Today's Stories

October 15, 2008

Steve Conn
The Real Story of Troopergate

October 14, 2008

Robert Richter
McCain: War Hero or War Criminal?

Paul Craig Roberts
The Bailout and the Smell Test

Ismael Hossein-Zadeh
The Wall Street Coup and the Bailout Scam

Steve Conn
Made in Alaska: Fear of the Fringe

P. Sainath
The Race Could be Over, But Race Isn't

Gregory Elich
How the Nobel Peace Prize Was Won

Stephen Martin
A Tectonic Shift in Hegemony at the G7

Rev. William Alberts
Don't Blink Twice

Laura Carlsen
The Fall of the Bush Dynasty Plan

Joanne Mariner
The Uighurs Come to Washington

Howard Lisnoff
Left Behind: a Biden Fundraiser and the Children of Holyoke

David Macaray
A Tale of Two Unions

Website of the Day
Six Degrees of Hank Paulson

October 13, 2008

Alexander Cockburn
Farewell to Daniel Cassidy

Michael Hudson
Rescue for the Few, Debt Slavery for the Many

Patrick Cockburn
Pogrom Against Mosul's Christians

Chris Floyd
The God That Failed: the 30-Year Lie of the Market Cult

Fidel Castro
The Law of the Jungle: Racism, Obama and the Fall of the American Economy

Robert Weitzel
Olmert's Depths of Reality

Derek Wright
How Chrysler Killed My Uncle

Stephen Soldz
Guantánamo's SERE Standard Operating Procedures

David Michael Green
Greed is Not Good

Norman Solomon
Requiem for the Bailout: a Storyline

Charles R. Larson
Toni Morrison on Her Own Terms

Lisa Massaciuccoli
The Shoplifting Association of the Americas

Website of the Day
Arlo Guthrie: "I'm Changing My Name to Fannie Mae"

October 10 / 12, 2008

Alexander Cockburn
Is McCain a Lot Sicker Than We Know?

Jeffrey St. Clair /
Joshua Frank
Obama's Nuclear Ambition

Douglas Valentine
Mission CREEP: From John Mitchell to John McCain

Noam Chomsky
Exposing the Un-Democratic Face of Capitalism

Ralph Nader
The Derivatives Game

Syed Saleem Shahzad
Why the Neo-Taliban is Winning

Patrick Cockburn
War in the Time of Cholera

Paul Craig Roberts
A Possible Solution to the Economic Crisis

Mike Whitney
Run on the System

Peter Morici
The Deficit and the Damage Done

Christopher Ketcham
The End of the Economy

Stephen Martin
Shock and Awe in Economic Warfare

Chellis Glendinning
Wireless Mind, Gullible Mind

Saul Landau
All Guns, No Butter

Ahmad Faruqui
21 Days to Baghdad

Adam Turl
Sheriff Tom Dart vs. the Banksters

Serge Halimi
The Battle for the West

Anthony DiMaggio
Making a Killing: the Business of Elections

John Ross
The Sky is Falling on Mexico, Too

José M. Tirado
Meltdown in Iceland

Paul Krassner
Beat the Crowd in Denver: Cops and T-Shirts

David Macaray
Adventures in Unionism

Robert Fantina
Bankrupt and Belligerent

David Yearsley
The Playlist for Election 2008

Julian Clec'h
The Soap Washing Through Saudi Arabia

Adam Engel
Sexual Healing ... for the Planet

Phyllis Pollack
The Rolling Stones Go Home, Again

Missy Beattie
Going North: the Coming Nation of Alaska

Poets' Basement
Landau, Moser and Henson

Website of the Day
Sarah as Esther? New Video From Inside Palin's Church

October 9, 2008

Robert Bryce
From Enron to the Current Meltdown

David Vest
The Great Rescue of 2008: Could Whatever Follows Bush Be Even Worse?

Winslow T. Wheeler
Meltdown at the Pentagon

Andy Worthington
The Ordeal of the Wrongly Imprisoned Uighurs

Anthony DiMaggio
Obama the Subhuman

Helga Serrano /
Hector Tamayo
Ecuador Charts the Way

Dave Lindorff
When Money Flies

Mats Svensson
At the Checkpoint on the Day of Atonement

Rannie Amiri
The Time for Mordechai Vanunu is Now

Website of the Day
The Palestine Chronicle Needs (and Deserves) Your Support

October 8, 2008

Alexander Cockburn
Imbecilic Tedium

Linn Washington, Jr.
Palin's Racist Remark

Mike Whitney
To the Bunkers!

Deepak Tripathi
The West is Broke

George C. Wilson
Butter Over Guns? McCain and Obama on Defense Issues

Andy Worthington
Seized in Pakistan

Charles R. Larson
"I'm John McCain and I Approved This Lie"

Patrick Irelan
Ecuador's Choice

Matthew Koehler
Log, Baby, Log: Bailing Out the Timber Industry

Stanley Heller
Time to Design a New Economy

Daniel Gross
Working Class Hero: Alexandra Svoboda

Kimberly Hartke
Raw Milk and Civil Liberties

Website of the Day
Olivia Wilde Does It Early

October 7, 2008

Patrick Cockburn
Obama and McCain's Goofy Afghan Bluster

Gary Leupp
Seven Years in Afghanistan:
From "War on Terror" to
"War of Terror"

Uri Avnery
Olmert's Final Divorce
From "All of Eretz Israel"

P. Sainath
The Cop-Out Election
Major Candidates, Congress, Press, All Fail in the Big Crisis

Peter Morici
The Dow Tanks as Bank Bailout Fails to Restore Confidence

Conn Hallinan
The Great Game in the Caucasus:
Bad Moves by Uncle Sam

Martha Rosenberg
Training America's Youth
Today a Pheasant, Tomorrow Osama

Binoy Kampmark
Let's Talk About Extinction:
CERN and Halo

October 6, 2008

Paul Craig Roberts
A Futile Bailout as Darkness Falls on America

Mike Whitney
Still on the Edge of the Abyss

Tariq Ali
Goodbye to Grosvenor Square

Emily Horowitz
How People Tell Cops They're Guilty Even When They Aren't

Michael Hudson
What Did Jesus Say?
A Christian Perspective on the Paulson Bank Bailout

Ron Jacobs
Winter Soldiers and Washington's Wars

October 3 - 5, 2008

Alexander Cockburn
Creatures of Capital

Paul Craig Roberts
Why Paulson's Plan is a Fraud

Saul Landau
The Chutzpah of Hank Paulson

Jonathan Cook
The Souring of a West Bank Romance: Israel's Army and Settlers Fall Out

Andy Worthington
The Dark Heart of the Guantánamo Trials

Dave Marsh
Bono (Himself) Challenges Me to a Debate

Sasan Fayazmanesh
Using the IAEA to Spy on Iran

John Ross
Massacre in Morelia

Brian Cloughley
The Unacceptable Face of Capitalism

Wajahat Ali
Dueling Partners: an Interview with Tariq Ali on Pakistan

Robert Schwartz
A Serious Blow to the Rights of U.S. Workers: NLRB Limits Political Strikes

Alan Nasser
FDR's Response to the Plot to Overthrow Him: a Paradigm for Today's Democrats?

David Ker Thomson
The Case for Drunk Driving

Peter Morici
Gone in 30 Days: U.S. Loses 159,000 Jobs in September

William Blum
When is a Holocaust Not a Holocaust?

William S. Lind
War on Two Fronts: Without Railroads

Michael Donnelly
The Ghost of Gen. McClellan

Thom Rutledge
On Presidential "Rule"

Manuel Garcia, Jr.
Science and the 2008 Presidential Elections: a Survey of the Candidates

Dave Lindorff
Calling the Problem Early

Cindy Ellen Hill
Waging a Sustainable Peace?

Paul Krassner
Dying to Get High: the Side Effects of Medical Marijuana

Daniel White
Vietnam's Masterspy

Poets' Basement
Corseri, Absher, Gibbons and Jenkins

Website of the Weekend
How We Lost Glen Canyon: a Legal Chronology

October 2, 2008

Paul Craig Roberts
Can a Bailout Succeed?

Joe Bageant
Speaking in the Tongues of Brokers: the Bailout in Plain English

Ralph Nader
Soulmates in Deregulation

Mike Whitney
Why the Bailout Stinks

Madis Senner
When Push Comes to Pull: How a Foreign Banker Invasion Sent the Markets Reeling

Winslow T. Wheeler
Congress as Usual:the Crisis Will Pass, But This Bunch Will Remain the Same

William Blum
A Boy's Game: the Origins of the Financial Crisis

P. Sainath
Wall Street Transforms Presidential Race

Website of the Day
McCain's Meltdown in Des Moines

October 1 , 2008

Glen Ford
The Last Hold Up

Steven Conn
Trashing Sarah Palin: the Boomerang Effect

Alan Maass / Lee Sustar
Why Not a Bailout for the Rest of Us?

Kenneth Couesbouc
The Blame Game: When Wall Street Pigs Sprout Wings

Stan Goff
How the Republicans Can Win (And Deserve It)

Adolfo Gilly
Racism, Domination and Bolivia

Rannie Amiri
Bombs in the Levant

Ismael Hossein-Zadeh
The Recurring Myth of Peak Oil

Adam W. Parsons
Food and Markets

Dave Lindorff
Bums' Rush to the Bailout: Where are the Hearings?

Douglas Valentine
The Bush Continuity Plan?

Adrien Rain Burke
The Party's Over: an Open Letter to Nancy Pelosi

Website of the Day
Sarah Palin's Beauty Pageant

September 30, 2008

Pam Martens
What Wall Street Hoped to Win

Chris Floyd
The Shadow of the Pitchfork: Elite Panic on Wall Street

Stephen Martin
A Biological Walk Down Wall Street

Deepak Tripathi
A Bitter Harvest in Afghanistan

Mark Engler
Bad Money

Jonathan Cook
The Attack on Zeev Sternhell: Has Israel Become a Breeding Ground for Jewish Settler Terrorism?

Dave Lindorff
The Power of No

Manuel Garcia, Jr.
Time for a General Strike?

Ahmad Faruqui
In Cold Blood: Buried Alive in Pakistan

John Chuckman
Will the Bride Wear White? As Rome Burns, Bristol Palin Prepares to Tie the Knot with Mr. "Sex on Skates"

David Macaray
Blaming the Labor Unions

Fatemeh Keshavarz
What Obama Could Have Said

Website of the Day
538: a Cognitive Map of American Politics

September 29, 2008

Mike Whitney
Black Monday

Jeff Gibbs
"Just Say No!" to Reverse Robin Hood

Paul Craig Roberts
Why America Should Listen to Ahmadinejad

Peter Morici
The Bailout and the Economy

Tim Wise
Racism as Reflex

John Walsh
Sarah Palin is a Rotten Mom

Uri Avnery
Israeli Fascism: Yes, It Can Happen Here

Alan Farago
Hell to Pay: the Financial Collapse and the Housing Market

Andy Worthington
Is Khalid Sheikh Mohammed Running the 9/11 Trials?

David Michael Green
Where's the Repudiation?

Carl Finamore
Capitalism on Steroids; Labor on Tranquilizers

Iris Keltz
Postcards from the DNC

Bill Hatch
Take This Shrimp Slayer!

Website of the Day
Tina Fey as Palin, Round Two

September 27 / 28, 2008

Alexander Cockburn
How McCain Blew It

Linn Washington, Jr.
Alaska's Blacks and Palin: a Strained Relationship

Christopher Ketcham
An Israeli Trojan Horse

Mike Whitney
The People vs. the Banksters

Kevin Alexander Gray Race in the Race: Is Obama Shining Us On?

Anthony DiMaggio
The Unspoken War: Pakistan, the Media and Nuclear Weapons

Mary Lynn Cramer
Their Assets; Our Debts: How Economic Crises Are Overcome

Marc Levy /
Susan Erony
War Jokes Wanted: No Laughing Matter

Stan Cox
Livestock of Mass Destruction: Germ Labs in the Heartland

Saul Landau
Election Drizzle

Ali Khan
Meltdown in American Markets: an Islamic Perspective

David Rosen
The Great Fear: the Sexual Politics of Sarah Palin

Todd Alan Price
Bailing Out the Foes of Public Eduction

Matts Svensson
The Red and White Bird in Gaza

Ron Jacobs
Pakistan Through the Eyes of a Native Son

Robert Fantina
McCain and the Economy

Richard Rhames
Hank-ering for a Bailout

David Krieger
The U.S.-India Nuclear Proliferation Deal

Seth Sandronsky
Rethinking Charter Schools

Charles R. Larson
Dear Mrs. Abacha: a Nigerian Email Romance

Kim Nicolini
Sadism in the Desert

Poets' Basement
La Morticella, Holt, Moser and Buknatski

Website of the Day
The Great Schlep

September 26, 2008

Moshe Adler
Bailing Out Wall Street Won't Save Main Street

Bill Quigley
The U.S. War on Unarmed Working Mothers

Jonathan Cook
When Archaeology Becomes a Curse

Manuel Garcia, Jr.
Visions of Pinpoint Control: the Romance of Laser Weapons

Madis Senner
Why the Bailout will Fail

Brian Cloughley
US Raids in Pakistan: Violations of Sovereignty

Niranjan Ramakrishnan
Oh, Henry!

Joanne Mariner
Passport Fraud and Torture

Dan La Botz
The Financial Crisis: a View from the Left

David Macaray
Ralph's Management Indicted by Federal Grand Jury

Website of the Day
Nader and Obama Girl at the Office

September 25, 2008

Michael Hudson
The Insanity of the $700 Billion Giveaway

Sharon Smith
Democrats and Corporate Bailouts

Ralph Nader
Who Will Show Some Backbone Against the Bailout?

Christopher Ketcham
The Economy of Dead Sperm (or What I Learned From My Race-Car Grandpa Who Had No Bankers)

Eric Toussaint
Is Another Third World Debt Crisis in the Offing?

Robert Weissman
Getting Wall Street Pay Reform Right

David Estabrook
A Better Bailout Plan

Nikolas Kozloff
The Voyage of the SS Peter the Great

Steve Early
The High Price of Purple Dissent

Judith Scherr
Blue Helmets in Haiti

Laray Polk
South Ossetia and Abkhazia: Notes from the Inside

Website of the Day
Letterman Spanks McCain

September 24, 2008

Paul Craig Roberts
The Bitter Fruits of Deregulation

Nikolas Kozloff
Palin at the UN: a Tutorial from Uribe

Robert Weissman
The Financial Crisis: How and Why Congress Should Play for Time

Andy Worthington
The Guantánamo Trials: Govt. Says Six Years Not Long Enough to Prepare Evidence

Steve Conn
Will Nader's Warning be Acknowledged in the Presidential Debates?

Karyn Strickler
The $700,000,000,000 Power Punch

Diane Farsetta
Stealth Marketers Gone Wild

Dennis Loo
Poisoned Legacy

John Halle
Wealth Tax Now!

Khalil Nakhleh
Palestinians Under the Occupation

Website of the Day
Nader: Debate Crasher

September 23, 2008

Rev. Jesse Jackson, Sr.
Bail Out on This Bailout

Michael Hudson
Henry Paulson and the New Yazoo Land Scandal

Tariq Ali
Why was the Marriott Targeted?

Patrick Dyer
A Death Row Visit with Troy A. Davis

Franklin Lamb
Hezbollah and the Palestinians

Joshua Frank
Oppose Barack Obama? How Dare Thee!

Alan Farago
Pushing the Referees: How the Financial Crisis Occurred

Dave Lindorff
The Bailout Will Kill the Dollar

Tanya M. Kerssen /
Roger Burbach
Bolivia's Popular Upheaval

Harvey Wasserman
Nuclear Power Liabilities Dwarf Bush's Wall Street Bailout

Website of the Day
Hammered by the Irish: the Video

September 22, 2008

Michael Hudson
The Paulson-Bernanke Bank Bailout Plan: Will the Cure be Worse Than the Crisis?

Mike Whitney
Mushroom Clouds Over Wall Street

Christopher Ketcham
Let It Collapse!

Ron Jacobs
The Predators' Bailout

Anne-Marie McManus
Lost in the Rhetoric of Crisis

Robert Weitzel
The Twin Terrors of the Holy Land: a Sexy Fundamentalist and a White-Haired Zionist

Wajahat Ali
An Interview with Howard Dean

John Ross
A New Cold War Comes to Latin America

Steve Breyman
Does the U.S. Really Need Cluster Bombs?

Patrick Bond
On the Bellies of the Filth

Uri Avnery
Fly, Tzipora, Fly

Carl J. Mayer
An Open Letter to Michael Moore (AKA God's Pen Pal): Whatever Happened to Voting Your Conscience?

Website of the Day
Stop the Execution of Troy Anthony Davis

September 20 / 21, 2008

Alexander Cockburn
Is This the Stake Through Neoliberalism's Heart?

Michael Hudson
America's Own Kleptocracy

Pam Martens
The Wall Street Model: Unintelligent Design

Lila Rajiva
Putting Lipstick on an AIG

Mike Whitney
Full-Spectrum Breakdown

Richard Rhames
A Bailout to Nowhere

Bill Moyers /
Michael Winship
The NY Yankees and the U.S. Economy

Bill and Kathleen Christison
The Making of Recent U.S. Middle East Policies: a New Study of Neocon Influence

Susan Block
Palin as Venus in Furs: the Dominatrix Politics of Drilling and Killing

Robert Fantina
Republicans and Subpoenas: Never the Twain Shall Meet

Heidi Walters
Hung Up on Route 36: an 18-Wheeler and a Nuclear Cask

David Yearsley
Germany's Lost Organs: When Bigger Was Better

Raymond J. Lawrence
The Politics of Tribulation: Sarah Palin and the Rapture

David Rosen
One Billion Pills Later: Viagra at 10

David Michael Green
Living in Sarah Palin's America

Anthony Papa
Imprisoned Voters and the Elections

Niranjan Ramakrishnan
Freddie, Fannie, Daddy, Nanny

Howard Lisnoff
When We Notice the Homeless

John Goekler
Leaving Every Child Behind

Missy Beattie
Impalement

Dave Zirin
Leave Josh Howard Alone

Charles R. Larson
Holden Caulfield, Rest in Peace

Tim Matson
Too Big for His Birches: Woodlot Economics

Susie Day
Attack of the Angry Fetus

Poets' Basement
Corseri, Gibbons, Jenkins and Ford

Website of the Weekend
Dylan & Baez: Deportees

September 19, 2008

Steven T. Banko
McCain's Passion Play

Mike Whitney
The Point of No Return

Michael Hudson
The Dow Jones' Wonderfully Cheesy Addition

William Kaufman
Shattering the Glass-Steagall Act: the Bi-Partisan Origins of the Financial Crisis

Brenda Norrell
The Fall of Lehman Bros.: Blowback for Black Mesa?

Keeanga-Yamatta Taylor
The New Rhetoric of Racism: Why Won't Obama Call It Out?

Clifton Ross
Bolivia: Cleaning Up the Bull Ring

Dave Lindorff
Hang On to Your Wallets: the Government's About to Rescue Us!

Cynthia McKinney
Seize the Time!

Susan Hurlich
Storm Survivors: a Dispatch from Cuba

Michael Donnelly
Let's Hand It All Over to the Democrats (They Helped Create This Mess)

Website of the Day
The Crisis Explained

September 18, 2008

Benjamin Dangl
The Machine Gun and the Meeting Table

Harvey Wasserman
The Senate's Drill, Drill, Drill Scam

Susan Abulhawa
The Lobby Has Spoken: Biden and Israel

Robert Weissman
After the Fall: the Financial Re-Regulatory Agenda

Anne-Marie McManus
McCain's Cinderella: the Fetishization of Sarah Palin

Corey D. B. Walker
The Poverty of 21st Century Progressivism

William S. Lind
Senator O'Bush: Why Obama is Wrong on Iran and Afghanistan

Ron Jacobs
Washington's False Logic of Torture

Dave Lindorff
American and China: Joined at the Hip

Binoy Kampmark
How Damien Hirst Got Away With It

Website of the Day
An Invisible Army

September 17, 2008

Stephen Conn
Palin and the Politics of Big Oil

Forrest Hylton
Reactionary Rampage in Bolivia

Patrick Cockburn
Petraeus Leaves Iraq

Gregory Elich
Inside North Korea

Ralph Nader
How the U.S. Auto Industry Wrecked Itself

Franklin Lamb
The Palestinians of Shabra-Shatila

Pam Martens
The Gang's All Here: Bush, McCain and the Old Iran/Contra Team

Dave Lindorff
The End of the Blue Chip Economy

Peter Morici
The Damage Deepens

Stanley Heller
The Killing of Count Folke Bernadotte

Douglas Valentine
Rambling David Foster Wallace

Website of the Day
Free Cindy McCain!

September 16, 2008

Paul Craig Roberts
US Economy: Rudderless and Reeling from Direct Hits

Tiphaine Dickson
Citizen Palin: Why Sarah Palin Quoted Westbrook Pegler

Stan Goff
America is Now Rome: an Open Letter to Christian Troops in Iraq and Afghanistan

Uri Avnery
Tzipi's Choice

Michael Winship
Lipstick on Polar Bears

Jeff Halper
Warehousing Palestinians

Patrick Irelan
Bolivia Versus the Empire

Oscar Gonzalez
Who's Dumber? Ike's Refugees or Wall Street's?

Binoy Kampmark
Cheney and His Records

Fatemeh Keshavarz
Muslims are at Peace with You

Sen. Russ Feingold
Restoring the Rule of Law

Website of the Day
The Next Great Rock Band?

September 15, 2008

Mike Whitney
The Tumbrils Roll at Dawn

Peter Morici
Toxic Lehman

Patrick Cockburn
Take Another Look at the Surge

Charles R. Larson
The Maverick Has No Clothes

Jonathan Cook
The Expulsion of Palestinians from Jaffa

Nikolas Kozloff
Racist Rhetoric in Bolivia

Roger Burbach
Morales Confronts the Insurrection: Bolivia and the Echoes of Allende

Helen Redmond
Where's the Health Care Bailout?

David Michael Green
The Democrats Do Poland

David Macaray
The Boeing Strike

Ralph Nader
Remembering Peter Camejo

Website of the Day
The Ballad of Sarah Palin

October 15, 2008

Monstrous Gambles on the Future

The Financial Economy and Real Economy

By JUSTIN PODUR

“This extraordinary capacity to finance not on past wealth but on the present value of future anticipated cash flows is at the core of America's dynamic approach to wealth creation”

- Edelstein, R., and Paul, J.M. Europe needs a new financial paradigm. Wall Street Journal Europe June 12-13, 1998. Quoted in The Fisherman and the Rhinoceros.

Writers on financial or economic matters rarely see the need to explain the basics of the field or justify them at the best of times, let alone in the middle of unfolding crises. What are these 'financial instruments' – futures, options, and swaps? What are they for, and how did they increase the dangers of what occurred? What is the relationship between finance and the 'real economy'? What exactly is wrong with that relationship? Events move so quickly that stories discussing them rarely stop to explain the basics.

Luckily, there are occasionally exceptions. A book by Eric Briys and Francois de Varenne, The Fisherman and the Rhinoceros: How International Finance Shapes Everyday Life (Wiley, 2000. The original French version was called La mondialisation financiere: Enfer ou Paradis? and was published in 1999), teaches how the financial economy works and explains why it is such a great thing. At the time their book was published, the stock market collapse of 2003 had not yet occurred, and nor had the collapse of Enron, the Iraq war, the oil and food price crises, and the current mortgage meltdown. Briys and de Varenne were working for Deutsche Bank when the book came out. They had both previously worked at Merrill Lynch (which no longer exists, sold to Bank of America) and Lehman Brothers (which no longer exists, largely sold to Barclays). The authors are excellent writers. They provide a rare and wonderful thing: a clear, confident explanation by practitioners of ideas and attitudes which, when implemented, proved unambiguously disastrous.

Briys and de Varenne start their book with a question that is today on everyone's minds:

 “Is the globalisation of finance steering us towards heaven or hell? Ought we to be afraid of the new economic system that we live in? Should we fear the financial markets and their infamous derivatives? Should we be dreading the prospect of a domino effect that will drag the world economy into a chain of one collapse after another? In short, have we, like Frankenstein, given birth to creatures which can no longer be controlled and which are a permanent threat to our future?”

Their answer is no. Mine is yes. I will first summarize the lessons they teach in their book, then describe the problems with their world-view.

The skill of risk management

The fisherman's (and in their book it's a man) parable is used to explain the importance of the futures contract.

A fisherman has a great skill set, sailing, navigating, handling the risk of storms and accidents, catching and hauling fish back to port. That fisherman will be familiar with taking and managing certain kinds of risks to his physical safety in his work. On top of these risks and these skills, though, he also has to worry about the uncertainty in the price of his catch. When he brings his fish to market, what if there happens to be a glut of fish, and he can only fetch a very low price, one so low that he can't pay his expenses?

He can hedge against this risk by taking a futures contract. He can sell his fish before he catches them if he can find a buyer at an agreed-upon price. He will agree to deliver a certain quantity of fish at a certain time at a certain price.

Who might buy this contract from him? Two kinds of people. The first kind is another business, say a fish canner. The canning factory needs a steady supply of fish to keep running. While the fisherman is worried about risk that the price will go down, the cannery is more concerned that there won't be any fish when they need it. They might be willing to pay extra in order to know that they will get the fish they need when they need it, rather than trying to get the cheapest possible price for their supply. The fisherman might be willing to accept a lower price than the best possible price he could get, so that he could guarantee that the price won't be lower than what he can accept. Both parties win, and importantly, both can focus on what they're good at: the fisherman at catching fish, the cannery at canning fish.

The second person who might accept the fisherman's contract and buy the fish before they are caught is the speculator. While the cannery will take a futures contract out of a need for a steady (if higher than perfect) supply, the speculator is not interested in fish at all, but is merely betting that the price of fish will be higher than what he bought it for. The speculator hopes merely to turn around and sell the fish. To someone not trained in finance, this might seem like mere gambling, and that the speculator is adding no value. But the speculator is providing a social service, and has a skill to bring to bear as well. The fisherman's skill is catching fish. The speculator's is managing risk. When both focus on what they do best, they both profit, and society at large profits as well. Again, everyone wins.

The Monte Carlo strategy and the importance of regulation

So, according to the proponents of finance, the speculator is not a parasite on the real economy, but almost a saint, someone who helps everyone by taking on the specialized task of managing risks. For assuming these risks, the speculator gets the chance of profits.

All is well, in this world, except when the speculator can use someone else's money. The next parable in the book is that of the blind pearl-fisher. These pearl-fishers, like fishermen, assume huge risks in swimming on the sea floor for oysters with pearls in them. They almost all come to lose their sight – but active pearl fishers have a kind of self-help organization where some of their catch is reserved to take care of pearl fishers who have gone blind. Active pearl-fishers can feel assured that they will be taken care of when they lose their abilities, so they feel safer in assuming the physical risks of their work.

What if, instead, these pearl fishers pooled their money and gave it to a banker? The banker takes $9000 from them, promising them their principal plus interest. He takes their $9000, adds $2000 of his own, and goes to the casino in Monte Carlo with the $11 000. There, he bets $1000 on red (his own money) and $10 000 on black (the $9000 from the fishers and $1000 of his own).

Now, if black wins, he gets $20 000, pays the fishers back their interest, takes back his $2000, and is seen as a financial genius for making huge profits.

If red wins, he's just lost all of the fishers' funds, but he still keeps his own $2000. Now he tells the fishers “sorry, I can't pay you back after all”, and walks away. Because he did all this on behalf of a corporation, his liability is limited, his personal money protected. He's unlikely to go to jail, and if his bank is big enough, he might just get bailed out by the government.

He was supposed to be providing a service: helping the pearl-fisher's assets find their most efficient use in the real economy, where they would earn the biggest return, a return he and his clients could share in. Instead, he used a permissive environment (for which the government is to blame) to engage in a Monte Carlo strategy. He went for broke with other people's money, took care of himself, and lost.

If the government creates a permissive environment for this, by acting as guarantor of bankers who act this way, then these crises will continue to occur, the proponents of finance argue. Instead, what the government should do is create a regulatory environment where bankers and insurers are encouraged and free to use these instruments responsibly. Or, alternatively, so deregulate finance that depositors know they will have no protection except their own hedging if the bank defaults. The depositors thus have an incentive to keep an eye on the banks – in a system where the government is present, they do not. The problem with the banker and the pearl fishers in this parable is, in their view, that they did not use financial instruments to hedge!

Instead of trusting the banker, the pearl fishers could have avoided ruin by using insurance, through a credit default swap! They could still have given their money to a banker (though not the irresponsible gambling banker), but they should have paid a series of regular payments to someone else. That person, the seller, would take the payments, but would pay the pearl fishers the value of their assets ($9000) if the banker defaulted on the loan. The pearl fishers accept a lower rate of return on their money, but are insured against a default by the banker because they bought a swap. The real economy is served, the pearl fishers are ensured, and the risk is managed.

Briys and de Varenne explain the option contract using a parable of a Genovese merchant, Zaccaria, in 1298. This skilled merchant, was going to get a shipment of alum from Aigues Mortes to Borges. Zaccaria had contacts in Borges and the means to hire the ship. He also was well aware that there were storms at sea and possibly pirates. So he sold the alum to a partnership, Suppa and Grilli. The partners sold Zaccaria the right to buy the alum back if it reached Borges.

Suppa and Grilli would make a profit if the ship reached Borges, but would lose their investment if the ship sank. Zaccaria, meanwhile, had covered his risk. If the ship didn't reach Borges, he had made a small profit by selling to Suppa and Grilli. If the ship did reach Borges, he would buy the shipment back and re-sell it in Borges at an even higher price and at an even higher profit. He could concentrate on doing what he did best, moving and selling goods, and let Suppa and Grilli do what they did best, assume the risk and take a premium for it.

The tyranny of the real economy

But now Suppa and Grilli, whose option contract effectively made them insurers, have a problem of their own. They are betting their money on the ship not sinking. The way they can manage that risk for themselves is to make many bets on many ships. Some of these will sink, and they will lose, but many will land, and they will profit. They set the premium they charge based on their assessment of the risks to the ships.

The same problem applies for the 'seller' of the swap, who ensured the pearl fishers against a default by their banker. They are betting against a default, and their cash is on the line if a default occurs. They are speculators. Their job is to manage risk. How best to do so?

To the proponents of finance, the answer to this question has everything to do with the sources of risk. And the sources of risk are not from the financial economy, but from the real economy – what Briys and de Varenne call “the tyranny of the real economy”. This tyranny includes, especially, the weather, but also, presumably, the tyrannical biological systems on which life depends, the tyranny of there only being so much oil in the ground, and so on. What the financial economy enables us to do, they argue, is break free of that tyranny. Risks can be moved through the use of these derivatives not only to the right people, but also forward into the future for the right time! By trading swaps for swaps, bundling debts and re-selling them as assets, and selling derivatives on these assets, risks can be moved around until they are in exactly the right place, as determined by the market. Among the cases of businesses that have successfully broken free of this tyranny, the authors mention two: Enron and mortgage-backed securities.

They describe Enron's innovations:

“Peter Tufano describes Enron's bold move as follows: 'Their vision was to create a “gas bank” that would serve as an intermediary between buyers and sellers, allowing both to shed their unwanted risks.' The move, although bold, was quite rational. Indeed, Enron's core asset is a deep knowledge of the natural gas market, from exploration to distribution. The new generation of Enron products was born... From being a producer and distributor of natural gas, Enron Capital and Trade Resources became a natural gas banker managing the volatility of the price of natural gas. This mutation has far-reaching implications. First, the methane molecule is no longer anonymous: it bears Enron's landmark. Second, to avoid failed promises, Enron had to make sure that it was properly equipped to monitor and trade the price risk of natural gas. To ensure this, it invested millions of dollars in the required technology and human capital. Nevertheless, the story would not have been a success if commodity derivatives had not been available. Enron would still be wondering how to redefine itself and the clients would still pray that prices remain stable... Obviously, the more tradeable the risks at their disposal, the more efficient their construction.” (pp. 96-97)

Enron's 'bold move' was based on fraudulent accounting, in which present and future assets were counted but future costs were not. It ended in blackouts, swindles, and jail terms.

On innovations in the mortgage market, they have this to say:

 “In the United States, commercial banks have gradually been driven out of the mortgage loan market. Much of their mortgage business has been swallowed up by financial market operators and specialist investment banks. Today, mortgages are tradable on a buoyant mortgage-backed securities market. In essence, the financing of mortgages has broken free from its traditional master and has become a 'free agent'. This is the process known as securitisation. Its scope now includes car loans, credit card loans, music rights... As individuals and consumers, we end up better off because we deal with financial institutions that are more efficient in delivering the products and services we need and want.” (pp. 91-92)

The 'financial market operators and specialist investment banks' that outcompeted the commercial banks today either no longer exist or have been purchased by the very commercial banks they drove out, precisely because those commercial banks have funds from their depositors. As for the securitisation of car loans, credit card loans, and music rights – those chickens have yet to come home to roost.

Arguments against the financial economy

The point of reviewing an eight-year old, pro-financial economy book in such detail was not to kick these bankers when they're down or to show how absurd they sound when real events reveal the falsehood of their breathless claims. On the contrary. Our historical and political memories are short. Financial memory is still shorter. These arguments, and the financial instruments they justify, however, will remain. There will not be a better time to discredit them as thoroughly as possible. There are four main reasons why the arguments of Briys and de Varenne fail.

First, they fail because they overstate the complexity of the financial economy. The complexity is more contrived than real, the financial instruments more convoluted than complex. The authors ask the rhetorical question: “On what grounds can one reasonably expect that a complex financial contract solving a complex real-world issue does not deserve the same thorough scientific treatment as an aeroplane wing or a micro-processor? Only ignorance would suggest such an idea.” (pg. 76)

In reality, the aeroplane wing and the micro-processor deal with systems far more deeply understood than economies. It is not a question of complexity but of the depth of knowledge we have, and could conceivably have, about the topic. Liberal economist James Kenneth Galbraith wrote in his “Brief History of Financial Euphoria” (pg. 19) that “financial operations do not lend themselves to innovation... all financial innovation involves, in one form or another, the creation of debt secured in greater or lesser adequacy by real assets.”

Second, they fail because the 'tyranny of the real economy' is not so easily escaped. It is certainly possible to treat the future like a colony to be stripped of its natural and human wealth, a repository of pollution and garbage. But those who live in the future, like those who live in the colony, will suffer as a result. Breaking free of the tyranny of the real economy is always transferring the risk and the suffering on to someone else.

The business world has several different ideas on finance and the real economy. Proponents of the real economy, in contrast to Briys and de Varenne, argue that investors and finance should focus on serving the real economy: real assets and people working with them to produce real value. There would be a role for hedging and derivatives, but these could be very strictly regulated to ensure they were not being used for mere speculation. So, to return to the parable of the fisherman, futures contracts for fish might be regulated so that only people in the fish business could buy them. Many kinds of financial activity would thus be banned, and the tyranny of the real economy would shackle finance from its desire for freedom. Strict regulation of this kind would certainly solve some problems. It would prevent many types of bubbles from occurring and bursting. It would match investment to real production needs. It would not stop displacement of peasants and indigenous people from their territories, exploitation of workers, union-busting, environmental destruction by extractive industries, pollution by manufacturing industries, the depletion of resources and ecosystems by consumption, or climate change, since these are all artifacts of the 'real economy'.

Third, they fail because they assume that the rules by which the economy runs are neutral. In fact, the rules favour some actors over others. Our system favours capital over labour, corporations over peoples, and the first world over the third world. But even at a more superficial level, the rules can be set to favour speculators and their activities rather than the businesses the speculators are supposed to serve by managing risk. By changing the rules of the game, speculators undermine the value of their activities to real economy business and subordinate that activity to their own. The psychology of speculation plays a role in this, which is part of why these crises recur. After a crash, the rules are changed to try to ensure it doesn't happen again. After several years of increasing prices and values, everyone forgets the last crash and the government relaxes the rules to facilitate gambling.

Fourth, and most importantly, they fail because the ultimate absorber of any risk is always society at large. That is what happened with every bailout in the past, and it will happen again, despite the pretense of a private enterprise system. Margaret Thatcher famously said in 1987 that 'there is no such thing as society. There are individual men and women, and there are families.' But in economics, the exact opposite is true. There is only society – to make the rules, to enforce them, and to face the consequences. The economic lives of individuals are lived in society. Society has options for governing its economic life. Today it is organized to provide state support for corporations and elites to accumulate massive shares of wealth and power, guaranteed by us all. It need not be.

'Moral hazard' is the fear that people will take risks they wouldn't otherwise because they know the government or someone else will bail them out. But it is not something that can be avoided through clever use of financial instruments, or even by selectively bailing out only the rich and not those who are losing their homes in foreclosures and evictions.

The people on whose behalf society is organized will always feel that they can take risks and have society save them. Are those people us? The question for a society is whether we want our lives to be devoted to saving elites from the monstrous power gambles for obscene amounts of money, or whether we would rather absorb the more moderate risks that everyday people have to take seeking decent survival. That would not automatically happen even if the rules were changed to reassert the 'tyranny of the real economy', but would require a very different sort of real economy.

Justin Podur is a Toronto-based writer. His blog is www.killingtrain.com and his email address justin@killingtrain.com

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