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Brexit as Black Swan

black swan

The Brexit referendum was engineered by and due to a split in the Conservative Party. No one expected it to win. Insanely, neither Conservatives or Labour had contingency plans for what to do if Brexit won. Now Britain is a locomotive screaming down a mountain pass, out of control, because the engineer and conductor are too busy arguing to be pay attention. Or at least that what it seems like to me in the States, where we have much the same problems, even as they aren’t nearly as pronounced (yet.)

Yes, racists voted for Brexit because they want those horrid immigrants out. Some Brexiters probably didn’t know what they were voting for. But many more almost certainly did. These would be people who are getting screwed by deliberately out-of-touch governments in cahoots with often corrupt financial interests.

Brexit is a true black swan. Nobody in the mainstream, including the Leave camp, saw it coming. Even now, based on the analysis being written, few people understand why it won. Why did it win? The cosmopolitan, financialized elites saw their incomes grow with globalization, but the deals they struck to “earn” those gains required throwing the bottom 60-70% of the country under the economic bus. In fact, nearly all of the fast rise out of poverty seen globally was achieved by economically damaging the working populations of the developed world (particularly in the US and the UK). That selfishness forged a bomb of anger that has been growing for years. A bomb that is now going off in the US and the UK. Strangely, nobody in the establishment is willing to do what is necessary to defuse this bomb. This means it will get much worse before it gets better.

Those in the establishment (and this certainly includes Trump) indeed have no clue. It may be they don’t know what to do, or are so comfy / corrupted they don’t want to do anything to upset their position and wealth. More probably, they don’t much care about the rest of us.

I think Brexit is a terrible idea. But with arrogant blowhards like Juncker doing things like banning English as an official EU language, it’s not hard to see why many are in revolt against the EU.

And yeah, it’s a black swan. The results are unforeseen, unpredictable, and will be massive.

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Brexit, Trumpism, and the collapse of legitimacy of governments

Brexit

By now it should be clear the Brexit referendum was engineered by and wasdue to a split in the Conservative Party. They never expected Brexit to win and are now backtracking as fast as possible. Brexit was a deeply cynical ploy and its leaders there, like Trump here, care not at all for the shafted middle and working class people they pretend to champion.

Sadly, the left was mostly asleep in Britain. Liberals both there and here are uncomprehending and mostly contemptuous of those supposed illiterates in fly-over areas who bizarrely just aren’t listening to their urban betters mansplain things to them.

Richard Seymour:

One reason for the success of the populist Right is that this debate was one structured as an argument within the Right, from the beginning. It is odd that in a debate where Remain clearly needed the Left in order to win the debate, that the Left was so utterly absent. That is in part due to the Left’s own inherited weaknesses and blind-spots. Most of the Left has unenthusiastically backed Europe for years, as a last-ditch defence against the British ruling class, but such a lack of enthusiasm was never going to translate into a rowdy call to the battle stations.

The problem at heart is the 2008 financial collapse is still a collapse for far too many. They haven’t recovered.

Both Brexit and Trumpism are the very, very, wrong answers to legitimate questions that urban elites have refused to ask for thirty years.

Since the 1980s the elites in rich countries have overplayed their hand, taking all the gains for themselves and just covering their ears when anyone else talks, and now they are watching in horror as voters revolt. It seems in both cases (Trumpism and Brexit), many voters are motivated not so much by whether they think the projects will actually work, but more by their desire to say FUCK YOU to people like me (and probably you).

The leaders of these movements (Trumpstick, Boris Johnson, Nigel Farage) have acted cynically for their own benefit. They’ve been willing to stir division and nationalism. And some of their supporters are real racists. The only solution for that small minority is to be crushed and thrown into the dustbin of history. But I refuse to believe this is the case for the larger group of supporters, that is, half of the UK or almost half of the US. They have some legitimate concerns, and the only outlet to vent they were offered was a terrible one.

The current crisis of authority is due quite a lot to a greedy monied class that cares not a whit about anything except amassing more money.

As Chris Hayes warned in his 2012 book Twilight of the Elites, “Given both the scope and depth of this distrust [in elite institutions], it’s clear that we’re in the midst of something far grander and more perilous than just a crisis of government or a crisis of capitalism. We are in the midst of a broad and devastating crisis of authority.”

It’s natural — and inevitable — that malignant figures will try to exploit this vacuum of authority. All sorts of demagogues and extremists will try to re-direct mass anger for their own ends

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Brexit vote was a Humpty Dumpty moment

humpty-dumpty

Things probably won’t ever be the same for Britain, even if Brexit doesn’t happens. The well has been poisoned. The EU has no reason to trust England (specifically England) on anything now. Further, Junker et al plan to make things as unpleasant as possible for the UK to prevent other countries from bolting. Look, Greece tried to leave, and has been relentlessly impoverished as punishment.

Breaking: Boris Johnson vows cooperation with EU, weaseling out by saying the 52-48 referendum vote was not overwhelming, so a single market is still a-ok but Britain wants none of those icky EU regulations. No word yet on whether this is acceptable to the EU, to those who voted Leave thinking Boris would keep his word to them, and of course, under such a system, Brits would have less protections, not more. Well done Brexiters, you’ve gotten nothing of what you wanted and lost some of what you have.

I thought the following would be a fine Monday morning post, however events are breaking too fast now. However, everything below is still quite valid.

Scotland and Northern Ireland may have veto power of the referendum and it’s unclear if Brexit could even pass British Parliament, as it must in order to be legal. This is shaping up as a monumental train wreck. George Soros says the EU is doomed and is probably massively shorting the pound and euro, as are other financial institutions.

It is becoming apparent that The Scottish Parliament and Northern Ireland Assembly may have veto power over Brexit per the House of Lords European Union Committee.

So we have a royal mess coming down the pipeline.

I now confess to having run out of clues. I have got no idea where this is all going to end up.

How unpleasant could the EU make things for Britain? Very.

The European Central Bank said Britain’s financial industry, which employs 2.2 million people, would lose the right to serve clients in the EU unless the country signed up to its single market – anathema to “Leave” campaigners, who are set to lead the next government in London.

London is the banking capital of the planet. It could easily lose that status now, with resultant huge unemployment and a big hit to the economy. Other icebergs loom too.

In the short term, the risk is a liquidity shock, or what’s more commonly called a Flash Crash. That could happen today, or it could happen next week if some hedge fund or shadow banking counterparty got totally wrong-footed on this trade and — like Bear Stearns — is taken out into the street and shot in the head.

In the long term, the risk is an acceleration of a Eurozone break-up, which is indeed a Lehman moment (literally, as banks like Deutsche Bank will become both insolvent and illiquid). There are two paths for this. Either you get a bad election/referendum in France (a 2017 event) or you get a currency float in China (an anytime event). Brexit just increased the likelihood of these Humpty Dumpty events by a non-trivial degree.

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IMF to Eurozone. Debt relief for Greece or we’re out

The IMF has issued an ultimatum to Eurozone finance ministers. Give Greece debt relief or we pull out of the bailout program.  However, IMF hardly the good guy here, demanding those lazy, shiftless Greeks need to do more “structural reform.” Clearly, reducing that nation to penury hasn’t achieved the proper amount of abject groveling yet (or the opportunity to buy assets for distressed prices.)

Cynics might opine this means “big Euro-zombie banks (DB in particular) now have little or no Greek government bond exposure.” Thus the bill will get dumped on taxpayers. How convenient. Yes, reducing debt will help Greece a bit. But the terms being imposed upon it seem designed to make it a broken vassal nation, independent in name only.

In a letter to all 19 ministers sent on Thursday night and obtained by the Financial Times, Christine Lagarde, the IMF chief, said stalemated talks with Athens to find €3bn in “contingency” budget cuts, which have gone on for a month, had become fruitless and that debt relief must be put on the table immediately, or risk losing IMF participation in the programme.

This is primarily aimed at Merkel and Germany.

This “purposely leaked” letter puts enormous pressure on German chancellor Angela Merkel who is already under severe strain due to her complete bungling of the refugee crisis.

Pick Your Poison

1. The German parliament only agreed to do this deal if the IMF was in it.
2. The Germany parliament only agreed to do this on the specific terms previously offered.

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SunEdison bankruptcy highlights renewable energy problems

solar photovoltaic
The biggest problem renewable energy faces is greedhead, reckless management taking on huge debt for the company in a delusional attempt to grow-or-die. This is aided and abetted by Wall Street and hedge funds who, at least initially, profit handsomely from underwriting the debt or buying it. Company executives get juicy stock options, so it’s in their personal self-interest to do whatever they can to boost the stock price. However, little or any of this is healthy for the long-term prospects of the company.

The latest renewable energy company to disintegrate is SunEdison because no one could ever have predicted that ginormous debt, questionable and opaque accounting practices, and a relentless focus on short-term goals like goosing the stock price to pay for mor acquisitions, could ever lead to disaster. Until it does. SunEdison stock has dropped from $32 last summer to 34 cents. Lots of the blameless employees will no doubt lose their jobs and vendors may go under too.

Renewable energy has a bright future, as long as the companies grow slowly and sanely. It can be done. It must be done.

There is a timeless element to SunEdison’s swift demise: an executive with an Icarus complex chasing a fast-growing market embarks on an aggressive strategy fueled by cheap debt. Soar. Crash. Burn. Repeat.

Yet the collapse raises a bigger question: Can renewable-energy companies be profitable? Can green make green?

The answer, of course, is yes. Just as soon as they cross over a fundamental hurdle: finding a strategy that actually works.

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