At the BBC website today, Stephanie Flanders (who is no slouch) has been analysing German behaviour over the EFSF in particular and the debt crisis in general. Her conclusion is a very pro-German one – ‘they’re doing it to bring democracy back to the EU’ being the Sun-conclusion.
I could be wrong, but this strikes me as an analysis for which there is little or no specific evidence. Where was Merkel when the Lisbon Treaty was being hammered through, and Ireland bullied for saying ‘No’? What was democratic about Merkel saying, once Cameron had been elected Prime Minister, “It will make no difference…we do not have to listen to the British”?
Nevertheless, Ms Flanders may have highlighted an important point here….but one that I think goes broader than a thing called democracy. It think that, more exactly, there’s a battle for sovereignty going on.
A dizzying gamut of people, institutions and Governments are already preparing for the aftermath of Crash 2. In a propagandic sense, the Crash will have a million post-rationalisations, and very few explanations that hold water. This is because, as I posted yesterday, ‘blame’ for the Crash can only really be laid at the door of our species – in its fundamental wiring (which politicos try so often to ignore) and the cultural mores that wiring has developed for us.
But other plans are also being laid. Whether one does or doesn’t accept the gold manipulation thesis, there is some prima facie evidence in the EU of secret restrictions on retail access to the stuff. This makes sense, and is an attempt to stop a hypothetical run on all banks in favour of buying the shiny metal. I think it overestimates the focus and IQ of the average citizen, but you can see why some unelected dweeb has suggested they do it.
However, in scanning and site-surfing for data over the last week, one particular trend seems to be ticking away in the background – if trends, like time-bombs, tick. This involves the quiet moves going on around the world to consolidate all types of bourses and exchanges into fewer and fewer hands.
We’ve already looked at the London Metal Exchange exploring the idea of selling itself. Last Friday, the LME announced that it had received various expressions of interest. Those thought to be in the chase include the Chicago Mercantile Exchange (CME) and the Intercontinental Exchange (ICE). Both exchanges have been on an acquisition track of late. The CME, now described as the world’s largest futures exchange, finally won supremacy in US precious metals futures trading (and broadened its energy markets) when it acquired the New York Mercantile Exchange (NYMEX) and its COMEX precious metals division in 2008. In fact, wherever you Google into metals, CME tends to pop up first or second.
On February 10, 2010, CME announced its purchase of 90% of the Dow Jones’s Indexes including the DJIA. Yesterday, it was reported by the Wall Street Journal to be ‘in advanced talks’ with McGraw to buy its S&P ratings subsidiary. (The former’s shareholders more or less ordered McGraw to dump S&P.) And then, just four hous ago – in what I find an astonishing development – The Journal led with insider CME knowledge that the game plan is ‘to combine stock-market icons such as the Dow Jones Industrial Average and S&P 500 into a joint venture that would give the firms more sway over investors and exchanges around the world’.
I always get worried when I see the phrase ‘more sway over’. It’s also used a lot by Newscorp, and it is otherwise spelt m-o-n-o-p-o-l-y. And oddly enough, the February 2010 deal to grab DJIA is a joint venture with…..Newscorp.
Bourses in general have been getting into bed together as if the sector was one big Roman orgy. In June of this year, only a shareholder revolt at Canadian exchange TMX stopped the London Exchange from merging with it.
There was a similar kerfuffle when NYSE Euronext and Deutsche Boerse AG announced their merger. The announcement came last February, and by June both sides admitted they’d had to ‘settle shareholder lawsuits challenging the $9.53 billion buyout of the parent company of the NYSE’. But this time, it wasn’t just the shareholders who kicked up: for as its full name suggests, the NYSE already owns the EU-based Euronext, which it acquired in 2006. Thus DB (which has EU support and 95% shareholder approval) will soon own the Euronext exchange. Sehr interessant, nicht?
The rationale – you’ll never guess – is economies of scale, but Deutsche’s been ratcheting this up along the way. On 12th September it forecast $545M of cost savings. But that clearly didn’t look big enough to some commentators, so two days later it was a billion-dollar saving. Somebody must’ve worked through the night digging up those extra cuts, and I’m sure DB and NYSE are very grateful to that person.
Take a look at some of the other link-ups in this increasingly small – dare I say, vicious? – circle. In August NYSE acquired Tokyo-based firm Metabit. This outfit ‘helps hedge funds and others trade as quickly and smoothly as possible on electronic markets across Asia and in Australia.’ Blimey, that sounds like a good idea for the ordinary investor: high speed hedge funds in dark pools…result!
Not to be outdone, three days ago The London Stock Exchange Group announced it is in exclusive talks with LCH.Clearnet Group regarding a p a majority stake in the London-based clearing house. This give the LSE more downstream control of transaction, and would also make the LSE a bigger competitor against the omnivorous NYSE Euronext axis.
Diversification, control of technology, up and down the stream, increasingly global, and access in fewer and fewer hands. Anybody else out there smell a stitch-up?
This isn’t just blogosphere monopoly conspiracy bollosks. Nasdaq OMX Group Inc. gave evidence on September 2nd to the European Union that a combined Deutsche Boerse AG and NYSE Euronext would “drive competing platforms out of the market.” They would give that sort of evidence, of course – and they are already the second- largest U.S. equity exchange operator, by the by. Oh, and they, um, did try to buy NYSE’s securities business earlier this year. And during 2006-7, they showed their deep commitment to open and free competition in the good ol’ ‘merican way by trying to buy the LSE. They failed….but sold the 28% shareholding they’d built up to the Dubai bourse. Ah.
Similarly, the Singapore Exchange’s approach to Australia’s ASX was rebuffed earlier this year….but you’ll find plenty of the MoU’s who think the Aussies should’ve gone ahead. However, not many of them are Australian. The fact is that, with DB and Euronext, TMS and the LSE, and Singapore and the ASX, nationalism showed that it is still a potent force. In fact, it is the only force standing in the way of consolidation. Market forces may yet prove to be stronger….and meanwhile, little you and me are, as usual, nowhere except unconsulted.
It’s happening too, by the way, in the all-electronic exchange sector. Yesterday, in what was described as a ‘friendly merger’, the CBOE Stock Exchange (CBSX), an all-electronic exchange created by the Chicago Board Options Exchange (CBOE) and four market-maker partners in 2007, is acquiring the National Stock Exchange (NSX), the latest exchange merger as more trading goes electronic. Terms weren’t disclosed. The transaction, which should complete fairly swiftly, would bring data systems and business operations from both exchanges together into one platform.
But here’s another recurring feature: the NSX is currently run by several stockbrokers….just as London’s LME is currently run by 92 partners. Many hands are being replaced by few. I’m not too wild about that idea either.
Given the proven capacity of the financial sector to cheat whenever possible – regulations or not – it don’t think I’m carping when I say that one can see enough ‘moral hazards’ lying down this road to keep Ethics & Safety busy for many years to come. But overall, the top potential ramifications (so far) I can foresee are these:
1. Manipulating markets illegally – already on the increase thanks to technology – is going to get a whole lot easier. A secret scam is more likely to remain secret if just one brokerage is involved, rather than 92.
2. If you’re any kind of Germaphobe, then there’s something here for you too. In case you hadn’t noticed, DB is the dominant partner in the NYSE Euronext merger. So the folks running the EU into the ground will soon, effectively, control the entire European stock market outside the UK. I’d imagine a few chaps at the LSE – given the Brussels propensity to land-grab – will be more than a little agitated about that.
3. There seems to be a lot of Chicagoness in all this. Never underestimate the power of the Mob to be invisibly legit. Never underestimate its desire for a monopoly. And never understimate the willingness of Newscorp to behave like the cosa nostra – with or without that venerable organisation’s involvement.
4. So I’m Rupert Murdoch and I own part of a group giving share prices and dolling out credit ratings. Now let me think….what on earth use might a happy coincidence like that be to a stainless innocent like me, whose business is going down the pan?
5. Once consolidation is down to, say three groups – centred in turn in Asia, Europe and the Americas, but global in their reach – then I’m afraid rising costs are – on a spectrum from certain to inevitable – going to go upwards. Effectively, without going through costly wealth managers, the small private investor of limited means is going to be shut out of the market. It’s highly likely that the architects of this plan figured we wouldn’t have any money left anyway…and they’re probably right. But you can sort of see why a warped genius like Bob Diamond at Barclays thinks he can build a global investment powerhouse without any need for street funds. Once that happens – believe me – there will be no limit to the madness these people might try and create.
6. There will be no Chinese Walls in these new supergroups. That is, they’ll say there are, but there won’t be. Say I’m doing business with a sovereign I know (from my own trades) is under attack. The contract is worth $8bn, and my ratings subsidiary looks set to downgrade them. If they don’t, of course, then the contract might run another two years. Do I just toddle down to that subsid and have a chat with the guys about this dilemma?
7. How do you regulate a shark swimming up and down from spring to ocean, and thence on to every market in the world? More to the point, do you dare?
That last point reflects perhaps my greatest fear about all this. I’m not up for all this Zionist Elders running the world bollocks, but I do get the impression that, bit by bit, power is migrating not just from West to East, but also from national governments to global monopolists. This needs a lot more debate and discussion, because apart from anything else, financial institutions and media conglomerates tell such whoppers on a daily basis, one has no real, audited grip on exactly how much real worth they’ve got. But after 2008, it’s perfectly obvious that JP Morgan, for example, went out a lot richer than it went in – otherwise Blair wouldn’t have his snout in there.
What we can already see in the US, the UK and the EU however is a succession of political bigwigs scared witless of telling the financial community to jump off the nearest pier. Bankers and sovereign lenders generally are not as stupid as they sometimes appear. In the EU, they’re refusing to take a haircut on their bad debts – yet they know that the result of that will be global meltdown. So why are they doing it? Because, I suspect, of that ancient Japanese proverb I just invented: ‘Government with no money not regulate. In fact, not do anything except what told.’
Going back to Ms Flanders at the top of this essay, I think she’s wrong on the democracy motive in Germany. But I do think the German political, central bank, constitutional elites and yes – even Merkel herself – suspect that evil forces want them bankrupt…and that those hobgoblins would be quite happy to create a global disaster if that’s what it took.
Helped along by Brownshirt overspending, the financial sector in the UK has effectively rendered the National Debt unmanageable. But Murdoch’s Times consistently says that banker-bashing should stop. In the US, Hank Paulson took $780bn off the American people at Tarp. What did they see for it, and where did it go? Go to the Fox News site and look for coverage of that mystery: you won’t find anything. In Greece nine years ago, Goldman Sachs gave a secret seminar to the Athens Government on How to Lie to Brussels and thus borrow yet more of our blood money. Why did bankers skilled in the art of loan targeting lend billions they thought they might very likely never see again?
As I say, I’m pretty damn sure there is no little Gnomic group in a sealed bunker somewhere under the Pacific working all this out: life is not a James Bond novel…it’s far more chaotic than that. But in seminars from Bilderberg to Jackson Hole, the top bananas meet and chew the fat about this stuff – some of them maybe 15-20 times a year. A lack of organised conspiracy does not mean a lack of cultural intent.
Everyone from the wackiest libertarian to the most dyed in the wool capitalist needs to keep an eye on this. It feels to me like the real folks are going to wind up getting screwed royally. And if you control the money and the mouthpieces, there’s not a lot the Resistance can do.