Some of the macroprudential infrastructure is beginning to take form.  The Financial Stability Oversight Council is America’s player in this game.  We’re locked in and ready to go.

Here I need to note the Bank for International Settlements Terms and Conditions from their website.  There is a 400 word limit on how much can be taken for reproduction, and I respect that.  I’m going to work through as much of the report as I can in 400 words.  We’ll get to the rest in due time.

This is taken sequentially.  If you have the patience and a pot of coffee brewed, here is the entire report.  I should also mention I am not an economist, I’m a cryptojournalist.  If I misrepresent any salient concepts or do not properly frame some policy, please point out in the comments section where I am wrong.  My grasp of mark to market and other technicalities of the financial system are shoddy.  Hopefully I don’t fuck this up royally.

Do you want to know what people in the biz are forecasting for the global economy?  I know you really don’t, but humor me:

…global economy has continued to improve…emerging markets, growth has been strong, and advanced economies have been moving towards a self-sustaining recovery…would be a mistake for policymakers to relax. From our vantage point, numerous legacies and lessons of the financial crisis require attention. In many advanced economies, high debt levels…burden households as well as financial and non-financial institutions, and the consolidation of fiscal accounts has barely started.

I’m not sold.  On any of this, save the fact the fiscal accounts consolidation hasn’t begun.  The most recent unemployment numbers betray a self-sustaining recovery in the United States.  Three straight months of the American economy losing 400k jobs a week is not an economy moving towards self-sustained recovery.  The first steps towards this consolidation is taking place in slow motion.  Remember how I quipped central bankers would be encouraged concerning the news of Public Employee Federation layoffs in New York State?  That’s the prescription when the prognosis calls for consolidation.  Fat trimming.  Loose end tying.  Bud nipping.  You see my point.

Even stranger is the next action point, which runs counter to everything I assume to be true about banking:

sooner…advanced economies abandon…leverage-led growth…sooner they will shed…destabilising debt accumulated…return to sustainable growth…time for public and private consolidation is now.

Abandoning leverage-led growth?  While we’re at it, how about fish stop swimming in water?  Grass can begin to eat cows.  The whole of all banking worldwide is based on fractional reserve banking, which is in essence the leveraging of money.  Were advanced economies (most notably Britan and the United States) to end the practice of leverage-led growth, there would be nothing left.  That’s my rampant hyperbole peeking out.  There would be very little left.

I cannot even think of an equivalent aside from Galileo.  Galileo.  We are not prepared for heliocentric banking.

Shedding that debt is another interesting theoretical proposition.  Sounds great on paper.  But where’s the buyer?  I’m not even asking that rhetorically.  If governments and central banks looked to sell these assets, who would, err, could emerge as a buyer?

At times, the report hits the nail on the head:

…current monetary policy settings are inconsistent with price stability…

They know the U.S. and China are in a long, slow, deliberate showdown over the currency peg.  The renminbi should appreciate, the dollar depreciate, but either making a move jeopardizes both economies.  Instead, they dance.  There’s an illuminating video documenting the nuanced back and forth between the two powers.

If you’re confused, Fat Joe depicts China; Young Weezy, the United States.  Scott Storch is the IMF.  He lays down the beat.

Don’t think the financial realm has been static:

resurgence of financial innovation, with strong growth in new instruments and vehicles such as synthetic exchange-traded funds, commodity linked notes and commodity-based hedge funds.

Wait a tic.  You’re telling me after a savings and loan internet housing bubble, investors are inflating commodities?  Fuckin’ A.  Bubbles: the rhythm of our time.

Julian is not amused at the news out of Basel

Oooooh, sorry.  Jumped the gun on my punchline:

For several commodities, low inventories exacerbated upward price pressures, while increased investor interest in commodities as an asset class may also have played a role.

From the horses mouth.

Where’s Wonder Woman and the Lasso of Truth when you need it?

Mr. Bernanke, are you into S&M?

Can you spot the contradiction in this statement?

Central bank accountability for monetary policy actions is now heavily based on transparency…transparency will also be needed for financial stability functions. Disclosure of financial stability decision-making and reasoning is therefore essential, though delay in disclosing some elements of the decisions may be necessary if immediate disclosure risks triggering destabilising behaviour.

Of course not.  No contradiction there at all.  Until bad news arises.

Ready for another truth bomb?  Duck and cover!

the financial system will continue to evolve, not least because of business requirements, innovation and efforts by financial institutions to circumvent costly regulations.

In case you’re curious how exactly financial institutions circumvent regulations, Dylan Ratigan provides a great explanation, with Panama as the example,  in this interview with Lori Wallach.  Large institutions search for the most lax locales with the most secrecy.  Which is part of the game.  Leverage and hiding debts and assets is the game.

Ready for another truth bomb?  Make sure you’ve got the children in the bomb shelter:

Some of the (physical and human) capital put in place during the boom years is less useful than originally thought.

Ouch.  Hurts just to type that.  I was chatting with a friend the other day, while still reading this annual tome.  I brought up this point, and he mentioned how he’d never heard the phrase human capital.  Who thinks of humans as capital?  Aside from slave owners in the antebellum South. Aside from being a devastating indictment on the general track of the last decade, it once again highlights the borderline daft language of economics.

Which I adore, but has got to be intentionally confusing, crafted to obscure meaning.  Why use the word invariant rather than constant?  What value comes from subtle word games?

This is one of those cuts deep moments.  Like asking a girl who gives the duckface in every photo why she gives a duckface:

The principal need in deficit countries is an economic recovery strong enough to allow for tighter macroeconomic policies.

Hmmmm….what’s the most grotesque analogy I can come up with for that?  How about……..going through in vitro fertilization to eventually get an abortion.  Is that terrible enough?  Definitely grotesque, but I don’t know if that’s correct.  Although pumping money into a uterus to rip the fetus out down the road does sound apropos.

Hopefully that analogy fosters outrage.  Building an economic recovery in the hopes of squashing the gains is just as outrageous.  And that is the hope.  Destroy and rebuild?  More like rebuild and destroy.

Don’t fret, there’s always brighter news:

…a more positive note, the traditional monetarist concern that the expansion of central bank balance sheets might cause inflation receives little empirical support…..correlation between central bank asset expansion and broad money growth has been even weaker…

Awww, dammit!  I was expecting a positive note.  That is supposed to be good news?  It’s not even close.  Here’s where I hope my economic ignorance does not flare up.

Investopedia explains broad money this way: Broad money is used colloquially to refer to a broad definition of the money supply. Obvious.  Now here’s the problem.  If central banks have huge balance sheets, where’s the parlay?  Ahem, fractional reserve banking.  Am I misguided by believing asset expansion should spur broad money growth?  Or do I have it backwards, and they’ve taken these assets ‘out’ of the market, in a manner of speaking.

Either way, that does not sound like a positive note.  There is either a glut of assets waiting to flood the market (great for buyers, but buyers are scarce) or money is on ice, not finding its way out of bank vaults off the computer monitor.

This recap (or analysis, or farce for that matter) is not meant to merely be a fatalist whistle, weakly piercing the silence.  It’s mostly for the laughs.  Trust the BIS to provide gems, if you’re willing to go mining:

…geopolitical concerns and supply disruptions in North Africa and the Middle East are putting additional upward pressure on energy prices. Although these adverse supply side effects should subside when weather conditions normalise and the political landscape in energy-producing countries becomes more stable, conditions in particular markets may continue to have an effect.

Stable political landscapes in energy-producing countries…..classic!  Try as I might, pearls like that aren’t coming from the keyboard of a cryptojournalist.  I’m not even going to make a Libya joke.

[One Second]

[Two Seconds]

Ba-dum-chee!  Thank you, thank you.  I’ll be here all week.

Besides the gut busters like stable energy-producers, I’m a sucker for broad vagaries.

More research is needed to better understand the impact of financial investments on commodity prices

That speaks for itself.  Sooner the better, but we know that’s pie in the eye.  NOT pie in the sky.  Pie in the eye.  In other words, embarrassing.  My guess?  Regulators get around to this in, oh, 2014.  Earliest.

Think you felt like ish being boiled down to human capital?  Hope you don’t work construction:

large investments that took place prior to the crisis, eg in the construction sector, may prove to be much less productive than was originally expected

Again with the oblique language.  What exactly does productive mean in this instance?  Buildings don’t build themselves.  It’s a hard truth for a lot of people.  You’re taking a bath on investment properties, renovations, speculation….in fact, the only sector of the construction industry that’s booming is the relative niche of soup kitchen fabricators.

Joking.  People don’t care that much.

Time to draw that last bit of blood from this fine hunk of Swiss quartz.

…statistical measures may overestimate the speed of closure of the output gap, structural models may underestimate it.

The output gap is a fictional metric.  Perfect.  It’s a measure of actual vs. potential.  Theoretical money left on the table.  And guess what?  Even that fictional metric is so malleable and ambivalent to reality there is no consensus on how it is to be gauged.  Sounds like a sports book.  Angling national economies towards a hypothetical number where estimates and models generally apply, but are not gospel. Angling betters towards a line where estimates and systems generally apply, but are not gospel.

That was a rambling mess.  Hopefully, it’s been a help in making you more aware of the strange, semantic, rhetorical world of central banking and global finance.  But we’re not quite through yet.  We’ll be back shortly to wrap this baby up.  Till then…

The Basel Bi-Polar Roller Coaster

Posted in Cryptojournalism, economics, politics with tags , on June 28, 2011 by The Cryptojournalist

This is the second part of a crytpojournalism breakdown of the Bank For International Settlements Annual Report.  You can read part one here.

The General Manager’s speech was vaguely amusing, vaguely informative.  Just what I’d expect.  Onto our second speech related to the annual report.  Titled “What financial system for the 21st century,” it’s definitely a worthwhile read for anyone who wants to read tea leaves or peer into the crystal ball’s abyss.

If you experience motion sickness, take medicine now.  Reading through so much contradiction brings about the feelings one would expect from a bi-polar roller coaster.

Once again, I’m compelled to remind you this is cryptojournalism.  If you want a fuller understanding of the Bank for International Settlements or any of the white papers we’re discussing, you have to do your own studying and investigation.  Don’t trust a hack, and cryptojournalism is built on hackery.

One of the major calls to action from this speech, by Andrew Crockett, can be summed up below:

High-quality information is the raw material for directing resources to their most efficient use, facilitating intertemporal contracts, and thus strengthening growth potential. Financial sector reform, to be of greatest service to users of financial services, should protect and enhance the capacity of the system to generate such information.

In a perfect world…….

I’ll wait to comment.  That, my friends, was the setup.  Punchline time:

…market mechanisms failed because of perverse incentives, asymmetric information and conflicts of interest. This perspective can be instructive in designing a structural framework for a post-crisis world.

Deep breath.  And exhale.  Yeah, that’s good.  High-quality information versus asymmetrical information.  Gee, I’m relieved.  Trusting the financial system that has run semantic games at every corner will now provide high-quality information.  Someone call Captain Save A Hoe!

The one man who can save global finance: Captain Save A Hoe

In layman’s terms, it is a wild leap of faith to believe global banks and international firms will turn over a new leaf on the request from the Bank for International Settlements.  The BIS is looking for someone to step in as Captain Save A Hoe.  News flash: people lie.  Even bankers.

File this one under ‘Damned if you do, damned if you don’t’:

Robust reforms will be those that deal with the sources of market failure, while unintended consequences are likely to flow from solutions that simply aim to thwart market outcomes perceived to be problematic.

Unintended consequences?  Never heard of ‘em.  I mean, one time with my girlfriend, the condom broke.  She got her period, only after a few days of serious trepidation.  It’s also bordering on preposterous how much a banker will hedge, even within a single sentence.  We’ll deal with these market failures, until a new hole is found in the system.  But that’s not the intent.

Banking and regulation, like crime and law, are games of cat and mouse.  Regulators are always a step behind.  Couple that with the axiom ‘nature abhors a void’ and you can bet money will find a way to be spent, unregulated, maybe even fostering that next bubble.  Which ushers in another crash.  Feeding on its own shit.  That’s the underlying metaphor of The Human Centipede.  Or was that I Am Sam?  So tough to distinguish between the two.

Sean Penn: Either the most vile, self deluded performance in history, or founder of a new echelon of comedy

I’m serious about Sean Penn, too.  His acting as Sam Dawson may be the most reprehensible, ignorant gesture of egotism of the 21st century.  Who’s self deluded enough to believe acting like a handicapped person by repeating phrases and fidgety fingers is anything more than condescending in the lowest sense of the word.  That, or he has attained the platinum echelon of humor.  With  joke he kept to himself.

The premise of high-quality information sounds great.  Most people would agree with regulatory bodies having better information.  That’s not how players within the economy work.  “Garbage in, garbage out,” a former boss used to say.  True words.  Statements of hopeful aspiration towards are great.  Facts on the ground?

Your honor, I’d like to enter this into the record as evidence:

It seems to be the case that, in good times, users of financial information become inclined to employ “short-cuts”, using easily available data such as credit ratings, or recent historical experience, as a substitute for the more in-depth credit analysis that is needed for the careful management of a portfolio.

Not to rain all over a wet blanket, but come on boys!  You’re making my point for me.  ALL PEOPLE prefer short cuts.  Ever heard someone say, “I took a long cut on my way to work today, and gee willikers, did it change my life for the better!”  I’ll let Balki speak on my behalf.

Don't be ridiculous!

Don’t.  Be.  Ridiculous.  People are constantly looking for short cuts.  Look at LeBron James.

Short Cut

And gee willickers?  Who says that?  Mere hyperbole.  Point is, everyone is on the lookout for short cuts.  To expect anything less is daft.

Speaking out of both sides of ones’ mouth is not an inherent skill.  It takes time and patience.  Like they say, practice makes permanent.  Practice speaking out of both sides of your mouth and you come to be quite adept at it.  For central bankers, it’s second nature:

Enlightened financial firms realise that measures to protect users of financial services and to enhance transparency are ultimately helpful in strengthening confidence in financial intermediation and promoting greater use of financial services.

Enlightened financial firms.  Sure.  I’m going to file that right next to virgin prostitutes.  How about functioning crack heads?  I could go on with the contradictions for a while.

You do have to admire such succinctly vague language.  A phrase like ‘enhance transparency’ make me laugh.  Today’s transparency is tomorrow’s old file clerk.  Transparency entails thoroughly vetted, clean and trustworthy information.

Until a new financial innovation takes hold and fast cash runs towards this new hinter land.  I’ve got a half clue what ‘strengthening confidence in financial intermediation,’ means.  It’s either getting people on board for special drawing rights and standardization of rules across borders, or I’m way off.  Probably way off.  Cryptojournalism is not infallible.  Quite fallible, actually.

The speech was not simply one long, winding flow of contradictory phrase after contradictory phrase,  It did endeavor to begin to chart a path towards the next step in global finance.  That’s a sentence to make any technocrat proud.  Endeavor to begin?  Can I be any more full of shit?  Rhetorically and literally, yes:

A 21st century financial system will need to seek ways in which regulatory oversight complements (and does not simply substitute for) the interest of the private sector in generating high-quality information.

Talk about full of shit.  Bankers and regulators, working hand in hand to make the world a better place!  I can see the PR push now.  If possible, the rhetoric actually veers into Sam Dawson territory:

In this endeavour, transparency is generally likely to be more effective than rules that provide for how particular services can be provided and charged for.

Rules?  Tsk, those are, like, part of a 20th century financial system.  Today, transparency should do the trick.  Although this is the same class of people earlier described as short cut takers seeking out perverse incentives?  When did I enter Bizarro World?

Bizarro promise he take care of your money and help the world

I wish I was making this shit up.  Those last two bits are the same paragraph.  Read it yourself.  Maybe I missed something, but it sounds like, “Now boys, we need your full assistance on this.  But we’re going to do nothing to ensure your help.  Honor system, gentleman.  Have fun at the lake house, and try not to empty grandpa’s liquor cabinet.”

In a stunning turn of events, grandpa’s liquor cabinet was empty by Sunday afternoon.

There’s an old saying in Moncton.  A shit leopard can’t change its spots.

The speaker, Mr. Crockett, does not spin rhetorical gold the whole time.  His observation on procyclicality (I admire how some economic language is so convoluted):

The tendency toward herd behaviour can provoke cycles of “greed and fear”. More objectively, in periods of economic expansion, net worth and collateral values increase, creating both the room and the incentive to leverage new wealth with additional credit creation. The process goes into reverse during downturns, often with disastrous consequences. There is increasing recognition that financial policy should try to limit, or at least avoid intensifying, procyclicality.

Sounds great.  The premise is solid.  Now for the other shoe.

To be effective and non-distorting, however, care would have to be taken that such charges were general enough not to simply shift intermediation to other channels or overseas.

Overseas.  The scourge of tax bases worldwide.  Wherever it is.  Damn you to hell, exotic tax havens!

One more rhetorical handspring, promise.  This bit of mental gymnastics made me laugh out loud.  Yup.  BIS white papers are comic fodder:

It is not clear from the historical experience, however, that universal banks are in fact more likely to fail, or that investment banking activities are inherently more risky than lending to retail customers…..The perception of greater risk (and lower social value) is fostered by the use of pejorative terms such as “casino banking”.

Pejorative terms.  Bankers, financiers, hedge fund managers, even private equity firm managers…..they too feel the sting of bigotry.  Preach peace.  Practice tolerance.  And for heaven’s sake, mind your tongue.  Internationalists in the top 1% economically have feelings too.  And words hurt.

That’s Right…We’re Covering The 2010/11 Bank For International Settlements Annual Report

Posted in Cryptojournalism, economics, politics with tags , , on June 28, 2011 by The Cryptojournalist

Economics literature is dry.  Tedious for most to read.  This does not mean it is immune to the discipline of cryptojournalism.  In fact, with so many concocted words and triple speak, it’s a fertile meadow to sow.  Let’s start at the beginning.

On Sunday, the Bank For International Settlements released its’ 81st Annual Report.  Doesn’t spell a pretty picture.  Or paint a pretty sentence.  Whatever turn of phrase (or malapropism) you may choose, the information is out for general (niche) consumption.   So this is sort of chemotherapy for that gnawing desire you’ve had to understand global central banking, but have been unable to receive.  Your insurance won’t cover the cost, as a pre-existing condition.

I’m your Canadian groom, and our paper marriage will provide you with the needed treatment.

Before digging into the annual report, there are some choice bits to sift out of the General Manager’s speech.  Dubbed “Building a foundation for sustainable growth,” it’s the broad, vague rhetoric one would expect from a $8,000 suit.  We’re still able to find there are pearls of information, even in a boilerplate speech.  That’s the focus of this post.

From there, we’ll sift through the trash Per Jacobsen lecture, another fancy piece of word craft.  That’s coming up, but first, we’ve got the speech from Jamie Caruana, General Manager for the BIS (pronounced biz, in the biz).

After the garnish and accent, we’ll discuss the 81st annual report.  That will be fun.

Before we’re even lulled into a confused trance by the fun language of macroprudential de-leveraging (I’m not shitting you, that’s a totally feasible pairing of words.  Honest), the first truth bomb of the day’s dropped in the middle of town.

Read the whole speech yourself.  It isn’t that long.  Plus, I believe it is always better to see things for yourself.  Better to understand something within context, rather than taking the looney perspective of some two bit blogger as meaning anything more than folly.  So, anything worthwhile in this speech?  Well…..

Economies and financial systems are still vulnerable to even modest shocks, and the likelihood of severely adverse developments has not decreased.

Eep.  Alright, egotistical Americans.  It’s not your time yet.  Greece, Portugal, Ireland and Spain are queued up for the dunk tank.  We’ve got a sliver of time.  Until the whole planet is conducting transactions with special drawing rights.  Till then, we may as well enjoy the carnival.  Willful ignorance, right people?

Hey Greece, you're up

It’s actually disturbing to see the BIS so bluntly state severely adverse events are still as likely as they’ve been.  That’s worse than residing your home, to find the foundation is shot and coincidentally sitting on a fault line.  That’s a waste of money.  Do you need new siding when the house creaks and sways in the wind?  Since regulators and authorities are inevitably playing catch-up, irregardless of realm, I’m skeptical we’re past the worst, especially if mild shocks can cripple.

On another note.  Above you see the non-word irregardless.  What can I say?  Been a Homer fan for years.  I only point this out since spell check does not pick that up as being spelled wrong.  Macroprudential?  That’s ‘wrong’ according to spell check.  Financiers are either that far ahead of the pack or just making shit up as they go along.  As a cryptojournalist, I believe they’re way ahead of the curve.

Unregardless, it's time to move ahead

According to the GM, we’re careening towards a fiscal reckoning.  Alright, he didn’t say careening.  The phrase fiscal reckoning, sounding most sinister, was definitely a marquee point in the speech.  A fiscal reckoning?  The hell is that even supposed to mean?

People of the world, let it be know, the fiscal reckoning is upon us!  No longer will folding chairs have cushioning, that’s the way she goes.  Fuckin’ way she goes.  Amenities like trees in your parks?  Gone.  We’ve got a fiscal reckoning to handle.  The sky will turn green with envy money, and INFLATION will rain down on your sorry souls!

Who the fuck knows.  Fiscal consolidation is the call of arms.  Consolidate?  Didn’t we just recently enter the ‘too big to fail’ era of finance?  Consolidation?  Psshhhhh, much as I read and try to understand what central bankers mean, sometimes it’s even beyond cryptojournalism.  Unless the future means Coca-Cola Presents Bank Of America ATM/Nail Salon/Vending Machines.  I think people would be all for that sort of consolidation.

I kid, of course.  Nobody in their right mind would wait behind someone getting a manicure to go to the ATM.

There’s always the Brawndo model.  It’s got what plants crave.  They bought the FDA, and look how that worked out!

Brawndo has electrolytes

The consolidation from the fiscal reckoning is coming.  Don’t say I didn’t warn you.

So what exactly is ushering in the fiscal reckoning?  Glad I asked myself you asked.  Here’s one of my favorite little gems, in reference to the unsustainable track of some advance economies:

Rising dependency ratios, expensive publicly funded programmes for retirement and health care and the like put future commitments well in excess of future revenues.

….and the like….Now that’s what I’m talking about!  Broad, vague and cryptic.  Mr. Caruana went on to point out how “this, that and the other thing, et cetera, so on and so forth,” were putting a squeeze on liquidity.  Always be careful of this, that and the other thing.  Safely first, ’cause who likes doing things unsafely?

Don’t worry.  All is not doom and gloom.

To sum up, early action is needed. The question is not whether to consolidate fiscal policy. It is not whether to normalise monetary policy. And it is not whether to accelerate structural adjustment. It is when and how each of these will happen.”

Ooooohh, sorry.  That’s real gloomy.  Consolidate fiscal policy…it means governments (national and local) need to shrink their balance books.  That’s why news like this, where New York State Governor Andrew Cuomo is pressing to lay off upwards of 4,700 state workers in the Public Employees Federation, is good news in Basel.  In reality, the cutting loose of “mostly white-collar and technical job titles” is aces in the eyes of the BIS.  But that’s a tangent for another time.  Terrible news for public workers throughout the state, but that’s the prescription.  Swallow that pill, boys.  Doubt it’s the last.

All those semicolons.  A freshman year English professor would be furious:

A lasting foundation for monetary and financial stability requires regulation and supervision with a strong macroprudential orientation; monetary policy that plays an active role in supporting financial stability; and fiscal policy that amasses the buffers required for effective crisis management.

See?  Told you macroprudential is a word.  Before you wet yourself, that’s not why I’ve plucked this passage from the speech.  Nor is it the astounding use of the semicolon.  “…fiscal policy that amasses the buffers required for effective crisis management.”  Chew on that for a second.  Swish it around in your mouth.  Try and get a taste of buffer amassing.

While the prudent decision for struggling economies is fiscal consolidation via layoffs and shrinking extemporaneous debts (I’m looking at you D.C., with your myriad slapdash bailouts and stimuli), the global banking system needs another layer of infrastructure.  Bones, to protect the organs.  Those ‘buffers’ are more global financial technocrats in new and exciting positions, mandating and implementing standardizing controls.  So you know.

This has been a general dark bit of cryptojournalism, so I saved my favorite laugh for last:

Where possible, we should build strength now. Instead of taking the maximum time to reach the minimum standards, there is a good case for going faster and going further. Perhaps this time we will see a virtuous race to the top.

Regrettably, there is no video of the speech, but a fly on the wall tells me that punchline shook the roof.  Virtuous race to the top, priceless!  The Swiss: neutral they may be, they’ve got an uncanny sense of humor.

FYI, build strength now isn’t my italics.  They’re serious about that.  I won’t even address the premise of how backhandedly insulting a virtuous race to the top on the heels of taking max time for minimum standards sounds.  Whoops.

On that note, we can bid adieu to the General Manager’s speech.  It was fun.  That’s a word for it, yeah.  Fun.

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