Problems in Europe

In Deutsche Welle:

Thousands rallied across Europe Thursday, May 1, in traditional May Day protests on issues ranging from pension reforms to living standards. However, violence flared in German cities and others across the continent.

Leftist radicals fought Thursday in two German cities with riot police who were thwarting attempts to disrupt May Day parades by the far-right National Democratic Party [NPD].

In Hamburg, police said at least six cars were set on fire as the violence spread. Police used water jets mounted on heavy trucks to open a route for 700 far-rightists. Leftist organizers said they had 10,000 supporters at the scene determined to halt the parade.

 

The anti-immigrant NPD, which has sought to present itself as a voice of the poor, staged labour-day parades through an old-time working-class district of Hamburg and through inner-city Nuremberg, the city adopted by dictator Adolf Hitler as the home of his Nazi Party.

Violence marred May Day demonstrations in other parts of Europe where labor issues dominated the protests.

Turkish riot police clashed with demonstrators attempting to take part in in Istanbul on with some 467 protesters taken into custody and dozens of people treated at hospitals for the effects of tear gas.

In Russia, 10,000 people took part in May Day demonstrations against the rising cost of living and demanded wage increases.

In the western Siberian city of Chelyabinsk, union leaders criticized the fact that wages were rising too slowly despite strong economic growth.

According to police, some 7,000 people took part in a rally in the Revolution Square in Chelyabinsk, where speakers at the rally stressed that, despite economic growth; the incomes of a major part of the population were growing too slowly.

Prices of essentials, tariffs, the value of services in the housing and communal economy, as well as transport fees, continue to grow, leading to a growth in social tension, the speakers said.

Meanwhile in France thousands of demonstrators took part in May Day protests against the reforms of President Nicolas Sarkozy.

In Paris, the two large French trade unions, CGT and CFDT, held a joint protest for the first time in four years. Several thousand took part in a march which arrived at the Place de La Republique in central Paris in the afternoon.

The protests were directed against the planned pensions reform and the cost of living.

In the Serbian capital Belgrade some 10,000 people marched in a call for better living standards in the economically struggling Balkan nation.

Representatives of the Workers’ Union pointed to the “long, painful transition and privatization in Serbia” and said workers’ rights had never been more under threat.

In Greece public transport services, and ships and flights by the state carrier Olympic Airlines were paralyzed across the country as unions planned demonstrations in the capital Athens to coincide with Labor Day.

The Europeans are struggling with stagnant wages and high inflation. So are the Americans, incidentally, but at least the Europeans are willing to engage in collective action. In the NYT:

When their local bakery in this town south of Paris raised the price of a baguette for the third time in six months, Anne-Laure Renard and Guy Talpot bought a bread maker. When gasoline became their biggest single expense, they sold one of their two cars.

Their combined annual income of 40,000 euros, about $62,500, lands Ms. Renard, a teacher, and Mr. Talpot, a postal worker, smack in the middle of France’s middle class. And over the last year, prices in France have risen four times as fast as their salaries.

“In France, when you can’t afford a baguette anymore, you know you’re in trouble,” Ms. Renard said one recent evening in her kitchen, as her partner measured powdered milk for their 13-month-old son, Vincent. “The French Revolution started with bread riots.”

… But today, Mr. Marceau said, a new class of bankers, executives and other high earners has taken over. “I feel like we’ve been in a slow process of losing to the people up top,” he said.

That simmering concern turned into anger last week in Britain. Striking teachers closed schools for the first time in two decades, protesting pay packages that did not keep pace with the soaring cost of living. Proposed raises were about 2.5 percent, while food has risen 7 percent and oil costs have surged 20 percent in Britain since this time last year.

The teachers’ rallying cry was just the latest to echo across the Continent.

German workers from several industries waged a series of strikes last month demanding a greater piece of the economic pie after years of being asked to make salary concessions — flexibility that, some economists argue, has helped a leaner, meaner Europe stave off recession so far.

In France, where purchasing power has replaced unemployment as Public Enemy No. 1, unions representing workers from teachers to factory workers have taken to the streets in protest.

In Germany, Europe’s largest economy, the decline in purchasing power began in 2000, when employers started wresting wage concessions from unions, or simply shifting jobs to Eastern Europe and China.

Inflation-adjusted incomes rose from 1 percent to 2 percent in the late 1990s, but more than one million Germans lost full-time jobs during and after a recession in 2000 and 2001. Subsequently, workweeks got longer without extra pay, and from 2004 through 2007, inflation outpaced income increases for the average family.

“When I started working at 23, I earned almost the same wage that I earn now,” said María Salgado, a 37-year-old director of television documentaries living in Madrid. Fourteen years ago, her monthly salary of about 1,200 euros ($1,873), bankrolled a full social life.

No longer. “The well-to-do middle class has become the tight middle class,” she said. “I’m surprised we haven’t started a revolution.”

The shades of Weimar and the early 1930s. The postwar consensus is in utter shambles; an increasing number of people are protesting at neoliberal business-as-usual; wages are stagnant or falling; prices are increasing; and bourgoisie politics is seen as a cover-up or utterly irrelevant.

 

NLR piece on subprime and financialisation

An essay by Robin Blackburn, in New Left Review, which can be found here. I’ll try to be sparing in my cut-and-paste:

Such distortions multiply as ‘financialization’ takes hold. It is boosted as the logic of finance becomes ubiquitous, feeding on a commodification of every aspect of life and the life-course—student loans, baby bonds, mortgages, home equity release, credit-card debt, health insurance, individualized pension funds. Financialization also encourages corporations to privilege financial functions and to see themselves as chance collections of assets which, as circumstances change, must be continually broken up and reconfigured. While the individual is encouraged to think of him or herself as a two-legged cost and profit centre, the corporation is simply an accidental assemblage to be continually shuffled in response to fleeting market signals.

More broadly, today’s institutional investment—‘grey capitalism’—has tolerated or spawned financial malpractice often dressed up in the latest jargon of the ‘quants’ and engineers.

The post-1972 take-off of financialization coincided with advances in computing capacity and the discovery of new mathematical techniques for valuing options and constructing derivatives. To begin with, these techniques were used mainly to reduce uncertainty and hedge currency risk. But before long it became clear that derivative swaps could be used to bamboozle tax authorities and shareholders. Financial engineering could convert one type of income stream into another, or an asset into income or the other way round—reducing or avoiding tax.

The complexity of the cdos and cdss—credit default swaps, the financial instruments which insure bond holders—generates new risks: documentation risk, operational risk, ratings risk, counter-party risk, liquidity risk and linkage risk among them.

As time goes on, we’ll probably see more and more of this kind of serious analysis from the Left (i.e. the real Left), which will seek to place the curent problems in a theoretical and historical framework.

Topalov on YouTube

A nice 30-second bank television advertisement featuring the Bulgarian (chess) GM Topalov, which has been placed on YouTube here. If they made advertisements like this one here in the US, watching American television wouldn’t be such torture. Instead, American TV ads are hollering, screeching, and beseeching one in the most insipid and in-your-face manner to buy their meretricious products.

Incidentally, talking of banks and chess, the former chairman of Lloyds Bank, Sir Jeremy Morse – a renowned chess problem composer in his own right – had the bank sponsor the annual chess tournament, “Lloyds Bank Masters,” for several years. Good publicity for the bank as well, and not expensive at all. Culture and business go together in Europe. Here, on the other hand … I recall one time a local tournament was being organised and local sponsors were being sought: a pizza joint coughed up $25; a car wash facility came up with $50; and two or three other small businesses came up with similar figures.

Praying for cheaper gasoline

Found this:

There was a pray-in at a Chevron station in San Francisco on Friday led by a minister asking God for cheaper gas…

Now I confess I’m a bit of an agnostic myself and even if I did believe, I doubt I’d bother the almighty with such petty concerns. But if some people do have to pray, why not for more fuel-efficient vehicles, for better and more comprehensive mass transit, and for more rational urban design (instead of the unplanned suburban sprawl ubiquitous in the USA)? It could be, however, that the almighty is on the side of 300-pound fatties who want cheap gasoline for their insatiable 12-mpg SUVs, used for 60-mile roundtrip journeys between home and work and home and mall. This, I believe, is known as “American exceptionalism.”

 

Japan, China, and South Korea shy away from US Treasury debt

http://www.bloomberg.com/apps/news?pid=20670001&refer=home&sid=adQ8ReGYJ.D8

April 28 (Bloomberg) — Add another ailment to the U.S. misery index of soaring gasoline and wheat costs and falling home values: a federal deficit that is burgeoning as foreign investors led by the Japanese recoil from the slumping dollar.

Asian investors outside Japan are also pulling back. Money managers in China, the second-biggest overseas holder of Treasuries, with $486.9 billion, and South Korea say they favor debt in Europe, equities or commodities.

A bit of a problem for the US government as low interest rates coupled with a weakening dollar make it difficult to finance fiscal deficits. The only thing that would make US Treasury debt sufficiently attractive as to offset currency rate risk would be high interest rates — but this is not considered an option presently.

Timothy Garton Ash on the inevitable letdown

Ash has written a piece on the inevitable letdown which will result regardless of which candidate gets voted into the Oval Office:

… there’s the difference in the United States’ position in the world now, compared with that during Kennedy’s time, let alone Truman’s. For all the systemic difficulties in store for China, for all the continued strengths of America’s open society and its military preponderance, the United States’ relative power has diminished, is diminishing, and will continue to diminish. This is true of its economic power, above all, as the nation has lived beyond its means, government spending has been skewed toward the military, and the mighty banks of New York go cap in hand to the sovereign wealth funds of Arabia and Asia. Sound like John F Kennedy he may, but Obama’s United States will not be able - to quote the legendary words of JFK’s inaugural address - to “pay any price, bear any burden, meet any hardship, support any friend”. It can simply no longer afford the cost.

There’s nothing original in Ash’s perspective and I also disagree that Clinton would be the the least of the three evils but he does highlight the inflated expectations that accompany every presidential election — followed invariably by business as usual. Readers’ comments, to be found below Ash’s piece, are entertaining and often hit the nail on the head (IMHO).

 

Internship placements

The good people at Quantnet have been sending out questionnaires to some of the better MFE programs in the USA, trying to get a feel for what kind of job they’re doing in placing people. Princeton has just replied. This is the way a properly-run program goes about doing things. People thinking about doing an MFE need to get straight answers on these questions before committing themselves. The stakes are so high and the market so brutally competitive that applicants shouldn’t even think of second-rate or (even worse) fledgling progams. And in the scheme of things, differences in tuition fees fade into insignificance, bringing to mind the old business adage, “not cheap at any price,” for shoddy stuff.

Kevin Phillips’ new book, “Bad Money”

Bad Money, by Kevin Phillips, came out last week. Phillips is one of the more perceptive American commentators and I think I have all his books except “American Theocracy.” His latest book — “Bad Money” — is riveting because it attempts to place recent financial and economic events in a theoretical framework. And a framework to understand what’s been occurring is exactly what’s been lacking in discussion and coverage so far. I’ve been attempting some such framework myself but haven’t got further than some inchoate insights and dimly-felt intuitions. A couple of essays I’ve found helpful have been Foster’s The Financialization of Capital and the Crisis and Arnold’s Sub-Prime Crisis Moves US Toward a Different Future.

I can’t attempt a synopsis or critical analysis of Phillips’ book because I’ve just begun it, but I’d like to quote a bit from the preface:

1) This transformation (declining value of the dollar) intensified during 2007, overlapping with the high-profile emergence of the housing, mortgage, and credit crisis. Both situations, I believe, related to what the United States in recent years had ceased to do — produce enough of its own manufactures and oil — as well as what it had started to do: fantasize about military and financial imperialism, about exporting mortgage-backed securities and collaterized debt obligations to a grateful world. Few miscalculations have been so tragic.

2) (The book) is about the insecurity of America’s future as the leading world economic power, given a debt-gorged and negligent financial sector, and the vulnerability caused by the nation’s expensive dependence on imported oil.

3) Part of what Bad Money deals with that I have not touched on before is the financial sector’s massive use of private debt and leverage during the 1990s and then again in the first decade of the twenty-first century to expand its size, global reach, and extraordinary profitability. This is less a market-based Adam Smith brand of triumph than a mercantilist joint venture with U.S. government authority, strategic direction, funding support, and periodic Federal Reserve or U.S. Treasury bailouts of overextended financial institutions.

If and when I finish the book, I may post my impressions and criticisms.

Destitution in Germany

In The Local:

One in four German families live below poverty line

The number of German families facing destitution is rising, as one out of every four households live below the poverty line, according to a new survey.

At least 26 percent of Germans do not earn enough money to sufficiently support themselves, a significant rise from 13.5 percent in 2003, German magazine Der Spiegel reports in its latest issue.

I haven’t been able to find the original article in the online version of Der Spiegel, so I suppose I’ll have to look at the print copy. These kind of figures spell the end of bourgoisie politics-as-usual: the Great Depression provided a boost to both the Communists and the Nazis in Germany, as Germans came to feel that the usual parties had nothing to offer. I daresay the same will occur eventually in the USA, despite the incessant barrage of mind-deadening propaganda  which we are mercilessly exposed to around the clock. I’m not saying radical movements will have any real panacea to deep-seated and intractable problems; merely that people (even sheeple!) will get fed up to the back teeth with puerile debates on why a contender for office doesn’t wear an American flag lapel pin. Nero fiddles while Rome burns.

 

Fleeing from Zimbabwe

In the NYT today:

Human Wave Flees Violence in Zimbabwe

She said she had seen gangs loyal to Zimbabwe’s longtime president, Robert Mugabe, beating people — some to death — in the dusty roads of her village. She said Mugabe loyalists were sweeping the countryside with chunks of wood in their hands, demanding to see party identification cards and methodically hunting down opposition supporters.

She was among the latest desperate arrivals in what South Africa’s biggest daily newspaper is calling “Mugabe’s Tsunami,” a wave of more than 1,000 people every day who are fleeing Zimbabwe across the Limpopo to escape into South Africa.

I can’t think of a single black country that isn’t a failed state. Whites keep getting blamed for colonialism and granted they’ve been a rapacious lot, but I can’t help thinking colonial Africa was better for Africans than what they have now. And it isn’t even as if Africa was a peaceful place before Europeans turned up: they’ve been in a state of low-intensity warfare for untold centuries. With regard to Zimbabwe, a crack team of mercenaries could probably restore at least temporary order to the country (along the lines of Frederick Forsythe’s “The Dogs of War.”)