Time For The New Untouchables? Cyprus Bank Losses

I always liked the Untouchables.  The acting was wooden and it was easy for my young mind to spot the good guys.  Elliot Ness was the good guy, fighting illegal booze and the likes of Frank Nitty’s numbers rackets (now our government run lotteries) and the awful Al Capone.  Of course, the real Elliot Ness was an accountant and wrote his own legend.  As a cop, I spent plenty of time in speakeasies under our own licensing laws. and was part of such mega Untouchable raids as the one on illegal bingo playing in my local Labour club – strangely the raid, planned by a future ACPO and involving 40 hairy-arsed coppers, took place on a night with no bingo and with only a few grandmothers having the odd legal milk stout.  The hideous offence thought to be committed was selling 10 bingo cards for the price of 9.  All was not lost as said future ACPO fell off the stage on which the not-in-use bingo wheel was situated and I was able to practice my first-aid skills to such effect he was off sick for months.  Life was briefly sweet.  The two grandmothers he instructed me to arrest for the offence of laughing at his indignity received my personal caution.  This involved them being bought several drinks at a local pub by grateful officers.

Imagine yourself running a bank in Cyprus.  A Russian ‘oligarch’ (Lev Caponisz) comes in with several bin bags of cash – say a billion.  You take the money and wire it into the UK-hubbed offshore system.  Lev is not the kind of bloke whose money you would want to lose.  You soon have about £30 billion of money ‘belonging’ to such people.  Which man or woman amongst you wants to tell the various Levs you have lost the lot?  I doubt many of us would even be comfortable living in another sun-drenched paradise far away looking over our shoulder, let alone having to meet Lev and tell him we invested it in Greek Cuckoo-spit bonds now worth exactly a  weight of rocking horse droppings.  Few of us want to die in severe pain sometime after the rest of our family has been slaughtered in front of us.

The two biggest banks in Cyprus are now worth $30 billion less than a bag of rocking horse droppings.  Much of this is rumoured to be Russian mafia money.  Several Levs are thought to be unhappy about this.  That this much money has been lost is probably true, though whether this is really Russian suitcase money I’m not so sure.  If I’m not happy at the thought of having to explain this plight to Lev and the big guy with the thumb-screw, I can’t imagine those who actually run banks with their PhDs in knee-trembling likely to want to either.

The money has had it away on its toes for sure.  In light of the above, where is it likely to have gone?  If it was really Russian mafia money where are the mangled corpses of dead Cypriot bankers?  Don’t think they just haven’t been found yet – they would be left in the open as warnings.  Th banksters can fob me and you off with excuses like buying into Greek junk bonds, but not Lev and his mates.  It’s much more likely that the smart criminal money is already in US and Mayfair real estate or sloshing around the Caribbean offshore and Middle Eastern private equity investment.

The question for us in the Untouchable Squad (formerly the Fast Action Response Team) is how the offshore investment was obtained from genuine depositor money once and no longer in the Cyprus banks.  If the government in Nicosia had to stump up after the main banks.were allowed to go tits-up, it would be paying £30 billion it hasn’t got to fund the deposit insurance (hence the crazy EU bail-in by taxing existing deposits to reduce the ECB contribution – I doubt any of Lev’s money is at risk – this is just a blind or sop for public consumption).

If you take my point of none of us wanting to be holding the empty bag that once contained Lev’s cash, is it not reasonable to think this money is already secure elsewhere and Lev comfortable with the 5% laundering fee we have extracted?  The mug punters losing their 6.75% and 9.99% and the balance to be stumped up (tax payers) don’t carry knuckle-dusters and scrotum smashers.

Now, if Lev’s money is off somewhere safe, why has the rest of the cash been lost?  We will no doubt be told that the bankers just lost it in ill-advised purchases of non-English Law Greek doughnut holes (whatever).  These brilliant investments can be loosely described as $100 in to get a debt of $110 back (the $10 is how banksters pay themselves bonuses).  All perfectly legit.

Bankers are either super-intelligent (as they claim) or crooks.  It’s hard to believe the super-intelligent would keep investing in doughnut holes and rocking horse shit futures – but it seems they do.  So it makes more sense to think they are crooks who lie to us about being super-intelligent.  Even mugs like us could transfer Lev’s black bags of cash to sensible investments – knowing just what would be at stake if we lost it.  We also know the correct financial terminology to use when someone asks us to buy Greek rocking horse shit futures.  It’s fuck off squared.  This is never the offer.

What gets offered is this:

1. I have several sacks of rocking horse shit valued at $30 billion in a mark-to-market scheme of impenetrable complexity.  The contents are as promised and the loss, once a bureaucrat with an abacus sets to belated work on them, matches the contents once the magic Gaussian copula is waved over them, turning a big fat, invisible zero to a big negative number.

2. Why should I buy $30 billion of rocking horse droppings from you?

3. Firstly to keep your gonads where God intended them.

4. Secondly, because you will benefit more than to the tune of the status quo ante concerning your gonads.

5. We can sell you the rocking horse dropping futures, suitably leveraged and insured so you can make a personal profit and leave other mugs holding the bag when the music stops.  All the real money comes into our pot and goes off with Lev’s money offshore.  That money becomes ours and we guarantee you a huge slice so you can run off with your mistress beyond jurisdiction to live the good life.

6.  No way.  I’ll be left here carrying the can.

7. Don’t be stupid.  Tax payers and small depositors will carry the can.  No one gives a monkey’s toss about them and the law protects you and your fortune from them.  The law states no bankers inside.

8.  My fortune?

9. The $5 million we are about to lodge in Allcoppedout (Cayman Offshore) for you should you and your extremities take the rational course of action we are putting to you.  Our offers you can’t refuse come with delicious dessert.  Much more sensible than allowing parts precious to you to be served as sweetmeats on the table of our Arab confederates.

10.  Why would you sell me $30 billion in bags of rocking horse droppings for only $30 billion?

11.  You take the fees on the $30 billion sale.  Looks like a good deal and you can pay bonuses with the fee money.  We package the rocking horse and doughnut hole droppings in securitized CDO and multiple hypothecated collateral substitute repos that will take three years to untangle.  By the time the authorities realise the package is only worth what we would have paid for it had we any intention of actually taking up our future options on the shit, we are away with $25 billion of real money with no links to the celebration I am inviting you to on Turks and Caicos before Miss Zaplova takes you round the world.

By this time the banker realises he is talking to Lev.  I have not seen any news reporting even suggest we should go looking for where the real money went and start getting it back.  If bankers are so stupid they really invest in Greek and other peripheral bonds losing billions we should close the banks.  Does anyone sane believe the money has really disappeared – say being used to light fires to keep bankers’ families warm?  Its been nicked.  A squad made up of bobbies made redundant by this government, given global carte blanche to follow the money, could sort it all out.  There are only 92,000 filthy rich suspects in the world.  They have it.  We need to stop the bailouts and form a New Untouchables.

Our secret services must know where the money is going and who is getting it.  One can tell from economics – it all slides to the already super-rich.  Snatching bank deposits from ordinary people is just a continuation of what has been happening through global wage arbitrage (forcing wages to Chinese serf levels – except for the rich who get more), asset-stripping and internal CEO looting and the involvement of organised crime in nearly all businesses and government.  Has anyone told you where any of the money lost by banks has gone?  It can’t really be ‘lost’ as our governments keep ‘printing’ more and more of it.  It’s being redistributed and somewhere, it is being hoarded in Ali Baba’s cave.  The explanations we do get are as likely as that Mervin King is running his central heating system with paper money from the Mint.

That the banksters are organised crime is evidenced by clown claims like those of Stephen Hester that he has to pay big bonuses despite losses to keep the best staff.  Would be really fall for crap like that unless we were in fear of shouting out the truth?  In terms of agriculture, tourism and natural resources Cyprus is a ‘goldmine’ – so why is it riddled with debt?  We have to shape up to the facts and among these is criminality at the top.  I really do think we are now living in fear of organised crime.

 

time to strip the rich of their assets?

Statistics has a long and disreputable history outside science and mathematics.  The word is from the Greek meaning ‘numbers of the State’.  The first notable stats I know of concern the Athenian treasury – where the actual and claimed deposits were out by several decimal points (needless to say this was not an error of surplus).  The response of the Athenian Democracy was genocide; not of those with fingers in the till, but some poor sods elsewhere whose grain was considered more important than their lives.

The Greek treasury is empty again, though quite how empty we don’t know.  Accounts no longer tally or account, but hide.    This is true of performance management everywhere – and what ‘performances’ they are!  British crime statistics are considered as though they represent all crime, yet are only the tip of an iceberg (Steve Bennett‘s blog has all you need – http://thinbluelineuk.blogspot.com/).  The questions we need to get at concern why we have become so deceitful and have ‘scientised’ the deceit.  We need better explanations of actual behaviour, of theories-in-practice rather than what is espoused.

No amount of postmodern pisswitter is going to get to the truth.  In one sense the truth is already out there.  We know this is a rotten world and we should be doing better.  I think a WB Yeates poem hits the rub – the one which starts and ends with a beggar being lashed by a horseman.  Revolution has left all the same except who does the lashing.  Inherent in all social critique is that we can bureaucratise power through government and yet who do we mistrust more than politicians and bureaucrats?  They are standardly the vile creatures of our literature, from The Frogs to Dirty Harry.  Power cannot be trusted to look after itself.  All the communist experiments failed with a combination of the iron cage of bureaucracy and mad despotism.

There’s a need to understand our bureaucracies in terms of the real actions of such as scumbag politicians feeding at the trough and cleaning up on insider trading, down to lowly cops nodding and cuffing crime (approved by bosses in everything except a paper trail) and social workers doing anything but visit their clients.  And we have to understand that we bend to the same winds and are part of what is rotten in the State of Denmark.

In economics and finance, stuff like the Black-Scholes equation, Gaussian single and multiple copula and all kinds of chaos modelling would make any cop already pissed to despair on multivariate statistics weep.  Just as there can be a point in predictive policing, there could be one in market analysis.  Questions arise about what outcomes make the kind of point we want.  It’s easy enough to state some on policing – crime prevention, villains nicked, communities safeguarded … all hard to quantify.  I have used such criteria in EU bids (plus jobs created and safeguarded) and one uses a spreadsheet to produce the ‘outcomes’ as do the bureaucrats.  No one checks on the ground – and thank god for that as by the time you have battled the bureaucracy for the money (which may arrive two years late) and persuaded a couple of dozen staff to lie in the accounts (owing to perverse fractional funding), there is little energy left to actually do anything.  Add central accounts’ stealing half the money (via transfer pricing) and you can find yourself with none to pay for the work that needs doing.  The EU funds end up doing a fraction of the good they would if the money was handed over in full and on time.  But this is one of the only games in town so you have to play.  Projects that promise much really do little more than keep a few middle-class flunkies in work until the funds run out.

Finance is considered a cost in the value chain, a term that means a business must make money faster than it consumes costs.  One generally tries to reduce costs to a minimum, so how has finance become so bloated it now dwarfs the real economy, and how have top managers ‘managed’ to become such a massive cost?  Clues may lie in looking at the books of Porsche at the height of their market dominance through superb engineering – they were making more money from their currency hedging.

We talk of getting rid of (useless) backroom staff in business and policing.  What could be more backroom than finance?  Like many successful parasites, finance has learned to make its host feel it gets benefits.  It’s hard to turn down profits from ‘money making money’ – but in the end this is not essential work and a drain on real effort to building purpose.  We should be designing systems to get what needs doing gone as efficiently as possible.  Finance could only be a utility in such design.

In fact, we can’t even design police forces that operate effectively.  We choose instead to manage the appearance of doing so through statistics.  The question on bwanker bonuses is not if they are worth it – but whether we can afford finance other than as a utility at all.  I’m sure, from a scientific view point, that we can’t – it’s a tail wagging the dog.  This is now dawning on some who need reality to be a slap in the face from a wet fish – pensions down by 50% and more in the UK for some.  In Greece, maybe 50% are smashed to poverty – more if it goes tits-up.  We are much closer to this across Europe and the USA than most think.  And all this has happened in my lifetime as agricultural and manufacturing and service productivity has risen in powers of ten.

We know where the swag is and it’s time we took it into public control.  Designing this public control is the problem.  The ideological game played on us is ‘better the Devil you know’, demonising change as bringing something worse – this, of course, is also fair comment.  The deep question is why leadership is so bad almost everywhere under the corrupting forces of self-interest and power.  So how do we design the corruption out?  bill Braxton is inclined to the view that anti-corruption design had left the NewYork force cumbersome and inefficient.  Plato wrote seven books on the matter without letting his gaze slip from his own navel.

It’s clear that if we allow wealth to accumulate as we do now, the wealthy take political and economic control.  The claim is this is a meritocracy, almost as the best soccer players gravitate to the top clubs.  I don’t want to work to their ends.  Yet I know this is driven by my own interests.  Complex as this is, I don’t believe the choice is between herding cats and despotic power.  Even if Dominic Strauss Kahn can’t work out that young women shagging old men at parties are likely to be prostitutes, most of the rest of   us can!

I can baffle you with maths that predicts the past (really) but can’t predict the future it is part of in trading.  This is the stuff of invisible cloth and a language of pseudo science (‘fat tails’ and ‘decay’).  One theory after another (Laffer curves were a fairly recent example) is used to demonstrate corporate tax evasion is really are good thing (because governments are so useless); they are killed off in peer review, but remain co-opted into the ideology.  We need more direct meaning than such stuff can provide.  Why can we not afford public services when a tiny few are holding such a big bag of swag?  Why, with all the increases in productivity can we not afford much bigger social provision?  In the past, the vast majority of us worked the land.  This land now provides massively more food with a tiny fraction of workers.  How much work do we need to do to give all a healthy standard of living?  My guess as an economist is it isn’t much more than a 20 hour week over 20 years.  Set against these and further questions the financial services industry in no more than a massive fraud to redistribute our hard work instead of efficiently organising it.