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Mandelbrot Beats Economics in Fathoming Markets

Mark Buchanan, Bloomberg
The possible collapse of the European monetary union, at least in its current form, brings home the truth that there’s little in economics that is certain. We’re again “thinking the unthinkable,” as we were a few years ago when we suddenly realized that financial engineering hadn’t banished financial crises, and that 70 years of relative stability since the Great Depression didn’t guarantee a thing.

It seems that we’re complete suckers for the illusion of certainty and the seeming unlikelihood of the unthinkable, even though financial and economic history is one long string of crises. This time always seems different, until it turns out not to be.

Nothing in mainstream “neoclassical” finance theory explains these persistent crises. Almost without exception, economists since Adam Smith have viewed economic systems as being in balance or equilibrium, and as having a natural tendency to return there after any disturbance. In this view, crises can be understood only as anomalies, the consequences of unusual outside shocks.

All this makes for tidy and comforting theory, with simple mathematics, but it fails utterly to account for the most basic market dynamics
(5 December 2011)

OECD inequality report: countries across the developed world are getting less equal

Simon Rogers, Guardian
Inequality across the world is rising fast, says a new report out today from the OECD which shows it getting worse.

It is getting worse in the US, where the country’s inequality score has risen in recent years. The report says:

There was a rise in the share of top-income recipients in total gross income in the three decades from 1980 to 2010 in all countries, with considerable variation from country to country. It was most marked in the United States: prior to the onset of the financial and economic crisis in 2008, the share of the richest 1% in all income reached close to 20%. However, it was also large in a number of other English-speaking countries (Australia, Canada, Ireland and the United Kingdom). Elsewhere, increases tended to be greater in the Scandinavian and Mediterranean countries than in Continental European countries

It’s particularly bad in the UK where the average income of the richest 10% of earners in the UK was almost twelve times that of the bottom 10% of the population by 2008, up from eight times in 1985 and above the European ratio of nine to one.

Author of the report Michael Forster says:

Income inequality has risen to a record level over the past 25 to 30 years, although it has increased in both low and high income economies alike”

(5 December 2011)

The Occupy Wall Street bank

OWS, Alphaville (blog), Finanacial Times (UK)
Presented below is a note prepared for the December 4th meeting of the Occupy Wall Street General Assembly by its alternative banking working group. We present it – without comment – as a document for understanding the aims of OWS (as per John Gapper’s recent column).
-FT blogger

This note has been prepared by the alternative banking working group of the Occupy Wall Street (OWS) movement. The note is for discussion with the OWS movement and more broadly.

The purpose of this note is to describe the characteristics of an ideal bank that embodies the values of the OWS movement. The current banking system lies at the heart of our current economic crisis of increasing volatility and inequality. To change that system, we need to replace it with a better bank. What would be the characteristics of this bank?

None of these features is new, and many are already evident in credit unions, community banks and “mutuals”. But our purpose is to imagine something that might have a broader reach and impact – that might transform the banking system, and thus, by its example and through its operations, potentially create an economy that is fairer, more inclusive, democratically managed and stable.

1. Democratic – all customers would own the bank, and have an equal say in its governance, regardless of the amount of money in their accounts. Employees – or rather partners – might be co-owners of the bank, forming a co-operative.

2. Accessible – the bank’s services would be accessible to all, and in particular the poor, who are often excluded from today’s banking system, thus making them vulnerable, for instance, to predatory lending. Ideally, the bank would be available to anyone in the country, and perhaps one day, the world.

3. Stable – the bank would eschew the risky practices of the for-profit banks that have damaged the world economy (affecting particularly the poor) and perpetuate systemic risk. Instead, it would operate in a way to minimize risk, for instance by mutualising all its liabilities in a manner suggested in Laurence Kotlikoff’s concept of “Limited Purpose Banking”.

4. Non-profit – the bank would be run for the benefit of its customers and employees. Any profit would be returned to customers in the form of cheaper loans or other services, or pro bono services – such as interest-free loans – for those in dire need. Without the need to generate profits or maintain a high stock price, the bank could offer more competitive services than the for-profit banks, thereby contributing to the next characteristic. …
(5 December 2011)
The Financial Times is listening to you, OWS! -BA

‘Crowdfunding’ Legislation Would Allow Businesses And Start-Ups To Use Internet To Find Investors, Access More Capital

Sen. Scott Brown, Press Release
Scott Brown Bill Seeks To Help Small Businesses Capitalize On Facebook Era

Washington, DC – U.S. Senator Scott Brown (R-MA) has introduced the Democratizing Access to Capital Act [S. 1791], a bipartisan jobs bill that will allow small businesses, entrepreneurs and start-ups to use the internet to raise capital from a wide range of ordinary investors—a concept commonly referred to as “crowdfunding.” H.R. 2930, a measure similar to Senator Brown’s, passed the House on November 3, 2011, with 407 votes. Senator Brown issued the following statement on the introduction of his crowdfunding bill:

“At a time when technology and social networks are shaping our daily lives and driving our economy to new frontiers, the small business and start-up communities are stuck with investor regulations that predate the first computer. With these fossil-like rules tying down our entrepreneurs, it’s no wonder a lasting economic recovery has been so hard to achieve.

“This bipartisan jobs bill seeks to replace outdated restrictions so that small businesses have new ways to access capital and can more effectively compete in the global marketplace. It cuts the red tape that prevents small businesses from connecting with investors and, while retaining important investor protections, opens the door for more Americans to invest in new companies and their cutting edge ideas. If we pass this bill, opportunities to invest in the next Facebook or Google won’t be limited to the most affluent Americans. Overall, this jobs bill will significantly impact employment, both now and in the long run, and with the President and House of Representatives on board, I strongly urge the Senate to seize this opportunity.”


Introduced by Senator Brown, S. 1791 provides exemptions from outdated Securities and Exchange Commission legal hurdles that restrict entrepreneurs’ access to capital, while instituting protections for investors that will build confidence in new, innovative capital raising methods. It would help promising businesses raise up to $1 million annually—with individuals able to invest up to $1,000—without the involvement of large Wall Street financial institutions, providing a more open and democratic financial system. …
(9 November 2011)
Seems like a good idea. Anybody know more about the bill?

Sen. Scott Brown’s office is currently being occupied by protestors. Other representatives were also visited by protestors.

The Other 99 Percent: How the US Compares

Salvatore Babones, IPS Blog
The other 99 percent fare much worse in the United States than in any other developed country.

One reason why the Occupy Wall Street movement grabbed the world’s attention was its protest against the injustices of 21st century capitalism. The Occupiers focused on the fact that “the other 99 percent” — the non-wealthy majority of the population — are increasingly excluded from the world’s economies.

The other 99 percent didn’t benefit from the economic booms of the 2000s. The other 99 percent didn’t cause the global financial crisis. The other 99 percent paid for the bank bailouts of 2008. And yet, the other 99 percent are now being asked to suffer cuts in pay, benefits, and government services. Increasingly, the other 99 percent are saying “no.”

Occupy movements have now sprung up in at least 20 countries, and probably more. They all speak, in one way or another, for the other 99 percent. But the other 99 percent means different things in different places.

In some countries, the other 99 percent are truly oppressed. In others, they manage reasonably well.
(5 December 2011)