[agenda 2] billionaire boy's club

John Authers, at the FT, comments on the rate fluctuations:

Historically, the discount rate – governing the rate at which the Fed lends to banks – has moved less frequently than the Fed Funds rate, which covers the rate at which banks lend to each other … Stocks like rate cuts ...

Fabian Tassano draws our attention to the Fed Funds rate and William Polley comments:

Remember also that this infusion of liquidity represents reserves, or base money. It doesn't get multiplied through the deposit process unless banks lend those reserves to create new deposits.

Something tells me that's not going to be an enormous risk in this case. Intermediaries are more likely to be carrying some excess reserves at this point. And they earn zero interest on those reserves.

Hence, it's not entirely out of whack that at a time like this the market rate on those marginal excess reserves is significantly lower than the target. But zero?

This suggests some quite extraordinary manipulation going on. And on the inflationary pressure of the rates?

I don't see this small fraction of trades at such a low level as being inflationary. Quite the contrary, if intermediaries want to hold more excess reserves as a risk management measure then the Fed is doing the right thing by offering those reserves. It only becomes a problem if those intermediaries run out and make more questionable loans with the money.

Precisely. This is touched on further below.* And on how accurately the Fed can dial in the market it wants:

Remember, the Federal Reserve does not control this rate precisely. Also, even under normal conditions, the funds trade in a range.

The thing we can't lose sight of is the big picture. Forever red herrings are being drawn across the path in terms of local hiccups, such as the jitteriness at Wells Fargo:

"Customers may continue to experience transaction difficulties or delays in our stores, at ATMs and at the point-of-sale ... and processing for some mortgage, home equity, student loans and remittances."

It's better for non-economists and easier to understand to look at what fuels all these things. To be more specific, what is the nature of the people fuelling these collapses? *You need go no further than the super-bunny Leeson to see the true problem, the beginnings of the real picture. The Barings story is told from his perspective here and two things stand out for me:

Nick now spends much of his time presenting talks to companies on Risk Management …

… and:

How could one trader bring down the banking empire that had funded the Napoleonic Wars?

Funded the Napoleonic Wars. Yes. The role of banking in the infliction of human misery must wait and instead let's concentrate on the mindset.

The Billionaire Boys Club was the popular nickname for BBC, an investment and social club organized in southern California in 1983. The club recruited the sons of wealthy families from the Harvard School in the Los Angeles area with the promise of quick success in business life.

The organization was run initially as a Ponzi scheme, and money contributed by investors was spent on supporting lavish lifestyles for young members of the club. When funds ran short in 1984, Hunt and other club members turned to murder and at least two people were killed as Hunt tried to raise more money.

There's the Ocean's 11 to 13 mindset in one.

You have to move about in those circles for some time to really understand what I'm talking about. I can write ad nauseam of "hush power", "elysian zones", "the chosen" and any number of other epithets but it's not going to bring you any closer to understanding the allure, the sucking in of that clinically clean, besuited lifestyle.

But it must be paid for and you always want more. More and more. Your suit is tailored but his is Armani. You want that. You're so talented because they tell you you are and they know everything, with the deep cynicism of history behind them.

You're a man of ideas and they love ideas which they know to be ultimately destructive, e.g. Napoleon. They know this because they have history behind them.

The Fed is not a financial body. They are gods. Look at Mayer's comment in 1828:

"Allow me to issue and control the money of a nation, and I care not who writes the laws."

The Fed is only one manifestation of hierarchical people whose lower echelons, with their Leeson lust, ambition and "peacockness" makes them sitting ducks for the cynical, insane real power whose deepest need is to sate destructive rage and hatred. This is never spelled out.

It works tirelessly, it seeks out nooks and crannies, it has the figures at hand, it "tweaks", it constructs "smart bombs" and treats the world to news footage of people zapped out from a distance and all you hear is a dispassionate voice: "Take him out." It is ultimately banal.

Club of Rome, Club of Paris, Round Table groups, Bank for International Settlements - they're all part of the same thought process. This latter is well worth some research.

Senator Jenner's 1954 comment [one more time]:

The important point to remember about this group is not its ideology but its organization. It is a dynamic, aggressive, elite corps, forcing its way through every opening …

And now, ladies and gentlemen, it's time for another war and in Former U.S. Deputy Assistant Secretary of State Richard Gardner's article "The Hard Road to World Order" [CFR's "Foreign Affairs", April '74], the process is spelled out:

"[It] will have to be built from the bottom up rather than from the top down ... but an end run around national sovereignty, eroding it piece by piece, will accomplish much more than the old-fashioned frontal assault."

The process is not hard to track - two generational softening up and dumbing down of education, the judiciary, medicine and society's moral framework; a perceived national threat, moves on civil liberties, then moves into a succession of credit squeezes, some closures and calling ins, global solutions to the crisis, then a more violent collapse at the time of a renewed national threat, a general crash and the building of a new state from the debris.

It's insane, it's impossible, it's kooky, it's happening. Keep your eyes open.