Adonis Diaries

Posts Tagged ‘financial engineering

If most States are reeling under Sovereign debt, including USA and Japan, from where credit is supplied?

Except China, Norway, Sweden, Denmark, Netherlands and Syria (before the world war on it in 2011), almost all the states in the UN  are reeling under Sovereign debt. The USA alone is over $20 trillion under and Japan over $3 trillion under.

Question: if recently China managed to be a creditor, whatever saving China made, cannot cover a tiny part of world’s debt, (excluding the USA and Japan debts that are beyond comprehension in any scale), then how this financial system is still working?

The USA ceased to be a productive country around 1967 and rom the Gold. Since then, most of US goods , are produced by a third country, and US consumers are relying on third parties to supply their demands.

In fact, the USA has been functioning within a Ponzi system: country buy US treasury bills because the dollars is the world main currency, and the US use this influx to pay its civil servants and its military infrastructure.

Do you know that Japan with a huge sovereign debt buys US treasury bills by the trillion every year? Sure China also buys these bills by a trillion each year. and at a lower scale follow Britain and Saudi Kingdom.

Obama warned the British before the Brexit vote (Exiting the EU):Do Not rely on the USA to back you in your troubles years“. The tiny Brexit majority didn’t take his warning seriously.

Donald Trump has dropped the mask on this Ponzi scheme that has been going on for 6 decades. Trump has started to blackmail any country with surplus money if they still want to rely on US (psychological) military support.

Recently, Trump demanded from Japan and South Korea to pay for US military presence, though Japanese masses have been pressuring the US to withdraw their forces for decades now.

Trump even backed down on his will to withdraw his military presence in Syria in order to exploit the Syrian oil fields, and for free (US highway robbery that doesn’t give a damn of any UN principles).

With shortage of money to buy ridiculous weapons they don’t need, the Saudi Kingdom and the Gulf Emirate are reverting to finance US mercenaries for protection of their unstable “absolute monarchic” powers

So far, US federal budget is covered by China and Japan buying treasury bonds by the trillion.

The Western colonial powers have been supporting one another through short loans at very low interest rate (less than 3%) and then re-lending to the developing nations at 8%.

Now and then, the USA creates a world financial crisis in order to erase part of its past sovereign debts through financial “engineering” malevolent practices that punish the poorer classes around the world, with No exception.

And the USA then rely on the International Monetary Fund (IMF) to lend money at exorbitant interest rates with conditions to charge the poorer classes to cover the deficit in their States.

Actually, Not a single State that borrowed from the IMF managed to deal with its conditions without a major mass upheaval. Even European countries are No exceptions.

This mechanism of transferring fictitious wealth through engineered financial transactions is at an end, as China and Russia have decided to have their own financial transaction scheme.

Lebanon, a non-productive tiny country with no raw material, is Not the first State that lived on a Ponzi scheme for 3 decades. The USA has been sustained in a Ponzi scheme for 60 years by now, since it ceased to be a productive country.

So far, the financial structure in the world is still functioning under a Ponzi scheme, a scheme that cannot be sustained. Basically, Asia Far Eastern countries (China, India, Viet Nam, Malaysia, Cambodia, Indonesia….) are shouldering the burden by hard working productive activities.

Once China decides that great “growth” is Not the name of the game, but enough productive scale for self sufficiency and to satisfy its close allies, then China will desist from buying US bonds, and the US will have to face this calamity of relying on its Ponzi mechanism.

World World III is not possible against direct war with China or Russia, and China will play the “deep pocket” for the countries resisting US military hegemony.

Note: In all of the financial crashes of 1982, 1990, 1997 and the 2008… the presidents of central banks of the (colonial powers) meet in Bale (Switzerland) to swap papers. The rich get richer and the small creditors are buried under papers

Lebanon’s Richest Need To Take a Haircut

Those who benefited from sky-high interest rates have to give up some of their millions.

At the root of the economic grievances fueling Lebanon’s mass protests lies what looks like a regulated Ponzi scheme (and that for 3 decades).The problem will not be solved by a change of government—even with a cabinet of experts—or by injections of capital from friendly Arab states: it will require tougher measures, including a compulsory haircut for many of the country’s richest citizens.For decades, Lebanon depended on remittances to sustain its economy and the lira peg.

Fixed at 1507.5  LP (lira) to the U.S. dollar since 1997, the peg resulted in an overvalued currency, relative to the country’s productivity. This gave the Lebanese a higher income and standard of living than in any neighboring Arab country, allowing them to spend on travel, cars, clothes, and gadgets.

During the 2008 credit crisis, Lebanon had a reverse capital flight to its perceived safety.

Rich Lebanese expats stopped trusting foreign banks and moved their money home, helping to create a balance-of-payment surplus of $20 billion between 2006 and 2010.

This surplus was squandered on real-estate development and government waste, resulting in a bubble, the remnants of which can today be seen in the shiny, vacant towers dotting the Beirut skyline.

Starting in 2011, the surplus morphed into a persistent annual deficit.

It wasn’t until 2016 that the Banque du Liban recognized the danger signs. The central bank initiated a series of so-called “financial engineering” transactions, which were equivalent to swapping lira for fresh (that is, attracted from overseas) dollars at exorbitant interest rates reaching 14-30%.

Most of the lira thus printed by BDL was recognized as revenue, giving banks record profits, despite a stagnant economy.

The two top banks alone made over $1 billion in 2016 in these artificial profits; the bonuses paid to senior managers were in real cash. (Which are these 2 top banks?)

The interest owed to earlier depositors was sourced from new investors.

Neither local nor foreign analysts picked up on this, even though the mechanism was suspiciously similar to what an infamous Italian immigrant did in Boston a century ago.

All employed Lebanese have benefited from this particular variant of the Ponzi scheme: the dollar peg meant that their salaries are worth more than in a floating-currency regime.

Due to the crowding-out effect, the main losers are the youth, among whom the unemployment rate is almost 40%.

In the Lebanese paradigm, unemployed youth are expected to emigrate, find jobs elsewhere and transmit remittances—in effect, to continue funding the scheme. But this has become increasingly difficult as job opportunities overseas have dwindled.

Most analysts have been too distracted with traditional metrics, such as government debt worth nearly $90 billion, and have been neglecting the fact that BDL has borrowed $110 billion from Lebanese banks—out of $170 billion in total deposits.

Half the dollar deposits in Lebanese banks are now with BDL, with the rest in lira. There is just no way for BDL to return this money.

Meanwhile, the astronomically high interest rates have created a cohort of millionaires and deca-millionaires.

But their account values are just computer entries, produced by compounded rates of return with no productive investment yielding real returns on the other side. Which is why, as bank deposits increased artificially, real liquidity shrank.

The real dollars in BDL reserves, plus bank deposits with custodial accounts, amount to around $40 billion: in other words, there’s only one dollar of liquidity for every $3 dollars of claims.

This would normally not be a problem in fractional banking, except that all these liabilities are in a foreign currency that BDL cannot print nor generate locally.

The good news is that almost all this debt is internal.

This makes the solution quite simple: a national restructuring that equitably distributes losses, clawing back the phantom returns.

Less than 1% of depositors, or 24,000 accounts, account for nearly $90 billion, with the average account worth $3.5 million. (Assuming each millionaire has three or four accounts, a common practice in Lebanon, we may be talking about no more than 6,000-8,000 account holders.)

But the owners of these phantom-money accounts spend some of it in the real world—on a Bentley, say—which consumes BDL reserves.

Similarly, any Lebanese earning in lira consumes BDL reserves every time they go on vacation to Greece or buy an imported product.

How to fix the problem?

The central bank can start by imposing capital controls on transfers overseas and curtail cash withdrawals; some banks are already doing this, but it would be more efficient and equitable if BDL made it compulsory for all.

Capital controls would only stanch the bleeding.

Healing the wound would require more drastic measures, such as a haircut on all accounts above $1 million. (The extent of the haircut would depend on where BDL is prepared to start cutting: the larger the account, the deeper the cut can be.)

This may require a ministerial decree, possibly even parliamentary approval. Legislators could call it a deferred tax, if that makes it politically more palatable.

This will not be as catastrophic as it sounds. A Lebanese who deposited $10 million 10 years ago, at 12%, holds $31 million today. With a 50% haircut, they would have $15.5 million, a quite reasonable return of 4.5%.

Lebanon officials may balk at trying something no other country has attempted before, but since their problem is sui generis, the solution can hardly be otherwise.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story:
Dan Azzi at

To contact the editor responsible for this story: Bobby Ghosh at

Dan Azzi is an Advanced Leadership fellow at Harvard University. He previously served as chairman and chief executive officer at Standard Chartered Plc’s Lebanon-based subsidiary.

Are TED talks lying to you?  And why did I hear all these predictable stories before?

The writer had a problem. Books he read and people he knew had been warning him that the nation and maybe mankind itself had wandered into a sort of creativity doldrums.

Economic growth was slackening. The Internet revolution was less awesome than we had anticipated, and the forward march of innovation, once a cultural constant, had slowed to a crawl.

Thomas Frank posted on Salon this OCT 13, 2013:

TED talks are lying to you

One of the few fields in which we generated lots of novelties — financial engineering — had come back to bite us.

And in other departments, we actually seemed to be going backward. You could no longer take a supersonic airliner across the Atlantic, for example, and sending astronauts to the moon had become either fiscally insupportable or just passé.

TED talks are lying to youEnlarge

Jessica Pare and Jon Hamm in “Mad Men” (Credit: AMC/Michael Yarish/amc)

And yet the troubled writer also knew that there had been, over these same years, fantastic growth in our creativity promoting sector. There were TED talks on how to be a creative person.

There were “Innovation Jams” at which IBM employees brainstormed collectively over a global hookup, and “Thinking Out of the Box” desktop sculptures for sale at Sam’s Club.

There were creativity consultants you could hire, and cities that had spent billions reworking neighborhoods into arts-friendly districts where rule-bending whimsicality was a thing to be celebrated. If you listened to certain people, creativity was the story of our time, from the halls of MIT to the incubators of Silicon Valley.

The literature on the subject was vast. Authors included management gurus, forever exhorting us to slay the conventional; urban theorists, with their celebrations of zesty togetherness; pop psychologists, giving the world step-by-step instructions on how to unleash the inner Miles Davis.

Most prominent, perhaps, were the science writers, with their endless tales of creative success and their dissection of the brains that made it all possible.

It was to one of these last that our puzzled correspondent now decided to turn.

He procured a copy of “Imagine: How Creativity Works,” the 2012 bestseller by the ex-wunderkind Jonah Lehrer, whose résumé includes a Rhodes scholarship, a tour of duty at The New Yorker and two previous books about neuroscience and decision-making. (There was also a scandal concerning some made-up quotes in “Imagine,” but our correspondent was determined to tiptoe around that.)

Settling into a hot bath — well known for its power to trigger outside-the-box thoughts — he opened his mind to the young master

Anecdote after heroic anecdote unfolded, many of them beginning with some variation on Lehrer’s very first phrase: “Procter and Gamble had a problem.” What followed, as creative minds did their nonlinear thing, were epiphanies and solutions.

Our correspondent read about the invention of the Swiffer. He learned how Bob Dylan achieved his great breakthrough and wrote that one song of his that they still play on the radio from time to time. He found out that there was a company called 3M that invented masking tape, the Post-it note and other useful items. He read about the cellist Yo-Yo Ma, and about the glories of Pixar.

And that’s when it hit the correspondent: He had heard these things before.

Each story seemed to develop in an entirely predictable fashion. He suspected that in the Dylan section, Lehrer would talk about “Like a Rolling Stone,” and that’s exactly what happened. When it came to the 3M section, he waited for Lehrer to dwell on the invention of the Post-it note — and there it was.

Had our correspondent developed the gift of foresight? No.

He really had heard these stories before. Spend a few moments on Google and you will find that the tale of how Procter & Gamble developed the Swiffer is a staple of marketing literature. Bob Dylan is endlessly cited in discussions of innovation, and you can read about the struggles surrounding the release of “Like a Rolling Stone” in textbooks like “The Fundamentals of Marketing” (2007).

As for 3M, the decades-long standing ovation for the company’s creativity can be traced all the way back to “In Search of Excellence” (1982), one of the most influential business books of all time. In fact, 3M’s accidental invention of the Post-it note is such a business-school chestnut that the ignorance of those who don’t know the tale is a joke in the 1997 movie “Romy and Michele’s High School Reunion.”

These realizations took only a millisecond.

What our correspondent also understood, sitting there in his basement bathtub, was that the literature of creativity was a genre of surpassing banality. Every book he read seemed to boast the same shopworn anecdotes and the same canonical heroes.

If the authors are presenting themselves as experts on innovation, they will tell us about Einstein, Gandhi, Picasso, Dylan, Warhol, the Beatles.

If they are celebrating their own innovations, they will compare them to the oft-rejected masterpieces of Impressionism — that ultimate combination of rebellion and placid pastel bullshit that decorates the walls of hotel lobbies from Pittsburgh to Pyongyang.

Those who urge us to “think different,” in other words, almost never do so themselves.

Year after year, new installments in this unchanging genre are produced and consumed. Creativity, they all tell us, is too important to be left to the creative. Our prosperity depends on it. And by dint of careful study and the hardest science — by, say, sliding a jazz pianist’s head into an MRI machine — we can crack the code of creativity and unleash its moneymaking power.

That was the ultimate lesson. That’s where the music, the theology, the physics and the ethereal water lilies were meant to direct us.

Our correspondent could think of no books that tried to work the equation the other way around — holding up the invention of air conditioning or Velcro as a model for a jazz trumpeter trying to work out his solo.

And why was this worth noticing?

Well, for one thing, because we’re talking about the literature of creativity, for Pete’s sake. If there is a non-fiction genre from which you have a right to expect clever prose and uncanny insight, it should be this one. So why is it so utterly consumed by formula and repetition?

What our correspondent realized, in that flash of bathtub-generated insight, was that this literature isn’t about creativity in the first place. While it reiterates a handful of well-known tales — the favorite pop stars, the favorite artists, the favorite branding successes — it routinely ignores other creative milestones that loom large in the history of human civilization.

After all, some of the most consistent innovators of the modern era have also been among its biggest monsters. He thought back, in particular, to the diabolical creativity of Nazi Germany, which was the first country to use ballistic missiles, jet fighter planes, assault rifles and countless other weapons.

And yet nobody wanted to add Peenemünde, where the Germans developed the V-2 rocket during the 1940s, to the glorious list of creative hothouses that includes Periclean Athens, Renaissance Florence, Belle Époque Paris and latter-day Austin, Texas.

How much easier to tell us, one more time, how jazz bands work, how someone came up with the idea for the Slinky, or what shade of paint, when applied to the walls of your office, is most conducive to originality.

But as any creativity expert can tell you “no insight is an island entire of itself“.

New epiphanies build on previous epiphanies, and to understand the vision that washed over our writer in the present day, we must revisit an earlier flash of insight, one that takes us back about a decade, to the year 2002. This time our future correspondent was relaxing in a different bathtub, on Chicago’s South Side, where the trains passed by in an all-day din of clanks and squeaks. While he soaked, he was reading the latest book about creativity: Richard Florida’s “The Rise of the Creative Class.”

Creativity was now the most valuable quality of all, ran Florida’s argument, “the decisive source of competitive advantage.” This made creative people into society’s “dominant class” — and companies that wished to harness their power would need to follow them wherever they went.

Therefore cities and states were obliged to reconfigure themselves as havens for people of nonconformist tastes, who would then generate civic coolness via art zones, music scenes, and truckloads of authenticity. The author even invented a “Bohemian Index,” which, he claimed, revealed a strong correlation between the presence of artists and economic growth.

Every element of Florida’s argument infuriated our future correspondent. Was he suggesting planned bohemias? Built by governments? To attract businesses?

It all seemed like a comic exercise in human gullibility. As it happened, our correspondent in those days spent nearly all his time with the kinds of people who fit Richard Florida’s definition of the creative class: writers, musicians, and intellectuals. And Florida seemed to be suggesting that such people were valuable mainly for their contribution to a countercultural pantomime that lured or inspired business executives.

What was really sick-making, though, was Florida’s easy assumption that creativity was a thing our society valued. Our correspondent had been hearing this all his life, since his childhood in the creativity-worshipping 1970s. He had even believed it once, in the way other generations had believed in the beneficence of government or the blessings of Providence.

And yet Richard’s creative friends, when considered as a group, were obviously on their way down, not up. The institutions that made their lives possible — chiefly newspapers, magazines, universities and record labels — were then entering a period of disastrous decline. The creative world as he knew it was not flowering, but dying.

When he considered his creative friends as individuals, the literature of creativity began to seem even worse — more like a straight-up insult. Our writer-to-be was old enough to know that, for all its reverential talk about the rebel and the box breaker, society had no interest in new ideas at all unless they reinforced favorite theories or could be monetized in some obvious way.

The method of every triumphant intellectual movement had been to quash dissent and cordon off truly inventive voices. This was simply how debate was conducted. Authors rejoiced at the discrediting of their rivals (as poor Jonah Lehrer would find in 2012).

Academic professions excluded those who didn’t toe the party line. Leftist cliques excommunicated one another. Liberals ignored any suggestion that didn’t encourage or vindicate their move to the center. Conservatives seemed to be at war with the very idea of human intelligence. And business thinkers were the worst of all, with their perennial conviction that criticism of any kind would lead straight to slumps and stock market crashes.

Or so our literal-minded correspondent thought back in 2002.

Later on, after much trial and error, he would understand that there really had been something deeply insightful about Richard Florida’s book. This was the idea that creativity was the attribute of a class — which class Florida identified not only with intellectuals and artists but also with a broad swath of the professional-managerial stratum.

It would take years for our stumbling innovator to realize this. And then, he finally got it all at once. The reason these many optimistic books seemed to have so little to do with the downward-spiraling lives of actual creative workers is that they weren’t really about those people in the first place.

No. The literature of creativity was something completely different. Everything he had noticed so far was a clue: the banality, the familiar examples, the failure to appreciate what was actually happening to creative people in the present time.

This was not science, despite the technological gloss applied by writers like Jonah Lehrer. It was a literature of superstition, in which everything always worked out and the good guys always triumphed and the right inventions always came along in the nick of time.

In Steven Johnson’s “Where Good Ideas Come From” (2010), the creative epiphany itself becomes a kind of heroic character, helping out clueless humanity wherever necessary:

Good ideas may not want to be free, but they do want to connect, fuse, recombine. They want to reinvent themselves by crossing conceptual borders. They want to complete each other as much as they want to compete.

And what was the true object of this superstitious stuff?

A final clue came from “Creativity: Flow and the Psychology of Discovery and Invention” (1996), in which Mihaly Csikszentmihalyi acknowledges that, far from being an act of individual inspiration, what we call creativity is simply an expression of professional consensus. Using Vincent van Gogh as an example, the author declares that the artist’s “creativity came into being when a sufficient number of art experts felt that his paintings had something important to contribute to the domain of art.”

Innovation exists only when the correctly credentialed hive-mind agrees that it does. And “without such a response,” the author continues, “van Gogh would have remained what he was, a disturbed man who painted strange canvases.” What determines “creativity is the very faction it’s supposedly rebelling against: established expertise”.

Consider the narrative daisy chain that makes up the literature of creativity. It is the story of brilliant people, often in the arts or humanities, who are studied by other brilliant people, often in the sciences, finance, or marketing. The readership is made up of us — members of the professional-managerial class — each of whom harbors a powerful suspicion that he or she is pretty brilliant as well.

What your correspondent realized, relaxing there in his tub one day, was that the real subject of this literature was the professional-managerial audience itself, whose members hear clear, sweet reason when they listen to NPR and think they’re in the presence of something profound when they watch some billionaire give a TED talk.

And what this complacent literature purrs into their ears is that creativity is their property, their competitive advantage, their class virtue.

Creativity is what they bring to the national economic effort, these books reassure them — and it’s also the benevolent doctrine under which they rightly rule the world.

An edited version of this essay originally appeared in Harper’s magazine

Thomas Frank’s most recent book is “Pity the Billionaire.” He is also the author of “One Market Under God” and the founding editor of “The Baffler” magazine.




March 2023

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