I consider it my duty to express profound acknowledgement to all participants of the Discussion Club as well as to the readers who shared their comments in private correspondence. Your opinions, remarks, comments, and questions were by far not the least of the things laid down in the foundation for the enhancements of the second edition. A special thanks to Leonid Ivanov for his help.
I'd like to express special gratitude to Irina Patseva, without whose moral support, this Treatise could have never been issued.
To the English reader
The original essay was written in Russian and at first was intended only for the Russian audience. Russian folklore (fairy tales, jokes, anecdotes, humor and etc.) is widely used in the manuscript. In this translation whenever possible we tried to explain such places or alter them to make it clearer for the English readers. We thank you for any comments and remarks regarding translation quality. So, let's begin...
A few words about human ethology
Foreword written to the publication of this book in Bulgaria in 2002
Traditional psychology as well as other sciences of human beings were always interested in the issue of proportion of biological and non-biological bases in man's behavior. At different times either biological or non-biological influence was considered as predominantly meaningful. In the 19th and at beginning of the 20th centuries there was commonly accepted opinion of biological component prevalence. As one of the most notorious (though, not the only) representative of these views one might call Sigmund Fried. However, constantly speaking actually about instincts ("libido" and "mortido") and their influence on a man even he did not take an attempt to research its physical nature and genesis. That's why there is no surprise that his conclusions and findings did not look really convincing and were constantly criticized. In addition, Eugenics based on a similar paradigm seriously discredited itself by the ties with despotic regimes using it for ideological support to conduct policy of violence and persecution. That's why beginning with the 1920s of the 20th century a pendulum swung into the opposite direction and as usual in such cases, overflew the golden middle. Up to the most recent time the concept of mighty domination of socially based component in human behavior was totally prevailing. Sometimes this concept is called a concept of "Tabula Rasa", i.e. "Blank List". It was suggested within the scope of this concept that at birth a man is a blank list where society and environment write one or the other rules of behavior and thus whatever is written will make a kind of human being. However, as time passed the inability to explain clearly and without strained interpretation the whole range of human behavioral reactions within the scope of this concept became more and more evident. At the same time, a lot of these seemingly unexplainable behavioral reactions of a human being find more or less natural explanation within the scope of hypothesis of presence of a powerful layer of inborn behavioral schemes in a human being! That's why at the very end of the 20th century the extremes in interpretation of human behavior were started to be removed, and a view of a human being as a creature in no small degree biological, born with a far from insignificant luggage of built-in behavioral schemes have begun to find wider and wider support. Nearly the most determinant contribution to this view was made by a science called ETHOLOGY and other disciplines branched from it. Ethology studies instinctive bases of behavior of living creatures by comparing the behavior of various species between themselves. A human being for ethologist is just another mammal having a fair conceit of oneself, but in reality only one of a species sharing equal rights with all other biological species.
Comparing behaviors of the specimens belonging to the various zoological species from the most primitive to the most complex scientists discover striking similarities and conformity which are evidence of existence common behavioral principles involving all members of zoological domain including humans. Such research methods are very productive and widespread in other sciences. For example, astronomers know much more about Sun's internal structure then geologists about Earth's inner structure. This happens because there are a lot of stars and all of them are way different. There is a lot to uncover by comparing them. But the Earth is unique and there is nothing to compare it. The same applies to studying a man. Restricting ourselves to study the one alone we take a risk to remain greatly limited in our comprehension of it.
However, studying ethology of humans is not simple. Besides objective difficulties deriving from powerful effect of brain masking and modifying many instinctive exhibits, researchers regularly get in conflict with public unacceptance of ethological method applied to the humans. Many people deem unacceptable and feel even insulted by the very fact of comparing human behavior with an animal. And this has its own ethological explanation! It consists of the effect of the instinct of ethological isolation of the species. The detailed examination of it is out of the scope of the book. The essence of this instinct can be expressed by motto "love your own kind but hate a different one". "Different ones" in our case are presented by apes and monkeys. Hostile attitude to them spreads as well on the thesis of relationship between our behavior and theirs. Despite up to this day non-stopping (due to the same hostility) attempts to overthrow Darwin theory, it is firmly and irrevocably accepted by the scientific community, and majority of the educated people completely agrees with their descent from the apes, however even a thought that one or another feeling is a call of instinct as before causes strong protests among many people, mostly getting no rational explanation. Meanwhile, the root of this hostility lies in subconscious unacceptance of our relationship with the apes. Please remember about that, my dear readers.
What else can an ethologist tell about a human being? A lot! He can tell about aggressiveness and about the nature of authority, about innate morality and the forces behind nationalism, and even about the oddity of love! And exactly the oddity of love we are going to discuss in this book.
About the subject
Question to an Armenian radio station:
How to avoid pregnancy?
Answer: Drink mineral water.
Question: When - before or after?
Answer: Instead of.
(old anecdote)
In my point of view all attempts of the society to enlighten the young and older people in sexual matters are extremely lop-sided. While the issues of the techniques of sexual intercourse, pregnancy prevention and the ways to avoid contracting sexually transmitted diseases are widely presented and available, the choice of partner is discussed casually, lacking the system, contradictory, and unconvincingly by the reason of subjective and purely speculative argumentation. Oh yes, discussing sexual techniques is damn pleasant but the majority of the tragedies on sexual ground happens not because the sex itself is not done RIGHT but because it is done with not the right partners. In fact, all the advice regarding choosing the partner are boiled down to hard way learning and staying away which in no way can guarantee that everything will be OK. From another point of view, while trying out the advice one might lose not one but many really suitable matches.
During the whole written history of human civilization, it was widely accepted to trust a feeling of love in choice of a partner. Moreover, in the last decades love as a conjuration became opposite to one minute passion and was counted as a guarantee of unerring choice. However, it hasn't been precisely proven so far that this trust is fully justified. The difference between big love and momentary chemistry is purely quantitative but not qualitative. Instead, the sensations arising from it are explained and colorfully described, but the basic logic of this event is left behind the scenes or is simply negated as something supernatural. There is no need to look for a mystery where one does not exist. In reality, all these irrational things of love are rational, logical, and wise in their own way. In order to see this rationality it is necessary to move from civilized society's coordinate system to one of primeval-herd. Below, I will try to show how to do it and prove the correctness of such transition. To be certain we shall speak about instinctive bases of conjugal behavior of human beings in terms of biological species. The process of sexual intercourse will not be examined. We are also not interested in FEELING itself, i.e. that sensations experienced by the lovers and physiological mechanisms which cause it.
I am sure that knowledge of this logic will not impoverish the perception of love, as one of the most beautiful feelings, like knowledge of flower structure does not hinder a botanist to be delighted with its beauty and like knowledge of harmony rules and musical instrument design does not hinder a musician to enjoy a masterpiece performance.
The instinctive bases of human being's conjugal behavior are studied by science called ETHOLOGY. However, there are practically no popular publications on this topic and I hope that this article will fill a gap in the lack of them in some way.
Why, properly speaking, is reproduction needed?
Who has come in this world - his grief is clear
He must come back to nonexistence.
(Omar Khaiam)
During the lifetime of any being its genetic material is gradually distorted, faults accumulate in it and as a result its viability diminishes and finally it dies. We will not examine the other theories of obsolescence as this is out of scope of this article. The phenomenon of reproduction of all known beings lies in the fact that the descendants obtain genes practically free of these accrued faults. Otherwise children would have inherited not only the body features but also age. So the rising generation would have faded out very quickly and probably it would have never started in the first place.
Briefly speaking:
Reproduction is the method of genetic material refinement from faults, i.e. the kind of way to live eternally.
Budding and sexual reproduction.
The best way of multiplication is division.
(from the talk of two amoebas).
Vegetative reproduction is just a simple division of cells, however this process only seems to be simple, but it is very complicated in fact. Genetic material is not simply duplicated but after the cells bifurcate chromosomes intricately exchange their different parts and as a result of this the defective genes are excluded from being forwarded to the next generations. Only after this, does a cell split into two. Nevertheless there is a very high probability that all genes in a chromosome's spirals happen to be damaged and it will be impossible to get non-damaged one.
As the way to eliminate or to significantly decrease this probability, nature came to the sexual process. Its main difference from vegetative is that two non-identical genetic sets from two different specimens with absent correspondingly damaged genes participate in exchange. Besides, it becomes possible to build the features and characteristics from different parents and this simplifies adaptation to ever-changing environmental conditions.
The advantages of sexual process are costly. Vegetative process is more simple and reliable, that's why many beings still practice reproduction in both ways. The sexual process is usually resorted with deterioration of living conditions, when the faults in genes become more often and the necessity to change something in life becomes more obvious. When everything is fine, simple division is the way to go.
Briefly speaking:
Despite the complexity in implementation, sexual reproduction provides higher quality refinement of genetic material from generation to generation.
It also creates higher diversion of properties, characteristics, and features in specimens and that gives significant advantages for adaptation to ever-changing environmental conditions.
About hermaphrodites and evolution of reproduction methods.
Do not multiply the fundamentals needlessly.
(W. Occam)
There must participate two different specimens in the sexual process but it follows from nowhere that they must be of two DIFFERENT genders. Hermaphrodites use sexual reproduction but of one sex! Each hermaphrodite individual has complete set of genitals and can equally play a role of a male or female and it is not unusual for the specimen to do it simultaneously. For example, some species of snails can copulate in large groups jointed in long ribbons or rings.
Hermaphroditism is not so bad. It is more reliable and simple than different genders. In fact, if we were normally hermaphrodites, our conjugal life would have become easier but probably not poorer. Judge for yourself, in spite of double the chance to find life's companion we would have had simplified acquaintance and courting procedures at least. Then why don't unisexual creatures dominate on Earth? From this point, the most interesting things begin!
Life on Earth was conceived approximately 3 - 3.5 billion years ago and reproduced vegetatively at first. The moment of "invention" of sexual reproduction is not certain, but the first cellular organisms, which appeared about 800 million years ago, used sexual reproduction, at least occasionally. Most of those organisms like snails, worms, etc., that survived to our days, were mostly hermaphrodites, i.e. obviously unisexual beings appeared much earlier. Their predominance ended in the Silurian period (approximately 400 million years ago). Along with them, the predominance of unisexual propagation came to an end. Since that time, dioecious reproduction is a rule because it has important advantages. What advantages?
One of them is very obvious. Some hermaphrodites (but not all) are able to copulate with themselves, and unlike masturbators can have posterity. Of course such an extreme incest contradicts the sense of dioecious propagation and should be prevented somehow because this kind of "sexual" reproduction is barely different from vegetative. However, real hermaphrodites practice self-copulation very seldom and generally for a very valid reason - absence of another being within its reach. Otherwise, some safety mechanisms eliminating self-fertilization are triggered. Initially, sex specialization is one of such mechanisms but this is not enough to squeeze out hermaphrodites.
About different genders and sexual selection.
- Do you love me?
- Yes!
- Ah! But where are the bees?
(From the talk of two flowers)
Since old fellow Darwin, it is usual to believe (partially against his opinion) that natural selection is based on casual, spontaneous death of creatures which are not adapted enough to living conditions. Such selection together with variability was called evolutionary force. Meanwhile, this way of selection is very inefficient. The man himself acts with far greater efficiency selecting new breeds of animals and plants. He achieves results in a few generations rather than in hundreds of thousands of years. The essence of such selection is to choose deliberately the parents of initial species, who carry the desired properties and disallow a reproduction of another beings without such properties. Actually there is no need to kill these outsiders. What humanism! Besides, a chance still remains to correct "judicial mistake" if this is going to occur.
Obviously, the usage of the same selection methods by nature itself can accelerate the pace of evolution and thus, improve the ability of the species to adapt to ever-changing environmental conditions. However, how can nature implement this in reality? It needs to have some kind of Judge, making the decisions of who deserves and who does not. The easiest way is to apply a hypothesis of God's existence, but this is a way to avert the answer. It is acceptable that this Judge is not alone. The most important is that they all should judge more or less by the same laws.
And there are a lot of judges and they are named "female". They pass a verdict which males will last in descendants and which will not. That's why such selection is called sexual. It is interesting that Darwin himself paid great attention to sexual selection but this did not find the proper response with the other scientists.
Can there be a sexual selection among hermaphrodites? Let us imagine a unisexual being which should have been rejected as sire. It is refused time after time but finally after some refusals, it finds the same loser and ... they will agree someway. In the world of different sexes, one outcast male can not help another one in bringing offspring but there are no outcast females in the animal world because one male can mate with many females. And usually it is still far from the limit of its fertilizing productivity. Taking into account that the number of males in population usually equals the number of females, hence male fertilizing potentials are in extreme abundance and it means that females always have more or less wide choices of a mating partner. This choice might be disguised or hidden but nonetheless it always exists.
Exclusion of females for the same purpose of selection from the reproduction process is too risky because their unborn cubs cannot be born by another female. A female gives birth by herself to as many offspring as she can and simply physically cannot substitute another female. A male is a different matter! All non-conceived cubs by one particular male will be conceived by another one with pleasure (and who would refuse...?)
That's exactly how it happens in reality. The 1/6 seal males fertilize 5/6 of females, the others have to pretend that they do not need this at all... Even more extreme disproportions are known among sea lions where 4% of males mate with 88% of females! The same picture is typical for all gregarious animals. Amongst the species which live in pairs, especially birds, it is customary to fertilize before a pair (family) is formed and sometimes after but with another male, often in sight of a "lawful husband". In other words, the pair is formed for doing household chores but fertilization is often done under gregarious laws. Besides, males are born in slightly higher numbers than females (and the more males are born the worse the living conditions for the species are). All this leaves room for choice even among strictly paired animals.
Plants, even diclinous ones, are not able to make such selection (see epigraph), that's why complete heterothallism in the floral world did not become dominant and probably remains as one of the ways preventing self-fertilization.
Thus, gender differentiation assumes some explicit or implicit form of copulative polygyny, but the fundamental principle of dioecious propagation is the principle of female's irreplaceability.
For accelerating selection and making it purposeful, some part of possibly potent males by all means will be excluded from reproduction process, with the growing share of the others.
From the principle of female's irreplaceability follows the fundamental differences between males and females behavior. As females are of a far greater value for the population and males are born in significantly higher numbers than needed to sustain specimen reproduction, thus, their personal value for the species is far lower. This circumstance is fixed in appropriate instincts which require from female to be more careful, avoid risk, take care of themselves in the first place and demand caring from surrounding people. For example, it is well in line with this instinct that women are more egocentric and trust more intuition and feelings than logic. Intuition and feelings are based on practical experience, including the experience of a whole species, so they are proved with practice and considered to be something more reliable. We will return to this subject below any number of times but once and look it through with greater details at the end.
Briefly speaking:
Dioecious propagation provides much faster pace of natural evolution by setting up effective sexual selection under which some part of males purposefully rejected.
About variety and risk
Without any born to creep - the others cannot fly.
(it is ascribed to Maxim Gorky)
If all the specimens are look-alikes like nuts on a conveyer belt, then all the hassle about choice does not make any sense. In order for the selection to make any sense, there has to be a due variety of specimens. Of course, after hundreds and thousands generations it is possible to form some optimum features and properties, which will provide the highest viability of each specimen and thus, the highest viability of a whole species but ...
As a matter of fact, the conditions which affect the very existence of species are anything but permanent, and a direction of future changes is totally unpredictable by nature, despite its so-called wisdom. That is why specimens are needed with non-optimized, needless, and perhaps, harmful features and properties for the current conditions. If the conditions change some of these features and properties might happen to be extremely useful. Giving birth to such creatures, nature definitely takes a risk - they are currently less viable, but it is necessary to take a risk since "no risk - no champagne". Nature does not know any other way "to predict the future" except hit and miss despite of whatever it is ascribed.
Is there any other way to minimize undesired consequences of such risk? How to make the consequences of such chaotic experiments (mostly misses) less threatening for the viability of the whole species?
Elementary! If possible, females should not deviate from the optimum but instead, males should become the objects of experiments, because unsuitable males can be easily excluded from the reproductive process without a danger of decreasing the number of children in a whole population. On the other hand, just a few outstanding males can father all the children in a population.
It was noticed long ago that the ratio of newborn males to newborn females strongly depends on living conditions of the species. Under unfavorable conditions a share of newborn males increases, thus, variety increases, selection speeds up and toughens and this in turn leads to the faster adaptation to the new conditions. Under favorable conditions a share of newborn females increases and that creates possibilities for fast proliferation of species.
Briefly speaking:
To increase the effectiveness of sexual selection, males, as objects of choice, must own a widespread variety of different features, properties, and qualities up to the explicit non-optimum of certain specimens, in order to cover the widest possible spectrum of future probable species demands.
This diversity can only be chaotically random due to the impossibility for natural evolution to predict the future thoughtfully.
On the other hand, females do not need to be extremely diverse because it is too risky, and carrying out the advantages of such diversion will fail due to the small numbers of descendants from each one.
About conjugal strategy
A lecture in a zoological college: Lecturer: A good sire-bull should make up to twelve copulations a day.
A woman's voice from the first row: What? How many did you say?
Lecturer: Up to twelve.
A woman's voice from the first row: Would you please repeat it louder for the people in the last row!
A man's voice from the last row: Excuse me, is it meant to be with one cow or with twelve?
Lecturer: With twelve, of course!
A man's voice from the last row: Would you please repeat it louder for the people in the first row!
(an old student anecdote)
Why cannot women and men find each other even if they are so eager for each other's companionship? That is so because they make a search based on different criteria as they pursue the different goals in their eagerness. Moreover, this eagerness for each other is not unconditionally friendly and resembles people's behavior on a market. Seller and buyer are eager to find each other and strike a deal as well, but each of them tries his or her best to get the maximum profit from the deal, frequently without any consideration of another party's possible losses. Nature, alas, is devoid of sentiments...
As it has been mentioned above, the principle of gender separation assumes that the small group of males fertilizes the disproportionately large share of females forcing the major part of male population to pose themselves as hopeless bachelors. Such strategy allows to quickly adopt new and useful features and properties in descendants and saves females from reproduction of useless genes.
To achieve this, males and females should have significantly different behavior while searching for their nuptial partners.
Every male should be eager to change females as often as possible, considering himself as the carrier of uniquely useful genes. Let's imagine that one man somehow has a gene with immunity, let's say, to AIDS. It is extremely necessary to spread this gene among the population! But he is, such a scoundrel, faithful to one woman only. How many children can be born by one female? OK, 10, maximum 20 and according to the genetic rules only half of them will inherit this gene. This is a crime in face of the species! However, if one tried to behave like a sultan, he can father possibly 1000 or even up to 2000 children. This is something ... Therefore public opinion treats male infidelity pretty repressively as it is not without a reason. This is an instinctive program and so to say, it is very sane from the biological point of view. Male should not confine his sexual expansion. There are females for this.
Thus, the instinctive goal of male conjugal behavior is More female's bodies, pretty and different.
And what if a female has such a unique gene? What should her behavior be in order not to sink this gene into oblivion, but rather transfer it to the future generations? In general, it is also possible to increase the number of children but ... Will the frequent changing of the males help a woman to increase the number of children? Absolutely not, but this could significantly lower the quality of children! That's why public opinion treats women's infidelity with much louder condemnation. A woman unscrupulous in her sexual partners does not take care of her future children! If a man transferring his genes fathered a child with an unsuitable woman, he did not lose anything. He can repeat the same literally the very next day with a better woman, it found. But a woman conceived from an unsuitable man cannot correct her fault so soon (nature does not know abortion). Moreover, the number of such trials is very limited in general. To fix her genes in descendants more reliably, a woman should strengthen the severity of selection for the candidates, in order not to mix her own, supposedly unique genes with any other male genes deemed unfit. However, she should be attractive to all men in order to have a possibility to choose from. The more men are attracted to her the wider the choice that she has. The ideal case is to make all men fall in love with her, but admit only one, or maybe, none at all. The copulation itself is an almost incidental side effect of the seduction process.
So, the instinctive goal of female conjugal behavior is more man's hearts, nice and different.
After a man's heart is captured, a woman can lose any active interest in him, just continue keeping him for her collection, meanwhile seducing the others.
It is necessary to make a point that only the base of the differences of conjugal strategy is described here. Below we will look at instinctive factors which fill this base with specific content.
Briefly speaking:
In order to implement the advantages of sexual selection, male should be eager to mate as much as possible. They are the fighters for QUANTITY of offspring because their qualitative mating potentials are practically unlimited.
To achieve the same goal, females having limited childbearing potential, are eager to get the best quality of posterity. Due to this fact, only females are the selecting subjects and they are interested in the maximum widening of the pool of potential partners in order to ease the choice of one with the best qualities while denying all others.
About our primeval "ego".
Within me are two "egos"--two poles of the planet,
Two different men, two enemies,
When one of them is rushing to the ballet
The other one is rushing to the races...
(V. Vysotcky)
It is well-known that a man belongs to the species of HOMO SAPIENS of the primate group. Classified relationship with other Primates is determined by greater or lesser similarity of genetic material, which is expressed externally in the resemblance of our physical constitution. For example, the genes of man and a chimpanzee resemble each other in more than 95% of the cases. However, species-specific attributes are not only the physical features, but are also behaviors and habits (hunting methods, marriage rituals, etc) as well.
As all species-specific attributes are hard-coded and passed by inheritance only, (that's why they are species-specific!) so behavior appropriate to the species is inherited as well. For example, the ability of the hunting dogs to make the stance is transmitted by inheritance and especially tightly linked to hunting breeds. Another example of an instinctively conditioned reflex is lowering the eyes as an acknowledgement of subjugation to another. This is typical for Primates, including humans. In the same situation, the dogs lower their tails. This kind of inherited behavior is commonly called "instinctive" and its separate aspects are called "instincts". There is a term "inherent behavior model" which denotes such instinctive behavior programs. Such an interesting act for our topic as a kiss is part of congenital conjugal ritual of Primates, which is derived from the feeding ritual.
To what degree is all of this related to human beings? The man has a mind, some kind of laws, all which make following one's instincts not compulsory. However, a man evolved into a modern being and became truly rational only 30-40 thousands years ago but our historical epoch is only 5 - 7 thousands years old. Meanwhile, the evolution of Primates began approximately in the Tertiary period, 20 - 30 millions years ago and such important instincts as obedience to animal hierarchy have existed almost for as long as life itself.
For sure, during such short evolutionary periods of time instincts cannot vanish. They are slowly and gradually formed by evolution and as morphological attributes, disappear only as slowly as they accumulate. So instincts do not ask whether a man can live without them. They are just acting up when they find it necessary. Unreasonable and unexplainable from a rational point of view, instinctive motivation is very logical and explainable in a primeval coordinates system, and it was expedient in primeval times. But in contemporary situations, the behavior realized by instincts is not always adequate and we are often bewildered how evil and blind love can be...
Monkey instincts will live inside of us for as long as we belong to a group of Primates because they are hard-coded in genetic memory. If mankind succeeds in getting rid of some important monkey instincts and fixes the changes in the genes, then man will pertain to another species and probably will be separate from Primates. Development of humanity demanded other than primeval-gregarious forms of marriage, but instincts do not disappear from subconsciousness so easily and keep working, even if their time past long ago.
Individual mind cannot change it's own instinctive programs in any way and moreover it does not know about their existence! It can only to disobey them in some cases but the next time instinct will want to do the same thing again. The lowest level of subconsciousness - instincts, they carry out available programs directly and without alternatives. Programs of middle level of subconsciousness such as traditions and habits can be modified with time. Mind also widely use fixed behavior programs but they are just "food for thoughts" for it. Mind does not exactly carries out the programs but more improvises on a theme.
Instincts direct us by means of emotions not bothering themselves with motives. The instincts, inducing a woman to beautify herself with cosmetics, do not inform her why she should do this - she just wants this and that's all. Logical sense of this is obvious - to attract men's attention but most of women will categorically deny this saying that they are doing this for their own pleasure. However, normal men do not do the same "for themselves"! Such behavior program does not exist in their instincts. By the way, many modern men treat a woman with cosmetics negatively but instinct does not want to know about this. Also it is worth to pay attention that the lower a cultural level of a woman the brighter her cosmetics and she applies it in a bigger quantity. In this case instinctive motives are neither restricted nor corrected by her mind.
Neural structures which fulfill the instincts, arose in the deepest antiquity. Thinking, analyzing or even simply extrapolate is absolutely impossible task for them. They are triggered whenever schematic and static template fitted in instinct matches some kind of external signal attributes which can by chance look like actually required. However, having free and direct access to the motivational centers of brain instincts can evoke the FEELING of it's correctness on any subject. This influence can resemble some narcotic intoxication. Narcotic illusions can also be perceived as high level wisdom. That is why love has no "wisdom". It has only a feeling of wisdom. Actually love evaluate the object of choice very superficially according to a strict (sometimes stupid) genetic program which sets a strategy for choosing a marriage partner. The mind is left nothing to do but to find a way to justify the answer. It is in nature of any person to look for ways to justify the answer when he tries to explain his instinctively motivational behavior.
Real picture of individual behavior becomes more complicated and confused not only because of two "egos" coexisting side by side but also because there is no clearly marked border between them. Instinctive and rational motivations can get intricately mixed. Besides that, for each particular case a person has several instinctive programs of behavior, which appeared at different evolutionary time and sometimes contradicting one another.
Briefly speaking:
A human is born with a lot of behavioral programs given at birth. Those programs appeared at different evolutionary time and due to this fact they often contradict each other.
Mechanisms of carrying out the congenital behavioral programs are capable only of frivolous analysis of the surrounding, which suggests an only formally superficial comparison of the surrounding with the schematic signal attributes fitted in these programs.
Adequate resemblance of the external conditions with these signal attributes creates one or another emotion inducing a human to carrying out an appropriate instinctive program.
The real motivations of the actions are not realized. To explain instinctively motivational behavior, the remotely occasional arguments are drawn which have much closer resemblance with just a desire to justify the answer no matter what.
About hierarchy in a herd.
Impudence is a second fortune.
(commonly known banality)
In theater as in life, the most demanding
person is the one who has not paid for a
ticket.
(a French proverb)
There are no equal rights anywhere at all. Those outraged by unfairness in our society can comfort themselves with a fact that in a world of all other animals the situation is much worse.
While feeding a group of mice, it can be noticed soon that every time the best and the biggest pieces always fall to the share of the same specimens. These ones occupy the best places for resting and have the highest number of mating.
The other ones are satisfied with remnants after the first ones, the third ones - with whatever left after the second ooonnes and so on... I.e., there is a certain hierarchy within a group.
One of the most magnificent description of hierarchical relations was given by V. R. Dolnik [1], I just can't agree with his statement that human hierarchy is formed only by men (see below in details).
Such hierarchy is known among all kind of beings which lead even rudimentary grouping lifestyle. Even amoebas have rudimentary hierarchy. The places (ranks) in this hierarchy commonly marked by letters of the Greek alphabet: alpha is a high-ranking specimen, omega is correspondingly a low-ranking specimen. However, this definition system is not completely fine, in the large groups hierarchical structure divest its linearity of alphabetical row and becomes more reminiscent of pyramid where several beings can have practically equal rank. Highest rank beings are also called "hierarch", "dominant". V.R. Dolnik suggested to use the term "ringleader" - rather roughly but true.
Obvious the rank in such hierarchy has a huge significance for each member therefore the members of a group constantly compete with each other for rank advancement or rank preservation. The higher the rank the fiercer the struggle. Sometimes it might happen that alpha takes from life less then beta because it is too busy with struggle. However, alpha reserves the right, at least theoretical, to take away any piece from beta.
The rank of a being in a group depends on correlation of ranking potentials of this being with the other specimen in the group, so the same being can have different ranks in different groups.
But what is ranking potential? Obviously it is closely linked with physical strength but it is not determined by it unequivocally. Wasps ranking potential, for example, is identified by the number of bristles on particular body parts. Rooster's ranking potential is identified by the height of his comb. The number of bristles (height of comb) just shows the rank but does not determine it and the other beings are guided by these attributes which are coded by the same genes as ranking potential. The same happens with the other animals but not all of them identify ranking potential in a such simple way. Even among the animals with not too high organization (for example mouse) good physical strength only allows avoiding the lowest places in hierarchy but does not guarantee the highest. The higher animal's level of development the weaker correlation between ranking potential and physical strength.
Since very different species, especially including very primitive ones which are incapable of learning, possess hierarchical behavior, so it is possible to admit surely that the base of a ranking potential is given to a being with its birth (maybe together with bristles or something like that). Specific low- or high-ranking behavior is started showing from the first days of life. Thus, behavior of a being inside the hierarchy is controlled by indigenous behavioral mechanisms, i.e. by instincts.
Victor Dolnik calls this ranking potential "the power of IMPORTUNATENESS". Well-known psychologist Vladimir Levi calls it "power of IMPUDENCE" and that is possibly more precise. They prove that the crucial component of ranking potential is ASSURANCE in a own superiority, possibly and very often, not supported by any real merits and even totally groundless. Indeed, assurance of one person can hypnotize the other one and including himself or herself. It can be assurance of a student before passing the exam, or a driver in front of a policeman, or guru in front of believer, or a politician facing a crowd, or a leader of a sect facing his followers, and etc... <...>
Usually, alpha concentrates on internal struggle with greater determination, persistence and pleasure which often turns into end in itself. This struggle is much less pleasant for omega - he is more inclined to yield. From here there is one more parameter affecting ranking potential - ranking potential is a degree of compliance (or vice versa - degree of propensity to conflict). Acceptable volume of conflict tension is directly linked with ranking potential for each being - the lower ranking potential the less intensive conflict causes the sense of discomfort.
The number of vacancies on hierarchical Olypmus is limited by default and does not depend on average ranking potential. In other words, increasing ranking potential of all beings in the group the number of high-ranking beings will not increase. The same hierarchy will be formed but probably even tougher and more aggressive.
Different degree of individuals' compliance has a very important biological meaning. It allows to decrease tension of internal struggle within a group and thus avoiding needless death of its members. The spreading of the conflicts in such community or a group, even if they arise, are restricted to the closest neighbors in hierarchy instead of everybody-against-everyone. Besides, altruism of "omegas" opens a possibility to consolidate the efforts of all members of the group on its fight for survival which is particularly important for species possessing no big physical abilities. Exactly this circumstance combined with "alphas'" higher death rate (in part due to the conflicts between themselves) prevents unlimited growth of the average ranking potential of the species. Not only the strongest specimens survived, but also the strongest and the most organized groups.
In fact, there are two possible ways to congregate a group - the military and voluntary. The first approach assumes rigid hierarchical structure of subordinance with ruthless suppression of any disobedience of subordinates. The second is based on altruism assuming sincere and volunteer help of group members up to self-sacrifice. The first approach is predominant among more primitive species as the more native for basic instincts, reliably implemented in reality, and requiring no any kind of substantial intellect. But it becomes ineffective for organization with very complex collaborative behavior. Obviously that living in extremely dangerous (in terms of predators) Savannah, our ancestors went the most of the evolutional path using the military form of group consolidation. Altruism became a relatively mass phenomenon only when development of intellect made very complex behavioral schemes possible. In its turn, widespeading of altruistic forms of behavior even more complicated human behavior and created prerequisites for even faster acceleration of social evolution that set Humans apart from the rest of the animal world. Thus altruistic behavioral programs appeared in comparatively later evolutional time and did not have enough time to be firmly embedded in genes. Therefore, altruism, so essential for mankind, has to be conveyed by non-genetic means, those which form a notion of "culture". However, the stronger the genetic base of altruism the higher the cultural level under the same conditions.
Ranking potential can be initial (inborn), actual and visual. Initial is given at birth and is not subjected to upbringing or environmental influence but rather mainly determined by genetic inheritance and less by conditions of prenatal development. Actual ranking potential greatly depends on circumstances. It is determined by initial ranking potential and by specific situation in which the being finds itself. Circumstances can either hinder the realization of inborn ranking potential or encourage its full disclosure and even strengthening. For humans actual ranking potential is typically 2/3 based on heredity and 1/3 on conditions of growing up and care. However, this is just averaged statistical data and for a specific person this correlation can be different.
Since ranking potential is defined by different attributes, including ones which are not interrelated to each other the real hierarchical portrait of a specimen can be MOSAIC, i.e. when some attributes point to a high rank but others to low rank. For instance, untidiness is an indication of a low rank. Noticing untidy person we usually not without grounds judge him as loser who achieved almost nothing in life, i.e. as low-ranking. However, once he demands to let him cut a line in bold-faced and aggressive form then the majority of the people agree to yield his demand thus admitting his higher rank! Even though, the social status of this person can be extremely low!
Here is another example (although fiction but it has many parallels with reality). An old song about a brave captain of a ship says that:
... he survived fifteen shipwrecks,
pirate assaults, drowning, and shark attacks
but he was never scared.
Here we see a person who takes relatively high-level position (captain!), who is capable to fight and survive and that means this person has high enough ranking potential. However, here we can mention low primativeness of our hero and that will be discussed later. But here is how the same person behaves himself with women:
...he blushed fifteen times,
stuttered and turned pale,
and never dared to smile nor say "hi" to her.
But this behavior is mostly typical for a low-ranking being! At the same time there are plenty of men who are at ease and very bold with women but desperately chicken-hearted and compliant when it is necessary to put up a real fight. From mosaic of the ranking potential as general notion is derived a notion of visual ranking potential as a sum of signaling attributes, possibly secondary ones, expressed prominently enough for triggering the other specimen's instincts. A good example of the visual rank is a low-ranking rooster with a glued-up big comb. Such one is perceived by all other roosters as high-ranking but once the added comb is removed, its status plummets down. One more example, a person suffering from narcissism (a person who is "in love with himself") can produce an impression of high-ranking on some people. But at the same time he can be completely deprived of ability to fight for his place under the sun that is the very essence of high rank. On the other hand, a friendly person, even quite successful in life, can make an impression of low-ranking.
Moreover, different specimens can be impressed by different signs of ranking potential, i.e. sensitivity of the different specimens to the different signaling attributes comprising the pattern of the specimen's image can vary. Visual rank can be equal to actual rank but might be not. As it was mentioned above, this happens because the neural structures implementing instinctive behavioral models arose in the deepest antiquity. They are relatively primitive and react on surrounding conditions very superficially and stereotypically. A specimen can be low-ranking by nature but possess one or two visual attributes of a high rank. Then these one or two distinctively visual (signaling) attributes can have an affect on someone, despite of the objectively low-ranking potential of their owner. Alas! Even their own primeval goals are achieved by instinctive programs only on average and with high inaccuracy due to the primitive mechanisms of their realization.
Briefly speaking:
Humans as all other gregarious animals have propensity to form hierarchical social structures where behavior is regulated by proper instincts.
The ability to take a certain rank in a hierarchy called ranking potential. Ranking potential is defined by many parameters, starting with physical power, but for highly organized creatures, it is mainly defined by an individual's profound confidence (primarily, innate) in his/her right to be above others, probably neither supported by any real merits nor having any grounds.
Other most important elements of the rank potential also are: conflictability, i.e. a desire to initiate conflicts; then, conflict endurance, i.e. ability to withstand conflicts dictated by someone else; then, the degree of compliancy (or incompliancy)- that can be either closely connected with the above named factors or can be an independent phenomenon.
Due to the certain independence of the factors affecting ranking potential there is a possibility that hierarchical status will be revealed as mosaic, i.e. when some attributes point to a high-ranking potential but others to a low and thus, it is acceptable to judge about ranking potential as a general notion.
Right from its birth every specimen has a certain ranking potential which is conditioned as much by hereditary factors as conditions of prenatal development and serves as a foundation for the actual rank in the adulthood.
Actual ranking potential depends also on conditions of growing up, upbringing and formation of personality. All these can either suppress or empower inborn bases of ranking potential.
Visual ranking potential is defined by presence in specimen of one or more secondary but nonetheless clearly expressed attributes of high- or low-ranking potential.
Visual ranking potential often can be illusive, i.e. not corresponding to the real ability of a specimen to ranking struggle.
About primativeness and culture
What is the difference between woman's logic and
iron logic?
- Woman's does not rust.
(an old anecdote)
To the English reader: "Primative" - is NOT misspelled "primitive"! This is a scientific term offered by the author, originating from "primary" and "primates", that is described below.
In contrast to the majority of animals, different people are subject to instinct's influence with different degree. If someone is not subjected to instinct's influence completely, but lives by rational thinking that means such a person is absolutely non-primative (in real life such people do not exist). The other man that is directed in life only by feelings, that is to say is fully subject to the instincts, is absolutely primative (such people sometimes exist in real life). D. Zaraiski introduces a term "power of the model", which is an index of ability of a given behavioral program to dominate among similar ones. This is because for each situation a brain usually has several behavioral programs, among which there are both innate and obtained, and which one of them will be accepted for execution under other equal conditions depends on the power of each behavioral model. So, primativeness is a degree of domination (power) of instinctive over rational models.
Rudiments of non-primative behavior are observed among many higher-level animals, more significant traces of it are seen among Primates, but only in human society did non-primativeness become relatively mass phenomenon.
The term "primativeness" is not identical to the term "culture". Culture is kind of a derivative of primativeness. Among artistic people, even with a highest level of culture and decency, the people with high primativeness are predominant as such people live in a world of feelings.
Although a term "culture" is intuitively clear without any explanations, it is very difficult to give it a precise definition. It is obvious only that culture is a product of upbringing and education (in the broad sense) and primativeness is something inborn. Primeval motivation of a cultural man is suppressed by upbringing and is replaced by requirements of the laws and societal traditions. However, it can appear on occasions when the laws and traditions do not determine the situation strictly and leave some freedom, and also under influence of alcohol or in times of strong stress. The higher the primativeness, the more often and stronger the appearances are. The old dispute about physicists and lyric poets is actually a dispute about primativeness.
The primativeness correlates more with emotionality than with culture. Instinctive programs, when finding resemblance of internal signaling attributes with some factors of outside situation, create corresponding emotions and a highly primative person gladly submits to them. A low primative person, feeling the same forceful emotions, is capable of acting contrary to them.
As ranking potential, the degree of primativeness is basically determined genetically and by uterine growth conditions. It changes inconsiderably during upbringing and education, however, it can have influence on the behavioral manageability and the ability and propensity to certain kind of education. It can happen that a man with a strong scientific education does not trust his knowledge in everyday matters, relying more on feelings, and vice versa. A man with very low primativeness lives kind of outside of primeval hierarchy. On the other hand, a highly primative person is very sensitive to the rank of the people around, recognizing the smallest display of concession as a signal for beginning of hierarchical attack, but meeting someone with superior rank causes him a will paralysis and vile toadying.
The higher the inborn primativeness the greater the pedagogical efforts are needed to make a cultured person. In the next generation, everything repeats once more. The man whose culture achieved only by immense pedagogical efforts can have extremely uncultured children because the base remained the same. A newborn child, of course, has no mind and therefore lives according to instincts regardless of the level of inborn primativeness, but soon this level will begin revealing itself. There is a very important nuance: primativeness is not an indicator of a power or a weakness of one's mind. It is a degree of confidence to one's mind in practical cases. Highly primative but highly intellectual scientist can easily combine strong scientific knowledge with sincere religious faith which dates back to the instinct of submission to alpha.
As was mentioned above, women trust intuition and feelings more than logical conclusions, this composes a so-called woman's logic. I.e. the highly primative specimens are prevalent among women. It is known that girls study better than boys in schools, universities and other institutions even in ones with technical majors. While studying, not only theory is lectured, but also practical tasks are solved, and laboratory works are held. And girls are doing this better than boys! But when the time comes to utilize the knowledge in practice, the much needed thought does not come to mind.
The fact that women are more religious is also caused by higher primativeness - there is no rank higher than God's, but it does not really matter whether a God exists or not in the first place.
Undisputedly, a man as a social being is very multidimensional and is not completely fitted into the three dimensional space: low-high primativeness, alpha-omega, and high-low culture. However, the events interesting to us occur exactly in this space. And also it is worth to make a point that primativeness is a general notion, showing average power of all instinctive behavioral programs. However there are quite a lot of such programs, including contradictory ones, and each can have different power, and that tangles up even more the observable scene.
Briefly speaking:
Primativeness is an indicator of power of inborn behavioral programs relative to rationally motivated behavior.
Externally it is expressed in an inclination to emotionally based actions and has only an indirect relationship with intellect and culture themselves as well as to temperament in the choleric - phlegmatic axis.
About princes and princesses
THE WOMAN - is a female who has a MAN;
THE MAN - is a male who has MONEY.
(an anecdote)
What a pity that generals get married while in
lieutenant's rank!
(from the conversation of two old virgins)
Such exclusively important for all animate world process as reproduction could not be left without the control of the instincts. Correspondingly, love, as the strongest feeling, is a voice of the same primeval instinct that forces to prefer the best being of another sex for mating. And what are the criteria of this preference? It is unnecessary to prove that these criteria are kept unchanged since primeval-herd times when all the instincts were formed. It is possible to say that during its formation the instincts "took a photo" of the situation existed at that moment and keep verifying with this "picture" for as long as the species exist. Thus, the instincts allow choosing a perfect partner from the primeval point of view. The simplest and the most demonstrative attribute of such superiority in primeval hierarchy is a high rank. Though it is very obvious that rank, strictly speaking, is more of visually superficial indicator of preference but it is almost impossible to imagine anything better in unwise nature. External attractiveness (beauty) is less reliable in this sense. In general, the number of couplations is the simplest and clearest quantitative index of a male's rank in hierarchy. For females this correlation is very weak and, perhaps, inverse.
It is customary to think that alpha simply takes away a female from beta (gamma...) just as food, however, the rules of behavior in a hierarchy are obeyed by all the members of a group including females. That means there is not needed to take female away in most cases. She herself, complying with an internal instinctive program, prefers high-ranking male. Not in vain, speaking about ideal groom, women mention word "prince". Real prince is not a plebian job and usually he is a real candidate to become king.
Sure, it is not the only tendency. For instance, there is an "instinct of fresh blood preference" manifesting itself as sexual curiosity. The goal of this instinct is a counteraction to mating with close relatives unavoidable in isolated groups. According to it, under other equal conditions the preference can be given to a new and unusual partner desirably from outside of the group. The instinct is clearly seen in male's behavior, since it conforms well to the principal of unlimited sexual expansion. In female's behavior it is seen with some limitations. These limitations mandatorily include ranking potential of a "guest" that should be not lower than certain minimum. And of course, these tendencies are combined with individual tastes and sympathies. It is important to emphasize that the high rank of a male does not give a GUARANTEE of access to the certain female, but it is a weighty factor raising PROBABILITY of this event. A correlational factor between sexual attractiveness of male and his rank is different among the species, and substantially non-linear. Males of the first several ranks of hierarchy can be almost indistinguishable by their sexual attractiveness for females. Therefore dominant males must fend away sub-dominant males from females. However, beginning approximately from the middle of hierarchy and below sexual attractiveness of males decreases so much that dominant can afford not to worry. It is highly probable that such male will not be admitted by females themselves. To the English reader: Now let us tell you a couple of words about such picturesque character of Russian anecdotes, as the captain Rzhevsky. Captain Rzhevsky was a hussar. Hussars were an elite kind of cavalry in Russia in 19th century. Only tall, healthy, often handsome men were accepted. Beautiful uniform along with a huge mustache made them very popular among women. Soon the word "hussar" became synonymous to Don Juan. Captain Rzhevsky completely matches this definition. Along with phenomenal success among women, he was distinguished with self-confidence, vulgarity and ignorance, which he was not ashamed of. This character is very much like 19th century captain Frank Drebin from the popular movie series "Naked Gun". For example, one of anecdotes of a series about captain Rzhevsky:
Once captain Rzhevsky was dancing on ball with a noble young lady.
Subbenly she is telling him politely:
- Ah! I am not feeling well. Would you eexcuse me for minute, I need some
fresh air?...
- Captain: OK, go. But be quick on it. JJust fart off and be back.
Cornet Obolensky is more delcate character of these anecdotes.
Now for illustration, an old but very demonstrative for our topic anecdote:
Once cornet Obolensky asked captain Rzhevsky:
Captain, sir! Would you share your experience in seducing women so quickly!
- But what's here to explain? Come up tttoo a lady and ask: "Ma'am! May I stick
it in?"
- But captain! That's a sure way to be slapped in the face for such
rudeness...
- Well, there could be a slap in the face. But nonetheless, I somehow still
manage to stick it in.
And now let's imagine that cornet followed the captain's example. Imagined? So what? You are absolutely right. He will get slapped in his face. However, it does not follow from the text that cornet is less attractive than captain and moreover, he is obviously more civilized and decent. Also let's imagine that captain expressed his proposition in oversophisticate and delicate phrases. Will he get a rejection? Of course not, but even more possible consent. But what if cornet will propose in the same refined language? In this case he might not get slapped in his face immediately but the final result probably will be the same though for some time he will be kept on a short string and jerked around. And he will be ridiculed. I.e. actually it does not have any serious significance for a woman HOW a man expresses his desire but it is extremely important for her WHO does it.
If a man has a high rank ("captain") then women will forgive him almost any behavior and almost any weaknesses; if he has a low rank ("cornet") then even complete impeccability will not help him.
Moreover, captain really does not see any problems with this. Neither he has them personally nor he even suspects that the other men might have them. Because he does not assert any efforts to conquering women (moreover, women themself often put up certain efforts to win him) and he sincerely thinks that women treat all other men the same. But who of these two will be a better husband (faithful, decent, hard-working...)? Anyone but the captain! But whom will women want to marry the most? You are right, the captain. And in addition to this, in original (movie "Hussar ballad") the captain Rzhevsky was an open and convinced opponent of Hymen.
It is said that women love masters. This is true, but it is only individual case. Even possession of "strong elbows" i.e. the ability and readiness to fight for one's own interests, is an individual case in conjugal relationships. Love, as a call of instinct, can not contemplate and that's why it is often triggered on visual rank rather than on actual one. It happens that "captain" looks like pitiful whiner crying that he is so perfect and superior but the ungifted people around do not appreciate him; or like capricious child with child-women egoistic character and all people tiptoe around eagering to please him in every possible way (any other cases are possible). The main thing is that he is sincerely sure in his own superiority. It is obvious that such whiner and moaner is not the worthiest family continuer (even from primeval point of view) and the actual rank of these people as an indicator of their ability to succeed in life is very low. However, instinct formally reacts to the above mentioned assurance which is the main signaling attribute of a high rank. Since instinct does not bother itself with explanations and mind does not usually recognize such self-assurance as a merit so everybody feels hymned in poems and in prose a mystical and enigmatical sensation of love choice - because it is wanted against common sense and it is unclear what for.
Whom do men love? A Princess is not necessarily required. Men's instinctive criteria of preference are simpler and radically different from women's ones. The main woman's qualities attracting men are the newness, availability and physical perfection. Of course, if all these qualities are combined in one woman then her attractiveness will be the highest and such woman will be the center of men's attention in the first place but only until either gaining access to her body or making sure of no chances to get it. However, this is correct only in respect of women as sexual partners. Men choose wives by rational judgement (only those who have choice and enough brain). The sensational criteria of men's preference of women are much fuzzier due to the higher diversity of men (and hence, their tastes) and less desperate necessity to make a choice. A male does not have to choose a females since he needs them all without any distinction. But women's rank, having big importance in relations between women, is relatively less important for a man. For sure, high ranking woman can turn men's heads more quickly but modest and shy (low ranking) wives were valued at all times. It is well-known that women much more often than men fall in love with their chiefs, bosses, tutors, and etc. whose high visual rank is manifested by their position and partially age.
If high rank is a key to women's hearts for a man ensuring his freedom of choice but for a woman her high rank is a source of problems with men. Average-ranking men are not acceptable for her neither sexually nor platonically (not to mention low-ranking ones) but high-ranking men are very scares and most of them are easy-riders. And if they are not easy-riders then they are hopelessly engaged and not free. Low-ranking woman as every woman preferring "alpha" is still open-minded toward "omega". In some circumstances she can forgive a man his low rank and therefore his other strengths get the chance to be appreciated.
Briefly speaking:
Emotional choice of a marriage partner (sympathy, crush, infatuation, love - depending on the strength of feelings) is implemented in accordance with a system of instinctive criteria of evaluating a potential partner.
In woman's emotional choice of a man the following has the highest significance - man's instinctive hierarchical status (including purely visual rank) that might not coincide with his social status. His physical characteristics takes the second preference.
In man's emotional choice of a woman the following has the most important meaning in equal degree - women's novelty, accessibility, and physical characteristics.
I'd like to remind that we settled not to examine the rational choice in this Treatise.
About the struggle of two "egos"
And I'm fighting, suppressing the scoundrel inside of me
Oh, my anxious fate!
I am afraid of the error, it might happen that
I am suppressing not the right "ego"
(V. Vysotsky)
Back in the Soviet era a poll was held among the students of Leningrad's universities. First, they were asked what personal strengths and qualities they would like to find in the future spouse and second, what qualities in the opposite sex they were attracted to. The priorities ranked as follows (see table 1, 2):
Table 1. Young men opinion Successful girl Desirable wife
1 Beautiful Honest, fair +16
2 Cheerful Cheerful 0
3 Likes to dance Hardworking +7
4 With a sense of humour Self-controlled +11
5 Brave Energetic +2
6 Clever Likes her job +8
7 Tries to help the other
8 Energetic
9 Tries to help the other -2
10 Hardworking Clever -4
11 With a sense of humour -7
12 Strong-willed Strong-willed 0
13 Beautiful -12
14 Likes her job Brave -9
15 Self-controlled Likes to dance -12
16 Honest, Fair Tall +1
17 Tall
Table 2. Opinions of the girls Young man with success Desirable husband
1 Energetic Hardworking +13
2 Cheerful Honest, fair +11
3 Handsome Clever +5
4 Likes to dance Self-controlled +12
5 Tall Brave +6
6 With a sense of humour Strong-willed +4
7 Tries to help the other Cheerful -5
8 Clever Likes his job +5
9 Honest, fair Tries to help the other -2
10 Strong-willed
11 Brave Energetic -10
12
13 Likes his job
14 Hardworking With a sense of humour -8
15 Likes to dance -11
16 Self-controlled Tall -11
17 Handsome -14
It was not the goal of the poll to find out the attitude to primeval rank. Otherwise, such feature as "to take everything of one's own from life" (and why not somebody's own as well, just to oneself) probably would have taken the first place in the left columns. But even without this, it is obvious that the left columns reflect the primeval ideals and the values of the family life are reflected in the right. Especially it is necessary to emphasize the liking to dance. While it is almost useless in family life, the dancing technique has important ritual meaning. Dance is a part of conjugal ritual of many animals including Primates. The non-dancing one does not demonstrate conjugal behavior and from primeval point of view looks like not sexually mature. It is very indicative that such qualities as hard-working and self-controlling take the last rows of the left columns. "Omegas" were the most uncomplaining in the primeval group and worked more than others... Also it is easy to notice that the left and the right columns are upside-down mirror reflections of each other. It is especially typical for polled women. Men's attitude toward women is a bit more consistent and that confirms the thesis that men trust more to their mind, i.e. they are less primative.
It seems like an "upturning" of the requirements of mind and instinct is the main reason of difficulties in a search for a partner for highly educated people. Traditionally, it is customary to assume that the problem is in the high level of requirements. Taken alone, these requirements might not be so high after all, but they are very conflicting. The heart wants something that is justly rejected by the mind and the wishes of the mind do not satisfy the heart. Indeed, such qualities as kindness, decency, honesty, respect, tactfulness, clear conscience are considered to be the attributes of well-educated, polite, honest man and a good husband, but at the same time from the primeval point of view these are the attributes of low rank in the hierarchy!!!
In the course of this argumentation, the seditious idea is creeping in that the former practice of joining a man and a wife by parental will is not so bad despite its obvious disadvantages. Of course, in terms of the present cult of love, it is stupid to stand up for its revival. This will not cause anything more than a storm of protests and a lot of mockery. Neither can I imagine how this can be implemented in real life now. But in the case of parents, who, searching for the matches for their children, evaluate the candidates from the civilized standpoints, even if they keep in mind their own interests, they thus make a self-selection of HOMO SAPIENS in the direction of increasing culture and development of civilization. Trusting a call of instincts, mankind is drifting slowly back, to the primeval herd,
And in my opinion, we already observe some attributes of such a drift. Intelligence, sensitivity, mutual respect becomes unfashionable. Opposite to this, brutal force and aggression, indulgence in a riot of desires and incontinence pours in from screens and pages. Writing off all this on the influence of everyday culture is incorrect. Household culture - is the generalized reflection of natural culture of all people. "Soap operas" are most popular among the elderly people whose whole conscious life passed in the soviet time, when totally different ideals were being cultivated.
Lessening of the above mentioned selection at first leads to the growth of primativeness and average ranking potential, and then on this basis to the declining of the cultural level. And afterward, perhaps, Einstein will happen to be right, the fourth (if not already the third) world war will be fought with cudgels...
Briefly speaking:
Following the instincts (i.e. feelings) in choice of nuptial partner contradicts the contemporary ideals of monogamous marriage, neither does it promote the selection of HOMO SAPIENS in the direction of the growth of altruism and the cultural level;
however, it can contribute to the growth of average physiological indicators known as and called acceleration.
About alcohol
Our consciousness is determined by three things:
Being, beating, and drinking.
(ascribed to Karl Marx)
In the course of the above mentioned poll, the attitude to alcohol was examined as well but for unknown reasons it did not get in to the tables. It was found that the girls would like to have a non-drinking husband, but in reality man's sobriety did not give him any advantages and on the contrary invoked some kind of suspicion. Suppressing the mind, alcohol introduces a kind of bestiality in a human image that is so amiable to primeval instincts. You could also notice how often this fateful decision for each man (and for the whole mankind...) is taken in a drunken state and how close relationship between sex and alcohol is. Love, and without Champagne?!
Tests on animals give very interesting results: Alcohol raises the low rank, and diminishes the high one!
This is one of the reasons of ineffectiveness of the "dry laws" and other measures struggling for a sober way of life. Without releasing primeval instincts and raising the ranking potential, which is achievable by the alcohol in the easiest way, mankind would have faced difficulties with its own reproduction. And the biggest difficulties would have occurred with the worthiest people who personify civilized society - low ranked and low primative persons. We can only regret the negative effects of alcohol consumption and that it is mostly used by the people who do not need any releasing of primeval instincts.
Since there are no alcoholics among animals hence sexual selection does not recognize what it is, and thus, the fact that a certain man is addicted to alcohol or simply a drunkard practically does not affect his popularity among women. Moreover, a majority of women who got stuck with such husbands, put up roughly the same pretext: "I thought he would start a family life (become a father and so on) and quit drinking." But there is no clear answer to the question: "Why did you jump to this conclusion?"
Briefly speaking:
Alcohol, by releasing at large primeval instincts and leveling ranking potentials, eases sexual intimacy, thus increasing the chance for low ranking people, however negative consequences of alcohol consumption are widely known.
Since instinctive sexual selection does not know anything about alcoholism, symptoms of alcohol abuse do not hamper subconscious preference of the potential partner.
About Bastard and Fatherless Children.
A sleeping Reason gives birth to monsters.
(Francisco Goya)
It is obvious that the fathers of such children are mainly "captains" - regardless if it was done in marriage or not. Even when an out of wedlock child grows up in a two parent family, (with a step-father who might not be aware...) people around notice the "difficulty" of the child. It is commonly known that out of wedlock children are often regular clients of the criminal groups. Usually under the euphemism "difficulty" we mean the inability to control a child by civilized methods, which confirms his high ranking potential.
The "difficulty" and criminality of a child is usually written off to the problems of upbringing in such conditions. For sure such pedagogical problems exist in reality but these are not the problems responsible for the forming of specific low or high ranking mentality. It is the game of genetic inheritance. Please tell yourself if a man who deserts a pregnant woman is decent? At least not very. However, males in the primeval herd did it exactly this way. But do the features, which caused his indecency, have the right to be genetically transferred?
I will remind once more that the initial ranking potential is something inborn and it is well seen at the infant stage. High or low primativeness is displayed at a later time. As was mentioned the higher the primativeness of a child, the more pedagogical efforts should be exerted for bearing a decent and educated person. It is also important that a tutor should have a ranking potential not lower then a child, (it is usually said that a "tutor should be authoritative over the child"), otherwise all these pedagogical efforts will lead nowhere.
Researches of monozygotic twins separated in babyhood show that the role of heredity in the educational process is diminished and there is no way to correct (nor to damage) everything by education. Quite often such twins living separately in different countries behave themselves like they grew up in one family side by side. This detraction of the role of heredity in a world and especially in Marxist pedagogy goes back to idealistic and utopian conceptions of the past - forerunners of Marxism.
We can accept as proven the fact that friendliness or its main components are predetermined genetically. A man bred out a dog selecting the friendliest wolf cubs for reproduction.
Briefly speaking:
Conceiving a child by reason of love (against the popular thesis) IS NOT the circumstance contributing by itself to the appearance in a child of such qualities as love to the people around and high morals. Since the women tend to fall in love with the egoistic men the child conceived because of love will be more inclined to the same egoism.
Conception of the parent showing UNSEXUAL love to the people in general, (altruism) contributes of the appearance of this quality in a child.
About the husbands and the lovers
Who is a lover??
- Just the same, as husband, but he
does not need to wash the dishes.
(anecdote)
All the illnesses are caused by nerves.
But only syphilis - by love.
(an old medical anecdote)
Here we will not examine a lover like a sponsor or a source of material welfare but let's consider a lover only as the means to satisfy a woman's sexual desires.
It has been proven that any woman can be physiologically satisfied by any man (if we don't take into account medical pathologies like complete absence of genitals). Most cases of dissatisfaction are in nervous and psychological sphere. Something to notice is that the majority of dissatisfied women get satisfaction doing masturbation. It is not a penis that satisfies a woman but a MAN. And he satisfies not as a physical body but as IMAGE, which meets more or less some criteria. If this image fits these criteria quite sufficiently, a woman starts getting a "tuning" to this probably fantasized man. It can be a kind of amorousness, interest, curiosity or anything else... Without this "tuning", satisfaction can be problematic particularly to highly primative women. But if some women can "tune" easily to any man, the others can somehow "tune" to only one of hundreds. Obviously the first probably have low-ranking potential and/or low primativeness while for the second they are high. The "tuning" appears more often with a man whose ranking potential is not lower than that of the female and his behavior goes along with the primeval conjugal rituals. The cases when there is no satisfaction with a husband but rape satisfies instead illustrate that well because a rape is usually performed in a swine-like fashion like it was done in a primeval herd by the high-ranking males. By the way, such a phenomenon is not the last reason why women often do not report a rape to police and in some cases even protect and cover the rapists! Married by the rational decision of the mind, a woman can remain dissatisfied at least for the first time until she gets used to this man. As a proverb says, love comes with habit.
Do you want to force a husband to wash clothes, to clean floors or to look after the baby, etc? Did high-ranking males in primeval herd do such a contemptible job? If you succeed in this (but this is unlikely if he was not inclined to it by himself) your mind probably will be satisfied for some time. However, your primeval "ego" will immediately recognize the lowering of the rank of this male... and you will want to get a lover.
Briefly speaking:
Most probably a woman's sexual satisfaction comes from a subconsciously attractive man even though on a conscious level he might be unpleasant even disgusting. If there is no such subconscious attractiveness of the man (even giving him a logically high mark) then the attempt to achieve sexual satisfaction only by perfecting sexual technique might not give a result. Most likely is the allurement of high-ranking and highly primative men, which are dominant among the most successful lovers.
Even with all the positive sides, getting married by the rational reasons (for kind, honest, decent ...) might be filled with problems of your sexual satisfaction during the first time.
So, of whom are there more?
I had forty surnames
I had seven passports
Seventy women loved me
I had two hundred enemies...
(V. Vysotsky)
In mass media and in informal conversations the opinion is often expressed that loneliness of women is caused by the lack of men. However, there is a well-known fact that there are more boys born than girls! The results of a census in Russia clearly show that the initial predominance of boys remains until the age of 35, from 35 to 45 men and women are approximately equal in numbers and then women dominance becomes obvious. The fact that there are more women than men ON AVERAGE perplexes the society. Women over 50 (who are really much more than men) are not the objects of any real interest as conjugal and sexual partners. But the men are prevalent in their reproductive age. That means that the average statistical woman has a choice during the whole reproductive period and that probably has a very profound biological meaning. Details
I suppose that there is a strong visual selection here - women always tell about their marital problems often and without any uneasiness, but having such problems for men was always shameful and therefore carefully hidden. If a child does not cry, a mother does not realize. A men's deficit could take place if one woman would have been able to marry a few men even unofficially. In this case the other women actually would not have gotten any man. However, in reality women are more inclined to congregate in the secret harems of high ranking married men and they often exhibit such an enviable loyalty that it leaves nothing to do for the other available men. And such women are considered to be single! Meanwhile if the number of men and women is approximately equal (not counting the percentage and even this is on the women's side) so according to "the law of connected vessels" the bigger number of women in single men harems the more other men are forced to pose as staunch bachelors. As a rule, a man who is a lover of a married woman is married himself and he is never faithful so much to both of them that the other women would have no chances.
Briefly speaking:
The public opinion that it is hard to get married for women because of the lack of men is a mass delusion based on superficial knowledge of statistics, intensified by men's unwillingness to disclose their sexual and marital problems.
Origin of family, prostitution, and promiscuity
Dedicated to the cherished memory of F. Engels...
Research of conjugal behavior on animals shows that a family should be distinguished as a household unit and grouping of specimens with the purpose of mating. The fact that in reality both roles are very often combined does not mean that there cannot be any other way.
For instance, those species where one parent is capable of upbringing the offspring alone, family as a household team mostly consists from this parent and its offspring. That means that a male-female union here pursues only the goal of mating and has nothing to do with the family itself, as we understand it. The same can be said about the species practicing R-strategy of reproduction where the parents do not take any care of their posterity. This is one pole of the conjugal world.
For the other species, upbringing of offspring becomes impossible without outside help and thus there is a reason to bring in the second parent as a helper. Species with a strictly paired family structure (for example, birds, especially nesting birds) are another pole of the conjugal world. Here the mating and upbringing of posterity looks as something naturally inseparable. However, as it was mentioned before in such conjugated families spouses do not always keep copulative fidelity. Up to one quarter of all the chicks might be conceived from someone other then the "lawful husband", although from a household point of view such couples might represent idyllic picture.
Well, the second parent is not the only possible helper in this business. Grandmothers and sisters can be brought in and a kindergarten of some sort can be created and so on. For example, a female hare nurtures with milk the first found baby hare regardless of its relationship to her. But which way is more preferable? If the main parent (i.e. the one who fulfills the major part of the job of caring for offspring, most often it is a female but sometimes it can be a male) needs only some additional help that does not play a principally important role, then the help from the whole group in general is preferable. This is done by the canines for example. However if the required help borders on self-sacrifice then this way becomes unreliable. A personal commitment is required here.
How was our predecessor's business being done? Probably the "main parent" was female. It is obvious as well that not every grandmother lived to see her grandchildren, the sisters have their own children and clearly women are worse hunters then men. At the same time a child or a fetus devoid of sufficient proteinaceous food could seriously suffer from malnutrition. In these conditions the help from the men had to play the main role, though not excluding secondary help from the other members of the group.
A typical feature of the hominid behavior is the complete absence of instinctive programs of male's caring for babies and for females outside of rut period. When our predecessors did not differ from regular apes there was no necessity in these programs. Females managed quite well themselves or with minor help from grandmothers. But when our primogenitors became bipedal and the volume of the brain began to increase (with the corresponding intellectual growth) the female started failing to manage alone. From one point the size of the fetus head increased, from another point upright stance narrowed the pelvis of primeval women. This complicated child labor to the point that the child had to be born very prematurely in biological terms and that meant helpless to follow in the tribal paths. From the third point, the growth of intellect entails prolongation of the period for brain formation and training, i.e. an even longer lasting childhood and period of child's helplessness. In fact, humans have the longest childhood relative to their lifetime among all animals. Human childhood comprises approximately from one-fifth to one-quarter of the whole life. Of course, the children of our primogenitors had a shorter childhood. If a contemporary child is helpless almost up to six years old then helplessness of HOMO ERECTUS lasted probably up to two years old, which is long enough.
So we have: a child with the mother who needed prolonged and serious care, forming a smart brain required proteinaceous food (meaning meat) that could not be obtained by a mother burdened by a helpless child, but a male did not have an instinct of caring for the female. Intellect that would have been enable to make such a rational decision was rudimental and was incapable of such action. So what to do?
Since instinctive behavioral programs cannot appear out of nowhere, hence it is required to find out what other instinctive action could serve as the bases for the appearing of instincts of caring for females and babies in primeval males. What can serve as a base for developing an instinct of fatherhood? The most realistic way is sexual affection. However, there is one very important obstacle in the way of using it. The problem is that for most species female's (and often male's) sexual activity is obviously of cyclical nature. Their sexual readiness lasts only for several days during a year; outside of this period (period of rut) the females of such species are absolutely incapable of copulation. Nonetheless, this is the most effective way since sexual attraction is one of the strongest. Probably, one of the ways, if not the only way, is increasing the time limits of rut (specifically, widening the time limits of female's ability to copulate without being fertilized) and concealing the external attributes of the very moment of ovulation itself (see 2 for details). And in reality women are unique among the animated world in their sexual readiness around the year. If a male's year-round sexual readiness is reasonably frequent, then menstruation is known only among females of the HOMO SAPIEN species and none other.
Now a female has something to offer! Thus a male gets a stimulus for her nourishing and other ways of caring for her during the whole reproductive period, (and other manners of caring for her) and by the way the fertilization of this female in general may not be expected. To be more specific, a male in accordance with principle of unlimited sexual expansion, desires the maximum number of fertilized females and is somehow subconsciously interested in impregnating this female. Especially if one keeps in mind that alimony was paid not for the number of children but for the number of copulations. But a primal woman needed only one conception a year for childbirth and not just from anyone but from one the strongest and highest ranking. But who is going to feed her?
Getting a high-ranking male as a breadwinner is a dream but with almost no chances of realization. As a getter, he is not really bad at all (including at the expense of robbery of low-ranking males) but he is in high demand neither is he physically able to feed and support all the females who want him. But maybe only one or two favorite wives. Neither he has any stimulus to this. Why should he pay for copulation if he has it for free? If it were possible to own him monopolistically (as it was said - it would have been the ultimate dream come true) then all the problems would have been solved once and for all. However such monopolistic ownership of a high-ranking male was virtually impossible. Even the "favorite wife" could not rely on him. Of course, she could rely on his preferential (once again - not monopolistic) treatment, but not on his sexual fidelity. Sure it seems like a female does not need much of sexual fidelity itself. At least once a year he will find a time to fertilize her. However, sexual infidelity of such male had certain serious consequences for the female. First, there was the risk of loosing her "favorite wife" status. Second, there was a risk for her of diminishing sexual activity from this male and that means insufficiency of pleasures (low-ranking males are bad substitutes and they do not deliver such satisfaction). And even furthermore, the loss of the "favorite wife" status means lowering her own rank in the hierarchy. But here we are talking only about the "favorite wives" which were mostly the females with high enough ranking potential. What to do for the others?
It is very simple! For conceiving a child and for one's own enjoyment, a high-ranking male was preferred, invoking the jealousy of his "favorite wives" and at the same time deceiving several low-ranking males pouring gifts in wavering hope for a long awaited sexual act that was delayed by the female for as long as possible, up to the complete avoidance in favor of a high-ranking male. But all these low-ranking males simply did not have any other choice but to pay for their access to the body. Even considering that he probably will not be the father of most of the children of this primeval woman. In reality such practice is a paradigm of polyandry. I'd like to point out that this necessity for females to have a breadwinner opened a gate for low-ranking males to have a real chance to transfer their altruistic genes to the descendants. Isn't this connected to the abrupt acceleration of social evolution of mankind observed in the last couple of hundred thousand years based on the strengthening altruistic tendencies in people's behavior?
Furthermore, during the development of humanity, during the transition from gathering to agrarian society (sometimes called the "Neolithic revolution") at some moment getting food from several different men became unnecessary, one became enough, or a rich one became enough for a few females, and even she became herself an economically more viable subject. In these conditions the disappearance of necessity to get food from a few men lead to the automatic disappearance of necessity to give herself to the many men! Due to this fact, our ancestors' desire to secure a nuptial union (either monogamous or polygynous) seems like natural. This not only reflected the new economic realities but hampered the spread of venereal diseases. Automatically it also met some ideals of justice - instead of the primeval "one male has everything, others - nothing, "there appeared" a woman to every man." I have no intentions of exaggerating the influence of ideas of equality on people of the Neolithic revolution, but in this case the equality happened as a side-effect of the above mentioned factors and taken alone was not really meaningful. Moreover, at the beginning there was a predominance of polygyny as more habitual for high-ranking males, but seriously unfair for low-ranking ones.
There is one more important thing to notice. The attitude toward a female as a thing that can be bought (and that does not object to being bought) multiplied by the absence of the male's instinct of caring for the female lead at last to the system known as patriarchy. Matriarchy as the a mass phenomenon did not exist among our ancestors at least for the last ten million years since they moved to the Savannah and probably it never existed at all. There was no instinctive, economic, or any other presuppositions for that. (see 1 for details) And even otherwise, by the reason of high danger living in the Savannah, the role of males as defenders increased together with a kind of militarization of the population, resulting in giving privileges to the defenders (including at the expense of the female's rights). The practice of tracing a relationship based on the mother's genealogy among few peoples reflected only the impossibility of establishing a firm fatherhood under active promiscuity and nothing more. But nonetheless, since patriarchy formed relatively late, it was fixed in instincts weakly and thus could not void the fundamental principle of the female irreplaceability, that is at least half a billion years old. But every time the juridical pressure diminished, the woman became a selecting subject. Let's remember medieval knights. Moreover, even in the midst of patriarchy, a groom himself did not select a bride. It was done by a third party. (usually by parents)
Briefly speaking:
The beginnings of bringing males to take part in the baby's upbringing appeared among our predecessors with the transition to upright posture and bipedal gait and the increasing of the brain size resulting in a complete helplessness and prolonged childhood of the newly born. This created a necessity for material support of primeval females during pregnancy and the raising of the child, which could not have survived without such support.
The stimulus for such male support could be (and became!) only the constant sexual readiness of the primeval women, which is not seen among any other species.
As a result, the copulation became used for two independent purposes: one as before - to conceive the children and another - to pay for the material welfare provided by males. Because of weak inter-dependency of these tasks it is not mandatory to have the same males in both cases, i.e. a peculiar mixture of polygyny and polyandry took place and the polyandry component was based mainly on the material reasons.
The transition to the contemporary monogamous or polygamous marriage was promoted by the economic development of the mankind liberating a woman from the necessity of giving herself to many men.
More about choice
Who makes a choice? In the animal world it is always a female who chooses the male. If a male chooses this will conflict with the fundamental principle of gender separation - a principle of female's irreplaceability. Those few species where visually a male makes a choice can be considered as a short-term evolutionary deviation and even there the female's choice is probably rather camouflaged. For example, a female can make no choice by herself but instead she can provoke males to fight each other and then prefer a winner (or might become capricious and not prefer anyone at all...). The main feature of the selection is that there are a few males on "input" but only one on "output" and the mechanism of this selection significantly varies from species to species. It is obvious that exactly such reflected selection takes place among people. It is considered indecent and even impossible for a woman to make a choice directly without a preceding competition or even fight among men, even if in absentia or imaginary (let us recall medieval knights). Afterwards it is very hard for her not to prefer a man who demonstrates the behavior of a winner.
As we already clarified above, a woman, building her relationship with the men, instinctively pursues two, perhaps loosely connected, goals. Form one side she wants to get as much as possible material benefits from the men (not only instinctively but consciously as well!), from the other side she wants the one who would win her heart. In primeval times any kind of convergence of these goals in one male were possible only for very few females, the majority of others achieved those goals by promiscuity - the impossibility of being fully provided by one high-ranking male, was compensated by the high number of low-ranking males, at the same time given a chance a high-ranking male was usually preferred for sexual service.
However, with the growth of economic development of humanity the necessary conditions for arranging permanent conjugal relationships in a form of monogamous or polygamous marriage. Hence, free changing of the partners after creating a union was prohibited either legally or traditionally. Naturally, the sexual relationships outside of the marital union as the rule were forbidden. Historically this happened at a very late time and that's why it was not fixed in instincts - feelings as usually continued existing in a "primeval herd" state.
In these conditions if potential spouses were given any freedom of choice, then the future wife was put into a very complicated and mostly contradictory situation. From one side she needs a HUSBAND, i.e. who is an assistant in family business and who is able to treat her as a HUMAN BEING but from the other side, since copulating was allowed only with the husband, she wanted someone with whom it would be pleasant, someone she would feel for from the bottom of her heart. As a rule this is a high-ranking male.
At the same time (again, if any freedom of choice was given) it was considered preferable and purposeful to make a choice based on a call of love, which was in full accordance with the instinct of sexual preference, and that's why there was no cause for any objections from those getting married. But by this, family values as a way of mutual upbringing of the children and other mutual support were actually supposed to be left out of consideration. More specifically, it was suggested to rely on luck, though marriage was meant to be for life (the span of a lifetime was necessitated by economic reasons). Although divorce could be permitted but one way or another, it was condemned. Specifically it was suggested to strive for love to the very end. Alas, we well know where it leads in reality. A bewildered mind confuses everything, once and for all, making at last a random or a known non-optimal decision.
Since now personal freedom and with it a freedom of choosing a partner is uplifted into a cult, nothing restrains instinctive calls. Naturally, all women wish to choose a high-ranking man naively thinking that they can easily set a monopoly possession on him. Since in most of the countries a monogamous marriage is established and high-ranking men aren't enough for every women then a deceiving situation appears that it is the men who choose. The fact that not all men can choose goes almost unnoticed. Low-ranking men shamefully keep silence about their personal problems. Yes, having a big success with women, high-ranking men indeed have a possibility of a widespread choice and can realize their choice without burdening themselves with thoughts of a long-term relationship ("HE HAS TAKEN" for his wife... - this is said about them). A dominant man objectively does not need a marriage. Such a man can get whatever he wants from women. Without any problems he will find a woman (and not one) who will cook for him, wash his clothes, serve sexually, and will resignedly raise his children alone, despairingly dreaming about him as a husband.
It is worse for women. The instinct of sexual preference requires choosing high-ranking men, but the reality of contemporary life requires creating a family. By my estimates, high-ranking men are about 10-20% of all men. Therefore all women desiring high ranking dominants create the contest of 5-10 women per vacancy. The so desired men for monogamous families actually are not enough for all - this is the source of all groans about the lack of men. This is another example of visual selection - women's stares get fixed only on captains, the memory carefully stores only their images (although not always pleasant) and speaking about the men "in general" women unconsciously mean only them. Plus of course there is objective selection, which will be described below. In a primeval herd this 10-20% of males would have fertilized all females, all females would have been satisfied, including sexually as well. However, one wants him to belong only to herself, isn't that true? But he has a different opinion regarding this ...
The low-ranking men are in the worst position. Everybody gets at them - omega is beaten by everyone, but concerning women - they get "only grief". However, from the side of family values they are more preferable over "alphas" . At least, they are more faithful. Their problem and the reason for loneliness is they do not excite any interest in women. Therefore, among the men liked by women there are really only a few decent ones.
A low-ranking man mainly needs a marriage only for getting sex and having children. Without marriage he is "slapped in his face" and even in family life he is constantly in danger being deprived even if he gets his luck and succeeds in getting married. (But is it really a luck if such men do not get good wives?). So a low-ranking man is sometimes allowed to have sex in exchange for doing other home chores, with which he copes better then high ranking ones. Due to egocentrism and visual selection, women are biased to exaggerate men's inability to self-service as well as the burden of women's fate. Thus, cooking and washing are not the main motive for low-ranking men to get married.
Briefly speaking:
The recommendation of "getting married because of love" basically is very contradictory and only leads to confusion, perplexity, and disappointment.
There are two types of old bachelors: high-ranking, who do not need a marriage and low-ranking, who would not mind getting married, but with all their strengths are not needed by anybody...
What the men having no luck should do
It's better be forgiven later then missed now.
(from Murphy laws)
It is obvious that it has a sense to recommend something to "cornets" because "captains" easily manage without any advice. By the way it make no sense to ask advice from "captain" either or it will be like in the anecdote. "Captains" conduct themselves with women very differently and their high rank is denoted not so much by their relaxed behavior but by a subtle self-assured mimic and specific face expression.
The root of your problems regarding relationships with the women is in your low primeval status and you would like, of course, to raise it. I can tell how to do this right on the spot: you need to become rich or famous (for example - to make a career). It is also possiblllee to get drunk but this will not help for a long time. It is well known that the women love money very much but not everyone guesses that wealth is not the end goal for a woman but it is also an attribute of high primeval rank and women love not only money but also the men who managed to make them. Getting wealthy for low-ranking men was next to impossible in primeval herd. Higher superiors would have plundered everything. In contemporary society it is possible to achieve certain wealth but if your real rank is way below your wealth you might face with her infidelity later. It is pleasant to milk a breadwinner encouraging him with sex but she'd like to have someone different as a lover.
As far as the glory the best way is to become a pop super-star, and save you God from committing heroic deeds risking your own life. Readiness for self-sacrifice is definitely an attribute of a low rank but foul readiness to expose the others (to rule over the others) is the attribute of a high rank!
As it was mentioned above it is typical for people to have different levels of primativeness. The primativeness of animals, especially primitive ones, is always close to maximum. I will remind that a low primative man follows his mind rather than his instinctive programs in everyday life. Since instinctive nuptial rituals are dialogic like password-response, the unconformity of such man behavior to these rituals can seriously complicate his quest for a life companion. Such man may not be apprehended as a sexually mature male.
It is said that women love with ears. To say more this is typical not only for people! Songbird males sing the songs only for attraction of females. For the same purpose grasshoppers cricks, frog male croaks, male cat yawls in march and etc., etc., etc. It is not worth to mention the pop-stars. They are one of the most favorite category of men among women... And yea, they sing mainly about love!
What is more important for success - high rank or high primativeness? For sure, high rank! Captain is forgiven for everything including low primativeness. Moreover, high ranking men with low primativeness have often particular charm and have a big success with respectable decent women. However, they are not the ones who have the biggest harems. However primativeness is inborn feature and it is very difficult to change it even by hard training especially you do not have artistic gift.
Low chances can be compensated by the big number of attempts. Do not hesitate to use favorite women's tactic - having several romances in parallel but take certain measures to prevent crisscrossing of them. At least, you will gain practical experience and probably obtain lacking self-assurance. One of the other ways of gaining experience is to date by classified personal ads but do not treat them seriously. They are extremely ineffective as a search method for a life partner.
Of course, women tend to make fun of low-ranking men but treat this philosophically and do not quit attempting. In any case neither make a tragedy out of this nor fall into depression. Considering that we live in the world of probability and chance, and as it was mentioned above, high rank by itself is not a guarantee for the total success, and right contrary, low rank is not guarantee of a complete failure. All these are the factors which seriously affect the likelihood of mutuality. Besides that there exist an instinct of sexual curiosity...
And one more thing, if your rank is low try not to waste your time on high ranking women.
And now some real advice.
It does make sense to try some psychological training to raise self-confidence. However, be careful and picky in choosing such type of training and its instructor. If the instructor is really high-level specialist then your chances to raise up your rank (at least visual one) are high enough. Virtuosos can help you in acquiring the above mentioned hardly noticeable self-assured mimicry. For example the following exercise can be recommended: looking at woman think where to kiss her, looking at man think where to hit him. I emphasize that this should be only imaginable exercise. The results maybe noticeable in about couple months. However, be careful with training on men. High-ranking man can apprehend too brave stare as a challenge for hierarchical duel and accept it! But this can be totally out of your plans. Because by hierarchical "etiquette" low-ranking male must lower his eyes when dominant is looking at him.
Trying to display your high rank to women, do not be malignant and aggressive! Remember that the root of high-ranking potential is in the high self-esteem and following from it self-assurance. Probably opposite to it, malignancy is destiny of low-ranking men. Cheerful happiness of self-assured person having success in life, having to some degree everything from life, is not afraid of getting in contact with others, this is a lifestyle and behavior one should try to achieve. Moreover, even the most highly primative woman has some kind of rational thinking and open aggressor can invoke purely rational antipathy.
Never condemn your beloved ones for making eye contacts with other men and perhaps dating not only you, even if you are kept at certain distance - nature made mostly them responsible for the choice, although a lot of water under the bridge since ancient times. And never condemn your wives for irresistible desire to be attractive to all the men - it does not mean infidelity. Remember that without serious reasons a woman will never introduce anything dangerous in her life.
However! Do not waste your time if you see that the distance between you is not getting shorter for a long time - that means that you are kept just for collection. In this case she does not need you but only the signs of your care. Actually the need for signs of men's care for most of the women is the end in itself, the kind of psychological food. And dosed favor is given you in order to make this source of care not drying up for as long as possible. It is proven that very long courting do not lead to successful marriages. And even if you succeed in such case then for the rest of your life you will be considered like half a loaf is better than no bread.
If the initiative of your dates or other contacts (for example by phone) is always going from you but she in the best case scenario just mercifully does not refuse, this is the exact sign that your relationships are hopeless. In this case you are just a specimen of her collection or even maybe, the source of the gifts.
Making the gifts and giving a hand, try to be within limits of the ritual. No way this should look like a sincere self- sacrifice. Gifts should be presented with careless ease. She might be pleased to see how you kill yourself trying to get what she wants because it means that her goal regarding you is achieved but this pleasure of hers will not end up in a pleasure for you. As a rule, accepting gifts, woman does not feel obligated. For example, if a woman asks you to do her a favor that humiliates you one way or another and there is no possibility to decline then the formality and ritual meaning of your submission must be heavily emphasized. Do not rush to accomplish the favor with slavish obligingness - this is the way it is done by low-ranking men but instead do it condescendingly. Thus your submission completely loses its hierarchical nature and becomes nothing more than purely conjugal ritual.
Never try really proving that you are hard-working, sober, careful, responsive, and etc. By doing this you will neither break her heart nor probably capture her mind especially if she has never been married.
As it was said above, different kinds of parallel promiscuity usually platonic are typical for women. So they are inclined to try a few men simultaneously. And if she keeps the sufficient distance with all the tried men except perhaps one, this is the NORM and usual practice which allows to widen the pool of candidates. Such practice in combination with egocentrism is apprehended as craftiness. This term is not really exact because often she does not know herself who will become her choice until the last moment (although as a rule she knows well who is not going to be her choice) and after the choice is done she does not always realize clearly why one is chosen over others. So do not make the scandals and do not strain your relationship over this issue. According to the instincts women simply must behave this way.
"Admitting to body" can be used as one of the most powerful (though risky for the women themselves as well) ways of men's seduction. In these cases, a woman comparatively easy agrees for a short-term intimate relationship which do not suppose their further development and deepening. The main subconscious goal of such sexual connection is to bind a man to herself and at the same time satisfy the instinct of sexual curiosity. On a rational level, woman usually explains such behavior as "having fun". However, after very short period of time (very often on the very next day) you might be refused in continuation of this intimate relationship, possibly with the offer "to stay as friends". Poor thing, if you managed to fall in love with her. In such case the outlooks of reciprocity are next to illusory and negligibly small. Briefly speaking, do not rush to fall in love with a woman only because she had sex with you several times. It might be only a bait with nothing following after but painfully stinging fishing hook. Sure, it does not mean that one should decline closeness. The bait should be accurately eaten without biting a hook (meaning without loosing one's head).
The less we love a woman the more she likes us... This can be applied to Pushkin himself but such recommendations as "never pay attention to her" or "show her the place", "shout" and etc. are suitable for captains and work well in their implementation. Dominant male does need to love women. They love him anyway. And if your rank is low then your deliberate inattention will go unnoticed but your attempt to "put her in the place" will be growl of paper tiger and will cause nothing more then smile or righteous anger.
About woman infidelity. Without examining explicit or implicit prostitution, i.e. sexual intercourse for material welfare, then a woman has liaisons in most of the cases when she is not satisfied with the rank of her husband, especially if the power of her innate program of sexual curiosity is increased. And if you do not satisfy your wife sexually but somebody does then the reason is neither in his special ability nor in the size of his genitals but exactly in the rank. Even the potency is not the first in the list of reasons for infidelity. If she is not suited with something else (low intellect, abusive manners, laziness, and etc.) she will probably leave you rather then start having extra marital love affairs.
Women have propensity to whimper about difficulties of getting married. However, do not apprehend this too literally and do not make illusions that women will rush to you pushing rivals aside (of course, if you are not a pop-star or someone similar with the highest rank). Women even trying to be attractive to all men, nonetheless will keep sitting up until senility and waiting until somebody will conquer them (and they will put up a defense! - the fortitude of which will be inversely proportional to man's rank), thus proving by this his primeval right of close contact, even if there are no chances left. In reality, they want to get married much less than they talk about it. Especially if they are over 30, in this case, besides other things, unwillingness to change habitual way of life is triggered into action (that is also typical for men as well).
Saying "no men" or "nobody pays attention" a woman deliberately or inadvertently cheats. A woman of reproduction age getting ABSOLUTELY no men's attention is something practically impossible (if only men physically exist within a few kilometers). At least she will be accosted by a drunk. Such statements should be comprehended as "not enough real men" or "not enough admirers" and there is none suitable enough among them (and we know who this suitable is). And admirers, like money cannot be TOO much. So, courting a woman, even ugly, never assume that she does not have other admirers, but better consider that you're only one of possible candidates.
However, be careful if a woman is overlooked or competition for her is clearly weak! It is good if only the reason for this is in her unappealing look. Otherwise, the reasons can be very serious. If women reject men for discordance with primeval criteria, then men judging by the mind reject women for more objective shortcomings. The same is true for divorced women. Good wives are tried not to lose. It is advisable to find out the reason for divorce.
Do not be modest and do not criticize yourself. If you have something to be proud of, do not put telling it off thinking that this is going to be a pleasant surprise for her. This later time can never come to true. Also do not assume that she will recognize your strengths herself - notorious women's insight is nothing more than myth. Illusion of women's insight is created by ability to read well gestures and mimicry as ancient nonverbal language. However, only current state of a man but not his biography or moral cast can be determined by gestures. As it was mentioned above, women, following the feelings, evaluate men very superficially. I do not say about all women but an average woman is not so insightful at all which is caused by her egocentrism. If it were not true women would not have suffered from pickpockets in public transportation.
A woman evaluating your strengths (as they are catered for her) probably compares them not with her own strengths and weaknesses (according to the principal of female irreplaceability, her own strengths and weaknesses are less important comparing with the very fact of the women existence) but with the strengths of the other men (also the way the strengths are shown to her).
Please note how shamelessly experienced Don-Jovans glorify themselves not hesitating to lie under some circumstances. Of course, I cannot recommend a lie as a method but whatever you have should be shown at its best. And it is not worth to forget old fellow Karnegy - "Going fishing I take worms with me, though I personally prefer strawberry with cream". I.e., the things that you like might not be of a dislike for others.
Be careful with admitting of love! This can be the end because the conjugal goal of a woman's behavior is to make men fall in love with her and if this goal is achieved then further relationships can get uninteresting for her. You will be flabbily kept just for collection. The very fact that hearing of such admittance is very pleasant for a woman is just a satisfaction of a person who achieved the goal.
Practical conclusions for lonely women
What should a hen running from a cock think about?
-Am I running too fast?
(an anecdote)
As it was mentioned above a male can fertilize the maximum number of females if it cares for each female only minimally needed amount of time. This is the reason for preference of easily available women by men. In other words, after the body was obtained he may lose any interest because the goal is achieved and it is time to take care of another woman. So, we can advise women to avoid intimate contact and even hints at it for as long as possible (of course, except the cases when you need only THIS). If you worry that without THIS he will abandon you that means that he will leave you anyway, and after THIS even faster. By the way, men's love is more transient than women's but often is more powerful. To say, it blazes up brighter but burns down faster. The sense of this for men is the same - not to waste time.
Do not condemn your men for looking on other women. There is nothing terrible if he does nothing more than looking on them. You also assert all the efforts to make men looking on you (and the more and longer the better) even if you are married for a long time. To forbid men to look on other women is equal forbidding you to look nice and attractive (attract men's looks).
Slightly simplifying we can say the following: all women like the same men. If you like one man it is very likely that other women also like him, if you do not like a man it is very likely that none of women ever likes him at all. So, if you feel that you have to compete with other women for any particular man, you should know that you will have to compete for the rest of your life even if you succeed in marring him. And if you see that a man looks like a good one but you feel no call of heart, do not comfort your soul with thoughts that another woman will like him. It is very probably that this good man is doomed for loneliness. At school, when mind is not ripened yet, such "anisotropy of sympathies" is well displayed. All girls in the class like 1-2 boys who are objectively not the best. The interests of boys are distributed on girls although not uniformly but more evenly.
For men such phenomenon also takes place though it is less typical. Men's tastes of women are much more diverse.
Do not be born nice but be born happy. This proverb is very correct since it reflects the circumstance that men like beautiful women and that's why there is extremely fierce competition for such women where only high-ranking males win. The word "male" rather than "man" is much more suitable here because well-bred, cultured and honest man as a rule does not have high rank in primeval hierarchy and primeval swines hopelessly block him from you, who is so pretty. Besides this, such fierce competition for beautiful women cause women to get illusionary feeling of infinitely wide and unlimited in time freedom of choice. When such illusion disappears the bitter feeling of aimlessly spent years and undeserved resentment toward ALL men is left. But meanwhile there were the same men with insignificant differences flickering in front of your eyes. The men of the other type were busy with those who were less pretty.
So, do not get your whole mind fastened on your look! Subconsciously evaluating a man from primeval point of view you likely involuntarily attribute to men the same customs and try to increase your own primeval attractiveness missing men's rationality. Yes, there are men who react only on this but do you need them?
Having perfected your appearance to the best you can achieve a reverse result! Looking prodigiously fashionable and refined you provoke a feeling of your inaccessibility (maybe, a real one). And inaccessible women are not preferred by men, especially by low-ranking ones. How a poet said:
... So inaccessible for men
That their look cause spleen...
So the more stylish you look, the higher concentration of "easy-riders" is around you. Of course, we mean here an extreme degree of stylishness, I do not campaign for slovenliness.
Men follow their mind in higher degree, justly considering some elements of primeval marital ritual impolite, uncultured, tactless, humiliating and so on. You often expect that until the loss of the memory a man will be storming the inaccessible barriers built by you (and the lower the man's rank the higher the barrier's height) but he will consider impolite and humiliating to bother you. Found your defensive reaction, a man might decide that he is unpleasant and annoying to you and will leave in order not to give you unpleasant feelings with his presence. And he is absolutely right from rational point of view! Highly primative and high-ranking man simply does not care that he can be disgusting and his importunate annoyance blocks the reason of your mind, thus achieving the desired result. Those importunate annoyances are the most ancient ritual!
Low-primative man discards such impolite rituals and assumes that mutual intimacy of intelligent people should be reciprocal since it is necessary for both.
For example, according to the instinctive ritual you switch your attitude from warm (for baiting) to cold and you are puzzled why he does not fight for you? But a low-primative man is puzzled - why did you suddenly become so cold without any reason? He does not suspect that this has to be done according to the ritual and he is suppose to start conquering you without taking into account any possible impoliteness and humiliation.
This does not mean that you should be sexually easily accessible! We are speaking about barriers on the way of intimacy of souls but not bodies.
About man's infidelity. It has been already mentioned above that the instinctive limitations of sexual expansion are absent in men. However, there are two serious issues. First, this expansion can be released only by a man with high rank. Low-ranking man maybe also would like but... Women, whose husbands suddenly became rich, notice that he started betraying or even left for good. This man did not change. The explanation is easy. His rank increased and women began to love him. To love and not only to sell themselves. Second issue, absence of instinctive limitations does not mean the absence of rational ones. Men follow mind much more than women do. You will laugh but men sometimes deliberately do not allow themselves to betray due to moral and ethical considerations! Of course, if you suit him comprehensively.
About personal ads in classifieds. Men resort to it if their rank is low or they have some problems in biography (conviction, for example). If you write in your personal ad that you want "a kind, honest, etc." then having met exactly such man you will probably find that you have no feelings toward him. And regarding former criminals, be aware that anti-social behavior often is an attribute of high rank. Be careful! Furthermore, you want this man to be well-off. It is understandable but men perceive such your requirement with abhorrence justly supposing that love for money is prostitution (but maybe, you had in mind only his high rank, i. e. ability to "take everything from life").
Your 40 year birthday is very close but you still have no man. Have you already agreed for any man? But what do you mean "any man"? Actually lowering the requirements for the desired husband a woman usually lessens the requirements to civilized part of his personality but not to primeval because it is difficult consciously to lower requirements for something what you cannot realize by your mind.
If you really want to get married but not only chat about it you should take initiative in your own hands. The one, who needs something more, speaks louder about it. However, do not try to storm porutchiks. This is hopeless and not original. If you really want to get married but do not want to act, this is, sorry to say, self-delusion. Sometimes it can be enough just to lower the speed of running away but I warn once more about inadmissibility of early intimate contact. Almost every man always agree for that and almost with every woman. His agreement for an intimate contact does not affect the outlook of long-term relationships. Here an analogy can be drawn with your reaction on his signs of attention - you will accept them but this does not mean anything.
Do you find this to be humiliating and cannot "step over yourself"? I can just feel sorry for you. Decent men do not want to stoop either, especially taking into account that men are less interested in long-term relationships. Trusting woman's "nature", i.e. instinctive behavioral program, that proposes defensive and waiting role of woman toward men, you will again and again recreate primeval environment around yourself where there was no monogamy marriage and a female was taken by the most aggressive and bold male. Expecting such one to be decent is, at least, naive. Speaking in other words, if you are going to sit and wait until somebody finds you then you most likely will be found by a real "male" ("easy rider").
It makes sense to trust your heart only if your goal is maximum of momentary (especially sexual) sensations. Even in this case if you do not want to bear a difficult child or moreover, if you worry about growing aggressiveness of mankind, it is better to protect yourself from pregnancy. To build a stable family the voice of heart cannot be trusted. Since turned on instinct blocks your judgement you should try to resort to the help of other people who can judge with common sense.
If mulling over the perspectives of marriage you have a goal to become a Grand-Lady at any price, you, of course, need a high-ranking dominant despite of all the dangers connected with him. But even in this case it is better not to trust the heart. It can call you to the self-enamoured grumbler whose behavior has some resemblance with behavior of a real dominant. Meanwhile, the main value of high-ranking person is his ability to succeed in life, may not exist. It might happen that your beloved one will have neither the advantages of a faithful family man credited to low-ranking males nor the ability to take everything from life pertaining to high-ranking ones but will have only high-ranking arrogance and nothing more.
Women who were caught by dishonest womanizer often tell the following:"Yes, I understand that he lies to me, that all his nice and tender words are lie but I cannot do anything with me!" This is an example of highly primative behavior. Subconsciousness, realizing instinctive marital ritual, neither can reason by itself nor is interested in opinion of mind. The main thing for it is the match with template. And when it matches the feelings start working with all the cylinders firing! Trusting her mind, low-primative woman will not be caught in this trap - primeval sorcery might not affect her.
What lies more often a heart or a mind? A lie can be different. Rational judgement is based on knowledge gained during upbringing, education and on one's own and other's life experience. If because of any reasons the mind is weak it can deceive (lets say, fail) due to its weakness. It can fail to "calculate" all the consequences of the situation. That's why with passing years and gaining some experience the number of failures decreases. Experience does not affect instinctive programs at all. And heart does not lie because... it does not promise anything at all! Even if it promises then it promises nothing more than the moment of bliss. Since monogamy marriage is not foreseen in instinctive programs as well as participation of males in children upbringing, so it is easy to imagine the following evolution of events.
From all the above mentioned does not follow that I appeal to you to reject high-ranking men and to prefer low-ranking ones. Low-ranking man is not necessarily educated, cultured and honest. There are some very odious persons among them especially at the bottom of hierarchical pyramid and vice versa, not every dominant is cad. Quite the contrary, I call you upon not to pay any attention to the rank! What I mean is that you should not come under the influence of hypnosis of high-ranking male blocking the perception of objective advantages and weaknesses. The present touting of low-ranking men's virtues in the text is created to compensate dominating everywhere strongly biased opinion in favor of high-ranking males. But even if I'd like to recommend someone then it would have been the low primative men regardless the rank. Another point is that the heart does not understand them but the triumph of mind is possible only with the appropriate genetic base...
Of course high-ranking men have not only imperfections and weaknesses. Many of them are very good breadwinners and if you are lucky and his rank is real, you will be much better off behind him. However, high-ranking male is usually always egoistic and the material welfare which he gets may be handed down not to you or not only to you. Moreover, his ability to accommodate himself in life can play a trick with you, he will accommodate himself and succeed in life at your own.
About valor and humiliation
As it was mentioned above, the number of copulations is the clearest quantitative index of a rank. By allowing a male to approach her, a female acknowledges her lower rank. Therefore consent for copulation is one of the most striking signs of acknowledgment of submission. That's why the talks about sex among men are often characterized by bragging and scorning to women and among captains - not only chats. The usual component of curse is the phrase like "F@@k you" that has unambiguous purpose to humiliate an opponent. Though, it seems what can be humiliating in a natural physiological act? Their desire to humiliate even more is considered to be a kind of valor because, although it is sad but humiliation of the people around one is the most widespread way of increasing one's own rank. Especially if it concerns a sexual partner. Of course, women are offended when they are humiliated, but just try to take away such a humiliating man from a highly primative woman. She will fight but will not give him up.
Due to the same reason, men practicing masturbation are scorned. Women's masturbation does not cause such scorn even though it is barely less widespread then men's. The logic is the same: one masturbates -> means that one has no woman -> low-ranking one has no woman...
Briefly speaking:
Aura of indignity, humiliation and secrecy surrounding human sexual relationships arises from the closest connection of these relationships with hierarchical ones. Moreover, sexual failures are most hidden by men as an attribute of a low rank in hierarchy.
Women's secrecy goes back to the times of gregarious promiscuity when one breadwinner did not have to know about the number of others.
Ethological continuation
About optical illusions and observational selection
- What are you looking for?
- I have lost the keys.
- And where have you lost them?
- Over there.
- Why are you searching them here?
- There is more light here.
(an old anecdote)
Public opinion is full of the prejudices, especially in this sphere. For example, the women are sure that it is much easier for a man to find a woman than for a woman to find a man, although sociological research proves otherwise, the majority of women are sure that it is a man who chooses a woman, even though in reality it is exactly the opposite. In order to clarify the mechanism of origination of such illusions let us imagine the following example, overdone for simplicity:
There are one hundred men and the same number of women living in some village. Five out of these hundred men are arrant Lovelaces who change the women once a month in average. The other men stay home and rarely hang out. After a not so long period of time these Lovelaces will date all the women but the others will meet no more than one. As a result women meeting each other will be telling approximately the following: I dated six men and five of them were such a ... Of course they will come up with the wrong conclusion -- that 5/6 of all men are skunks, cheats, old foxes, easy riders and so on.
Mentioned above, observational selection is objective. It means that even impartial robots would have fallen into this trap. Besides there is also subjective selection which is derived from the peculiarity of human memory - emotionally meaningful events are remembered at their best. Those 5 Lovelaces will be mostly well remembered for a long time because they excited bright emotions. As a result the only one more or less decent man out of these six will not even be recalled.
It is very difficult not to fall under the influence of such illusions for an unprepared man. Mass media also endorses the distortion of a statistical situation preferring to inform about rare, unusual, untypical events and creating the illusion of their mass character and typicality.
About specifics of behaviour
I am a weak and helpless woman, I won't let you!
I've already sued three tenants, and for such words
of yours you will be crawling at my feet!
(A.P.Chekhov. "Helpless creature")
So, biological roles of males and females are drastically different. Lower viability of males due to, in part, more risky behavior, was mentioned above. Obviously, the differences in behavior do not end here and certainly should suit the biological roles. Since the personal value of each female is higher than that of the male because males are born in much higher numbers than needed for fertilization of all females, then there dominate in female behavior the care for herself (and demand of such care from people around her), caution, avoiding risk, and if a self-sacrifice needed then it must be only for the sake of her children as the final goal of caring for herself. Societal traditions are solitary with women primacy because naturally they go back to instinctive behavioral programs - women and children are saved first from a sinking ship. Besides, while there is a great number of the laws and resolutions showing concern for women one way or another, there is none for men. The law takes care either of a PERSON (any person) or a woman.
For example, marriage legislation of Russia and especially legislative practice in this sphere are openly discriminative toward men but nobody pays attention to it. For millions of years everybody got used to this. If a man killed another man in self-defense he would face long and not necessarily successful judicial hardships in Russia. Under the same circumstances a woman probably will be acquitted even without getting a court hearing. And moreover she will be praised. There are many public organizations and movements struggling for the rights of women but there is nothing heard about the same for men. In mass media women's problems are discussed deeper and more attentively than men's are. This is in addition to the fact that even without this, the women are idealized by both men and women and this also goes back to the principle of female's irreplaceability.
It is possible even to speak about men's "presumption of guilt". A husband beats his wife - he is blamed, a wife beats her husband - again, a man is blamed; rape - a man is blamed; divorce - the same; a woman cannot get married - once again, the men are to blame. Yea, men, those villains are to blame for women's unemployment as well. Examples abound. Innocence of a man should be proven every time in such cases. Should you fail to prove it - you are guilty by default! It is the most fertile ground for abuse. Why take care of men if even nature does not take care of them!
I think everybody will agree with the following:
Women take supernormal care about their health and it seems like men have the goal of shortening their lives. It is well-known that men resort to suicide three to five times more often than women.
Men have a strongly developed investigative instinct and women a have propensity to known and tested actions (let it be worse but the good old way). Women typically have the primacy of tactic over the strategy - this minimizes the losses in case of failure though it does not allow to score a big victory in case of success. One today is worth two tomorrows.
Women have a clear inclination to keep low profile satisfying with dull enough life. This can explain for example lower public and business activity of women. Women's soaking in everyday life is a secondary reason (behavior of unmarried women is slightly different in this sense from married). The most outstanding people (that means "more poped out") both genius and scoundrels are men in general. The one who does pop out, takes a risk.
Women trust intuition and feelings more than logical conclusions. Intuition is based on a past experience and feelings as a voice of instincts are based on experience of a whole species and therefore it is more reliable on average because it was tested by practice. Due to the same reason women better than men comprehend the language of gestures and body language as the ancient means of communication.
Women are more subject to herd instinct and authorities because majority is usually more often right on average than minority, and authority is a person supported by majority. Also it is possible to mention a higher than men's sexual corporate solidarity among women for as long as it does not contradict the personal interests.
Average man is more lazy than average woman. It does not mean the absence of lazy people among women but on average it is true. Women's anti-laziness is one of the demonstrations of her concern for herself and for her children. It is not so important for a man to take care of himself. However, laziness is the mother of progress.
Taking a risk to incur anger I will make a point that burden of notorious "women's fate" is very often exaggerated. And it is so, in order to be pitied even more. This exaggeration in the end goes back to the principle of female's irreplaceability and is tightly interconnected with egocentrism that will be described a bit further.
Women are not kinder than men! Illusion of women's kindness is caused by instinct of motherhood but it is not identical to kindness and works only in favor of the children.
Victor Dolnik deems that primates' hierarchy is formed by males only. Regarding macaques it might be true but for people it is clearly incorrect. Neither the differences in levels of inclination to conflicts among women nor the differences in power of elbows need any proof. Another thing is that women's hierarchical struggle is not characterized as an open one and generally speaking, is less dangerous for life because of irreplaceability of every female. We can also agree that women's hierarchy is built independently from men's, but they are closely linked together. Anyway, a comparison of male's and female's rank is totally correct. Ranking potential of some ladies is out of limits and easily can get above average men's ranking potential. Let us recall a famous "Tale about a fisherman and a golden fish" by A.S. Pushkin. Ranking potential of the old woman was much higher than of the old fisherman and that coupled with egocentrism lead to what it had lead. Should we throw away the fairy entourage the described situation becomes real and not so rare at all! A children's hierarchy also exists and in general independently from an adult one. However, not any grown-up can tame every high-ranking teenager. Forget about teenagers! Even high-ranking cat is capable of winding its master round its little finger...
About egocentrism
Self-loving is the only romance that lasts for a life.
(Oscar Wild)
Egocentrism is inability to WISH to put oneself in another's place or to get in another's shoes. Egoism is unwillingness to divest oneself of one's own interests. There are the terms "reflection" and "empathy" in psychology. The first term means the ability to adequate self- evaluation in eyes of other people, the second term means ability to apprehend emotions of others. Egocentric has both abilities diminished. Non-egocentric person sometimes is called reflective but this is not quite correct.
I do not allege that there are no egocentric persons among men (moreover, the champions of egocentrism have to be looked only among men!) but it is more typical for women in average. Whatever is said about women's emotionality, empathy is the ability to evaluate the emotions of others correctly but not intemperance of one's own reactions on the environment. The ability to read gestures and mimicry helps to read the emotions of others but in order to read the mimicry one has to want doing this in the first place! Meanwhile, the surrounding world and especially the inner world of the others is not interested for egocentric. He is interested only in the world of oneself, right up to self-admiration. This is indirectly proven by women's love to mirrors.
Here is the following anecdotal scene for illustration:
- Honey! In such weather a dog owner wiiilll not kick his dog out!
Egocentric person can answer: Then go without a dog...
Egoist will probably respond: You aren't made of sugar! You will not get dissolved...
Here is another scene. A bus stopped abruptly. Egocentric women yelled: "Driver! You are carrying a human cargo!" Men: "What is a crazy person running in front of the bus?"
Egocentric did not even try to put oneself in another person shoes or understand what his/her problem is all about. The point is not in the fact that he is incapable of doing this! It simply did not come to his mind. On the contrary, egoist understood everything but deliberately disregarded the troubles of another one. Egoism is one of the important demonstrations of a high rank.
Egocentric is not necessarily a nasty person! He is just insensitive. For example, he can pour out tons of kindness on the person who does not need this without feeling its irrelevance. And also oppressing somebody he sincerely does not notice the inconvenience which he causes. As a sort of this feature we can mention the extreme restraining of egocentric people in expression of gratitude to the other people.
And egocentric can simultaneously be an egoist (what a horror!).
It is determinate that egocentric people are robed in a crowd (transport, shops) more often and they do not notice or feel anything at the very moment.
It is proven that propensity to egocentrism is handed down genetically from generation to generation even among men meaning that reasonably deep and ancient brain structures are responsible for this.
In an age of from 3 to 5 years egocentric children usually do not ask WHY or they do it very rarely although their development does not fall behind from their peers in any other way. They are not so interested in surrounding world as in their own world.. From the biological point of view feminine egocentrism is justified, and moreover, more or less NORMAL!!!,
if every female is objectively irreplaceable then nature forbids women from thinking seriously of anything but their own interests or interests of their children as well as concealing their problems. For this males are especially created.
Try mentally to change the roles of old man and old woman in mentioned above "Fairytale about a fisherman and a golden fish". Can't make it? Don't you say this cannot happen? Correct, this would have been too untruthful even for a folktale. Since the folklore is already touched it is worth to pay attention that if a fairytale presents such character as stepmother then by all means she is nasty, evil-minded stepfather is not quite typical character for folktales. The reason is not in malignancy itself but in absence of concern for the other people and stepchildren needs. The fact that mass media much more often reveals cases about stepfathers' brutality is the result of the mentioned above men's presumption of guiltiness. Folktales are more reliable statistically. If a folktale does not adequately model the relationships between people it will be not a fairytale that can teach children about real life but an idle fantastic absurd. The thesis about statistical reliability of folklore is correct although its correctness varies for all kind of folklore such as anecdotes, verses and etc.
Why does unbearable moral working environment quite often exist in purely women teams or staffs? Because nobody wants to make any sacrifices for the sake of others.
Lower egocentrism can be seen among women who drive car. Driving a car in a traffic is impossible without constant forecasting of the other drivers' actions and concern about predictability of one's own actions. That is incompatible with egocentrism. Women's unwillingness to use rear view mirrors became household word. That's why the average egocentric woman feels quite uncomfortably behind a driving wheel writing this off to the boorishness of male drivers (again, here is a presumption of male guilt!) and therefore decline to drive voluntarily. However, if she drives a car (of course, it is worth to see HOW well) then the level of her egocentrism is lower than average. But this does not guarantee the absence of any other imperfections or weaknesses. However, this egocentrism in reasonable doses is included as a necessary piquant flavor in the notion of femininity.
Ethological sketches.
All people are equal. However, some of them are more equal.
(Suggested by G. Orowell)
The subject of primeval hierarchy in our society is extremely interesting itself and perhaps deserves a separate treatise. That's why I suggest in the end to step aside from gender relationships and to look at relationships of the people in general. Especially as this will allow us better understand gender relationships as well.
Primeval hierarchy explicitly or implicitly runs through our society. We can observe this in relatively pure form inside many children groups, especially in orphanages, when mind is not fully developed yet. Gregarious hierarchy and propensity to be influenced by an authoritarian leader without any critical judgment of the one are the instinctive behavioral programs without any rational restrictions. By the way, the children from decent families very rarely find themselves in the orphanages. Therefore, this specific behavior is significantly predetermined genetically. Provoking anti-social behavior of teenagers (and not only them), unmotivated cruelty, baiting of "omegas" (who are objectively not the worse children) are the demonstration of a hierarchical struggle. A low-ranked child occupies not the best place in a street hierarchy hence there is no rational sense for him to take part in it. A low-primative child will do exactly this. He will distance himself from such hierarchy. A highly-primative child cannot do the same since his instinct powerfully requires taking part in hierarchy irrespectively how bad he feels in it. There was a perfect movie after R. Bykov "Scarecrow" where this primeval relations were shown with scientific accuracy. Unfortunately, the end of the film is not plausible. In reality, such repentance of hierarchical leaders is impossible.
Among adults hierarchy is well seen in conditions when civil rights are restricted one way or another. This is, for example, prisons; our army with all its violence and hazing; groups of people with a low culture and especially, criminal gangs, where each new person is evaluated from the point of his rank, and where there is extreme intolerance even to the hint of disrespect.
* * *
Inability to feel the own guilt is typical for high-ranking people (especially for egocentric). It is exactly "inability" and exactly "to feel". In other words, their brains have no convolutions creating the sense of guilt. Under pressure of logical evidence he might agree with accusations (in case he cannot keep silence) but he will never sense any guilt. Striking example - J. Stalin. While making the mistakes he was sincerely sure that the "enemies" are guilty in it. And such his assurance was transferred to almost all the country.
Very often a highly primative man subconsciously apprehends a respectful attitude as an attribute of a lower rank and he starts giving orders to this person turning to humiliating submission to a person with a higher rank. There is no middle point for such people: either to order or to submit.
This is the ground where hostility of low-cultured people to "eggheads" is based on. Demonstrating by his culture and education what looks like not high rank such man will never agree with the role of "omega". But this perplexes the instincts and invokes a desire to show "omega" his place. However, there is no precise dependency of cultural level from educational level and fulfilled work, rather it is only probable. An uneducated person may be highly cultured, which is based on low primativeness. It is appropriate to repeat once more here that a low rank is not equal to the high culture. High culture is perceived as low rank but the contrary is not necessary.
* * *
Probably each of Russian people observed the following situation at least once. A ticket collector has boarded a public transport and is trying to check the ticket at the passenger with a higher rank who has no ticket. A ticket collector cannot do anything and he looks pitiful despite of his position. This passenger radiates so abysmal and impudent assurance of his victory that some strange and even mystical force makes a ticket collector step back. On a rational level this ticket collector decides not to get involved with this passenger. A high-ranking person can easily stand a conflict with such tension that can cause extreme discomfort for low-ranking one.
* * *
Hierarchical struggle is often confused with the aspiration for "one's own significance". A person worrying about his own significance does not need to humiliate the other people, in contrary the easiest way to raise one own rank in hierarchy is to humiliate the people around. I think each of us observed many times and even experienced oneself such aspiration of the some people to humiliate the others.
* * *
It is easier to keep the rank than to raise it therefore artificially created hierarchies can substitute natural and self-organized ones to some degree. This "level of degree" is determined with by initial ranking potential of a person leading the group and if it is insufficient then there appears a so-called informal leader and the group can be disband.
Social position and primeval rank are quite closely interconnected but do not strictly determine one another. A person taking high post, increases his rank by this. From another point, low initial ranking potential almost prevent a good career growth. Even if due to some occasional reasons a man with low ranking potential takes high post, he will not keep it for long or in any case, will not grow any further.
* * *
Depending on absence or presence of other qualities and attributes a person with a high rank occupying a high position in society can be either a LEADER (also called charismatic personality) or a TYRANT. Leader is usually a person with decreased primativeness, not really aggressive with subordinates, and even capable to some self-sacrifice. Tyrant is usually coward (resulting from his high primativeness) but aggressive. Leader is most likely a case of a person with increased but not necessarily very high rank and exactly with a real rank but not only visual one and for sure with low primativeness. There are many well-known examples when a man occupying high position is henpecked by his wife. This can never happen with the tyrants (to be more specific, henpecking means that the rank of the wife is higher than the husband's one combined with the wife's high primativeness). Tyrant somehow heading a group lives purely by his own interests and in time of danger when the group asks him for protection he can show the cowardice and a desire to hide behind the backs of the other people (strong self-preservation instinct!). Meanwhile, tyrants take the high posts not less but more often than real leaders. In hard times real leaders become apparent and tyrants fall out... That's why a famous joke of comedian M. Zhvanetsky "I directed you - I will take responsibility for everything!" causes laugh since typical leader is very often tyrant who does not want to suffer for the other people. It was written by a poet about such situation:
It would've been better to send him to logistics
He was brave only with us
He was awarded with execution
By a tribunal for self-shooting
I will remind you that this song of V. Vysotsky was about a head of a prison who was sent to front together with the prisoners. He was certainly a dominant, at least due to his high position. However, suddenly on the other side of a front line there appears something that absolutely does not care about his high rank and a powerful instinct of self-preservation is triggered in our hero...
At the same time very low rank is also contraindicated for a leader as the party starts playing the king's role or control and management over the group gets completely lost. Obvious case is Russian tzar Nicholas II. Even his undoubtedly high level of culture did not help him. Here is one of disadvantages of a monarchical state - there is a certain probability that it may be headed by a person with unacceptably low rank. The consequences of this are well known from the history. In the other cases it is necessary to fight for a high position what sifts out very low-ranking people. A famous book after Niccolo Makaivelly presents a set of recommendations (like that: a sovereign should never justify for his action) for keeping a visual rank of a leader on a reasonably high level.
* * *
"The main point in dispute is to jump to personal attacks at the right moment..." (M. Zhanetsky). Getting to personality, a participant changes the focus from the subject of the dispute to uncovering ranking potentials. And if opponent's ranking potential happened to be lower then he instinctively subjects to higher rank thus admitting his defeat in dispute though he might be right in essence of this matter.
* * *
There is a widespread opinion among the vulgar public that it is necessary to beat a wife from time to time. By this a husband beating his wife demonstrates kind of high rank (visual, of course). And this can even attract a low cultural woman especially with high primativeness (masochism probably grows on this ground). Such woman rushes to defend her man as soon as the first hair falls down from his head despite asking to punish him only a moment before. Highly cultural and especially low-primative woman will not act this way. And actual rank of this man can be quite low. Even his buddies may have no respect for him. However, it is appropriate to mention that the instinct cannot analyze anything it just reacts on some key attributes, in this case - aweless attitude to a woman (if he beats -> he does not appreciate -> he has many women -> alpha has many women).
Here is the similar Russian picture: a drunk man in a public transportation is brawling and swearing. Women start yelling: "Are there any real men? Make him quiet!". Finally, a couple strong men or policemen get the unruly passenger down, as suddenly the very same women begin protecting him! Paradox? NO! Anti-social behavior is one of the strongest attribute of high rank and physical power demonstrated by the real men in enforcing the order has relatively loose correlation with high rank. Moreover, defending someone but themselves these men demonstrated a certain self-sacrifice that is an attribute of low rank. If they were able to nail the villain down only by glaring that would have been totally different thing. By the way, observing such gratitude real men will not get involved in fight next time. Women suddenly start feeling sorry for this cad. While he was dangerous the positive feelings were overcast by fear. But as soon as the danger disappeared highly primative mind started justifying the answer (since it was necessary to justify positive feeling toward obviously negative personality) and found that the most suitable word for this situation was "pity". Somehow these women are not pitiful for other people which were threatened by this cad.
About aggressiveness and crime
Never pull apart the fighting people - they
are probably soul mates...
(ascribed to ancient Sumerians)
Ethological basics of agressiveness are described in K. Lorenz [9] and V. Dolnik's book [1]. I will allow to share some of my own considerations on this subject.
In the root of many crimes against a person lies a contradiction between criminal's high initial ranking potential and his low social status. This can happen if a man has no any other strengths than primeval impudence that is not enough thanks God for a good career in a modern society. If such situation combines with high primativeness then this man tries to realize his demand to dominate by any means. However, if his social status is low then these means are not a lot. That's the way he comes to crime as a method of realization of ranking ambitions.
In our Russian police high-primative dominants are prevalent that's why law-abiding population is afraid of police almost as much as of criminals. For these people service in police is also a way to realize their ranking ambitions and it is very bad that the form of realization is barely different from the form of criminals...
High aggressiveness of teenagers and their impudence towards adults is explained by that a teenager has to make his way in hierarchy from the bottom up. But this is very difficult because adults occupying the high stages of hierarchy make all the efforts to keep it that way. By making anti-social action a person declares to the people around: " I am alpha, I am above society, I do not want to submit to you but you should submit to me or prove that your rank is higher". I.e. anti-social behavior (contraposition of oneself to the people in a society) has very deep instinctive roots which are as deep as the aspiration to build the hierarchy.
How to recognize the rank of a person next to you? The closer your ranking potentials the harder it is to do, at least from the beginning. Besides obvious assurance and forwardness, high rank is shown indirectly (at least at men) by custom to undo a few upper buttons or to wear the clothes unfastened. And vice versa, fully fastened clothes, quiet voice and a custom to fold the arms mean low potential. But dangerous aggressiveness is typical for dominants with high primativeness.
And if meeting somebody, your eyes as magnetized lowers down, be sure that there is alpha in front of you. But he will stare right into others eyes gladly, noting with pleasure that the eyes are lowered down acknowledging his superiority. It is very important for him, since aggressive and highly primative dominant (tyrant) is usually coward and keeps power over the people only because they submit to him voluntarily. In mentioned above experiments with cocks researchers glued the combs to dominants and despite of their excellent fighting abilities they were downgraded. And this is so because nobody submitted to them voluntarily.
And what if one will try not to subjugate to people? If you rank is low it is extremely risky! No, there is no need to get humiliated either. You should avoid such situations. Your suddenly boiled over pride can give out one impulse of confliction but probably you will not be able to withstand its continuation. But he has already revealed your rank and he knows for sure that you will give up sooner or later. And a conflict is his environment, he gets high because of it. He will refuse to struggle with something what is out of his power (for example with power of nature) but you are right in his mercy! It is necessary to bridle such people but this should be done not by you. Owning a victory over you (and this is almost inevitable), he will harden even more in his aggressiveness. Getting involved into conflict with high-ranking ones is worth only when you are absolutely sure in your victory.
What can be advised in this case? Commonly known advice is not to show the fear. This is true! If you fear that means that you admit your lower rank and hence, you are an easy prey. However, never try to pose as a high-ranking one without a good training. There is a high chance it will not work but an aggression will be provoked. Omega would-be alpha should be punished. The best way is not allow to have your rank revealed at all and to show that you do not play into hierarchical games. For example, if it is possible, do not pay any attention to him or show that you do not care. Without knowing your rank, such a one may not get into conflict because he is coward in a sense that he does not engage into fight unless sure of victory. But he gets such assurance only after your low rank is recognized. Afterwards he will not retreat halfway.
About religion, art, and advertising
Religion as a system of undoubtedly civilized norms (I mean of course the big universally recognized global religions) could not have carried out civilizing functions if God had not had the highest rank, the highest position. Otherwise, a highly primative society with low culture could not be persuaded that making harm to the fellowman was inappropriate since from pragmatically egoistic points of view it was exactly right! At least, in the nearest future. But the fact that it harmed as much personally him as the whole humanity could be simply neither accepted nor realized by a certain individual. In practice, the super-hierarch was anthropomorphized with humanistic qualities which were being digested by congregation as samples for repetition because of his highest hierarchical status.
It is worth to pay attention that practically all religions appeared in the low levels of the society. It was extremely important for a person with low-ranking potential to have somebody "above" and at the same time it was wanted this one above to be just, kind, and merciful.
Aura of assurance which circumfluenting most of "saint books" (for example the Vedas) is the inexhaustible source of authority together with complete incomprehensibility of the content. Sense and value of these books are entirely lost for a modern man (not researcher) that's why their influence cannot be explained by the value of the contained information. On the contrary, self-criticism and public doubts which are typical for a real science severely damage the attitude to it from unscientific public.
Talented piece of art is also able to convince in anything as it directly affects subconsciously instinctive mechanism of brain. This is the purpose and the social destination of art - to convince in anything that is otherwise impossible to persuade or to prove logically (for whatever reason) in any way. However, whatever is proven this way is not always good in reality.
Modern advertising shamelessly and impudently exploits instinctive programs. Instincts are devoid the ability to rational analysis. So, finding the right hacking tool (template) to a man's instinctive programs makes possible to force a person to want virtually anything. The main point is to demonstrate assurance. Any proofs or detailed explanations beyond that is redundant. It is necessary to pay attention how the commercials are done. As a rule they are pretty illogical but very emotional. Information is presented in a very high pace, often tangled but attention is diverted with something flashing. Often text is read with a speed of machine gun. All this based on the fact that subconscious with its templates works much quicker than mind and if a mind is not given a chance and/or time to look into the situation (and probably to protest) thus making possible to instilled anything to man. The most deceptive mode of advertisement perception is to pay no attention to it. In fact, only mind misses it and it goes directly to subconscious. And that's what really needed.
1996-1999
2 March 2008
28 February 2008
Bonfire of the paradigm
Let me draw on an example first, so that a basis for the explanation can be seen clearly: take the original Rolls Royce company just prior to Thatcher's England. The econo-politics of Thatcherism – a set of concepts that is one of the marker sources of the entire present-day economic reality – is about extending supply-side theory into every sector of life. And by supply-side, it is meant supply of finance and money. Thatcherism could well be critiqued as also placing the finance industry at the peak of a pyramid of priorities and privilege, ahead of anything and everything else including human rights, historically evolved principles of law and justice, god and the crown.
What this right wing idealism in practice translates into, is the theory that financial asset growth can pull the domestic economy ‘forward' even while the means and mechanisms by which growth occurs, focuses on the yearly average liquefiable MARKET price of a capital asset, not its underlying component individual values.
Mature public listed companies' values, are treated differently by common practice, from private assets, and principally are based on year-to-year back earnings records and comparisons of these results with the idea that you can draw certain conclusions about current and future performance from any divergences.
There are two problems with this, one stems from the fact that financial industry corporates are quantitatively dependent on money supply and hence monetary and central bank policy – not internal management quality and practice – and the second is that output/product price is often dependent on high stockpile levels, workforce skill and craft levels, and many other supposedly intangible things. The value of a brand, for instance, is based on the marketplace of real people expecting certain things that the brand traditionally has delivered.
In the case of Rolls Royce, the market that bought these cars, expected 22 years of stocks of spare parts held by the parent company so that there was virtually never, or a virtual lifetime guarantee on parts and serviceability. The price of the cars themselves reflected these expectations, but accounting practices did not reflect the capital asset value of such high levels of stockpiles – they wrote these down as depreciated assets. They were not, in truth, depreciated assets.
During the Thatcher years, Rolls Royce was put on the block and eventually sold. The process by which this happened was the induction of growth by selling off its spare parts stockpile, and the cutting back of the design and craft division. The market was still expected to pay the same price for the same vehicle, but the expectation of what service and spare parts were available was no longer deliverable. The company's balance sheet however, held greater short-term cash, and less depreciability. Year-on-year financial asset growth was the superficial result. The company and the cars have been ill-served though.
…Now let's take this example and filter today's banks and financial industry sector through its lessons. If you remove the internal staffing levels, quality, and evolved operating procedures that expert bankers would have automatically EXPECTED, in banks – thereby lowering radically the year-on-year operating costs – and push through ever higher amounts of cash via ever more bizarre capital inflows (as Bulldog as recently pointed out) and bizarre monetary policies, it then superficially appears that there is ‘growth' occurring. Provided that debt default insurance can cover sufficient percentages of cash write-offs, this picture can go on for quite some time.
In the end, the banks become husks, totally incapable of delivering anything to anyone except to their accountants who are permanently living in a lagging and unreal past. So long as fees can be paid to ratings agencies, accountants, and re-insurance companies, the façade may go on unchecked by any negative ‘authoritative'financial analysis.
Mortgages are concerned with long term assets and therefore capital, and yet huge immediate cash write-offs are seen to occur in what has been termed subprime mortgage lending. No such thing! What is occurring are losses having to be booked caused by the total lack of genuine earnings from THE COST OF REAL CAPITAL. Unlike Rolls Royce, the real market in banking has already discovered that banks do not have money to lend anyone who can genuinely employ debt, and the market does not therefore borrow from mainstream banks. There are some exceptions that still are banks, but their sources of capital and their client base is relatively unique. Everywhere else, all that happens is that a public constituency that is a political necessity, is ‘lent' some houses to live in but which must remain on banks' books as bank-owned capital stock. Some equities are held as bank capital stock, and some government securities too. None of these things earn sufficient real revenues to support the market valuations of banks. And that is why the Federal Reserve must do anything and everything to continue the façade. Underneath the façade lies the reality of a global economy of money and capital assets that are totally outside of the control of the US in particular and of Western banks: oil, industrial and scientific technology, gold, and most food production.
Daytraders often wonder whether their individual stops are met by sophisticated computerization that is designed to steal cash from them even though they have correctly positioned their bets in the major trend. Nobody can prove or disprove such a proposition. But it is far more prudent to assume that it IS the case.
There is a vast amount of inside-banking-circles anecdotal evidence concerning staff theft, ludicrous custodian practices that invite theft of safety deposits of cash and jewelry, and grossly inadequate systems that are exploited to siphon huge amounts of cash out of the bank by unethical and criminal employees and even management. This is the number one problem inside banks today. There has been no media attention given to it and rumours of it are scoffed at. But this is where the problem is.
Anyone who has valuable collector coins, gems, and bullion, is best advised to steer well away from any kind of bank custodial and safekeeping service – if one wants to avoid the tears of losing something truly prized and having sentimental value. Some things of monetary value are also irreplaceable if lost or stolen. The temptation that sees long dormant estate safe packages pillaged from, will soon enough visit itself on some truly valuable and physically small item such as a very rare old coin.
Front counter service standard declines are a sign of much worse internal decline.
Federal Reserve Chairman Bernanke is using outdated concepts about economics and assuming far too much about the power of government and the way societies behave when they are lied to on a sustained basis by their politicians, bankers and bureaucrats and when these try to take a moral high ground whilst scandalously promoting establishment theft.
Recently German banks and the German government has criticized Liechtenstein for inviting tax evading wealthy people to bank there. The German government even bribed one individual $6 million to have them hand over a list of names of tax evading clients.
However anyone who has a finer understanding of money and tax matters comprehends that banks are not the places for ‘offshore' accounts – they may act as short term clearing houses for remittances and monetary transactions, but they are not places for HOLDING money and capital.
As governments increase their ability and awareness of tax schemes and related matters, the upper end of what financial people know is also raised. As governments increase their bizarre impositions of sanctimony about law and justice, education and freedom of speech – whilst evading plain speaking at every turn – they enter into a new type of historical era. The only reason a Democracy can exist, is when neighbours can fight shoulder-to-shoulder risking their own lives and doubting nothing about each other's motives, and when there is a leader as clever about timing and with as good a judgement of critical forces as Miltiades.
There is no such leader anywhere and there has not been one for decades.
All revolutions spring from extraordinary innovations in technology. And constituencies line up behind those leaders who possess the secrets – Portuguese mapmakers, Chinese bamboo rocketry, Venetian gunpowder, Greenwich latitude know-how; there are many examples.
Money and banking just follows power.
Unless the US can make war against Iran and prevail quickly, and do so virtually now, it has already moved into an era beyond its peak moment in world history. Following the decline, discrediting of the ideas, economics and philosophies of the previous power that was, always occurs. Islam is the other side of the same coin – and it too is past its real prime. Places like Dubai are only reinforcing the lack of imagination present in all passing ruling elites.
What it will take to research and develop the new technology needed to resolve the current energy crisis, is beyond what façade economics can invest.
And that is why it is necessary to quickly take control of the oil wealth of Iran immediately. Otherwise, we are on the verge of a kind of Dark Ages. In reality, the current price of gold may be well short of a premium on stable capital. And it may well be true, that the means of locating it safely and using it as a form of real money has not yet been achieved. But it will be and it is inevitable.
What this right wing idealism in practice translates into, is the theory that financial asset growth can pull the domestic economy ‘forward' even while the means and mechanisms by which growth occurs, focuses on the yearly average liquefiable MARKET price of a capital asset, not its underlying component individual values.
Mature public listed companies' values, are treated differently by common practice, from private assets, and principally are based on year-to-year back earnings records and comparisons of these results with the idea that you can draw certain conclusions about current and future performance from any divergences.
There are two problems with this, one stems from the fact that financial industry corporates are quantitatively dependent on money supply and hence monetary and central bank policy – not internal management quality and practice – and the second is that output/product price is often dependent on high stockpile levels, workforce skill and craft levels, and many other supposedly intangible things. The value of a brand, for instance, is based on the marketplace of real people expecting certain things that the brand traditionally has delivered.
In the case of Rolls Royce, the market that bought these cars, expected 22 years of stocks of spare parts held by the parent company so that there was virtually never, or a virtual lifetime guarantee on parts and serviceability. The price of the cars themselves reflected these expectations, but accounting practices did not reflect the capital asset value of such high levels of stockpiles – they wrote these down as depreciated assets. They were not, in truth, depreciated assets.
During the Thatcher years, Rolls Royce was put on the block and eventually sold. The process by which this happened was the induction of growth by selling off its spare parts stockpile, and the cutting back of the design and craft division. The market was still expected to pay the same price for the same vehicle, but the expectation of what service and spare parts were available was no longer deliverable. The company's balance sheet however, held greater short-term cash, and less depreciability. Year-on-year financial asset growth was the superficial result. The company and the cars have been ill-served though.
…Now let's take this example and filter today's banks and financial industry sector through its lessons. If you remove the internal staffing levels, quality, and evolved operating procedures that expert bankers would have automatically EXPECTED, in banks – thereby lowering radically the year-on-year operating costs – and push through ever higher amounts of cash via ever more bizarre capital inflows (as Bulldog as recently pointed out) and bizarre monetary policies, it then superficially appears that there is ‘growth' occurring. Provided that debt default insurance can cover sufficient percentages of cash write-offs, this picture can go on for quite some time.
In the end, the banks become husks, totally incapable of delivering anything to anyone except to their accountants who are permanently living in a lagging and unreal past. So long as fees can be paid to ratings agencies, accountants, and re-insurance companies, the façade may go on unchecked by any negative ‘authoritative'financial analysis.
Mortgages are concerned with long term assets and therefore capital, and yet huge immediate cash write-offs are seen to occur in what has been termed subprime mortgage lending. No such thing! What is occurring are losses having to be booked caused by the total lack of genuine earnings from THE COST OF REAL CAPITAL. Unlike Rolls Royce, the real market in banking has already discovered that banks do not have money to lend anyone who can genuinely employ debt, and the market does not therefore borrow from mainstream banks. There are some exceptions that still are banks, but their sources of capital and their client base is relatively unique. Everywhere else, all that happens is that a public constituency that is a political necessity, is ‘lent' some houses to live in but which must remain on banks' books as bank-owned capital stock. Some equities are held as bank capital stock, and some government securities too. None of these things earn sufficient real revenues to support the market valuations of banks. And that is why the Federal Reserve must do anything and everything to continue the façade. Underneath the façade lies the reality of a global economy of money and capital assets that are totally outside of the control of the US in particular and of Western banks: oil, industrial and scientific technology, gold, and most food production.
Daytraders often wonder whether their individual stops are met by sophisticated computerization that is designed to steal cash from them even though they have correctly positioned their bets in the major trend. Nobody can prove or disprove such a proposition. But it is far more prudent to assume that it IS the case.
There is a vast amount of inside-banking-circles anecdotal evidence concerning staff theft, ludicrous custodian practices that invite theft of safety deposits of cash and jewelry, and grossly inadequate systems that are exploited to siphon huge amounts of cash out of the bank by unethical and criminal employees and even management. This is the number one problem inside banks today. There has been no media attention given to it and rumours of it are scoffed at. But this is where the problem is.
Anyone who has valuable collector coins, gems, and bullion, is best advised to steer well away from any kind of bank custodial and safekeeping service – if one wants to avoid the tears of losing something truly prized and having sentimental value. Some things of monetary value are also irreplaceable if lost or stolen. The temptation that sees long dormant estate safe packages pillaged from, will soon enough visit itself on some truly valuable and physically small item such as a very rare old coin.
Front counter service standard declines are a sign of much worse internal decline.
Federal Reserve Chairman Bernanke is using outdated concepts about economics and assuming far too much about the power of government and the way societies behave when they are lied to on a sustained basis by their politicians, bankers and bureaucrats and when these try to take a moral high ground whilst scandalously promoting establishment theft.
Recently German banks and the German government has criticized Liechtenstein for inviting tax evading wealthy people to bank there. The German government even bribed one individual $6 million to have them hand over a list of names of tax evading clients.
However anyone who has a finer understanding of money and tax matters comprehends that banks are not the places for ‘offshore' accounts – they may act as short term clearing houses for remittances and monetary transactions, but they are not places for HOLDING money and capital.
As governments increase their ability and awareness of tax schemes and related matters, the upper end of what financial people know is also raised. As governments increase their bizarre impositions of sanctimony about law and justice, education and freedom of speech – whilst evading plain speaking at every turn – they enter into a new type of historical era. The only reason a Democracy can exist, is when neighbours can fight shoulder-to-shoulder risking their own lives and doubting nothing about each other's motives, and when there is a leader as clever about timing and with as good a judgement of critical forces as Miltiades.
There is no such leader anywhere and there has not been one for decades.
All revolutions spring from extraordinary innovations in technology. And constituencies line up behind those leaders who possess the secrets – Portuguese mapmakers, Chinese bamboo rocketry, Venetian gunpowder, Greenwich latitude know-how; there are many examples.
Money and banking just follows power.
Unless the US can make war against Iran and prevail quickly, and do so virtually now, it has already moved into an era beyond its peak moment in world history. Following the decline, discrediting of the ideas, economics and philosophies of the previous power that was, always occurs. Islam is the other side of the same coin – and it too is past its real prime. Places like Dubai are only reinforcing the lack of imagination present in all passing ruling elites.
What it will take to research and develop the new technology needed to resolve the current energy crisis, is beyond what façade economics can invest.
And that is why it is necessary to quickly take control of the oil wealth of Iran immediately. Otherwise, we are on the verge of a kind of Dark Ages. In reality, the current price of gold may be well short of a premium on stable capital. And it may well be true, that the means of locating it safely and using it as a form of real money has not yet been achieved. But it will be and it is inevitable.
18 February 2008
Indicting the UK ---
Indictment One: the UK current account deficit reached 5.7pc of GDP in the third quarter of last year, the worst of any major country in the world, bar Spain. "This is approaching Banana Republic status," said Albert Edwards from Société Générale. "Years of macro-mismanagement have dragged the UK economy to the edge of a precipice. The household sector is borrowing at a cyclically unprecedented 4pc of GDP. Basing economic growth on unsustainable asset price bubbles was always a recipe for disaster," he said.
Indictment Two: we are a budget basket case as well, with a deficit of 3pc of GDP at the top the cycle. We enter slump without a fiscal shield. Even America is doing better. This deficit is beyond the legal limit of the Maastricht Treaty, not that Downing Street cares. Gordon Brown may have to care more about the bond vigilantes and currency traders who have sharper claws.
They may yet force him to raise taxes into a downturn, as Labour's Philip Snowden had to do in 1931, or as Latin America's big spenders have had to do with an IMF gun to their head. A hard landing will have a "catastrophic impact on UK public finances" as tax revenues dry up and dole costs soar, says Capital Economics. "A recession as deep as that in the early 1990s could push borrowing up to £150bn per annum," it said. In the ERM smash-up, Britain swung from a 2pc surplus to an 8pc deficit. That was the result of subcontracting monetary policy to the Bundesbank. This time we have our own bank, bruised though it may be. It can cut interest rates a long way.
Indictment Three: the state share of the economy has risen from 37pc to 45pc in eight years, on OECD figures. We have risen above Germany for the first time since the Schmidt-Callaghan era. Berlin has been trimming as we bloat fatter. So have the Swedes, Danes, Dutch, Belgians, Austrians, Italians, Spanish and Eastern Europeans. It is a matter of political taste whether you think Brown's largesse on doctors, nurses, schools, and roads has been well used, but there is no denying that we are now one of the most socialist/collectivist states in the world.
Indictment Four: household debt has reached 103pc of GDP, pushing the frontiers of irresponsibility into uncharted terrain. The Americans buckled at around 85pc. UK home equity withdrawals have reached £50bn a year. We are spending unrealised paper profits at a rate of 4pc of GDP per annum. Some 58pc of all home loans issued in Britain in 2006 were either sub-prime, buy-to-let, or other forms of "specialist lending". The effective cash and liquid assets ratio of the banks has fallen to zero.
Is it not disturbing that Northern Rock should have collapsed even before the housing market turned, and defaults had begun to soar? What happens now if UK house prices fall 5pc in 2008 as forecast by Merrill Lynch, or indeed further?
The most pernicious effect of this sorry tale is the impression that Britain might be better off in EMU, under the tutelage of the European Central Bank, which has handled the credit crunch with skill. It carried out a pre-emptive "rescue" of the euro-zone banks by showering the system with liquidity and accepting rubbish as collateral, but it had to do so because there is no clear-cut lender of last resort in EMU. It cannot risk a Northern Rock. Who bails out whom? That must never be tested.
Yes, Mervyn King's hair-shirt austerity was quixotic, and ill-judged, but at least he tried to fight moral hazard. Europe capitulated immediately. It did so because EMU is a dysfunctional monetary union, where the Latin and Germanic halves are moving further apart and so are the spreads on sovereign bonds. The gloss will come off Euroland in due course.
In Britain we must rebuild our smashed credibility. We face a decade of grinding debt deflation, like Japan. Thank you Mr Brown.
Indictment Two: we are a budget basket case as well, with a deficit of 3pc of GDP at the top the cycle. We enter slump without a fiscal shield. Even America is doing better. This deficit is beyond the legal limit of the Maastricht Treaty, not that Downing Street cares. Gordon Brown may have to care more about the bond vigilantes and currency traders who have sharper claws.
They may yet force him to raise taxes into a downturn, as Labour's Philip Snowden had to do in 1931, or as Latin America's big spenders have had to do with an IMF gun to their head. A hard landing will have a "catastrophic impact on UK public finances" as tax revenues dry up and dole costs soar, says Capital Economics. "A recession as deep as that in the early 1990s could push borrowing up to £150bn per annum," it said. In the ERM smash-up, Britain swung from a 2pc surplus to an 8pc deficit. That was the result of subcontracting monetary policy to the Bundesbank. This time we have our own bank, bruised though it may be. It can cut interest rates a long way.
Indictment Three: the state share of the economy has risen from 37pc to 45pc in eight years, on OECD figures. We have risen above Germany for the first time since the Schmidt-Callaghan era. Berlin has been trimming as we bloat fatter. So have the Swedes, Danes, Dutch, Belgians, Austrians, Italians, Spanish and Eastern Europeans. It is a matter of political taste whether you think Brown's largesse on doctors, nurses, schools, and roads has been well used, but there is no denying that we are now one of the most socialist/collectivist states in the world.
Indictment Four: household debt has reached 103pc of GDP, pushing the frontiers of irresponsibility into uncharted terrain. The Americans buckled at around 85pc. UK home equity withdrawals have reached £50bn a year. We are spending unrealised paper profits at a rate of 4pc of GDP per annum. Some 58pc of all home loans issued in Britain in 2006 were either sub-prime, buy-to-let, or other forms of "specialist lending". The effective cash and liquid assets ratio of the banks has fallen to zero.
Is it not disturbing that Northern Rock should have collapsed even before the housing market turned, and defaults had begun to soar? What happens now if UK house prices fall 5pc in 2008 as forecast by Merrill Lynch, or indeed further?
The most pernicious effect of this sorry tale is the impression that Britain might be better off in EMU, under the tutelage of the European Central Bank, which has handled the credit crunch with skill. It carried out a pre-emptive "rescue" of the euro-zone banks by showering the system with liquidity and accepting rubbish as collateral, but it had to do so because there is no clear-cut lender of last resort in EMU. It cannot risk a Northern Rock. Who bails out whom? That must never be tested.
Yes, Mervyn King's hair-shirt austerity was quixotic, and ill-judged, but at least he tried to fight moral hazard. Europe capitulated immediately. It did so because EMU is a dysfunctional monetary union, where the Latin and Germanic halves are moving further apart and so are the spreads on sovereign bonds. The gloss will come off Euroland in due course.
In Britain we must rebuild our smashed credibility. We face a decade of grinding debt deflation, like Japan. Thank you Mr Brown.
The Worst May Keep Getting Worse
Satyajit Das is a risk consultant and author of Traders, Guns & Money: Knowns and Unknowns in the Dazzling World of Derivatives (2006, FT-Prentice Hall).
2007 may come to associated with the start of the "big" credit crunch. 2008 has begun with a number of "unresolved" items. Hope of an early resolution seems to be fading. In the words of Lily Tomlin, the American comedian: "Things are going to get a lot worse before they are going to get worse."
The total level of sub-prime losses is still far from clear. Based on current trading levels of ABS indices, estimates of losses range between US$ 150 and 400 billion, not all of which has been written off to date.
Interest rates on large volumes of sub-prime mortgages – estimated at around US$ 900 billion are due to reset by end 2008. Interest rates and repayments will rise significantly. The impact on delinquencies and losses are unknown. The rate reset freeze plan (which has not been in the news since being announced) and its impact are also still unclear.
As America’s mortgage markets began unravelling, economists initially pointed to sub-prime mortgages issued to low-income, minority and urban borrowers. Closer analysis reveals risky mortgages in nearly every corner of the USA. Analysis by The Wall Street Journal indicates that from 2004 to 2006, when home prices peaked in many parts of the country, more than 2,500 banks, thrifts, credit unions and mortgage companies made a combined US$1.5 trillion in high-interest-rate, high risk loans. The potential losses on these loans are unknown.
There are also emerging concerns in the US$915 billion credit card debt markets. Credit card providers are all boosting loan loss provisions. There is anecdotal evidence that cash strapped mortgagors are using credit cards to make mortgage payments. Analysts expect credit card delinquencies to increase if consumers unable to use home-equity lines of credit to pay off their credit card debt start running up higher card debt. A number of banks have begun to boost reserves against anticipated losses.
Financial institutions have already incurred losses of over US$100 billion. A substantial volume of assets is likely to return onto bank balance sheets as off-balance sheet structures and hedge funds are forced to sell. The total amount to be re-intermediated by banks may be in the range of US$1 to 2 trillion. This will make substantial depends on bank liquidity and capital.
There are already signs that the major banks are hoarding liquidity in anticipation of the return of assets. They will also inevitably have to raise substantial amounts of capital. In the second half of 2007 commercial and investment banks raised US$83 billion in equity. This was an increase of more than 20% on the corresponding period in 2006.
Asset backed conduit vehicles and SIVs ("Structured Investment Vehicles") may need to sell assets as they breach their rules. Hedge funds face substantial redemption requests in the coming months. This will exacerbate the demands on bank capital and liquidity.
The credit issues have widened beyond banks, investors and hedge funds active in structured credit.
In the conventional mortgage market, Fannie Mae (Federal National Mortgage Association) and Ginnie Mae (Government National Mortgage Association) have recorded losses and been forced to raise capital. This suggests that the problems in the housing market are deep seated.
Mortgage insurers and monoline insurers have suffered serious collateral damage. A significant downgrade in the rating of insurers will be particularly damaging. It will affect around US$ 2.5 trillion of municipal bonds guaranteed by the insurers. It will also affect other bonds wrapped by the insurers. This may trigger further selling pressure and contribute to decline in prices as well as absorbing increasingly scarce liquidity.
There is already talk of a plan to re-capitalise the insurers. The sum being talked about is between US$15 and US$200 billion. It is not clear where the substantial amount of capital needed to recapitalise the banks and financial guarantors is going to come from.
The US$ 2 trillion of European pfandbrief or covered bond markets have also experienced liquidity problems.
The sub-prime model is also used for leveraged funding in private equity, infrastructure and commercial property financing.
US$300 billion of leveraged finance loans made by banks is still effectively "orphaned" - they can’t be sold off. In late 2007, there were signs that the loan logjam was easing. Underwriters pointed to some sales of risky assets.
Caution is needed in interpreting these developments. Firstly, the sales only related to the less risky tranches and loans. The more risky exposures remain with underwriters for the moment. There are also concerns that some of the sales were not "genuine". The banks had provided the buyers with a variety of favourable terms including the ability to sell the loans back to them at a future date at a guaranteed price. Alternatively, MFN ("most favoured nation") clauses mean that the selling bank will need to compensate buyers if loans are sold at lower prices during an agreed time from the initial sale. Current prices indicate steep discounts will be needed to shift the paper to investors.
The crisis shows signs of spilling over into other markets. In Great Britain, Ireland, Spain, Australia and other markets strong house price appreciation similar to the US led to similar growth in mortgage and real estate lending. If economic growth slows and housing prices fall then similar problem may emerge in those economies as well.
There are already signs that there will be significant litigation against the banks. There may also be regulatory investigations and potentially prosecutions. State Street recently provided over US$250 million against future litigation claims. The total cost of all this is still unknown.
The financial elements of the credit crunch are becoming clearer - higher credit costs; lower availability of debt; forced de-leveraging of hedge funds and conduits/ SIVs; significant capital losses for financial institutions. The real economy effects will be slower to emerge. Higher credit costs and tighter credit standards will affect all business.
The US housing industry is badly affected with no immediate prospect of a quick recovery. The outlook for US house prices is poor. Growth forecasts for the US have already been lowered. The dreaded "R" word – recession – is now being talked about.
The fall in asset prices has "wealth" effects. Then there are employment and income effects. Wall Street has already issued "pink slips" by the thousands as banks and mortgage lenders shed staff. More will be issued in 2008 as the slowdown in the financial services business continues.
A slowdown in economic activity will affect many financial transactions. Corporations with significant debt face refinancing challenges. The shares of an Australian real estate firm – Centro – fell over 80 % as a result of difficulties in refinancing its short-term debt secured over commercial property, some of it in the US. Commercial property financing has slowed, the cost has risen significantly and terms have tightened affecting commercial property prices.
Private equity deals in recent years were predicated on a combination of a growing economy, cheap debt and a buoyant stock market allowing the quick resale of the company. Weaker earnings and more expensive debt could lead to losses and distressed sales over time. Recent private equity deals also face re-financing risk. Some US$ 150 billion of leveraged loans come due in 2008. Financial engineering techniques – toggles, pay-in-kind securities and covenant-lite (lack of maintenance covenants) structures – will delay the problem but probably cannot forestall the inevitable rise in defaults.
Non-investment grade bond issuance over the last few years was concentrated in the weaker credit categories and is vulnerable to deterioration in economic conditions. Since 2003, 42% of bonds of high yield bonds issues were rated B- or below. In the first 6 months of the year that percentage rose to around 50%. Some commentators believe that the losses of corporate bonds will peak between 10% and 20% leading to significant losses.
Warren Buffet once observed that: "it’s the weak link that snaps you…in financial markets, the weak link is borrowed money." In the present credit crisis, all companies and business models reliant on debt – especially cheap and abundant debt - look vulnerable.
The real economy effects will feedback into the financial markets. A weaker economy are likely to see higher levels of actual defaults. This may set off new phases of the crisis.
CDS contracts used to hedge credit risk have significant documentation and operational problems. If actual defaults in markets increase and the contracts do not function as intended then there would be additional complexity. A significant volume of CDS contracts is with hedge funds and other investors secured by collateral agreements. The counterparty and performance risk of enforcing the contracts may be challenging. It is important to note that the structured credit market in its current form is substantially untested. If defaults rise and the CDS contracts prove to be difficult to enforce then bank exposures to losses may well much higher than anticipated.
Credit markets remain gloomy. Unlike their equity and emerging market cousins, they are waiting anxiously for "the shoes to fall", except it seems that the shoes are from Imelda Marcos’ collection.
At the time of publication the author or his firm did not own any direct investments in securities mentioned in this article although he may be an owner indirectly as an investor in a fund.
© 2008 Satyajit Das All Rights reserved.
2007 may come to associated with the start of the "big" credit crunch. 2008 has begun with a number of "unresolved" items. Hope of an early resolution seems to be fading. In the words of Lily Tomlin, the American comedian: "Things are going to get a lot worse before they are going to get worse."
The total level of sub-prime losses is still far from clear. Based on current trading levels of ABS indices, estimates of losses range between US$ 150 and 400 billion, not all of which has been written off to date.
Interest rates on large volumes of sub-prime mortgages – estimated at around US$ 900 billion are due to reset by end 2008. Interest rates and repayments will rise significantly. The impact on delinquencies and losses are unknown. The rate reset freeze plan (which has not been in the news since being announced) and its impact are also still unclear.
As America’s mortgage markets began unravelling, economists initially pointed to sub-prime mortgages issued to low-income, minority and urban borrowers. Closer analysis reveals risky mortgages in nearly every corner of the USA. Analysis by The Wall Street Journal indicates that from 2004 to 2006, when home prices peaked in many parts of the country, more than 2,500 banks, thrifts, credit unions and mortgage companies made a combined US$1.5 trillion in high-interest-rate, high risk loans. The potential losses on these loans are unknown.
There are also emerging concerns in the US$915 billion credit card debt markets. Credit card providers are all boosting loan loss provisions. There is anecdotal evidence that cash strapped mortgagors are using credit cards to make mortgage payments. Analysts expect credit card delinquencies to increase if consumers unable to use home-equity lines of credit to pay off their credit card debt start running up higher card debt. A number of banks have begun to boost reserves against anticipated losses.
Financial institutions have already incurred losses of over US$100 billion. A substantial volume of assets is likely to return onto bank balance sheets as off-balance sheet structures and hedge funds are forced to sell. The total amount to be re-intermediated by banks may be in the range of US$1 to 2 trillion. This will make substantial depends on bank liquidity and capital.
There are already signs that the major banks are hoarding liquidity in anticipation of the return of assets. They will also inevitably have to raise substantial amounts of capital. In the second half of 2007 commercial and investment banks raised US$83 billion in equity. This was an increase of more than 20% on the corresponding period in 2006.
Asset backed conduit vehicles and SIVs ("Structured Investment Vehicles") may need to sell assets as they breach their rules. Hedge funds face substantial redemption requests in the coming months. This will exacerbate the demands on bank capital and liquidity.
The credit issues have widened beyond banks, investors and hedge funds active in structured credit.
In the conventional mortgage market, Fannie Mae (Federal National Mortgage Association) and Ginnie Mae (Government National Mortgage Association) have recorded losses and been forced to raise capital. This suggests that the problems in the housing market are deep seated.
Mortgage insurers and monoline insurers have suffered serious collateral damage. A significant downgrade in the rating of insurers will be particularly damaging. It will affect around US$ 2.5 trillion of municipal bonds guaranteed by the insurers. It will also affect other bonds wrapped by the insurers. This may trigger further selling pressure and contribute to decline in prices as well as absorbing increasingly scarce liquidity.
There is already talk of a plan to re-capitalise the insurers. The sum being talked about is between US$15 and US$200 billion. It is not clear where the substantial amount of capital needed to recapitalise the banks and financial guarantors is going to come from.
The US$ 2 trillion of European pfandbrief or covered bond markets have also experienced liquidity problems.
The sub-prime model is also used for leveraged funding in private equity, infrastructure and commercial property financing.
US$300 billion of leveraged finance loans made by banks is still effectively "orphaned" - they can’t be sold off. In late 2007, there were signs that the loan logjam was easing. Underwriters pointed to some sales of risky assets.
Caution is needed in interpreting these developments. Firstly, the sales only related to the less risky tranches and loans. The more risky exposures remain with underwriters for the moment. There are also concerns that some of the sales were not "genuine". The banks had provided the buyers with a variety of favourable terms including the ability to sell the loans back to them at a future date at a guaranteed price. Alternatively, MFN ("most favoured nation") clauses mean that the selling bank will need to compensate buyers if loans are sold at lower prices during an agreed time from the initial sale. Current prices indicate steep discounts will be needed to shift the paper to investors.
The crisis shows signs of spilling over into other markets. In Great Britain, Ireland, Spain, Australia and other markets strong house price appreciation similar to the US led to similar growth in mortgage and real estate lending. If economic growth slows and housing prices fall then similar problem may emerge in those economies as well.
There are already signs that there will be significant litigation against the banks. There may also be regulatory investigations and potentially prosecutions. State Street recently provided over US$250 million against future litigation claims. The total cost of all this is still unknown.
The financial elements of the credit crunch are becoming clearer - higher credit costs; lower availability of debt; forced de-leveraging of hedge funds and conduits/ SIVs; significant capital losses for financial institutions. The real economy effects will be slower to emerge. Higher credit costs and tighter credit standards will affect all business.
The US housing industry is badly affected with no immediate prospect of a quick recovery. The outlook for US house prices is poor. Growth forecasts for the US have already been lowered. The dreaded "R" word – recession – is now being talked about.
The fall in asset prices has "wealth" effects. Then there are employment and income effects. Wall Street has already issued "pink slips" by the thousands as banks and mortgage lenders shed staff. More will be issued in 2008 as the slowdown in the financial services business continues.
A slowdown in economic activity will affect many financial transactions. Corporations with significant debt face refinancing challenges. The shares of an Australian real estate firm – Centro – fell over 80 % as a result of difficulties in refinancing its short-term debt secured over commercial property, some of it in the US. Commercial property financing has slowed, the cost has risen significantly and terms have tightened affecting commercial property prices.
Private equity deals in recent years were predicated on a combination of a growing economy, cheap debt and a buoyant stock market allowing the quick resale of the company. Weaker earnings and more expensive debt could lead to losses and distressed sales over time. Recent private equity deals also face re-financing risk. Some US$ 150 billion of leveraged loans come due in 2008. Financial engineering techniques – toggles, pay-in-kind securities and covenant-lite (lack of maintenance covenants) structures – will delay the problem but probably cannot forestall the inevitable rise in defaults.
Non-investment grade bond issuance over the last few years was concentrated in the weaker credit categories and is vulnerable to deterioration in economic conditions. Since 2003, 42% of bonds of high yield bonds issues were rated B- or below. In the first 6 months of the year that percentage rose to around 50%. Some commentators believe that the losses of corporate bonds will peak between 10% and 20% leading to significant losses.
Warren Buffet once observed that: "it’s the weak link that snaps you…in financial markets, the weak link is borrowed money." In the present credit crisis, all companies and business models reliant on debt – especially cheap and abundant debt - look vulnerable.
The real economy effects will feedback into the financial markets. A weaker economy are likely to see higher levels of actual defaults. This may set off new phases of the crisis.
CDS contracts used to hedge credit risk have significant documentation and operational problems. If actual defaults in markets increase and the contracts do not function as intended then there would be additional complexity. A significant volume of CDS contracts is with hedge funds and other investors secured by collateral agreements. The counterparty and performance risk of enforcing the contracts may be challenging. It is important to note that the structured credit market in its current form is substantially untested. If defaults rise and the CDS contracts prove to be difficult to enforce then bank exposures to losses may well much higher than anticipated.
Credit markets remain gloomy. Unlike their equity and emerging market cousins, they are waiting anxiously for "the shoes to fall", except it seems that the shoes are from Imelda Marcos’ collection.
At the time of publication the author or his firm did not own any direct investments in securities mentioned in this article although he may be an owner indirectly as an investor in a fund.
© 2008 Satyajit Das All Rights reserved.
Trends for Downsizing the US: The Bright Side of the Panic of ‘08
Written by Christopher Ketcham
Sunday, 27 January 2008
by Christopher Ketcham
Futurist and trends forecaster Gerald Celente, director of the Trends Research Institute in Rhinebeck, NY, predicted the 1987 stock market crash, the collapse of the Soviet Union in 1989, the Asian economic implosion of ‘97, the decline of the dollar beginning in 2005, the meteoric rise in gold prices in an age of currency volatility, and the turn of events that may be the blessing of our era, the subprime mortgage crisis. Because of this habit of prescience, Celente has appeared regularly on CNN and Fox and MSNBC, his “Trends Reports” widely quoted in newsprint, on Oprah Winfrey, on Good Morning America.
Now in his Report for 2008, issued in mid-December, he carried the news every thinking American already knows. “The United States of America,” Celente pronounced, “has gone from first class to third rate.” It’s a “nation on the skids and heading down.” Celente projects economic and political crisis in the coming year. “In 2008, Americans will wake up to the worst economic times that anyone alive has ever seen,” he wrote on December 17. “Just as they didn’t see 9/11 coming and were frozen in shock when terror struck, [Americans] will be frozen in shock when terror strikes again.” He predicts “failing banks, busted brokerages, toppled corporate giants, bankrupt cities, states in default, foreign creditors cashing out of US securities…the stage is set, the big one is on its way.”
A similar wake-up call was issued last summer in a report by none other than the chief investigator for the US Government Accountability Office, comptroller general David Walker, who warned that US policy on energy, education, the environment, health care, immigration, Iraq – pretty much the gamut – was on an “unsustainable” course, bound for a maelstrom of insolvency that could threaten to sink the ship. According to the GAO chief, the fall of Rome seemed an apt historical comparison: “[D]eclining moral values and political civility at home, an over-confident and over-extended military in foreign lands, and fiscal irresponsibility by the central government. Sound familiar? I’m trying to sound an alarm.”
When I called up Celente on Jan. 2 to see how the new year was taking shape on the first day of trading, he fired back in an e-mail: “An attack in Nigeria (Africa’s biggest oil producer) by anti-government forces on the port city of Port Harcourt hit the futures markets hard. On the New York Stock Exchange, trading conditions worsened on reports that the Institute for Supply Management's manufacturing index dropped to 47.7, the lowest reading since April 2003. Growth in European and Singapore manufacturing also slowed in November, showing signs for all those that were looking that the slowdown would be global.” By early afternoon, gold had surged $24 an ounce, crude oil climbed $3, the dollar fell against all major currencies, and the Dow was down over 200 points. The next day, Jan. 3, oil hit a record $100 a barrel. And indeed, as Celente warned, world markets were unraveling by the second week of January, the Nikkei on its worse start to a new year since 1970, the MSCI World Index dropping 6.9 percent, a loss of $2.1 trillion from members' market capitalization, while Swiss world banking giant UBS posted a $13 billion loss, and authorities in Britain reported the first run on a British bank in a hundred years.
When on January 14 Celente sent out his weekly e-mail alert to subscribers, the news was no better. The Dow registered its third consecutive week of losses, one of its worst New Year starts in history, losing in just the first week of 2008 half its gains from 2007. “Slumping retail sales, dire housing data, rising unemployment rates, gloomy consumer confidence, spiking oil prices, a ballooning trade gap, eroding wages, mounting credit card debt and delinquencies, mortgage defaults, record foreclosures,” said Celente. “The data floods the wires and spreads the fear.” It’s telling that Tiffany's was off 11 percent in sales, as even the very rich hide their cash under beds.
So is the subprime mortgage mess the catalyst for the Big One, what Celente calls the Panic of ‘08? Stock guru Jim Cramer, host of CNBC’s Mad Money and co-founder of TheStreet.com, seems to think so. “There are a group of insurance companies that insure all these bad mortgages,” he told Chris Matthews on Jan. 18. “And I think they’re all about to go belly up. And that will cause the Dow Jones to decline 2,000 points. They have got to be shut down. This is going to happen in maybe two, three weeks, Chris. It’s going to be on the front of every paper. And no one in Washington is even willing to admit it. I am telling you these companies do not have the capital to make good. And, when they do fall – I believe it is when – if the government doesn’t have a plan in action, you will not be able to open the stock market when they collapse…No one is even talking about it.”
From panic, offers Gerald Celente, will arise almost overnight an era of social and political upheaval and plain awfulness. Self storage will finally “live up to the meaning of its name. Down and out, thrown onto the streets, homeless Americans will empty out storage lockers of useless junk…to store themselves.” He predicts wage riots and anti-government street protests and intensified anti-immigration movements looking to scapegoat the “aliens” among us. Toward the 1 percent of Americans who received 50 percent of all income gains in recent years – those same 1 percenters, roughly 3 million people, who took in 22 percent of all income in 2005 – there will be growing rage. “Kidnappings for ransom will become common, as they were in the Depression and as the poor strike out against the rich,” Celente predicts. Lawlessness will be met, as in most third rate nations, with violence from an increasingly sophisticated and brutal police state. A different type of violence from the ground up, tax revolts, will also develop in strength, targeting a tax-ravenous federal government that Celente charges has failed “to protect food, win wars, clean the environment, upgrade infrastructure, improve living standards, provide health services or advance education.”
Meanwhile, the dollar will bottom out at 10 cents to the euro sometime in the next several years, perhaps by 2010. Newspapers report that even Third World vendors are beginning to refuse payment in greenbacks, while foreign governments and investors, mostly the Chinese, deploy the muscle of their currencies to buy US property and businesses (proxies of the Chinese government late last year snagged a 5 percent stake in Citibank, a 10 percent stake in Morgan Stanley).
Note that this is no fringer veering into conspiracist phantasm: Celente consults for hundreds of large and small corporations, addresses government bodies worldwide. Norway flew him to Europe in 2006 to address a conference on innovation, while the International Council of Shopping Centers hosted him as the key-note speaker at its 2007 convention – the mall builders hoped to glean from Celente “what people want from malls.” It’s notable, in the wake of the prognoses of his 2008 reports, that he is no longer invited onto the TV and cable networks – “the first year in decades,” he says, “that they did not have me on and that USA Today did not cover the Trends Report.” When Celente sent out an e-mail alert to his mailing list in mid-January, Jack Marks, the publisher and CEO of The Wall Street Reporter, one of the oldest investment organs in New York, wrote him back to say “You are a fucking retard motherfucker” and “Remove me from this list, you fucking moron.” The local publishing group near Celente’s home in Rhinebeck is perhaps more typical in its spinelessness: The Taconic Press, which publishes six newspapers in the Hudson Valley and upstate New York, told Celente in December via e-mail that there was “a general uproar about the inclusion of your Trends forecast [in 2007]…reader and advertiser reaction was strong, and they made their feelings known to our publisher.” Celente’s long relationship with Taconic Press is no more. Par for the course in the nation of blinkered denial.
There is apparently an upside to the rottenness to come, according to Celente – if Americans dare to reinvent for the 21st century the free thinking and civic courage of their past. This good cheer as Rome burns is buried somewhat in Celente’s report for 2008, but what it suggests is that, catalyzed by crisis, a fair number of Americans – a minority, likely, but still to watch – will begin this year a transformation of consciousness. Celente predicts that the smaller communities, the smaller groups, the smaller states, the more self-sustaining communities, will “weather the crisis in style” as big cities and hypertrophic suburbias descend into misery and conflict. “Like Katrina’s victims that knew the hurricane was coming but didn’t flee – and looked to Uncle Sam to save the day – those that don’t take action before panic strikes or wait for Washington to lend a hand, will suffer the most from the calamity that follows,” he writes. Economically, the new consciousness will recapture Yankee frugality and reject the lunatic behaviors that have been unsustainable since the Second World War – big houses, big cars, big spending. Those who market and embrace “products and services that focus on compact, smart, functional, efficient, neat, clean, reusable, 'less is more' and 'small is beautiful',” Celente writes, “will handsomely profit.” There will be a downsizing of expectations and perceived needs. There will be a downsizing of giantist institutions to fit to human scale – the center cannot hold, particularly as state’s righters and tax rebels and what Celente calls “the newly flourishing state secessionist movements” begin to repudiate a $9 trillion-in-debt federal government that too often practices the most offensive kind of taxation without representation. Altogether, there will be a downsizing of America.
“This could be the end of something really ignorant and stupid and dark,” Celente told me recently in a phone interview. “The end of a dark age! The end of the age of what I call Bottom-Line Fascism, the ruthless and dictatorial profit-only way of thinking that produces crap over quality in all the major institutions, dopiness and blob-thinking, the manipulations of an idiotic media and political establishment, the Cartoon News Networks, the Greta Van Susterens and the Hillary Clintons uttering the same pablum ad nauseum over and over. All the institutions are coming apart – government, corporations, media, education, health care. They present nothing less than a vacuum! Something has to fill it! The systems that are in place? Things can only get worse if they stay in place. But I’m an optimist. I’m gunning for something better to replace what we got.” He pauses. “A renaissance! I’m gunning for a renaissance: an era where quality beats out the crap of quantity.”
POST-SCRIPT: Alarm bells are also ringing for former CIA consultant Chalmers Johnson, author of the Blowback Trilogy, including most recently the final installment Nemesis: The Last Days of the American Republic. Like Celente, Johnson sees the subprime mess as only the most visible part of a far-reaching debt crisis with lethal implications. “Confronted by the limits of its own vast but nonetheless finite financial resources and lacking the political check on spending provided by a functional democracy,” Johnson wrote in Harper’s last January, “the United States will within a very short time face financial or even political collapse.” The folly of what Chalmers terms “military Keynesianism” – devotion to militarism, weapons, warfare as fiscal stimulus, a policy embraced with equal fervor by both parties in Congress – will speed the country to moral, fiscal and political bankruptcy. To grasp the horror of military Keynesianism, consider this statistic: By 1990, production for the Department of Defense amounted to 83 percent of the value of all manufacturing plants and equipment in the US. Only 17 percent of the US manufacturing base actually made products not meant to kill. In this regard, bankruptcy and collapse is much-deserved, a comeuppance long overdue. On the bright side, Johnson notes that “bankruptcy will not mean the literal end of the United States any more than it did for Germany in 1923, China in 1948, or Argentina in 2001. It might, in fact, open the way for an unexpected restoration of the American system, or for military rule, revolution, or simply some new development we cannot yet imagine.”
Sunday, 27 January 2008
by Christopher Ketcham
Futurist and trends forecaster Gerald Celente, director of the Trends Research Institute in Rhinebeck, NY, predicted the 1987 stock market crash, the collapse of the Soviet Union in 1989, the Asian economic implosion of ‘97, the decline of the dollar beginning in 2005, the meteoric rise in gold prices in an age of currency volatility, and the turn of events that may be the blessing of our era, the subprime mortgage crisis. Because of this habit of prescience, Celente has appeared regularly on CNN and Fox and MSNBC, his “Trends Reports” widely quoted in newsprint, on Oprah Winfrey, on Good Morning America.
Now in his Report for 2008, issued in mid-December, he carried the news every thinking American already knows. “The United States of America,” Celente pronounced, “has gone from first class to third rate.” It’s a “nation on the skids and heading down.” Celente projects economic and political crisis in the coming year. “In 2008, Americans will wake up to the worst economic times that anyone alive has ever seen,” he wrote on December 17. “Just as they didn’t see 9/11 coming and were frozen in shock when terror struck, [Americans] will be frozen in shock when terror strikes again.” He predicts “failing banks, busted brokerages, toppled corporate giants, bankrupt cities, states in default, foreign creditors cashing out of US securities…the stage is set, the big one is on its way.”
A similar wake-up call was issued last summer in a report by none other than the chief investigator for the US Government Accountability Office, comptroller general David Walker, who warned that US policy on energy, education, the environment, health care, immigration, Iraq – pretty much the gamut – was on an “unsustainable” course, bound for a maelstrom of insolvency that could threaten to sink the ship. According to the GAO chief, the fall of Rome seemed an apt historical comparison: “[D]eclining moral values and political civility at home, an over-confident and over-extended military in foreign lands, and fiscal irresponsibility by the central government. Sound familiar? I’m trying to sound an alarm.”
When I called up Celente on Jan. 2 to see how the new year was taking shape on the first day of trading, he fired back in an e-mail: “An attack in Nigeria (Africa’s biggest oil producer) by anti-government forces on the port city of Port Harcourt hit the futures markets hard. On the New York Stock Exchange, trading conditions worsened on reports that the Institute for Supply Management's manufacturing index dropped to 47.7, the lowest reading since April 2003. Growth in European and Singapore manufacturing also slowed in November, showing signs for all those that were looking that the slowdown would be global.” By early afternoon, gold had surged $24 an ounce, crude oil climbed $3, the dollar fell against all major currencies, and the Dow was down over 200 points. The next day, Jan. 3, oil hit a record $100 a barrel. And indeed, as Celente warned, world markets were unraveling by the second week of January, the Nikkei on its worse start to a new year since 1970, the MSCI World Index dropping 6.9 percent, a loss of $2.1 trillion from members' market capitalization, while Swiss world banking giant UBS posted a $13 billion loss, and authorities in Britain reported the first run on a British bank in a hundred years.
When on January 14 Celente sent out his weekly e-mail alert to subscribers, the news was no better. The Dow registered its third consecutive week of losses, one of its worst New Year starts in history, losing in just the first week of 2008 half its gains from 2007. “Slumping retail sales, dire housing data, rising unemployment rates, gloomy consumer confidence, spiking oil prices, a ballooning trade gap, eroding wages, mounting credit card debt and delinquencies, mortgage defaults, record foreclosures,” said Celente. “The data floods the wires and spreads the fear.” It’s telling that Tiffany's was off 11 percent in sales, as even the very rich hide their cash under beds.
So is the subprime mortgage mess the catalyst for the Big One, what Celente calls the Panic of ‘08? Stock guru Jim Cramer, host of CNBC’s Mad Money and co-founder of TheStreet.com, seems to think so. “There are a group of insurance companies that insure all these bad mortgages,” he told Chris Matthews on Jan. 18. “And I think they’re all about to go belly up. And that will cause the Dow Jones to decline 2,000 points. They have got to be shut down. This is going to happen in maybe two, three weeks, Chris. It’s going to be on the front of every paper. And no one in Washington is even willing to admit it. I am telling you these companies do not have the capital to make good. And, when they do fall – I believe it is when – if the government doesn’t have a plan in action, you will not be able to open the stock market when they collapse…No one is even talking about it.”
From panic, offers Gerald Celente, will arise almost overnight an era of social and political upheaval and plain awfulness. Self storage will finally “live up to the meaning of its name. Down and out, thrown onto the streets, homeless Americans will empty out storage lockers of useless junk…to store themselves.” He predicts wage riots and anti-government street protests and intensified anti-immigration movements looking to scapegoat the “aliens” among us. Toward the 1 percent of Americans who received 50 percent of all income gains in recent years – those same 1 percenters, roughly 3 million people, who took in 22 percent of all income in 2005 – there will be growing rage. “Kidnappings for ransom will become common, as they were in the Depression and as the poor strike out against the rich,” Celente predicts. Lawlessness will be met, as in most third rate nations, with violence from an increasingly sophisticated and brutal police state. A different type of violence from the ground up, tax revolts, will also develop in strength, targeting a tax-ravenous federal government that Celente charges has failed “to protect food, win wars, clean the environment, upgrade infrastructure, improve living standards, provide health services or advance education.”
Meanwhile, the dollar will bottom out at 10 cents to the euro sometime in the next several years, perhaps by 2010. Newspapers report that even Third World vendors are beginning to refuse payment in greenbacks, while foreign governments and investors, mostly the Chinese, deploy the muscle of their currencies to buy US property and businesses (proxies of the Chinese government late last year snagged a 5 percent stake in Citibank, a 10 percent stake in Morgan Stanley).
Note that this is no fringer veering into conspiracist phantasm: Celente consults for hundreds of large and small corporations, addresses government bodies worldwide. Norway flew him to Europe in 2006 to address a conference on innovation, while the International Council of Shopping Centers hosted him as the key-note speaker at its 2007 convention – the mall builders hoped to glean from Celente “what people want from malls.” It’s notable, in the wake of the prognoses of his 2008 reports, that he is no longer invited onto the TV and cable networks – “the first year in decades,” he says, “that they did not have me on and that USA Today did not cover the Trends Report.” When Celente sent out an e-mail alert to his mailing list in mid-January, Jack Marks, the publisher and CEO of The Wall Street Reporter, one of the oldest investment organs in New York, wrote him back to say “You are a fucking retard motherfucker” and “Remove me from this list, you fucking moron.” The local publishing group near Celente’s home in Rhinebeck is perhaps more typical in its spinelessness: The Taconic Press, which publishes six newspapers in the Hudson Valley and upstate New York, told Celente in December via e-mail that there was “a general uproar about the inclusion of your Trends forecast [in 2007]…reader and advertiser reaction was strong, and they made their feelings known to our publisher.” Celente’s long relationship with Taconic Press is no more. Par for the course in the nation of blinkered denial.
There is apparently an upside to the rottenness to come, according to Celente – if Americans dare to reinvent for the 21st century the free thinking and civic courage of their past. This good cheer as Rome burns is buried somewhat in Celente’s report for 2008, but what it suggests is that, catalyzed by crisis, a fair number of Americans – a minority, likely, but still to watch – will begin this year a transformation of consciousness. Celente predicts that the smaller communities, the smaller groups, the smaller states, the more self-sustaining communities, will “weather the crisis in style” as big cities and hypertrophic suburbias descend into misery and conflict. “Like Katrina’s victims that knew the hurricane was coming but didn’t flee – and looked to Uncle Sam to save the day – those that don’t take action before panic strikes or wait for Washington to lend a hand, will suffer the most from the calamity that follows,” he writes. Economically, the new consciousness will recapture Yankee frugality and reject the lunatic behaviors that have been unsustainable since the Second World War – big houses, big cars, big spending. Those who market and embrace “products and services that focus on compact, smart, functional, efficient, neat, clean, reusable, 'less is more' and 'small is beautiful',” Celente writes, “will handsomely profit.” There will be a downsizing of expectations and perceived needs. There will be a downsizing of giantist institutions to fit to human scale – the center cannot hold, particularly as state’s righters and tax rebels and what Celente calls “the newly flourishing state secessionist movements” begin to repudiate a $9 trillion-in-debt federal government that too often practices the most offensive kind of taxation without representation. Altogether, there will be a downsizing of America.
“This could be the end of something really ignorant and stupid and dark,” Celente told me recently in a phone interview. “The end of a dark age! The end of the age of what I call Bottom-Line Fascism, the ruthless and dictatorial profit-only way of thinking that produces crap over quality in all the major institutions, dopiness and blob-thinking, the manipulations of an idiotic media and political establishment, the Cartoon News Networks, the Greta Van Susterens and the Hillary Clintons uttering the same pablum ad nauseum over and over. All the institutions are coming apart – government, corporations, media, education, health care. They present nothing less than a vacuum! Something has to fill it! The systems that are in place? Things can only get worse if they stay in place. But I’m an optimist. I’m gunning for something better to replace what we got.” He pauses. “A renaissance! I’m gunning for a renaissance: an era where quality beats out the crap of quantity.”
POST-SCRIPT: Alarm bells are also ringing for former CIA consultant Chalmers Johnson, author of the Blowback Trilogy, including most recently the final installment Nemesis: The Last Days of the American Republic. Like Celente, Johnson sees the subprime mess as only the most visible part of a far-reaching debt crisis with lethal implications. “Confronted by the limits of its own vast but nonetheless finite financial resources and lacking the political check on spending provided by a functional democracy,” Johnson wrote in Harper’s last January, “the United States will within a very short time face financial or even political collapse.” The folly of what Chalmers terms “military Keynesianism” – devotion to militarism, weapons, warfare as fiscal stimulus, a policy embraced with equal fervor by both parties in Congress – will speed the country to moral, fiscal and political bankruptcy. To grasp the horror of military Keynesianism, consider this statistic: By 1990, production for the Department of Defense amounted to 83 percent of the value of all manufacturing plants and equipment in the US. Only 17 percent of the US manufacturing base actually made products not meant to kill. In this regard, bankruptcy and collapse is much-deserved, a comeuppance long overdue. On the bright side, Johnson notes that “bankruptcy will not mean the literal end of the United States any more than it did for Germany in 1923, China in 1948, or Argentina in 2001. It might, in fact, open the way for an unexpected restoration of the American system, or for military rule, revolution, or simply some new development we cannot yet imagine.”
Trends Research
Futurist and trends forecaster Gerald Celente, director of the Trends Research Institute in New York, is famous for several successful forecasts, but is hated by the establishment. He predicted the 1987 stock market crash, the collapse of the Soviet Union in 1989, the Asian economic implosion of 1997, the decline of the USDollar after 2005, the gigantic rise in gold prices, the recent tumult with currency volatility, and the disaster triggered by the subprime mortgage failures. Because of this tendency toward insight, Celente has appeared regularly on CNN and Fox and MSNBC. His “Trends Reports” is widely quoted in newsprint. He is guest on many morning network news shows. His recent pronouncements are shocking. Celente projects both an economic and political crisis in the current 2008 year. “The United States of America has gone from first class to third rate. [It is a] nation on the skids and heading down. In 2008, Americans will wake up to the worst economic times that anyone alive has ever seen. Just as they did not see 9/11 coming and were frozen in shock when terror struck, [Americans] will be frozen in shock when terror strikes again.” The terror he refers to is economic disruption, if not chaos. He predicts “failing banks, busted brokerages, toppled corporate giants, bankrupt cities, states in default, foreign creditors cashing out of US securities… The stage is set, the big one is on its way.” Celente points out how the top 1% of Americans raked in over 50% of all income gains in recent years, and those same 1% individuals earned 22% of total national income in 2005. He foresees kidnapping of the wealthy to become common. He anticipates lawlessness to be met with brutal violence from a harsh police state. He expects storage facilities to be overrun by the new homeless, as they forage through possessions and seek shelter. He foresees violent public response from the ground up, in the form of tax revolts, since the people regard the US federal government as having failed in its purpose to protect and serve the population. See his latest public article, eye-opening, and not as outrageous as one might think at first glance. “Trends for Downsizing the US: The Bright Side of the Panic of 2008” (click here).
Celente forecasts the USDollar will bottom out at 10 cents versus the euro, translated to mean the euro rises to 1000, now at 146-148. On the positive side, he forecasts that smaller cities and communities will weather the storm well, as the besieged cities and suburbs descend into misery and conflict. Celente hopes for an end to the current Bottom Line Fascism age to end, one that might give way to a renaissance rebirth where smallness and quality are valued. He has earned the animosity and hatred by Wall Street, who now call him every ugly name in the book, from kook to moron. What is one to think when fraud artists and conmen call a reputable analyst ugly names? His future view offers much more detail attached than mine, but we are consistent.
Celente forecasts the USDollar will bottom out at 10 cents versus the euro, translated to mean the euro rises to 1000, now at 146-148. On the positive side, he forecasts that smaller cities and communities will weather the storm well, as the besieged cities and suburbs descend into misery and conflict. Celente hopes for an end to the current Bottom Line Fascism age to end, one that might give way to a renaissance rebirth where smallness and quality are valued. He has earned the animosity and hatred by Wall Street, who now call him every ugly name in the book, from kook to moron. What is one to think when fraud artists and conmen call a reputable analyst ugly names? His future view offers much more detail attached than mine, but we are consistent.
17 February 2008
GlobalEurope Anticipation Bulletin
In the 2 years of its existence, European think-tank LEAP/Europe 2020 has published a respectable number of thought-provoking reports, mostly in its subscription monthly newsletter GEAB:
The GlobalEurope Anticipation Bulletin is the confidential letter of think-tank LEAP/Europe 2020. As such, our aim is to provide our readers with state-of-the-art analyses of geo-political anticipation centered around the study and follow-up of the global systemic crisis, itself focussed on the evolution of the dollar and of the US economy, and their impact on international economy and financial markets, all that seen from a European perspective.
On Friday, 15, 2008, the latest GEAB saw the light, and parts were published on the LEAP website. It will likely take a while before an English version is available; therefore we at The Automatic Earth took it upon ourselves to translate the French version; the statements in the report certainly merit a little extra work, as well as attention.
Since the conclusions that LEAP/E2020's analysts reach in the report are, to put it mildly, more outspoken than just about any other publication, we feel they provide substantial food for thought and discussion. Are these guys nothing but a platoon of senile doomers, or are they? For more LEAP reports, go to their website.
Global systemic crisis/ September 2008 - Collapse phase of the real economy in the US
Public announcement GEAB no 22 (February 15 2008)
According to LEAP/E2020, the end of the third trimester will mark a new inflection point in the development of the systemic global crisis. By this time, the cumulative impact of the different strands of the crisis (see table below) will reach maximum strength and affect the heart of the systems involved in a decisive manner, led by the United States as the epicenter of the crisis.
In the US, this new inflection point will translate into the collapse of the real economy, the final socio-economic stage of the bursting of the series of the housing and financial bubbles (1) and the continuation of the fall in the value of the Dollar. The collapse of the real US economy represents simply the almost complete halt of the American economic machinery: private and public bankruptcies in great number, wide ranging closures of enterprises and public services (2),...
As a forewarning of events to follow, it is interesting to note that from March 2008, the US government will cease publication of its economic indices for reasons of budgetary constraints (3). The articles of GEAB N 2 and related alarms, remind us of the correlation between our anticipation of the fall to come in the Dollar with the end of the publication of M3 by the US federal Reserve. Here we see a new clear signal that the American leaders henceforth expect profoundly dark economic outlooks for their country.
Temporal perspective of the seven strands of the impact phase of the systemic global crisis anticipated since mid-2007 - Source LEAP/E2020, GEAB N°18 (10/2007) Click to enlarge
In this GEAB N 22, the experts of LEAP/E2020 anticipate the concrete consequences of this meltdown in the real American economy on the United States itself, and on other regions of the planet. In parallel, our team develops a series of five strategic and practical recommendations to protect oneself from the worsening of the systemic crisis of the coming months.
On the occasion of the second anniversary of the publication of its famous "Systemic global crisis warning" that circled the globe in February 2006, LEAP/E2020 wishes nothing less than to remind us that from now on we are entering a period without historic precedent. Repeatedly for two years, our team of researchers has stressed that comparisons with previous economic crises are fallacious.
It will not be in its effects a "remake" of the crisis of 1929, nor a repeat of the oil shocks of the 1970s or the stock market crash of 1987. It will be a systemic global crisis, that is to say affecting the integration of the planet and directly touching the foundations of the international system which has been the means of global organization for decades.
For LEAP/E2020, it is also edifying to note that two years after the publication of its famous "Systemic global crisis warning" which had simultaneously aroused the interest of millions of readers over the whole world and the condescending irony of the majority of the "experts" and "leaders" of the economic and financial world, everyone is now convinced that there is a crisis, that it is global and that it could well be systemic. Our team is constantly amazed at the incapacity of these experts and leaders to comprehend the nature of the phenomenon that we are living through.
To read them, this systemic global crisis would be only a sort of "classical" crisis, but "larger". This is how the financial media reflects the dominant interpretations of the on-going crisis. For our team, this approach is not only intellectually lazy but morally culpable, as it has as a principal consequence the denial of the opportunity for readers (whether they are simple citizens, individual investors or responsible private or public institutions) to prepare themselves for the shocks to come.
Thus, as opposed to what one could read these last weeks in the dominant media, always quick to try to camouflage reality in order to serve the interests which dominate them, LEAP/E2020 wishes to recall that it is above all in the United States that this global systemic crisis takes an unprecedented form (the "Very Great US Depression" as our team called it in January 2007 (7)), since it is around them, and them only, that the world which emerged from the second world war was gradually organized.
The various numbers of the GEAB largely explained this situation. To summarize, we consider it useful to stress that it is neither Europe nor Asia which has a negative rate of saving, a generalized housing crisis throwing millions of citizens on to the street, a currency in free fall, abysmal public and commercial deficits, an economy in recession and, to crown the whole, expensive wars to finance.
It will therefore be neither Asia nor Europe (more exactly ` the euro' zone) that will undergo the most brutal consequences, the most long lasting and most negative aspects of the crisis in progress; but the United States and countries or economies strongly tied to the United States (what our experts call "American risk") (8). There is indeed a "decoupling" between the US economy and those of the other great areas of the world.
But "decoupling" does not mean "independence". It is quite obvious, as LEAP/E2020 anticipated many months ago, that Asia and Europe will be affected by the crisis. "Decoupling" means that the evolution of the US economy and those of the other great areas of the world are no longer synchronized, that Asia and Europe will move henceforth according to trajectories no longer determined by that of the US economy.
The global systemic crisis marks in fact the beginning of "decoupling" between the US economy and those of the remainder of planet. The economies not "uncoupled" will be those which will be dragged into the American downward spiral.
Steep fall in the number of self-employed in the United States - Source Office of Labor Statistics/Merril Lynch (the shaded zones represent periods of recession). Click to enlarge
Concerning the stock markets, our team anticipated as of October 2007 that the world's bourses would lose between 20% and 60% by region during the year 2008. Today, we must revise our prediction in the direction of an even larger fall since, on the one hand, the stock exchanges have in general already lost between 10% and 20% since the beginning of the year (1°), and that, on the other hand, the meltdown of the real economy in the United States by the end of the summer 2008 will precipitate a downward spiral in all the world's bourses. For LEAP/E2020, we now predict a fall of 50% on average compared to 2007 (including in the emerging markets) (11).
In this number 22 of Global Europe Anticipation Bulletin, notably with our alert to the meltdown of the real economy in the United States from September 2008, we again try to warn those who are concerned by the consequences of this major event which will generate very serious socio-political disorder in the United States (13) as the economy is collapsing (14), which will of course have very heavy repercussions throughout all of the financial and monetary markets and for the world economy. We still have not reached the heart of the crisis. According to LEAP/E2020, it will be reached in the second half of 2008.
Posted by Ilargi at 11:40 AM
12 comments:
Anonymous said...
That's the news I've been waiting for. Celebrations all round. Bye Bye Yankees, Everyones had enough of your hegemony by violence, vainglorious delusions of grandeur, arrogantly blessing your nation as synonymous with God's name. Go forth and collapse into anarchy, make the best possible use of all those handguns you've got laying around - buy hollow point rounds.
February 16, 2008 3:49 PM
Burgundy said...
Wow, what an article. Thanks very much for bringing this to light.
I posted an article at Tod regarding Putin's threat of retaliation if Kosovo declared independence (which they are due to do tomorrow). Might be something to keep an eye on IMO.
Here's the link to the newspaper article:
http://www.telegraph.co.uk/news/main.jhtml?xml=/news/2008/02/15/wputin115.xml
February 16, 2008 4:05 PM
Anonymous said...
Thanks for this article and the link to the website.
I've gone back through the English language section of Abstracts& stories and read several of the articles listed there. There are about 3 pages of them from early 2006. After I read several of these articles, I read a lot more of them!
It's like reading a history of economic and some political things that have happened in the past two years! Yikes--this is an eye opening website. Actually, YOUR website is pretty eye opening, too.
thanks so much for your website and the work you're doing here.
A reader from TOD,
Shamba
February 16, 2008 4:19 PM
In The Shit said...
Thank you for the translation. I don't find LEAP's overall prognostications far-fetched, but I do find them rather vague. I wonder where they are getting their "currency in free fall" idea from. Seems like in a deflationary environment the currency would strengthen? Maybe just not relative to an also strengthening euro.
Also re the decoupling, it's interesting that the article makes such a strong effort to emphasize that the U.S. is the epicenter of the crisis, and that decoupling will spare some other parts of the world, which will only be "affected" (no further explanation) by the crisis. I must beg to differ... The UK is probably in deeper shit than we are. I think it's just not PC for French intellectuals to not try to blame whatever the problem is on the U.S. We didn't inflate Spain's housing bubble, or Greece's. Europe is going to get rocked. The only decoupling happening in Europe will be between bank depositors and their money...
I think the excess of the past few years was so massive that it's easy to cut a lot of it out and still live a comfortable life. Unemployment will definitely skyrocket and banks will fail and so on, but what it ultimately all leads to is an economy more in line with reality. The transition will be more painful for the spoiled, less so for the lean. Yes a lot of turmoil is on the way, but we are already so massively socially fucked up as a nation that it will be nothing new for us. We will stagger through like the drunken deaf idiots we are.
February 16, 2008 4:27 PM
Anonymous said...
Anything more on this; "In parallel, our team develops a series of five strategic and practical recommendations to protect oneself from the worsening of the systemic crisis of the coming months."
February 16, 2008 5:59 PM
ric said...
Anon,
Their recommendations start on page 15 of their (for subscribers) report:
"Five strategic and operational recommendations to be protected from the aggravation of the crisis
Stocks or bonds?
The recognition of a new « American risk
The new safe heaven currencies
Real estate: Selling, keeping or buying ?
Risking less for losing less (page 15)"
GEAB-N-22
February 16, 2008 7:43 PM
OuttaControl said...
Burgundy
Wow, what an article. Thanks very much for bringing this to light.
I'm not trying to be a jerk but what did you find particularly intresting in the article?
February 16, 2008 7:57 PM
Anonymous said...
Some of their predictions made a year ago:
In April 2007, nine practical consequences of the unfolding crisis will converge:
1. Acceleration of the pace and size of bankruptcies among US financial organisations: from one per week today to one per day in April
2. Spectacular rise of US home foreclosures: 10 million Americans out on the street
3. Accelerating collapse of housing prices in the US: - 25%
4. Entry into recession of the US economy in April 2007
5. Precipitous rate cut by the US Federal Reserve
6. Growing importance of China-USA trade conflicts
7. China's shift out of US dollars / Yen carry trade reversal
8. Sudden drop of US dollar value against Euro, Yuan and Yen
9. Tumble of Sterling Pound
No. 12
February 16, 2008 8:57 PM
doctorbob said...
I think the lesson from this is that changes happen rather more gradually than some would expect. There is a lot of inertia in the economic system and it takes a long time to turn around in either direction. Changes to "boom" are relatively slow and the coming "bust" will happen over years rather than months - but happen nonetheless.
February 17, 2008 5:08 AM
FB said...
Hello,
I tend to agree with ITS above.
Interesting but rather vague article.
A few points.
Concerning the free fall of the dollar, they did say currency, not money, meaning with respect to other (foreign) monies.
I agree that though the U.S. is certainly the epicenter and significantly responsible (e.g. the subprimes), it is not alone. A good part of Europe and Asia followed suit and so will suffer. But I am not sure why everyone thinks the U.K. will suffer so terribly.
Concerning turmoil, if this article is at all accurate, the situation will exceed turmoil. I am not sure how to qualify it, but it will be a shock.
Ciao,
FB
February 17, 2008 5:13 AM
doctorbob said...
I was going to add (in relation to points listed by "Anonymous" above):
1. Acceleration of the pace and size of bankruptcies among US financial organisations: from one per week today to one per day in April - NOT TO THIS EXTENT YET.
2. Spectacular rise of US home foreclosures: 10 million Americans out on the street - STEADY RATHER THAN SPECTACULAR.
3. Accelerating collapse of housing prices in the US: - 25% - SOME RECENT DATA ON THIS SITE SHOWS DROPS OF UP TO HALF THAT SO FAR, VARYING FROM STATE TO STATE.
4. Entry into recession of the US economy in April 2007 - DE FACTO RECESSION NOW, PROBABLY OFFICIAL BY SUMMER '08.
5. Precipitous rate cut by the US Federal Reserve - PARTLY SO NOW, PROBABLY APPLY BY SUMMER '08.
6. Growing importance of China-USA trade conflicts - JUST A FEW MINOR SPATS SO FAR.
7. China's shift out of US dollars / Yen carry trade reversal - MINOR AS YET.
8. Sudden drop of US dollar value against Euro, Yuan and Yen - SIGNIFICANT BUT NOT HUGE DROP.
9. Tumble of Sterling Pound - STERLING DOWN ABOUT 8% AGAINST EURO IN LAST 6 MONTHS, COULD WELL DROP FURTHER 10% BY YEAR END.
Overall, I'd expect "trauma months" like January '08 to happen every 3-6 months for rest of this year and expect the real crisis to hit in the second half of '09.
February 17, 2008 5:16 AM
The GlobalEurope Anticipation Bulletin is the confidential letter of think-tank LEAP/Europe 2020. As such, our aim is to provide our readers with state-of-the-art analyses of geo-political anticipation centered around the study and follow-up of the global systemic crisis, itself focussed on the evolution of the dollar and of the US economy, and their impact on international economy and financial markets, all that seen from a European perspective.
On Friday, 15, 2008, the latest GEAB saw the light, and parts were published on the LEAP website. It will likely take a while before an English version is available; therefore we at The Automatic Earth took it upon ourselves to translate the French version; the statements in the report certainly merit a little extra work, as well as attention.
Since the conclusions that LEAP/E2020's analysts reach in the report are, to put it mildly, more outspoken than just about any other publication, we feel they provide substantial food for thought and discussion. Are these guys nothing but a platoon of senile doomers, or are they? For more LEAP reports, go to their website.
Global systemic crisis/ September 2008 - Collapse phase of the real economy in the US
Public announcement GEAB no 22 (February 15 2008)
According to LEAP/E2020, the end of the third trimester will mark a new inflection point in the development of the systemic global crisis. By this time, the cumulative impact of the different strands of the crisis (see table below) will reach maximum strength and affect the heart of the systems involved in a decisive manner, led by the United States as the epicenter of the crisis.
In the US, this new inflection point will translate into the collapse of the real economy, the final socio-economic stage of the bursting of the series of the housing and financial bubbles (1) and the continuation of the fall in the value of the Dollar. The collapse of the real US economy represents simply the almost complete halt of the American economic machinery: private and public bankruptcies in great number, wide ranging closures of enterprises and public services (2),...
As a forewarning of events to follow, it is interesting to note that from March 2008, the US government will cease publication of its economic indices for reasons of budgetary constraints (3). The articles of GEAB N 2 and related alarms, remind us of the correlation between our anticipation of the fall to come in the Dollar with the end of the publication of M3 by the US federal Reserve. Here we see a new clear signal that the American leaders henceforth expect profoundly dark economic outlooks for their country.
Temporal perspective of the seven strands of the impact phase of the systemic global crisis anticipated since mid-2007 - Source LEAP/E2020, GEAB N°18 (10/2007) Click to enlarge
In this GEAB N 22, the experts of LEAP/E2020 anticipate the concrete consequences of this meltdown in the real American economy on the United States itself, and on other regions of the planet. In parallel, our team develops a series of five strategic and practical recommendations to protect oneself from the worsening of the systemic crisis of the coming months.
On the occasion of the second anniversary of the publication of its famous "Systemic global crisis warning" that circled the globe in February 2006, LEAP/E2020 wishes nothing less than to remind us that from now on we are entering a period without historic precedent. Repeatedly for two years, our team of researchers has stressed that comparisons with previous economic crises are fallacious.
It will not be in its effects a "remake" of the crisis of 1929, nor a repeat of the oil shocks of the 1970s or the stock market crash of 1987. It will be a systemic global crisis, that is to say affecting the integration of the planet and directly touching the foundations of the international system which has been the means of global organization for decades.
For LEAP/E2020, it is also edifying to note that two years after the publication of its famous "Systemic global crisis warning" which had simultaneously aroused the interest of millions of readers over the whole world and the condescending irony of the majority of the "experts" and "leaders" of the economic and financial world, everyone is now convinced that there is a crisis, that it is global and that it could well be systemic. Our team is constantly amazed at the incapacity of these experts and leaders to comprehend the nature of the phenomenon that we are living through.
To read them, this systemic global crisis would be only a sort of "classical" crisis, but "larger". This is how the financial media reflects the dominant interpretations of the on-going crisis. For our team, this approach is not only intellectually lazy but morally culpable, as it has as a principal consequence the denial of the opportunity for readers (whether they are simple citizens, individual investors or responsible private or public institutions) to prepare themselves for the shocks to come.
Thus, as opposed to what one could read these last weeks in the dominant media, always quick to try to camouflage reality in order to serve the interests which dominate them, LEAP/E2020 wishes to recall that it is above all in the United States that this global systemic crisis takes an unprecedented form (the "Very Great US Depression" as our team called it in January 2007 (7)), since it is around them, and them only, that the world which emerged from the second world war was gradually organized.
The various numbers of the GEAB largely explained this situation. To summarize, we consider it useful to stress that it is neither Europe nor Asia which has a negative rate of saving, a generalized housing crisis throwing millions of citizens on to the street, a currency in free fall, abysmal public and commercial deficits, an economy in recession and, to crown the whole, expensive wars to finance.
It will therefore be neither Asia nor Europe (more exactly ` the euro' zone) that will undergo the most brutal consequences, the most long lasting and most negative aspects of the crisis in progress; but the United States and countries or economies strongly tied to the United States (what our experts call "American risk") (8). There is indeed a "decoupling" between the US economy and those of the other great areas of the world.
But "decoupling" does not mean "independence". It is quite obvious, as LEAP/E2020 anticipated many months ago, that Asia and Europe will be affected by the crisis. "Decoupling" means that the evolution of the US economy and those of the other great areas of the world are no longer synchronized, that Asia and Europe will move henceforth according to trajectories no longer determined by that of the US economy.
The global systemic crisis marks in fact the beginning of "decoupling" between the US economy and those of the remainder of planet. The economies not "uncoupled" will be those which will be dragged into the American downward spiral.
Steep fall in the number of self-employed in the United States - Source Office of Labor Statistics/Merril Lynch (the shaded zones represent periods of recession). Click to enlarge
Concerning the stock markets, our team anticipated as of October 2007 that the world's bourses would lose between 20% and 60% by region during the year 2008. Today, we must revise our prediction in the direction of an even larger fall since, on the one hand, the stock exchanges have in general already lost between 10% and 20% since the beginning of the year (1°), and that, on the other hand, the meltdown of the real economy in the United States by the end of the summer 2008 will precipitate a downward spiral in all the world's bourses. For LEAP/E2020, we now predict a fall of 50% on average compared to 2007 (including in the emerging markets) (11).
In this number 22 of Global Europe Anticipation Bulletin, notably with our alert to the meltdown of the real economy in the United States from September 2008, we again try to warn those who are concerned by the consequences of this major event which will generate very serious socio-political disorder in the United States (13) as the economy is collapsing (14), which will of course have very heavy repercussions throughout all of the financial and monetary markets and for the world economy. We still have not reached the heart of the crisis. According to LEAP/E2020, it will be reached in the second half of 2008.
Posted by Ilargi at 11:40 AM
12 comments:
Anonymous said...
That's the news I've been waiting for. Celebrations all round. Bye Bye Yankees, Everyones had enough of your hegemony by violence, vainglorious delusions of grandeur, arrogantly blessing your nation as synonymous with God's name. Go forth and collapse into anarchy, make the best possible use of all those handguns you've got laying around - buy hollow point rounds.
February 16, 2008 3:49 PM
Burgundy said...
Wow, what an article. Thanks very much for bringing this to light.
I posted an article at Tod regarding Putin's threat of retaliation if Kosovo declared independence (which they are due to do tomorrow). Might be something to keep an eye on IMO.
Here's the link to the newspaper article:
http://www.telegraph.co.uk/news/main.jhtml?xml=/news/2008/02/15/wputin115.xml
February 16, 2008 4:05 PM
Anonymous said...
Thanks for this article and the link to the website.
I've gone back through the English language section of Abstracts& stories and read several of the articles listed there. There are about 3 pages of them from early 2006. After I read several of these articles, I read a lot more of them!
It's like reading a history of economic and some political things that have happened in the past two years! Yikes--this is an eye opening website. Actually, YOUR website is pretty eye opening, too.
thanks so much for your website and the work you're doing here.
A reader from TOD,
Shamba
February 16, 2008 4:19 PM
In The Shit said...
Thank you for the translation. I don't find LEAP's overall prognostications far-fetched, but I do find them rather vague. I wonder where they are getting their "currency in free fall" idea from. Seems like in a deflationary environment the currency would strengthen? Maybe just not relative to an also strengthening euro.
Also re the decoupling, it's interesting that the article makes such a strong effort to emphasize that the U.S. is the epicenter of the crisis, and that decoupling will spare some other parts of the world, which will only be "affected" (no further explanation) by the crisis. I must beg to differ... The UK is probably in deeper shit than we are. I think it's just not PC for French intellectuals to not try to blame whatever the problem is on the U.S. We didn't inflate Spain's housing bubble, or Greece's. Europe is going to get rocked. The only decoupling happening in Europe will be between bank depositors and their money...
I think the excess of the past few years was so massive that it's easy to cut a lot of it out and still live a comfortable life. Unemployment will definitely skyrocket and banks will fail and so on, but what it ultimately all leads to is an economy more in line with reality. The transition will be more painful for the spoiled, less so for the lean. Yes a lot of turmoil is on the way, but we are already so massively socially fucked up as a nation that it will be nothing new for us. We will stagger through like the drunken deaf idiots we are.
February 16, 2008 4:27 PM
Anonymous said...
Anything more on this; "In parallel, our team develops a series of five strategic and practical recommendations to protect oneself from the worsening of the systemic crisis of the coming months."
February 16, 2008 5:59 PM
ric said...
Anon,
Their recommendations start on page 15 of their (for subscribers) report:
"Five strategic and operational recommendations to be protected from the aggravation of the crisis
Stocks or bonds?
The recognition of a new « American risk
The new safe heaven currencies
Real estate: Selling, keeping or buying ?
Risking less for losing less (page 15)"
GEAB-N-22
February 16, 2008 7:43 PM
OuttaControl said...
Burgundy
Wow, what an article. Thanks very much for bringing this to light.
I'm not trying to be a jerk but what did you find particularly intresting in the article?
February 16, 2008 7:57 PM
Anonymous said...
Some of their predictions made a year ago:
In April 2007, nine practical consequences of the unfolding crisis will converge:
1. Acceleration of the pace and size of bankruptcies among US financial organisations: from one per week today to one per day in April
2. Spectacular rise of US home foreclosures: 10 million Americans out on the street
3. Accelerating collapse of housing prices in the US: - 25%
4. Entry into recession of the US economy in April 2007
5. Precipitous rate cut by the US Federal Reserve
6. Growing importance of China-USA trade conflicts
7. China's shift out of US dollars / Yen carry trade reversal
8. Sudden drop of US dollar value against Euro, Yuan and Yen
9. Tumble of Sterling Pound
No. 12
February 16, 2008 8:57 PM
doctorbob said...
I think the lesson from this is that changes happen rather more gradually than some would expect. There is a lot of inertia in the economic system and it takes a long time to turn around in either direction. Changes to "boom" are relatively slow and the coming "bust" will happen over years rather than months - but happen nonetheless.
February 17, 2008 5:08 AM
FB said...
Hello,
I tend to agree with ITS above.
Interesting but rather vague article.
A few points.
Concerning the free fall of the dollar, they did say currency, not money, meaning with respect to other (foreign) monies.
I agree that though the U.S. is certainly the epicenter and significantly responsible (e.g. the subprimes), it is not alone. A good part of Europe and Asia followed suit and so will suffer. But I am not sure why everyone thinks the U.K. will suffer so terribly.
Concerning turmoil, if this article is at all accurate, the situation will exceed turmoil. I am not sure how to qualify it, but it will be a shock.
Ciao,
FB
February 17, 2008 5:13 AM
doctorbob said...
I was going to add (in relation to points listed by "Anonymous" above):
1. Acceleration of the pace and size of bankruptcies among US financial organisations: from one per week today to one per day in April - NOT TO THIS EXTENT YET.
2. Spectacular rise of US home foreclosures: 10 million Americans out on the street - STEADY RATHER THAN SPECTACULAR.
3. Accelerating collapse of housing prices in the US: - 25% - SOME RECENT DATA ON THIS SITE SHOWS DROPS OF UP TO HALF THAT SO FAR, VARYING FROM STATE TO STATE.
4. Entry into recession of the US economy in April 2007 - DE FACTO RECESSION NOW, PROBABLY OFFICIAL BY SUMMER '08.
5. Precipitous rate cut by the US Federal Reserve - PARTLY SO NOW, PROBABLY APPLY BY SUMMER '08.
6. Growing importance of China-USA trade conflicts - JUST A FEW MINOR SPATS SO FAR.
7. China's shift out of US dollars / Yen carry trade reversal - MINOR AS YET.
8. Sudden drop of US dollar value against Euro, Yuan and Yen - SIGNIFICANT BUT NOT HUGE DROP.
9. Tumble of Sterling Pound - STERLING DOWN ABOUT 8% AGAINST EURO IN LAST 6 MONTHS, COULD WELL DROP FURTHER 10% BY YEAR END.
Overall, I'd expect "trauma months" like January '08 to happen every 3-6 months for rest of this year and expect the real crisis to hit in the second half of '09.
February 17, 2008 5:16 AM
Cholesterol control is pretty much a scam.
Cholesterol control is pretty much a scam. The cholesterol total is not as important as the ratio. Each HDL molecule can gather up to 6 LDL molecules and return them to the liver for processing. If the HDL is low in an individual then the LDL can add to the plaque building process in the arteries. Just as many people with low cholesterol have heart attacks as those with high numbers. A longevity factor is link to high HDL numbers. The secret is to boost HDL and it will take care of the LDL for you.
Omega 3 will boost the HDL significantly. Walnuts, Cod liver Oil, Almonds etc should be introduced into the diet and substituted for other fatty foods/calories that may be routinely found in the diet. I had cholesterol that totaled close to 300. My HDL was only 42 or so at the time. I learned how to eat correctly and exercise routinely. My cholesterol total is now 195 and my HDL is 85. My blood pressure was 120-130 ish. It's now between 95-105. It's not rocket science, and statin drugs never prevented anyone from having a heart attack. It's just a money making gimmic with deadly consequences imho. I tried a statin drug (Vytorin) early on, and after a couple months on 10mg/day the muscles in my lower back and thighs were giving out with terrible pain. I took myself off of the statin and researched the problem and corrected it myself. I happen to be a biologist and studied the cholesterol issue for a couple of years. Just make sure you intake plenty of:
(1) Soluble Fiber--retains bile (stored in the gallbladder and used in digestion for fat metabolism) and forces your liver to borrow cholesterol from the blood stream to produce more bile.
(2) Omega 3---HDL production
(3) Magnesium- for insulin transfer across cellular membranes
(4) Cinnamon---for glucose control
(5) Plenty of endurance exercising i.e. Long brisk walks etc.
(6) Substitute cooking oils with virgin coconut oil. Use olive oil cold for salads. Olive oil is a good oil but oxidizes easily under low heat and should not be used much in cooking.
(7) Use plenty of garlic in cooking and drink green tea
(8) Stay hydrated---plenty of water during the course of the day especially if you're a coffee drinker or consume alcohol.
(9) Hope that helps.
Omega 3 will boost the HDL significantly. Walnuts, Cod liver Oil, Almonds etc should be introduced into the diet and substituted for other fatty foods/calories that may be routinely found in the diet. I had cholesterol that totaled close to 300. My HDL was only 42 or so at the time. I learned how to eat correctly and exercise routinely. My cholesterol total is now 195 and my HDL is 85. My blood pressure was 120-130 ish. It's now between 95-105. It's not rocket science, and statin drugs never prevented anyone from having a heart attack. It's just a money making gimmic with deadly consequences imho. I tried a statin drug (Vytorin) early on, and after a couple months on 10mg/day the muscles in my lower back and thighs were giving out with terrible pain. I took myself off of the statin and researched the problem and corrected it myself. I happen to be a biologist and studied the cholesterol issue for a couple of years. Just make sure you intake plenty of:
(1) Soluble Fiber--retains bile (stored in the gallbladder and used in digestion for fat metabolism) and forces your liver to borrow cholesterol from the blood stream to produce more bile.
(2) Omega 3---HDL production
(3) Magnesium- for insulin transfer across cellular membranes
(4) Cinnamon---for glucose control
(5) Plenty of endurance exercising i.e. Long brisk walks etc.
(6) Substitute cooking oils with virgin coconut oil. Use olive oil cold for salads. Olive oil is a good oil but oxidizes easily under low heat and should not be used much in cooking.
(7) Use plenty of garlic in cooking and drink green tea
(8) Stay hydrated---plenty of water during the course of the day especially if you're a coffee drinker or consume alcohol.
(9) Hope that helps.
16 February 2008
Burning down the house
Behind all the blather and bullshit about the Federal Reserve's rescue gambits and the machinations of the ratings agencies, and the wiles of foreign sovereign wealth, and the incomprehensible mysteries of markets, and the various weather forecasts of a gathering "recession" is the simple fact that the USA is a way poorer nation than we imagined ourselves to be six months ago. The American economy has been running on the fumes of "creatively engineered" finance (i.e. new-and-improved swindling) for years, and now these swindles are unraveling. In their aftermath, they leave empty wallets, drained bank accounts, plundered retirements funds, boiled away capital reserves, worthless stocks, bankrupt companies, vandalized housing tracts, ruined families, and Wall Street executives who are still pulling down multimillion-dollar pay packages despite running their companies into the ground.
We're burning down the house and kidding ourselves that there is a remedy for it. All the rate cuts and loans to big banks and bank-like corporate organisms, and "monoline" bond insurers, and mortgage mills amount to little more than a final desperate shell game to conceal the radioactive pea of aggregate loss. The losses are everywhere, and when you add up seven billion here and eleven billion there they probably amount to something like a trillion dollars in sheer capital evaporation -- not counting the abstract "positions" that the capital was leveraged onto by the playerz and boyz who mistook algorithms for productive activity.
The shell game may run a few more weeks but personally I believe the timbers are burning. The losses are no longer "contained" or concealable. A consensus has now formed that we're in for a "recession." The idea is that, yes, this seems to be the low arc of the business cycle. Fewer Hamptons villas will be redecorated in the interim. We'll gird our loins and get through the bad weather and when the sun shines again, we'll be ready with new algorithms for new sport-with-capital.
Uh-uh. Think again. This is not so much financial bad weather as financial climate change. Something is happenin' Mr Jones, and you don't know what it is, do ya? There has been too much misbehavior and it can no longer be mitigated. We're not heading into a recession but a major depression, worse than the fabled trauma of the 1930s. That one occurred against the background of a society that had plenty of everything except money. Back then, we had plenty of mineral resources, lots of trained-and-regimented manpower, millions of productive family farms, factories that were practically new, and more than 90 percent left of the greatest petroleum reserve anywhere in the world. It took a world war to get all that stuff humming cooperatively again, and once it did, we devoted its productive capacity to building an empire of happy motoring leisure. (Tragic choice there.)
This new depression, which I call The Long Emergency, will play out against the background of a society that has pissed away its oil endowment, bulldozed its factories, arbitraged its productive labor, destroyed both family farms and the commercial infrastructure of main street, and trained its population to become overfed diabetic TV zombie "consumers" of other peoples' productivity, paid for by "money" they haven't earned.
There is a theory (see Nouriel Roubini's blog) that a reform process will now ensue in the financial realm, new regulation and oversight of the same old familiar activities. This too, I'm afraid, will prove to be wishful thinking. The financial system will not be reformed until it lies in smoking wreckage, and when that "re-form" happens the armature of the re-organizing society will barely resemble the one that the previous burnt-down-house was designed to dwell in. Among other things, it will not support capital enterprise at anything like the scale that we became accustomed to lately. Globalism will be over. The great nations of the world will be scrambling desperately for the world's remaining oil supplies. It will not be a friendly contest, and anyone who thinks that current trade relations and capital flows will continue despite that is liable to be disappointed. (Are you reading this Tom Friedman?)
Long before the mathematical projections of oil depletion play out, the oil markets themselves -- and all the complex operations that they comprise, such as drilling and exploration, and the movement of tankers around the planet -- will destabilize and seize up. We will no longer be any oil exporter's "favored customer." Many of the exporters will enjoy watching us suffer. Contrary to the political platitude-du-jour, the USA will never become "energy independent" in the way we currently imagine. Rather we'll become energy independent by being deprived of imported oil, and we'll be thrown back on our own dwindling supplies -- which means that we're not going to run our system of daily life the way it has been set up to run. When Americans can no longer run their cars on a whim, they will simply go apeshit and you can kiss normal politics goodbye.
The financial system that emerges from this cataclysm, and the economy it serves (which is supposed to be the master of its capital deployment "arm," not its servant) will likely be modest to a degree that will shock and embarrass everyone currently connected with what we have lately called finance. If it even trades in paper, that paper will have to stand for something based in reality, either a productive activity or a genuine asset. It may take decades for this society to even regain the confidence necessary to operate such an elementary system -- or it may not come back at all, at least as far as the horizon lies before us. That's how bad the mischief and the damage has been.
It's not hard to understand why the Bernankes, Paulsons, Lawrence Kudlows and other public representatives of capital keep pretending that everything is under control. On the other side of their pretenses lies disorder and hardship. One wonders, of course, what they really see in their private minds' eyes. Do they actually believe that the statistics issued by their serveling agencies amount to a plausible picture of reality? Are they so lost in their fantasies of "management" that they think they're controlling events?
My guess is that their credibility is spent. In the weeks ahead, nobody will know who or what to believe. We may even run out of questions to ask as we just all collectively stand there in a thrall of wonder and nausea, watching the nation's financial house burn down.
We're burning down the house and kidding ourselves that there is a remedy for it. All the rate cuts and loans to big banks and bank-like corporate organisms, and "monoline" bond insurers, and mortgage mills amount to little more than a final desperate shell game to conceal the radioactive pea of aggregate loss. The losses are everywhere, and when you add up seven billion here and eleven billion there they probably amount to something like a trillion dollars in sheer capital evaporation -- not counting the abstract "positions" that the capital was leveraged onto by the playerz and boyz who mistook algorithms for productive activity.
The shell game may run a few more weeks but personally I believe the timbers are burning. The losses are no longer "contained" or concealable. A consensus has now formed that we're in for a "recession." The idea is that, yes, this seems to be the low arc of the business cycle. Fewer Hamptons villas will be redecorated in the interim. We'll gird our loins and get through the bad weather and when the sun shines again, we'll be ready with new algorithms for new sport-with-capital.
Uh-uh. Think again. This is not so much financial bad weather as financial climate change. Something is happenin' Mr Jones, and you don't know what it is, do ya? There has been too much misbehavior and it can no longer be mitigated. We're not heading into a recession but a major depression, worse than the fabled trauma of the 1930s. That one occurred against the background of a society that had plenty of everything except money. Back then, we had plenty of mineral resources, lots of trained-and-regimented manpower, millions of productive family farms, factories that were practically new, and more than 90 percent left of the greatest petroleum reserve anywhere in the world. It took a world war to get all that stuff humming cooperatively again, and once it did, we devoted its productive capacity to building an empire of happy motoring leisure. (Tragic choice there.)
This new depression, which I call The Long Emergency, will play out against the background of a society that has pissed away its oil endowment, bulldozed its factories, arbitraged its productive labor, destroyed both family farms and the commercial infrastructure of main street, and trained its population to become overfed diabetic TV zombie "consumers" of other peoples' productivity, paid for by "money" they haven't earned.
There is a theory (see Nouriel Roubini's blog) that a reform process will now ensue in the financial realm, new regulation and oversight of the same old familiar activities. This too, I'm afraid, will prove to be wishful thinking. The financial system will not be reformed until it lies in smoking wreckage, and when that "re-form" happens the armature of the re-organizing society will barely resemble the one that the previous burnt-down-house was designed to dwell in. Among other things, it will not support capital enterprise at anything like the scale that we became accustomed to lately. Globalism will be over. The great nations of the world will be scrambling desperately for the world's remaining oil supplies. It will not be a friendly contest, and anyone who thinks that current trade relations and capital flows will continue despite that is liable to be disappointed. (Are you reading this Tom Friedman?)
Long before the mathematical projections of oil depletion play out, the oil markets themselves -- and all the complex operations that they comprise, such as drilling and exploration, and the movement of tankers around the planet -- will destabilize and seize up. We will no longer be any oil exporter's "favored customer." Many of the exporters will enjoy watching us suffer. Contrary to the political platitude-du-jour, the USA will never become "energy independent" in the way we currently imagine. Rather we'll become energy independent by being deprived of imported oil, and we'll be thrown back on our own dwindling supplies -- which means that we're not going to run our system of daily life the way it has been set up to run. When Americans can no longer run their cars on a whim, they will simply go apeshit and you can kiss normal politics goodbye.
The financial system that emerges from this cataclysm, and the economy it serves (which is supposed to be the master of its capital deployment "arm," not its servant) will likely be modest to a degree that will shock and embarrass everyone currently connected with what we have lately called finance. If it even trades in paper, that paper will have to stand for something based in reality, either a productive activity or a genuine asset. It may take decades for this society to even regain the confidence necessary to operate such an elementary system -- or it may not come back at all, at least as far as the horizon lies before us. That's how bad the mischief and the damage has been.
It's not hard to understand why the Bernankes, Paulsons, Lawrence Kudlows and other public representatives of capital keep pretending that everything is under control. On the other side of their pretenses lies disorder and hardship. One wonders, of course, what they really see in their private minds' eyes. Do they actually believe that the statistics issued by their serveling agencies amount to a plausible picture of reality? Are they so lost in their fantasies of "management" that they think they're controlling events?
My guess is that their credibility is spent. In the weeks ahead, nobody will know who or what to believe. We may even run out of questions to ask as we just all collectively stand there in a thrall of wonder and nausea, watching the nation's financial house burn down.
15 February 2008
What you don’t know can hurt us
The Bush administration has a long and comical history of going to great lengths to hide bad news from the public. Today, Amanda at TP reports on the latest gem:
The U.S. economy is faltering. Family debt is on the rise, benefits are disappearing, the deficit is skyrocketing, and the mortgage crisis has worsened. Conservatives have attempted to deflect attention from the crisis, by blaming the media’s negative coverage and insisting the United States is not headed toward a recession, despite what economists are predicting.
The Bush administration’s latest move is to simply hide the data. Forbes has awarded EconomicIndicators.gov one of its “Best of the Web” awards. As Forbes explains, the government site provides an invaluable service to the public for accessing U.S. economic data:
“This site is maintained by the Economics and Statistics Administration and combines data collected by the Bureau of Economic Analysis, like GDP and net imports and exports, and the Census Bureau, like retail sales and durable goods shipments. The site simply links to the relevant department’s Web site. This might not seem like a big deal, but doing it yourself–say, trying to find retail sales data on the Census Bureau’s site — is such an exercise in futility that it will convince you why this portal is necessary.”
Alas, as the economic conditions worsen, the administration decided to shut down this “necessary” website, citing “budgetary constraints.”
How expensive could it be for the Economics and Statistics Administration to keep a website online? Probably not much, but the political costs of making embarrassing data easily accessible to the public is probably quite high.
As long-time readers may recall, I started keeping track of instances in which the Bush administration would hide inconvenient data quite a while ago. Some of my favorite examples include:
* In March, the administration announced it would no longer produce the Census Bureau’s Survey of Income and Program Participation, which identifies which programs best assist low-income families, while also tracking health insurance coverage and child support.
* In 2005, after a government report showed an increase in terrorism around the world, the administration announced it would stop publishing its annual report on international terrorism.
* After the Bureau of Labor Statistics uncovered discouraging data about factory closings in the U.S., the administration announced it would stop publishing information about factory closings.
* When an annual report called “Budget Information for States” showed the federal government shortchanging states in the midst of fiscal crises, Bush’s Office of Management and Budget announced it was discontinuing the report, which some said was the only source for comprehensive data on state funding from the federal government.
* When Bush’s Department of Education found that charter schools were underperforming, the administration said it would sharply cut back on the information it collects about charter schools.
My friends at TPM took this even further, and compiled a comprehensive list, through a project they called, “What You Don’t Know Can’t Hurt Us.” Paul Kiel published the latest version a couple of months ago, and it’s chuck full of mind-numbing examples like these.
When public information conflict with the White House’s agenda, the Bush gang has a choice — deal with the problem or hide the information. Guess which course they prefer?
The U.S. economy is faltering. Family debt is on the rise, benefits are disappearing, the deficit is skyrocketing, and the mortgage crisis has worsened. Conservatives have attempted to deflect attention from the crisis, by blaming the media’s negative coverage and insisting the United States is not headed toward a recession, despite what economists are predicting.
The Bush administration’s latest move is to simply hide the data. Forbes has awarded EconomicIndicators.gov one of its “Best of the Web” awards. As Forbes explains, the government site provides an invaluable service to the public for accessing U.S. economic data:
“This site is maintained by the Economics and Statistics Administration and combines data collected by the Bureau of Economic Analysis, like GDP and net imports and exports, and the Census Bureau, like retail sales and durable goods shipments. The site simply links to the relevant department’s Web site. This might not seem like a big deal, but doing it yourself–say, trying to find retail sales data on the Census Bureau’s site — is such an exercise in futility that it will convince you why this portal is necessary.”
Alas, as the economic conditions worsen, the administration decided to shut down this “necessary” website, citing “budgetary constraints.”
How expensive could it be for the Economics and Statistics Administration to keep a website online? Probably not much, but the political costs of making embarrassing data easily accessible to the public is probably quite high.
As long-time readers may recall, I started keeping track of instances in which the Bush administration would hide inconvenient data quite a while ago. Some of my favorite examples include:
* In March, the administration announced it would no longer produce the Census Bureau’s Survey of Income and Program Participation, which identifies which programs best assist low-income families, while also tracking health insurance coverage and child support.
* In 2005, after a government report showed an increase in terrorism around the world, the administration announced it would stop publishing its annual report on international terrorism.
* After the Bureau of Labor Statistics uncovered discouraging data about factory closings in the U.S., the administration announced it would stop publishing information about factory closings.
* When an annual report called “Budget Information for States” showed the federal government shortchanging states in the midst of fiscal crises, Bush’s Office of Management and Budget announced it was discontinuing the report, which some said was the only source for comprehensive data on state funding from the federal government.
* When Bush’s Department of Education found that charter schools were underperforming, the administration said it would sharply cut back on the information it collects about charter schools.
My friends at TPM took this even further, and compiled a comprehensive list, through a project they called, “What You Don’t Know Can’t Hurt Us.” Paul Kiel published the latest version a couple of months ago, and it’s chuck full of mind-numbing examples like these.
When public information conflict with the White House’s agenda, the Bush gang has a choice — deal with the problem or hide the information. Guess which course they prefer?
13 February 2008
Utter Global collapse
In a recent interview on CNBC with Ron Insana, one of the “old-timer”funds manager, Julian Robertson, predicted “utter global collapse” as a consequence of the bursting of the world-wide property bubble.
Often called “Never Been Wrong Robertson”, the former head of Tiger Management (once the largest hedge fund in the world), is extremely worried about the speculative bubble in real estate.
Specifically, he is very worried about a world that is sustained by American consumer spending which is in turn 1/4 sustained by a property bubble. He predicts that 20 million people could lose their homes once the property bubble bursts.
Even more worrisome, he thinks central banks around the globe out of desperation will try to re-inflate the world economy with more liquidity that will create an inflationary spiral unseen in the economic history of mankind. “Where does it end?”, Insana asked Robertson. “Utter global collapse,” he answered. But not just economic collapse … collapse of epic proportions. Collapse and disintegration of all infrastructure, including government. Inflation will run into the double and triple digits. “Food production will fall. People will be carrying around U.S .
dollars in wheelbarrows like Germany,” he said.
There will be “total collapse of public infrastructure. Total collapse of medical care systems. All public pension plans, Social Security will collapse. All corporate pension plans will collapse.”
“The American consumer is effectively now supporting the rest of the planet,” he continued. “Consumption rates in all other nations are falling, have fallen to the point that the tax revenues to governments, that the business and industries those nation states are providing is now a net negative number relative to total debt service and public cost, that this exists in virtually every nation state on the planet now.”
And for much of this “doom”, interestingly, he blames the Bush-Cheney “regime”. “They have now consolidated power and money on the planet to the maximum extent possible. The planet’s net liquidity, that is its, net free cash flow. Is now a negative number. The planet is not simply sinking into a sea of red ink; it is already sunk. The people just don’t realize it yet,” he said.
According to Robertson, “the Bush-Cheney regime is preparing the nation for transition from democracy into dictatorship because a dictatorship will be necessary to control, in 5 years time, food and water riots.” He said “the federal government, that part of Patriot II Act, the internal exile, that the government is going to have to build now huge detention compounds on federal lands, probably in the West where the land is available, to potentially house 50 million or more citizens that will be in financial ruin.”
In 10 years time, whoever is left will be effectively starting again, he said. “More importantly, and I’m trying to think how we imply this or how we express this to the people, what extraordinary times we are living in and how the destruction of the planet has been engineered by the Bushonian Cabal from 1980 to 1992, and then from 2001 to present, which has effectively destroyed the economic liquidity of the planet,”
he said.
Robertson ended the interview by saying that he hopes he is not alive to see this. “The lucky ones are the ones who are my age now,” he said.
Often called “Never Been Wrong Robertson”, the former head of Tiger Management (once the largest hedge fund in the world), is extremely worried about the speculative bubble in real estate.
Specifically, he is very worried about a world that is sustained by American consumer spending which is in turn 1/4 sustained by a property bubble. He predicts that 20 million people could lose their homes once the property bubble bursts.
Even more worrisome, he thinks central banks around the globe out of desperation will try to re-inflate the world economy with more liquidity that will create an inflationary spiral unseen in the economic history of mankind. “Where does it end?”, Insana asked Robertson. “Utter global collapse,” he answered. But not just economic collapse … collapse of epic proportions. Collapse and disintegration of all infrastructure, including government. Inflation will run into the double and triple digits. “Food production will fall. People will be carrying around U.S .
dollars in wheelbarrows like Germany,” he said.
There will be “total collapse of public infrastructure. Total collapse of medical care systems. All public pension plans, Social Security will collapse. All corporate pension plans will collapse.”
“The American consumer is effectively now supporting the rest of the planet,” he continued. “Consumption rates in all other nations are falling, have fallen to the point that the tax revenues to governments, that the business and industries those nation states are providing is now a net negative number relative to total debt service and public cost, that this exists in virtually every nation state on the planet now.”
And for much of this “doom”, interestingly, he blames the Bush-Cheney “regime”. “They have now consolidated power and money on the planet to the maximum extent possible. The planet’s net liquidity, that is its, net free cash flow. Is now a negative number. The planet is not simply sinking into a sea of red ink; it is already sunk. The people just don’t realize it yet,” he said.
According to Robertson, “the Bush-Cheney regime is preparing the nation for transition from democracy into dictatorship because a dictatorship will be necessary to control, in 5 years time, food and water riots.” He said “the federal government, that part of Patriot II Act, the internal exile, that the government is going to have to build now huge detention compounds on federal lands, probably in the West where the land is available, to potentially house 50 million or more citizens that will be in financial ruin.”
In 10 years time, whoever is left will be effectively starting again, he said. “More importantly, and I’m trying to think how we imply this or how we express this to the people, what extraordinary times we are living in and how the destruction of the planet has been engineered by the Bushonian Cabal from 1980 to 1992, and then from 2001 to present, which has effectively destroyed the economic liquidity of the planet,”
he said.
Robertson ended the interview by saying that he hopes he is not alive to see this. “The lucky ones are the ones who are my age now,” he said.
10 February 2008
At the Heart of Deepening Monetary Disorder: Nolan
It was an eventful week for indications of the real economy’s (waning) soundness. At 15.2 million annualized, January vehicle sales were the weakest since October 2005 (that followed more than a year of very strong sales). A larger-than-expected increase in weekly initial unemployment claims (356k) pushed continuing unemployment claims rose to the highest level (2.785 million) since late 2005. The ABC/Washington Post weekly Consumer Comfort index sank a notable 6 points this week to negative 33, the lowest reading since the early nineties.
Importantly, this week’s Federal Reserve survey of senior bank-loan officers provided confirmation both that bankers have become much more cautious in lending and that borrowers have lost enthusiasm for taking on more debt. Moreover, any indication of general tightening of bank Credit takes on major significance today due to the seizing up and breakdown of Wall Street finance. Inarguably, what erupted last year in subprime has now evolved into a broad-based and severe Credit tightening. Notably, 80% of banks tightened Credit for commercial real estate lending and better than a third tightened commercial and industrial (C&I) Credit. It is worthwhile excerpting directly from the Fed’s survey:
“In the January survey, significant numbers of domestic respondents reported that they had tightened their lending standards on prime, nontraditional, and subprime residential mortgages over the past three months; the remaining respondents noted that their lending standards had remained basically unchanged. About 55% of domestic respondents indicated that they had tightened their lending standards on prime mortgages, up from about 40% in the October survey. Of the thirty-nine banks that originated nontraditional residential mortgage loans, about 85% reported a tightening of their lending standards… compared with about 60% in October…”
“About 60% of domestic respondents…indicated that demand for prime residential mortgages had weakened over the past three months, and 70% of respondents…noted weaker demand for nontraditional and subprime mortgage loans over the same period… About 60% of domestic respondents indicated that they had tightened their lending standards for approving applications for revolving home equity lines… Regarding demand, about 35% of domestic banks…reported that demand for revolving home equity lines of credit had weakened over the past three months.”
“About 10% of respondents -- up from about 5% in…October -- reported that they had tightened their lending standards on credit card loans… About 30% of respondents noted that they had reduced the extent to which such loans were granted to customers who did not meet credit-scoring thresholds… About 15% of domestic banks -- up from about 5% in…October -- indicated a diminished willingness to make consumer installment loans… About one-third of domestic banks -- up from about one fourth… -- reported that they had tightened their lending standards on consumer loans other than credit card loans… Regarding loan demand, about 35% of domestic institutions, on net, indicated that they had experienced weaker demand for consumer loans of all types…”
“About 80% of domestic banks reported tightening their lending standards on commercial real estate loans over the past three months, a notable increase from the October survey. The net fraction of domestic banks reporting tighter lending standards on these loans was the highest since this question was introduced in 1990…”
“In the January survey, one-third of domestic institutions…reported having tightened their lending standards on C&I loans to small as well as to large and middle-market firms over the past three months. Significant net fractions of respondents also noted that they had tightened price terms on C&I loans to all types of firms… Compared with domestic institutions, larger net fractions of U.S. branches and agencies of foreign banks reported having tightened lending standards and terms on C&I loans…”
With Wall Street’s securitization markets basically closed for business and even bank Credit Availability now tightening meaningfully, January’s collapse in the ISM Non-Manufacturing index should have been less of shock to the markets. After all, the services-based U.S. economy is primarily finance-driven, and our financial system is floundering.
The ISM Non-Manufacturing index unexpectedly sank 12.5 points to 41.9 (below 50 indicates contraction), the lowest level since October 2001. Expectations had the index slipping only a point or so to a still expansionary 53. Instead, New Orders dropped more than 10 points to 43.5, while the Prices component dipped ever so slightly to a disconcerting 70.7. Alarmingly, the Non-Manufacturing Employment index sank to 43.9, the lowest reading since the 43.9 registered in the month subsequent to the 9/11 terrorist attacks. This report corroborates the recent dismal jobs report, where “Service-Producing” job growth collapsed from December’s 143,000 (5-month average growth of 138,000) to January’s 34,000.
It is worth noting that, despite the bursting of the technology Bubble, the Non-Manufacturing index remained above 50 (at 50.7) through February 2001. But as Credit problems engulfed the corporate debt market, the Employment component proceeded to drop 6.4 points in 11 months to fall to 44.3 by early 2002. Remarkably – and indicative of breadth and severity of the unfolding Credit Crises – the Non-Manufacturing Employment index sank 7.9 points just last month. Meanwhile, the ISM Manufacturing Employment index declined 4.7 points in two months to its lowest level since September 2003. The Bubble Economy is now clearly suffocating from insufficient Credit. In particular, the unfolding Corporate Credit Crisis has begun to impact jobs, incomes and the overall economy.
It was, as well, an eventful week for indications of the soundness of the U.S. and global financial systems. On the inflation front, major commodities indices (including the CRB and the UBS/Bloomberg Constant Maturity) surged to record highs. Platinum jumped 7% this week to a record on tight supplies and power shortages in South Africa. Lead gained 5%. Copper jumped 7.5% (biggest gain in almost a year), increasing y-t-d gains to almost 16%. Palladium rose to the highest price since 2002. Sugar rose 5% on Friday, and I’d be remiss not to note crude’s 4% one-day surge.
But when it comes to spectacular moves, wheat takes the cake. Prices surged to yet another record high (up 30% y-t-d), as forecasts have U.S. stockpiles falling to the lowest level since 1948. Global supplies are said to be the lowest since 1978. Alarmingly, wheat increased the 30 cent daily limit in Chicago trading for five straight sessions, with Bloomberg reporting this week’s 16% gain as the “biggest in history.” Prices are now up 140% y-o-y. Along for the ride, soybeans rose 4% this week to a near-record ( U.S. inventories at 4-yr low), increasing one-year gains to 80%. Corn prices gained 2% (having doubled in the past two years), also trading at record highs. Production and inventory concerns saw coffee prices rise 5.8% this week to the highest level since 1999. Cocoa gained 3.8% this week (37% 1-yr gain).
The question remains: How much will the Chinese, Indians, Russians, American consumers and others be willing to pay for wheat and other vital commodities? For energy? For stores of value such as gold, silver and the other (increasingly) precious metals in an age of unregulated, unrestrained, unanchored, electronic-based, securities-based, and market-driven global “money” and Credit. With trillions of dollar liquidity sloshing vagariously around the global financial “system”, there is clearly more than ample high-octane inflationary fuel to destabilize markets for myriad essential things of limited supply. And, increasingly, there is talk of problematic margin calls and derivative-related issues impacting commodities trading conditions. The talk is of trading dislocations and nervous “bankers” pulling away from the financing of hedging activities in various markets. Or, in short, we are witnessing a precarious ratcheting up of Monetary Disorder – in a multitude of key markets and on a global basis.
At the Heart of Monetary Disorder, we have a leveraged speculating community increasingly on the ropes. January was a tough month for the hedge fund community. In particular, it appears the (over-hyped) “long/short” (holding both long and short positions) and (over-hyped) “quant” funds had an especially tough go of it. To begin the New Year, last year’s favorite stocks (i.e. technology, emerging markets, energy, and utilities) were hammered, while the heavily shorted sectors have significantly outperformed (i.e. homebuilders, banks, retailers, “consumer discretionary,” and transports). The yen and Swiss franc (currencies traders had shorted to finance higher yielding “carry trades”) have rallied. Even the dollar has rallied somewhat. Many speculators have been (caught) short commodities, having expected negative ramifications from the bursting of the U.S. Credit Bubble. Others have been caught over-exposed to emerging equities and debt markets. And, increasingly, it appears various trades throughout the complex corporate Credit arena have run amuck.
Friday, various indices of corporate credit risk moved to record highs, including the previously stalwart “investment grade” sector. Leveraged loan prices fell to record lows late in the week, as talk of further bank and hedge fund liquidations captivated the marketplace. While the status of the (“monoline”) Credit insurers is now a central focus, behind the scenes there is increasing angst at the prospect for a disorderly unwind of various leveraged trading strategies in corporate Credits and Credit derivatives. “Synthetic” CDOs (collateralized debt obligations) – pools of Credit default swaps and other derivatives – are especially vulnerable and problematic for the system. In short, the Corporate Credit Crisis took a decided turn for the worse this week. There is, with the economy sinking rapidly and the leveraged speculating community faltering abruptly, little prospect at this point for stabilization. The downside of the Credit Cycle is attaining overwhelming momentum.
The Wall Street punditry seems to go out of its way to get things wrong. The latest talk is that the market will simply look over the “valley” and begin focusing on a recovery from what will be, at worst, a brief and mild recession. The relative strong performance of the banks, retailers, homebuilders, and transports is accepted as confirmation of the bullish view. I’ll instead take the view that the recent major squeeze in the heavily shorted stocks and sectors is only further destabilizing and indicative of dynamics troubling to the leveraged speculating community and the Credit system more generally. “Hedges” have stopped working, creating a backdrop of angst and forced liquidations.
Despite last year’s subprime collapse and mortgage turmoil, the leveraged speculating community overall chalked up another stellar year of performance. Actually, the “community” in total likely boosted returns with bets against subprime and mortgage Credit more generally. Certainly, the hedge funds profited nicely from shorts on the financial and consumer sectors. Ironically, the initial stage of the bursting of the Credit Bubble proved a favorable backdrop for many of the major players and the community in general. The deluge of industry inflows ran unabated through much of the year, a crucial dynamic that masked rapidly developing fragilities and vulnerabilities. These flows were surely critical in supporting speculative trading positions away from the mortgage bust.
In particular, I believe the general backdrop delayed a problematic unwind of leveraged and highly speculative positions in corporate Credits (securities, derivatives and other “structured products”). Shorting mortgage-related Credit last year provided a convenient mechanism for hedging corporate Credit and equity market risk. Meanwhile, the combination of profitable (mortgage bust-related) shorts and hedges – in concert with industry fund inflows – emboldened the speculators to press their (huge) bets on technology, energy, the emerging markets, global equities, and other speculative Bubbles. The relative resiliency of the U.S. corporate Credit market and global markets through 2007 played a critical role in delaying impending economic and stock market adjustment.
Well, I believe the dam broke in January. The leveraged players were hit with losses from all directions. Their long positions were immediately slammed with simultaneous bursting Bubbles round the globe. Meanwhile, a rush to unwind positions led to upward pressure on the heavily shorted sectors, only compounding the leverage speculating community’s predicament. Last year fostered an extraordinary dynamic of ballooning “crowded trades,” and January saw the bursting of this multifaceted Bubble.
The leveraged speculating community has suffered the occasional tough month – last August providing a recent case in point. Each time, however, performance quickly bounced back. In true Bubble fashion, each quick recovery from a setback emboldened all involved; industry fund inflows not only never missed a beat – they accelerated. Yet a strong case can be made today that this (historic) Bubble has now burst – that last year was the “last gasp” before succumbing to New Post-Credit Bubble Realities. I don’t expect performance to bounce back, while I do foresee a flight away from the leveraged speculating now beginning in earnest. With “crowded trades” unraveling virtually across the board, marketplace risk is now escalating significantly for leveraged strategies in general. Systemic liquidity issues and dislocated market conditions have created an environment where there is seemingly no place to hide.
Importantly, a leveraged speculating community “unraveling” would prove a death blow for myriad sophisticated trading strategies and risk models, with enormous ramifications for systemic stability. There are unmistakable “Ponzi Dynamics” involved here worthy of a few Bulletins.
Going forward, I expect a foundering leveraged speculating community to be At The Heart of Deepening Monetary Disorder. The initial victims appear the fragile global equities market Bubbles and the U.S. Corporate Credit market. Forced deleveraging of hedge fund corporate debt and derivatives is in the process of creating a massive overhang of securities to sell, in the process profoundly curtailing Credit Availability and Marketplace Liquidity throughout. The ramifications for our finance-based Bubble Economy are momentous. As an economic and financial analyst (as opposed to “fear-monger”), I feel it is imperative to highlight that it is more “technically” accurate to categorize the unfolding scenario in the historical context of an economic “depression” rather than “recession.” This is certainly not shaping up as a short-term inventory-led economic adjustment or “mid-cycle” slowdown. Instead, we have now entered the very initial stages of what will likely prove a deep, prolonged and arduous adjustment to the underlying structure of our Credit and economic systems.
Importantly, this week’s Federal Reserve survey of senior bank-loan officers provided confirmation both that bankers have become much more cautious in lending and that borrowers have lost enthusiasm for taking on more debt. Moreover, any indication of general tightening of bank Credit takes on major significance today due to the seizing up and breakdown of Wall Street finance. Inarguably, what erupted last year in subprime has now evolved into a broad-based and severe Credit tightening. Notably, 80% of banks tightened Credit for commercial real estate lending and better than a third tightened commercial and industrial (C&I) Credit. It is worthwhile excerpting directly from the Fed’s survey:
“In the January survey, significant numbers of domestic respondents reported that they had tightened their lending standards on prime, nontraditional, and subprime residential mortgages over the past three months; the remaining respondents noted that their lending standards had remained basically unchanged. About 55% of domestic respondents indicated that they had tightened their lending standards on prime mortgages, up from about 40% in the October survey. Of the thirty-nine banks that originated nontraditional residential mortgage loans, about 85% reported a tightening of their lending standards… compared with about 60% in October…”
“About 60% of domestic respondents…indicated that demand for prime residential mortgages had weakened over the past three months, and 70% of respondents…noted weaker demand for nontraditional and subprime mortgage loans over the same period… About 60% of domestic respondents indicated that they had tightened their lending standards for approving applications for revolving home equity lines… Regarding demand, about 35% of domestic banks…reported that demand for revolving home equity lines of credit had weakened over the past three months.”
“About 10% of respondents -- up from about 5% in…October -- reported that they had tightened their lending standards on credit card loans… About 30% of respondents noted that they had reduced the extent to which such loans were granted to customers who did not meet credit-scoring thresholds… About 15% of domestic banks -- up from about 5% in…October -- indicated a diminished willingness to make consumer installment loans… About one-third of domestic banks -- up from about one fourth… -- reported that they had tightened their lending standards on consumer loans other than credit card loans… Regarding loan demand, about 35% of domestic institutions, on net, indicated that they had experienced weaker demand for consumer loans of all types…”
“About 80% of domestic banks reported tightening their lending standards on commercial real estate loans over the past three months, a notable increase from the October survey. The net fraction of domestic banks reporting tighter lending standards on these loans was the highest since this question was introduced in 1990…”
“In the January survey, one-third of domestic institutions…reported having tightened their lending standards on C&I loans to small as well as to large and middle-market firms over the past three months. Significant net fractions of respondents also noted that they had tightened price terms on C&I loans to all types of firms… Compared with domestic institutions, larger net fractions of U.S. branches and agencies of foreign banks reported having tightened lending standards and terms on C&I loans…”
With Wall Street’s securitization markets basically closed for business and even bank Credit Availability now tightening meaningfully, January’s collapse in the ISM Non-Manufacturing index should have been less of shock to the markets. After all, the services-based U.S. economy is primarily finance-driven, and our financial system is floundering.
The ISM Non-Manufacturing index unexpectedly sank 12.5 points to 41.9 (below 50 indicates contraction), the lowest level since October 2001. Expectations had the index slipping only a point or so to a still expansionary 53. Instead, New Orders dropped more than 10 points to 43.5, while the Prices component dipped ever so slightly to a disconcerting 70.7. Alarmingly, the Non-Manufacturing Employment index sank to 43.9, the lowest reading since the 43.9 registered in the month subsequent to the 9/11 terrorist attacks. This report corroborates the recent dismal jobs report, where “Service-Producing” job growth collapsed from December’s 143,000 (5-month average growth of 138,000) to January’s 34,000.
It is worth noting that, despite the bursting of the technology Bubble, the Non-Manufacturing index remained above 50 (at 50.7) through February 2001. But as Credit problems engulfed the corporate debt market, the Employment component proceeded to drop 6.4 points in 11 months to fall to 44.3 by early 2002. Remarkably – and indicative of breadth and severity of the unfolding Credit Crises – the Non-Manufacturing Employment index sank 7.9 points just last month. Meanwhile, the ISM Manufacturing Employment index declined 4.7 points in two months to its lowest level since September 2003. The Bubble Economy is now clearly suffocating from insufficient Credit. In particular, the unfolding Corporate Credit Crisis has begun to impact jobs, incomes and the overall economy.
It was, as well, an eventful week for indications of the soundness of the U.S. and global financial systems. On the inflation front, major commodities indices (including the CRB and the UBS/Bloomberg Constant Maturity) surged to record highs. Platinum jumped 7% this week to a record on tight supplies and power shortages in South Africa. Lead gained 5%. Copper jumped 7.5% (biggest gain in almost a year), increasing y-t-d gains to almost 16%. Palladium rose to the highest price since 2002. Sugar rose 5% on Friday, and I’d be remiss not to note crude’s 4% one-day surge.
But when it comes to spectacular moves, wheat takes the cake. Prices surged to yet another record high (up 30% y-t-d), as forecasts have U.S. stockpiles falling to the lowest level since 1948. Global supplies are said to be the lowest since 1978. Alarmingly, wheat increased the 30 cent daily limit in Chicago trading for five straight sessions, with Bloomberg reporting this week’s 16% gain as the “biggest in history.” Prices are now up 140% y-o-y. Along for the ride, soybeans rose 4% this week to a near-record ( U.S. inventories at 4-yr low), increasing one-year gains to 80%. Corn prices gained 2% (having doubled in the past two years), also trading at record highs. Production and inventory concerns saw coffee prices rise 5.8% this week to the highest level since 1999. Cocoa gained 3.8% this week (37% 1-yr gain).
The question remains: How much will the Chinese, Indians, Russians, American consumers and others be willing to pay for wheat and other vital commodities? For energy? For stores of value such as gold, silver and the other (increasingly) precious metals in an age of unregulated, unrestrained, unanchored, electronic-based, securities-based, and market-driven global “money” and Credit. With trillions of dollar liquidity sloshing vagariously around the global financial “system”, there is clearly more than ample high-octane inflationary fuel to destabilize markets for myriad essential things of limited supply. And, increasingly, there is talk of problematic margin calls and derivative-related issues impacting commodities trading conditions. The talk is of trading dislocations and nervous “bankers” pulling away from the financing of hedging activities in various markets. Or, in short, we are witnessing a precarious ratcheting up of Monetary Disorder – in a multitude of key markets and on a global basis.
At the Heart of Monetary Disorder, we have a leveraged speculating community increasingly on the ropes. January was a tough month for the hedge fund community. In particular, it appears the (over-hyped) “long/short” (holding both long and short positions) and (over-hyped) “quant” funds had an especially tough go of it. To begin the New Year, last year’s favorite stocks (i.e. technology, emerging markets, energy, and utilities) were hammered, while the heavily shorted sectors have significantly outperformed (i.e. homebuilders, banks, retailers, “consumer discretionary,” and transports). The yen and Swiss franc (currencies traders had shorted to finance higher yielding “carry trades”) have rallied. Even the dollar has rallied somewhat. Many speculators have been (caught) short commodities, having expected negative ramifications from the bursting of the U.S. Credit Bubble. Others have been caught over-exposed to emerging equities and debt markets. And, increasingly, it appears various trades throughout the complex corporate Credit arena have run amuck.
Friday, various indices of corporate credit risk moved to record highs, including the previously stalwart “investment grade” sector. Leveraged loan prices fell to record lows late in the week, as talk of further bank and hedge fund liquidations captivated the marketplace. While the status of the (“monoline”) Credit insurers is now a central focus, behind the scenes there is increasing angst at the prospect for a disorderly unwind of various leveraged trading strategies in corporate Credits and Credit derivatives. “Synthetic” CDOs (collateralized debt obligations) – pools of Credit default swaps and other derivatives – are especially vulnerable and problematic for the system. In short, the Corporate Credit Crisis took a decided turn for the worse this week. There is, with the economy sinking rapidly and the leveraged speculating community faltering abruptly, little prospect at this point for stabilization. The downside of the Credit Cycle is attaining overwhelming momentum.
The Wall Street punditry seems to go out of its way to get things wrong. The latest talk is that the market will simply look over the “valley” and begin focusing on a recovery from what will be, at worst, a brief and mild recession. The relative strong performance of the banks, retailers, homebuilders, and transports is accepted as confirmation of the bullish view. I’ll instead take the view that the recent major squeeze in the heavily shorted stocks and sectors is only further destabilizing and indicative of dynamics troubling to the leveraged speculating community and the Credit system more generally. “Hedges” have stopped working, creating a backdrop of angst and forced liquidations.
Despite last year’s subprime collapse and mortgage turmoil, the leveraged speculating community overall chalked up another stellar year of performance. Actually, the “community” in total likely boosted returns with bets against subprime and mortgage Credit more generally. Certainly, the hedge funds profited nicely from shorts on the financial and consumer sectors. Ironically, the initial stage of the bursting of the Credit Bubble proved a favorable backdrop for many of the major players and the community in general. The deluge of industry inflows ran unabated through much of the year, a crucial dynamic that masked rapidly developing fragilities and vulnerabilities. These flows were surely critical in supporting speculative trading positions away from the mortgage bust.
In particular, I believe the general backdrop delayed a problematic unwind of leveraged and highly speculative positions in corporate Credits (securities, derivatives and other “structured products”). Shorting mortgage-related Credit last year provided a convenient mechanism for hedging corporate Credit and equity market risk. Meanwhile, the combination of profitable (mortgage bust-related) shorts and hedges – in concert with industry fund inflows – emboldened the speculators to press their (huge) bets on technology, energy, the emerging markets, global equities, and other speculative Bubbles. The relative resiliency of the U.S. corporate Credit market and global markets through 2007 played a critical role in delaying impending economic and stock market adjustment.
Well, I believe the dam broke in January. The leveraged players were hit with losses from all directions. Their long positions were immediately slammed with simultaneous bursting Bubbles round the globe. Meanwhile, a rush to unwind positions led to upward pressure on the heavily shorted sectors, only compounding the leverage speculating community’s predicament. Last year fostered an extraordinary dynamic of ballooning “crowded trades,” and January saw the bursting of this multifaceted Bubble.
The leveraged speculating community has suffered the occasional tough month – last August providing a recent case in point. Each time, however, performance quickly bounced back. In true Bubble fashion, each quick recovery from a setback emboldened all involved; industry fund inflows not only never missed a beat – they accelerated. Yet a strong case can be made today that this (historic) Bubble has now burst – that last year was the “last gasp” before succumbing to New Post-Credit Bubble Realities. I don’t expect performance to bounce back, while I do foresee a flight away from the leveraged speculating now beginning in earnest. With “crowded trades” unraveling virtually across the board, marketplace risk is now escalating significantly for leveraged strategies in general. Systemic liquidity issues and dislocated market conditions have created an environment where there is seemingly no place to hide.
Importantly, a leveraged speculating community “unraveling” would prove a death blow for myriad sophisticated trading strategies and risk models, with enormous ramifications for systemic stability. There are unmistakable “Ponzi Dynamics” involved here worthy of a few Bulletins.
Going forward, I expect a foundering leveraged speculating community to be At The Heart of Deepening Monetary Disorder. The initial victims appear the fragile global equities market Bubbles and the U.S. Corporate Credit market. Forced deleveraging of hedge fund corporate debt and derivatives is in the process of creating a massive overhang of securities to sell, in the process profoundly curtailing Credit Availability and Marketplace Liquidity throughout. The ramifications for our finance-based Bubble Economy are momentous. As an economic and financial analyst (as opposed to “fear-monger”), I feel it is imperative to highlight that it is more “technically” accurate to categorize the unfolding scenario in the historical context of an economic “depression” rather than “recession.” This is certainly not shaping up as a short-term inventory-led economic adjustment or “mid-cycle” slowdown. Instead, we have now entered the very initial stages of what will likely prove a deep, prolonged and arduous adjustment to the underlying structure of our Credit and economic systems.
8 February 2008
The Credit Crunch – In 2008 The Worst May Keep Getting Worse
By: Satyajit Das
2007 may come to associated with the start of the "big" credit crunch. 2008 has begun with a number of "unresolved" items. Hope of an early resolution seems to be fading. In the words of Lily Tomlin, the American comedian: "Things are going to get a lot worse before they are going to get worse."
The total level of sub-prime losses is still far from clear. Based on current trading levels of ABS indices, estimates of losses range between US$ 150 and 400 billion, not all of which has been written off to date.
Interest rates on large volumes of sub-prime mortgages – estimated at around US$ 900 billion are due to reset by end 2008. Interest rates and repayments will rise significantly. The impact on delinquencies and losses are unknown. The rate reset freeze plan (which has not been in the news since being announced) and its impact are also still unclear.
As America's mortgage markets began unravelling, economists initially pointed to sub-prime mortgages issued to low-income, minority and urban borrowers. Closer analysis reveals risky mortgages in nearly every corner of the USA. Analysis by The Wall Street Journal indicates that from 2004 to 2006, when home prices peaked in many parts of the country, more than 2,500 banks, thrifts, credit unions and mortgage companies made a combined US$1.5 trillion in high-interest-rate, high risk loans. The potential losses on these loans are unknown.
There are also emerging concerns in the US$915 billion credit card debt markets. Credit card providers are all boosting loan loss provisions. There is anecdotal evidence that cash strapped mortgagors are using credit cards to make mortgage payments. Analysts expect credit card delinquencies to increase if consumers unable to use home-equity lines of credit to pay off their credit card debt start running up higher card debt. A number of banks have begun to boost reserves against anticipated losses.
Financial institutions have already incurred losses of over US$100 billion. A substantial volume of assets is likely to return onto bank balance sheets as off-balance sheet structures and hedge funds are forced to sell. The total amount to be re-intermediated by banks may be in the range of US$1 to 2 trillion. This will make substantial depends on bank liquidity and capital.
There are already signs that the major banks are hoarding liquidity in anticipation of the return of assets. They will also inevitably have to raise substantial amounts of capital. In the second half of 2007 commercial and investment banks raised US$83 billion in equity. This was an increase of more than 20% on the corresponding period in 2006.
Asset backed conduit vehicles and SIVs ("Structured Investment Vehicles") may need to sell assets as they breach their rules. Hedge funds face substantial redemption requests in the coming months. This will exacerbate the demands on bank capital and liquidity.
The credit issues have widened beyond banks, investors and hedge funds active in structured credit.
In the conventional mortgage market, Fannie Mae (Federal National Mortgage Association) and Ginnie Mae (Government National Mortgage Association) have recorded losses and been forced to raise capital. This suggests that the problems in the housing market are deep seated.
Mortgage insurers and monoline insurers have suffered serious collateral damage. A significant downgrade in the rating of insurers will be particularly damaging. It will affect around US$ 2.5 trillion of municipal bonds guaranteed by the insurers. It will also affect other bonds wrapped by the insurers. This may trigger further selling pressure and contribute to decline in prices as well as absorbing increasingly scarce liquidity.
There is already talk of a plan to re-capitalise the insurers. The sum being talked about is between US$15 and US$200 billion. It is not clear where the substantial amount of capital needed to recapitalise the banks and financial guarantors is going to come from.
The US$ 2 trillion of European pfandbrief or covered bond markets have also experienced liquidity problems.
The sub-prime model is also used for leveraged funding in private equity, infrastructure and commercial property financing.
US$300 billion of leveraged finance loans made by banks is still effectively "orphaned" - they can't be sold off. In late 2007, there were signs that the loan logjam was easing. Underwriters pointed to some sales of risky assets.
Caution is needed in interpreting these developments. Firstly, the sales only related to the less risky tranches and loans. The more risky exposures remain with underwriters for the moment. There are also concerns that some of the sales were not "genuine". The banks had provided the buyers with a variety of favourable terms including the ability to sell the loans back to them at a future date at a guaranteed price. Alternatively, MFN ("most favoured nation") clauses mean that the selling bank will need to compensate buyers if loans are sold at lower prices during an agreed time from the initial sale. Current prices indicate steep discounts will be needed to shift the paper to investors.
The crisis shows signs of spilling over into other markets. In Great Britain, Ireland, Spain, Australia and other markets strong house price appreciation similar to the US led to similar growth in mortgage and real estate lending. If economic growth slows and housing prices fall then similar problem may emerge in those economies as well.
There are already signs that there will be significant litigation against the banks. There may also be regulatory investigations and potentially prosecutions. State Street recently provided over US$250 million against future litigation claims. The total cost of all this is still unknown.
The financial elements of the credit crunch are becoming clearer - higher credit costs; lower availability of debt; forced de-leveraging of hedge funds and conduits/ SIVs; significant capital losses for financial institutions. The real economy effects will be slower to emerge. Higher credit costs and tighter credit standards will affect all business.
The US housing industry is badly affected with no immediate prospect of a quick recovery. The outlook for US house prices is poor. Growth forecasts for the US have already been lowered. The dreaded "R" word – recession – is now being talked about.
The fall in asset prices has "wealth" effects. Then there are employment and income effects. Wall Street has already issued "pink slips" by the thousands as banks and mortgage lenders shed staff. More will be issued in 2008 as the slowdown in the financial services business continues.
A slowdown in economic activity will affect many financial transactions. Corporations with significant debt face refinancing challenges. The shares of an Australian real estate firm – Centro – fell over 80 % as a result of difficulties in refinancing its short-term debt secured over commercial property, some of it in the US. Commercial property financing has slowed, the cost has risen significantly and terms have tightened affecting commercial property prices.
Private equity deals in recent years were predicated on a combination of a growing economy, cheap debt and a buoyant stock market allowing the quick resale of the company. Weaker earnings and more expensive debt could lead to losses and distressed sales over time. Recent private equity deals also face re-financing risk. Some US$ 150 billion of leveraged loans come due in 2008. Financial engineering techniques – toggles, pay-in-kind securities and covenant-lite (lack of maintenance covenants) structures – will delay the problem but probably cannot forestall the inevitable rise in defaults.
Non-investment grade bond issuance over the last few years was concentrated in the weaker credit categories and is vulnerable to deterioration in economic conditions. Since 2003, 42% of bonds of high yield bonds issues were rated B- or below. In the first 6 months of the year that percentage rose to around 50%. Some commentators believe that the losses of corporate bonds will peak between 10% and 20% leading to significant losses.
Warren Buffet once observed that: "it's the weak link that snaps you…in financial markets, the weak link is borrowed money." In the present credit crisis, all companies and business models reliant on debt – especially cheap and abundant debt - look vulnerable.
The real economy effects will feedback into the financial markets. A weaker economy are likely to see higher levels of actual defaults. This may set off new phases of the crisis.
CDS contracts used to hedge credit risk have significant documentation and operational problems. If actual defaults in markets increase and the contracts do not function as intended then there would be additional complexity. A significant volume of CDS contracts is with hedge funds and other investors secured by collateral agreements. The counterparty and performance risk of enforcing the contracts may be challenging. It is important to note that the structured credit market in its current form is substantially untested. If defaults rise and the CDS contracts prove to be difficult to enforce then bank exposures to losses may well much higher than anticipated.
Credit markets remain gloomy. Unlike their equity and emerging market cousins, they are waiting anxiously for "the shoes to fall", except it seems that the shoes are from Imelda Marcos' collection.
At the time of publication the author or his firm did not own any direct investments in securities mentioned in this article although he may be an owner indirectly as an investor in a fund.
Satyajit Das is a risk consultant and author of Traders, Guns & Money: Knowns and Unknowns in the Dazzling World of Derivatives (2006, FT-Prentice Hall).
2007 may come to associated with the start of the "big" credit crunch. 2008 has begun with a number of "unresolved" items. Hope of an early resolution seems to be fading. In the words of Lily Tomlin, the American comedian: "Things are going to get a lot worse before they are going to get worse."
The total level of sub-prime losses is still far from clear. Based on current trading levels of ABS indices, estimates of losses range between US$ 150 and 400 billion, not all of which has been written off to date.
Interest rates on large volumes of sub-prime mortgages – estimated at around US$ 900 billion are due to reset by end 2008. Interest rates and repayments will rise significantly. The impact on delinquencies and losses are unknown. The rate reset freeze plan (which has not been in the news since being announced) and its impact are also still unclear.
As America's mortgage markets began unravelling, economists initially pointed to sub-prime mortgages issued to low-income, minority and urban borrowers. Closer analysis reveals risky mortgages in nearly every corner of the USA. Analysis by The Wall Street Journal indicates that from 2004 to 2006, when home prices peaked in many parts of the country, more than 2,500 banks, thrifts, credit unions and mortgage companies made a combined US$1.5 trillion in high-interest-rate, high risk loans. The potential losses on these loans are unknown.
There are also emerging concerns in the US$915 billion credit card debt markets. Credit card providers are all boosting loan loss provisions. There is anecdotal evidence that cash strapped mortgagors are using credit cards to make mortgage payments. Analysts expect credit card delinquencies to increase if consumers unable to use home-equity lines of credit to pay off their credit card debt start running up higher card debt. A number of banks have begun to boost reserves against anticipated losses.
Financial institutions have already incurred losses of over US$100 billion. A substantial volume of assets is likely to return onto bank balance sheets as off-balance sheet structures and hedge funds are forced to sell. The total amount to be re-intermediated by banks may be in the range of US$1 to 2 trillion. This will make substantial depends on bank liquidity and capital.
There are already signs that the major banks are hoarding liquidity in anticipation of the return of assets. They will also inevitably have to raise substantial amounts of capital. In the second half of 2007 commercial and investment banks raised US$83 billion in equity. This was an increase of more than 20% on the corresponding period in 2006.
Asset backed conduit vehicles and SIVs ("Structured Investment Vehicles") may need to sell assets as they breach their rules. Hedge funds face substantial redemption requests in the coming months. This will exacerbate the demands on bank capital and liquidity.
The credit issues have widened beyond banks, investors and hedge funds active in structured credit.
In the conventional mortgage market, Fannie Mae (Federal National Mortgage Association) and Ginnie Mae (Government National Mortgage Association) have recorded losses and been forced to raise capital. This suggests that the problems in the housing market are deep seated.
Mortgage insurers and monoline insurers have suffered serious collateral damage. A significant downgrade in the rating of insurers will be particularly damaging. It will affect around US$ 2.5 trillion of municipal bonds guaranteed by the insurers. It will also affect other bonds wrapped by the insurers. This may trigger further selling pressure and contribute to decline in prices as well as absorbing increasingly scarce liquidity.
There is already talk of a plan to re-capitalise the insurers. The sum being talked about is between US$15 and US$200 billion. It is not clear where the substantial amount of capital needed to recapitalise the banks and financial guarantors is going to come from.
The US$ 2 trillion of European pfandbrief or covered bond markets have also experienced liquidity problems.
The sub-prime model is also used for leveraged funding in private equity, infrastructure and commercial property financing.
US$300 billion of leveraged finance loans made by banks is still effectively "orphaned" - they can't be sold off. In late 2007, there were signs that the loan logjam was easing. Underwriters pointed to some sales of risky assets.
Caution is needed in interpreting these developments. Firstly, the sales only related to the less risky tranches and loans. The more risky exposures remain with underwriters for the moment. There are also concerns that some of the sales were not "genuine". The banks had provided the buyers with a variety of favourable terms including the ability to sell the loans back to them at a future date at a guaranteed price. Alternatively, MFN ("most favoured nation") clauses mean that the selling bank will need to compensate buyers if loans are sold at lower prices during an agreed time from the initial sale. Current prices indicate steep discounts will be needed to shift the paper to investors.
The crisis shows signs of spilling over into other markets. In Great Britain, Ireland, Spain, Australia and other markets strong house price appreciation similar to the US led to similar growth in mortgage and real estate lending. If economic growth slows and housing prices fall then similar problem may emerge in those economies as well.
There are already signs that there will be significant litigation against the banks. There may also be regulatory investigations and potentially prosecutions. State Street recently provided over US$250 million against future litigation claims. The total cost of all this is still unknown.
The financial elements of the credit crunch are becoming clearer - higher credit costs; lower availability of debt; forced de-leveraging of hedge funds and conduits/ SIVs; significant capital losses for financial institutions. The real economy effects will be slower to emerge. Higher credit costs and tighter credit standards will affect all business.
The US housing industry is badly affected with no immediate prospect of a quick recovery. The outlook for US house prices is poor. Growth forecasts for the US have already been lowered. The dreaded "R" word – recession – is now being talked about.
The fall in asset prices has "wealth" effects. Then there are employment and income effects. Wall Street has already issued "pink slips" by the thousands as banks and mortgage lenders shed staff. More will be issued in 2008 as the slowdown in the financial services business continues.
A slowdown in economic activity will affect many financial transactions. Corporations with significant debt face refinancing challenges. The shares of an Australian real estate firm – Centro – fell over 80 % as a result of difficulties in refinancing its short-term debt secured over commercial property, some of it in the US. Commercial property financing has slowed, the cost has risen significantly and terms have tightened affecting commercial property prices.
Private equity deals in recent years were predicated on a combination of a growing economy, cheap debt and a buoyant stock market allowing the quick resale of the company. Weaker earnings and more expensive debt could lead to losses and distressed sales over time. Recent private equity deals also face re-financing risk. Some US$ 150 billion of leveraged loans come due in 2008. Financial engineering techniques – toggles, pay-in-kind securities and covenant-lite (lack of maintenance covenants) structures – will delay the problem but probably cannot forestall the inevitable rise in defaults.
Non-investment grade bond issuance over the last few years was concentrated in the weaker credit categories and is vulnerable to deterioration in economic conditions. Since 2003, 42% of bonds of high yield bonds issues were rated B- or below. In the first 6 months of the year that percentage rose to around 50%. Some commentators believe that the losses of corporate bonds will peak between 10% and 20% leading to significant losses.
Warren Buffet once observed that: "it's the weak link that snaps you…in financial markets, the weak link is borrowed money." In the present credit crisis, all companies and business models reliant on debt – especially cheap and abundant debt - look vulnerable.
The real economy effects will feedback into the financial markets. A weaker economy are likely to see higher levels of actual defaults. This may set off new phases of the crisis.
CDS contracts used to hedge credit risk have significant documentation and operational problems. If actual defaults in markets increase and the contracts do not function as intended then there would be additional complexity. A significant volume of CDS contracts is with hedge funds and other investors secured by collateral agreements. The counterparty and performance risk of enforcing the contracts may be challenging. It is important to note that the structured credit market in its current form is substantially untested. If defaults rise and the CDS contracts prove to be difficult to enforce then bank exposures to losses may well much higher than anticipated.
Credit markets remain gloomy. Unlike their equity and emerging market cousins, they are waiting anxiously for "the shoes to fall", except it seems that the shoes are from Imelda Marcos' collection.
At the time of publication the author or his firm did not own any direct investments in securities mentioned in this article although he may be an owner indirectly as an investor in a fund.
Satyajit Das is a risk consultant and author of Traders, Guns & Money: Knowns and Unknowns in the Dazzling World of Derivatives (2006, FT-Prentice Hall).
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