Outlining a Progressive Future

Derivative Markets: An Explanation

Finally, someone has provided an explanation of derivative markets that is somewhat understandable (I guess the fact that it has taken this long shows how ridiculous derivative markets are). It is amazing how ridiculous this is – I hope you all enjoy!

Heidi is the proprietor of a bar in Detroit. In order to increase
sales, she decides to allow her loyal customers – most of whom are
unemployed alcoholics – to drink now but pay later. She keeps track of
the drinks consumed on a ledger (thereby granting the customers

Word gets around about Heidi’s drink now pay later marketing strategy
and as a result, increasing numbers of customers flood into Heidi’s
bar and soon she has the largest s ale volume for any bar in Detroit.

By providing her customers freedom from immediate payment demands,
Heidi gets no resistance when she substantially increases her prices
for wine and beer, the most consumed beverages. Her sales volume
increases massively.

A young and dynamic vice-president at the local bank recognizes these
customer debts as valuable future assets and increases Heidi’s
borrowing limit.

He sees no reason for undue concern since he has the debts of the
alcoholics as collateral. At the bank’s corporate headquarters, expert
traders transform these customer loans into DRINKBONDS, ALKIBONDS and
PUKIEBONDS. These securities are then traded on security markets

Naive investors don’t really understand the securities being sold to
them as AAA secured bonds are really the debts of unemployed
alcoholics. Nevertheless, their prices continuously climb, and the
securities become the top-selling items for some of the nation’s
leading brokerage houses.

One day, although the bond prices are still climbing, a risk manager
at the bank (subsequently fired due to his negativity), decides that
the time has come to demand payment on the debts incurred by the
drinkers at Heidi’s bar.

Heidi demands payment from her alcoholic patrons, but being unemployed
they cannot pay back their drinking debts. Therefore, Heidi cannot
fulfil her loan obligations and claims bankruptcy. DRINKBOND and
ALKIBOND drop in price by 90%. PUKIEBOND performs better, stabilizing
in price after dropping by 80 %. The decreased bond asset value
destroys the banks liquidity and prevents it from issuing new loans.

The suppliers of Heidi’s bar, having granted her generous payment
20extensions and having invested in the securities are faced with
writing off her debt and losing over 80% on her bonds. Her wine
supplier claims bankruptcy, her beer supplier is taken over by a
competitor, who immediately closes the local plant and lays off 50

The bank and brokerage houses are saved by the Government following
dramatic round-the-clock negotiations by leaders from both political
parties. The funds required for this bailout are obtained by a tax
levied on employed middle-class non-drinkers.


May 3, 2009 Posted by | Political Economy | | 2 Comments

Capitalism Isn’t in Crisis; It is the Crisis

At the G20 protests in London yesterday a slogan proudly stated ‘Capitalism isn’t in crisis; it is the crisis’. Having this sent to me yesterday brought some joy to my heart as I saw a glimpse of hope that there would be a good thing coming out of this global financial crisis; a population more critical of capitalism and more willing to challenge the idea that capitalism is the only way we can organise society.

Now, there is no way I can explain in one blog what is the crisis that is capitalism, why it exists as it is or how it can be overturned; so I am now going to create a new category called ‘political economy’ that will discuss all things ‘political economy’ ranging from the problems of capitalism, to labour laws and rights, to socialism and communism. I will try to work on this as much as I can, but it won’t be my only writing in the blog, just a common theme.

So, to start off with I thought I would discuss one of the ideological problems I have with capitalism, relating it to the G20 summit that is occurring in London at the moment. The issue I want to discuss is that of perpetual profit and perpetual growth.

Profit is one of the basic pillars that form the basis of capitalism. Without basing the system on profit and growth, it is argued that entrepreneurs and workers alike would have no desire to create an efficient workplace that produces the best possible and largest amounts of desired goods. 

The problem is priorities

I do not have a problem with the idea of profit or growth (as long as growth is sustainable), but rather have a problem with a system that’s main and goal is profit. The problem that I have with capitalism is that it places ‘growth and profit’ as goal number one, with everything else being seen as less important. This can be seen through the constant discourse surrounding ‘growth’ at the G20 summit at the moment and generally within the economic discourse. It is seen that this creates a situation where entrepreneurs are encouraged to create more efficient labour practices and products that are cheaper and better for consumers, which in turn creates a better society. This, in turn creates a wealthier society that benefits from the ‘trickle down effect’ of the capitalists wealth.

The problem with this however is that it creates a society whose priorities place profit above such essential things as care for one another, environmental protection, equality and meaningfulness within one’s work and life. This leads to situations where corporations practice acts such as those you see in the film Erin Brockovich (In this situation a corporation dumped toxic waste into a water way causing major health affect. This is a situation where corporations participate in actions that cause major social harm as it adds to their profit), refuse to act on climate change (as switching technologies would decrease profits to particular companies) and further (I note further given the natural exploitative nature of capitalism; an issue I will discuss in another post) exploit workers (as paying workers less and removing conditions makes the cost of labour cheaper, in turn increasing profits), all in the name of increasing profit.  

A quick note on sustainability

An interesting point to note is that with having a system that is based around profit and growth in a limited world, it is inevitable that the system will at some point cease to function as continued growth is no longer available. Although it is impossible to know when this could occur one must start to question the affect it will have, not only on the environment, but on the world’s economic and social systems.

Can’t we just regulate to stop the bad stuff from happening?

No. Why not? Because if a state and a people accept capitalism as the way their society should function they cannot then regulate effectively to remove the negative effects that are created by one of the core features of that system. Trying to regulate capitalism simply doesn’t work as it is highly difficult to enforce (one simply needs to look at the mass of cases of corruption within the corporate world) and very rarely provides the action that is required. In essence, a state cannot remove profit as the sole goal from capitalism, as capitalism relies wholly on having profits as its main goal. I will go more into the state regulating capitalism at another time.

Last Point

I know the one of the first points people will use to rebut these discussions may be that I don’t provide an alternative to capitalism. I don’t due to two reasons; (1) this post wasn’t designed to do so and (2) I don’t think there is one clear alternative to the system. This may sound like a cop-out, but it isn’t. It is me recognising that one person cannot provide the answer to the woes of the entire world’s population; it must be done by the entire world. I will in the future begin discussing some options for way changes could and I think should occur, but this will not provide all the answers. That is for the world to decide. 

That will do for today – comments are greatly welcome!

April 2, 2009 Posted by | Analysing the Right, Political Economy | | 3 Comments