The Das of financial fracas

Published in The IndianWeekender.co.nz - http://www.indianweekender.co.nz/Pages/ArticleDetails/7/3242/New-Zealand/The-Das-of-financial-fracas
Apologies beforehand to the experts who will probably pick two dollar-sized holes in this article – the finance of commonsense has little research material to back it up. My advice to you would be not to peruse this article with any kind of seriousness.
IT takes a bloody Indian to state the obvious and no-one listens to him, anyway. Satyajit Das (his name could be translated as the servant of victory in truth) has that problem. He has things to say about how we do business, and no one seems to be listening closely.
Now, I have always been leery of the mechanisms that drive the stock market, especially the trading in points of a currency. I mean, the cent is the final basic unit of the dollar but when the stock market start trading in fractions of the cent, there is something wrong.
Most businesses see the benefit – for example, sell fuel at $2.12:97 and the .097 adds up per litre pretty quickly. We humans, on the other hand, can’t even buy anything for the 10 cents we get in change on the $9.90 purchase. Or the one cent or five cent we give away every time we buy something at $9.99 or $9.95. Our loose change, and fractions of loose change, could be making millions of dollars for others. Or maybe
not.
But seriously, it is no longer a case of save a penny towards a pound - for the penny has been sliced into slivers, where these slivers make millions of dollars for any one trading in hundreds of millions of dollars.
And trading on futures and derivatives is a twist on the adage “A bird in hand is worth two in the bush” – where the two birds in the bush are as tangible an asset as the one in your hand, as long as both parties accept it to be so. I mean, WTF: you haven’t planted the crop or mined the gold but you can have the cash up front because someone is willing to take the risk of paying you now in a bid to lock up the commodities market.
And this is not the loan you need to get a venture started, but the actual payment of a crop or mineral that will be produced some time in the future. It is like someone planted a cabbage patch and is paid for the crop in the ground, and the two crops he is still thinking of planting.
Mind you, my understanding of the finance world is limited, and it probably shows here, but commonsense says: plant the crop, mine the gold and then get the cash in hand. “Investing in the future” makes money only for the monied, so they made it legal to do so. And that is why credit is so easily available – your future is locked up just as commodities are.
The finance market thrived on these convoluted mechanism, still does and no one is going to stop them, even after the economic disasters of 2008. But Satyajit Das appears to be to banging his head against this brick and mortared wall hard enough to make a few cracks.
Das’ understanding of derivatives is overwhelmingly high – the likes of me will need to spend a decade trying to fully understand the ins and outs of what he knows.

But man, can he express what he knows effectively. He says things that the economist, the financier and probably the accountant think is blasphemy.
Das was recently in New Zealand to speak to the New Zealand Initiative, an independent public policy think tank supported by chief executives of major New Zealand businesses. He has some things to say:
On growth - that erudite mechanism that pushes us each quarter to do better than before - he says in his latest paper: “Today, growth has come to the end. The global economy has stalled.”
That is the last thing a CEO would want to hear. The whole economy is judged by its growth and any stalling in growth is seen as death looming. No body in their right mind is going to listen to that, not when the very future of your economy is based around having growth.
In a NZ Listener interview, Das pointed out how he is welcomed by many who seldom re-invite him to anything again once he has said his piece. In other word, he is a border-line pariah but there is no going past the fact of the matter that Das speaks on.
He puts the housing market on par with a belief in God: it is a blind faith exercised by people who have put a value to a basic need, dependent on the vagaries of zoning change and interest rates, and the skewered perception of a market artificially bolstered by “experts”. He used the word “rigged” to describe the housing market.
The retirement nest egg is a fallacy – you get to sell your house, live off the benefits in meaner dwellings and wait to die, after having lived so well in your prime.
And he sees no harm in NOT having a growth in the economy. That is pure sacrilege for the economists, who follow whatever school of economics which is presently in favour with them. Das laments the past 30 years, where growth has come from speculation, borrowed money and the unsustainable use of non-renewable resources.
To quote him in the NZ Listener interview: “I went to a place the other day that had five large plasma TVs – one in every room, including the bathroom, which was quite disconcerting.” Three people lived there. New Zealand, Das repeatedly stressed while he was here, was in a better position than many countries because it was a food producer. The problem of feeding the world, along with the problems of clean energy,
water conservation and even logistics – the fact that a lot of stuff is wasted before it can get to market – means there is scope for future growth to come from innovation and productivity gains, rather than being simply debt-fuelled growth. But he worries we have created an artificial demand for growth at any cost, without clear evidence that it makes us happier.”
Not only an artificial demand, but a twisted supply situation too. Big food producers keep demanding higher food production from their vassals but are not beyond destroying excess produce, for example, thousands of litres of milk on a regular basis, just to keep food prices where they want it. It is a skewered sort of free market when you have to destroy produce to curtail supply – not a true supply-demand mechanism at all.
And adding to the financial fiasco is the reliance on debt-driven consumption to generate economic growth. All of the situations above, according to Das, are fallacies of the highest order.
Given the resource constraints, unbridled consumerism and the keening after growth in all sectors, Das sees mayhem in our near future. Mayhem far greater than we have experienced in this generation. Imagine the Great Depression and multiply by a factor of four – four because of the present population is quadruple that of 1923; for resources that will probably last four months if all production were to halt immediately and for four months/defaults until debts are called in, leading to the collapse of the credit sector. And for four years in which the world could revert to post-WWII conditions once economies collapse when/if we have “great” depression.
All of which is on the radar of modern economists but only as worst-case scenarios which can be averted ‘easily’ by any amount of Plan Bs to combat any disparities their calculation can throw up.
In other words, all is good, all is been taken care of and people like Das are “doomsters” which, Das readily admits, is what he is. All is good because there is a calculation out that will befuddle enough people and allow the financiers to carry on what they were doing – robbing Paul to pay Peter who will pay Simon who pays them so they can buy a future which doesn’t exist presently.
So, here is a former banker, who hobnobs in with top-notch financiers and cabinet ministers, who has a message of doom and gloom for world governments, with so much weight behind his message but who is tolerated only because he has an alternative spin: “It is good to hear the other side, only because it shows how we are doing great with what is already in place.”
Even the NZ Listener article - which was well-written - dwelt more on Das the character and what makes him tick, than on his actual message, proving again that even financial articles in magazines need that spin to sell copy. And that spin is easily provided by eccentric characters like Das (and if you play enough on the eccentricities, you can make good copy).
Das is presently somewhat of a lone voice in the wilderness, with messages which makes good copy for financial magazines looking for the alternative angle, who has garnered a small but solid band of adherents (count me in) but has little effect on arrogant financiers and/or the finance industry.
In the NZ Listener interview, Das pulled no punches in describing financiers: “Finance has become more important than it ever has in the last 30 years. I often see finance as a supporting function to the real economy. Unfortunately, that has been flipped.”… “They (financiers) think they are actually better than they are and, more importantly, they think they are outside the rules because they are the only
people who can make the world work; they understand this stuff and nobody else does.”
Then, we must be grateful that there is someone out there willing to swim against the current, who is willing to take up the cudgel against the monetary mammoths, the fiscal fossils and the artful artifices that is the finance industry.
Only thing: he is a bloody Indian and no one’s going to really listen to him, are they?
* Satyajit Das blogs here: http://www.economonitor.com/blog/author/sdas3/