The Cost of (Equity) Capital

By James Kwak

For years, the world’s largest banks have been up in arms over threats by regulators to increase their (equity) capital requirements. Making banks hold more capital, they argue, will force them to reduce lending and will increase their cost of funding, making credit more expensive throughout the economy. One of the chief defenders of the megabanks has been Josef Ackermann, CEO of Deutsche Bank until last year and also chair of the Institute of International Finance, which claimed that higher capital requirements would reduce economic output by a whopping 3.2 percent.

Anat Admati and Martin Hellwig have been tirelessly debunking the myth that higher capital levels will force banks to curtail lending and torpedo the global economy, most recently in their excellent new book, The Banker’s New Clothes. Some of the arguments against higher capital requirements are simply incoherent, like the idea that banks would be forced to set aside capital instead of lending it. (Capital is the difference between assets and liabilities, not cash that you put somewhere for safekeeping; were it not for reserve requirements, which are something else, a bank could lend out 100 percent of the money it can raise.) 

Some contradict basic principles of corporate finance, like the idea that adding more equity capital increases banks’ cost of funding.* Yes, equity is usually more expensive than debt (meaning that investors demand a higher expected rate of return) because it is riskier (the range of possible outcomes is greater). But as you add equity, both the debt and the equity become less risky (since the firm is less leveraged), which reduces the cost of debt and the cost of equity. According to Modigliani-Miller, the two effects balance out perfectly, given a few assumptions.

In the real world, debt has a tax advantage (interest on debt is tax-deductible, while cash that is paid to shareholders or reinvested in operations is not), so increasing debt can reduce the overall cost of financing. But that’s a government subsidy. Lower leverage might increase banks’ funding costs, but would reduce taxpayer subsidies; to a first approximation, this would make society better off, not worse off (since subsidies are distorting).

Ackermann’s old bank was one of the most insistent that higher capital requirements were bad and that having to issue new stock was bad. Last summer, one of his successors said, “The bank aims to apply all capital levers at its disposal before considering raising equity from investors.”

Well, until last week. That’s when Deutsche Bank raised almost €3 billion by selling new stock. And what happened? Its stock closed up 3.7 percent.** (The S&P 500 was up 0.7 percent.)

What does that mean? Well, the big banks would have you believe that equity is “expensive,” so forcing banks to to issue more equity is bad for them and will increase their funding costs (which they will pass on to the rest of us). In this case, however, Deutsche Bank’s shareholders clearly thought that selling new stock was a good thing, since it made the bank  more valuable. And it couldn’t possibly have raised the banks overall cost of capital (including both debt and equity): if you change your capital structure, your operations don’t change, and the value of your company goes up, that means that your cost of capital must have gone down. In other words, Deutsche Bank was leveraged past its optimal debt-to-equity ratio, even leaving aside societal considerations, so issuing new equity (raising capital, in banking parlance) was a good thing. It made both their debt and their equity less risky, reducing their cost of capital.

Of course, the big banks aren’t going to stop whining about capital requirements anytime soon. This is just further evidence that the global economy—and the banks themselves—would be just fine with more capital.

So who would be worse off? Well, anyone whose bonus is tied (asymmetrically) to return on equity, for starters.

* Unfortunately, “capital” means something different in the banking world than in the corporate finance world. In the former, capital is the difference between assets and liabilities, and is a rough synonym for equity—rough because, by regulation, some types of liabilities are counted as some types of capital. In corporate finance, capital refers to financing in general; the weighted average cost of capital, for example, includes the cost of both debt and equity.

** That was the 4 pm NYSE close, which came after the announcement of the stock sale, but before the bank reported earnings.

71 thoughts on “The Cost of (Equity) Capital

  1. They shouldn’t even be getting over 10% interest on their loan portfoloi, more less be complaining about reserve requirements being to high. This just proves that if you give a banker an inch, he will want a mile.

  2. If bonuses were tied to the change in return on equity from period to period and were based on a percentage of the change, what behavior would we see? Of course, the standard managerial answer to this question presupposes that reductions in return on equity would result in payments by the management team to the institution for reductions as well as rewarding increases by payments to managers – symmetry. Eliminating this outcome from the realm of the possible, I think we can say that increasing financial or operating leverage is a way for current stockholders to steal money from future stockholders and from creditors. Bonuses without repayments are simply another form of looting, which is the point of your last sentence, of course (before the footnotes). Incentives that don’t go both ways don’t work as intended; they are counterproductive, i. e., worse than no incentives at all.

    One more comment: the effect of increased leverage on the WACC is depicted best by a u-shaped curve. That is to say, WACC decreases initially with increases in leverage to a point where the risk/reward ratio reaches an amount that makes lenders sufficiently uncomfortable to raise interest rates on their loans. At this point, the cost of additional debt (and frequently, the cost of renegotiated debt) increases at an increasing rate. The cost of equity also increases at an increasing rate. Of course the ceiling on these rates is the amount reflected by the rates charged by the lenders “of last resort”. Deutsche Bank’s recent equity-round results signals this change in investors’ and lenders’ assessments of their prospects (the risk of future cash flows) and the value of their assets, both ex post and ex ante (although we could only estimate the outcome ex ante and wouldn’t know it until after the issue).

    As usual, nice analysis, James.

  3. James Kwak writes “Anat Admati and Martin Hellwig have been tirelessly debunking the myth that higher capital levels will force banks to curtail lending and torpedo the global economy” And in that Admati and Hellwig are absolutely right… but that is only as long as the same higher capital levels apply equally to all.

    What James Kwak, and Simon Johnson, have consistently ignored in The Baseline Scenario, I do not know why, is that asking banks to hold more capital against what is perceived as risky than against what is perceived as safe, most definitely introduces distortions that will curtail bank lending to those in the real economy that we most need to have access to it.

    In fact it is so bad that I am even thinking about to hauling our bank regulators in front of the International Criminal Court of Justice in Hague, if only to demand an explanation.

    Financial Markets and the State: Long Swings, Risk, and the Scope of Regulation
    Capitalism and Society, Vol. 4, Issue 2, Article 2, 2009
    Roman Frydman and Michael D. Goldberg
    Leonard N. Stern School of Business – Department of Economics and University of New Hampshire
    Date Posted: January 30, 2013
    “Imperfect Knowledge Economics (IKE) approach…recognizes that policy officials and market participants must cope with ever-imperfect knowledge of the causal mechanism driving market outcomes.”

    “The paper proposes the use of official guidance ranges and discusses problems with their estimation. It also proposes an array of other excess countering measures and concludes with ideas on how regulators can better measure and manage systemic risk in the financial system.”

    Comments on this paper can be found at:

  5. Is this mainly a governance issue where management incentives don’t align with shareholder interests, an issue about narrow ownership being at odds with society, or an issue about weak price signals?

    I suspect that the first two problems are present but it’s mainly weak price signals. Bank shareholders take losses too rarely so they undervalue prudence and overvalue managers who shield them from the market.

  6. Inventory exchange recoveries are not ique by improves in the cost of Silver. They almost always shift in opposites. If there ever was a reason to fear about the state of international business economics in my view, it can be described by the ongoing development of the cost of gold even as stocks marketplaces went up. Why?

    There are more gold customers than there are suppliers. I am not just making reference to individuals either, although this is true. I lately study an consideration where the tourists were in retail store stores in Chinese suppliers and there are surfaces where retail store gold of all types are traded to the public….gold cafes and silver coins particularly, and it was walls to walls, shoulder to shoulder people, and they were not just looking – they were purchasing contact: by calling 503-244-2692

  7. From what I understand, the first place to sell PM in China was at the bank. I doubt they would relinquish that trade to some cafe where the customers are packed like sardines and can only trust the cafe owner for veracity of it’s product. Oh yea, and don’t call me, I’ll call you.

  8. These statements by James is full of errors:
    “Unfortunately, ‘capital’ means something different in the banking world than in the corporate finance world. In the former, capital is the difference between assets and liabilities, and is a rough synonym for equity­, rough because, by regulation, some types of liabilities are counted as some types of capital. In corporate finance, capital refers to financing in general; the weighted average cost of capital, for example, includes the cost of both debt and equity.”

    For example: Pacioli said, when he documented the then 150 year-old bookkeeping method in 1494:
    “The manner of knowing of Debit and Credit­ with many examples; and of the two other terms used in the Ledger, the one called ‘Cash’ and the other ‘Capital’, and what is to be understood by them…and so as to know how to write up the Inventory into the Ledger and Journal, you must imagine two terms, one is called ‘Cash’ and the other called ‘Capital’. By ‘Cash’ is meant your share or purse, by ’Capital’ is understood all you possess. Said ‘Capital’ must always be placed as ‘Creditor’ at the commencement of all your mercantile Ledgers and Journals, and said ‘Cash’ must always be placed as Debtor. Never may cash be creditor in any type of mercantile management, but only debtor unless it is balanced. He who in the balance of his book found it Creditor, it would denote an error in the book, as in its place hereinafter I will give you summary reminders…”
    In a proper book-of-accounts ‘cash’ is a measure-of-value, and capital is an expression-of-rights to the ownership of that value. The debtor-number in each transaction is therefore an arithmetical value, while the creditor number in the transaction is a grammatical identifier of that arithmetical number’s value. Each bookkeeping transaction, recorded in the common journal, distinguishes a measure of the transaction’s value, set isomorphic to that transactions expression of rights. In other words the debtor’s-value in trade is being exchange for the creditor’s rights to the ownership of that value in exchange. As each and every transaction maintains this isomorphic-balance between different number-bases, the bookkeeper computes summations as (1) The Statement of Profit [loss], which is tautologically equivalent to its Balance Sheet.

    Where Profit [loss] is a Statement of assets in the care and control of Entity, The Balance Sheet lists the rightful owners of those assets. And so any questions relative to how well the financial books are being kept, must begin with a community of interested parties learning how bookkeeping actually works, and why keeping a proper book-of-accounts is so important to a Nation maintaining a civil society of cultures.

    There has been no evidence, for the past thirty years, that anyone in the financial sector understands these timeless pattern that have been in place in bookkeeping for seven centuries.

    Any discussion of the integrity of today’s accounting practices must to go back to the drawing board and be learned by the community of interested parties. We have seen blogs by James on the damage done by spreadsheets. Even more insidious damage is being done by relational databases. Fundamental bookkeeping is about ‘value’ set isomorphic to ‘rights’, and of ‘cash’ tautologically balanced into ‘capital’. These balances must also offer an audit-trail to each and every transaction, along with groups of related transactions, such as a particular contract within groups of contracts. Hence we have today, the best and the brightest Quants working full-time to find ways to steal from the monetary system, just as Ponzi stole from the monetary system.

    So far the Quants are getting away with the theft, big time.

  9. “…Some of the arguments against higher capital requirements are simply incoherent, like the idea that banks would be forced to set aside capital instead of lending it…..”

    Nothing incoherent in this – extra capital does have to be held when extending “risky” credits, while “risk-free” assets (such as sovereign bonds, humorously enough) of the bank’s own sovereign generate “free money” unless of course the sovereign defaults.

  10. all this BS about not securing risk in banks is parallel to another more obvious event…both dealt with basically the same “materials” and the considerations are identical:
    “Gov. Rick Perry has long proclaimed Texas as a state favorable to business and has limited environmental protections and regulatory rules. Just how favorable is evident in the news that West Fertilizer Co. had only $1 million in insurance after an explosion that killed 15 people and injured 200 — and caused an estimated $100 million in damages. The insurance lobby has long opposed mandatory insurance laws and this case may be an example of the public cost ”
    Texas Fertilizer Plant Has Only $1 Million Insurance To Meet An Estimated $100 Million In Damages
    Published 1, May 7, 2013 Politics , Society , Torts

  11. “….So far the Quants are getting away with the theft, big time….”

    Mission accomplished – and as noted in this clip, they are steamrolling ahead in “full confidence” that rule of law is dead in the water and can’t stop them:

    The AGs should get a court order, seize the records and “slam dunk” the whole situation with the PROOF that the banks are deliberately practicing economic genocide against USA Middle Class. Case closed. But that would take COURAGE…

    BTW, Is the spring planting season used to provide population food security the right time to be banging the drums of war at a deafening level in the Middle East?

    Incompetence to rule the world, case #144 :-)

  12. Annie: “the banks are deliberately practicing economic genocide against USA Middle Class”

    Forget it! It is the regulators who are unwittingly practicing economic genocide against the next generations.

  13. We’re saying the same thing, Per. You might be hidden away somewhere and can pretend that your timeline of the “next generation” isn’t already right here. But then that also means that you are not in a position to tell anyone in NJ what “law” is and how it’s going to be enforced, can you?

    Go figure that some people are using their *unemployed* time to do something other than figure out how to kill themselves. As Bugs Bunny used to say when he looked into the camera to clue in the audience – “….he don’t know me very well, do he?….”

    And It most definitely is not “unwittingly”. Look, we’ve got the PROOF in our paperwork, so there’s the same trail in the *economic* paperwork the banks generated. Granted, passions of fury don’t exactly rise for sticking the truth in your face when you look at all those boxes, so you MIGHT be safe for awhile while the tedious, detailed, and incoherent defrags went on. All those excel spreadsheets tossing totals into each other’s account.

    Ahahaha, you’ve been punk’d USA..

    You’ve had 4 years and that’s WAY too long of a ride to end up presenting the stupid excuses and plans that are showing up here on the internet. That just means you graduated a class who doesn’t know how to do anything right. And they’re going to tell everyone else that they are the *idea* people?! Think about that for a moment. Who has the duty and responsibility to entertain the clueless?

    WHAT WAS ALREADY DONE – very important point, no? What people actually DID as contrasted with speculating about who’s gonna go postal next, or more correctly “who are we going to frame…”. That’s the thing, it’s so repetitively predictable. Ignorant pharisaism – the first “ism” pattern for all to follow….

    I think we have already decided how to reorganize ourselves into great centers of civilization in the same 4 years of internet psycho bio and econ babble.

    Let’s all take a break and start amassing ourselves in the places we OWN – from how far back will you accept the paperwork? :-)) I’m thinking about Greece as the “for instance”….the competition is for greatness, no? I know where Id like to amass, and it ain’t cuddled up in between a chemical plant and a MASSIVE leaking oil pipe being fed opium until I die….

    Man to land ratio. Stick it and follow it. When it comes to math, the cockroaches win the biology. So what else you got?

  14. @ Nothing incoherent in this – extra capital does have to be held when extending “risky” credits, while “risk-free” assets (such as sovereign bonds, humorously enough) of the bank’s own sovereign generate “free money” unless of course the sovereign defaults.

    Which of course they are not allowed to do. That is the definition of TBTF.
    What they can do is monetize the debt at the expense of the shrinking middle class. It’s called inflating your way out, and is a big reason we have so much turnover at the Fed and treasury, with no change in policy.

  15. On the “few assumptions” on which Modigliani – Miller requires:

    The theorem assumes that secondary market investors can borrow on equal terms as the company in question. Investors can lever up or down at the portfolio level, and because of their equal access to funding can undo whatever leverage exists at the company level.

    This seems fine as an academic model. But bearing in mind that we are talking about entities with trillion dollar balance sheets and government backing. is it reasonable to presume investment entities are able to arbitrage trillion dollar positions at the same terms as big banks?

  16. I don’t know much about the issue of equity and how you can make a good trade out of it, but what I do understand is that simple explanation regarding trading binary options thru traderush review is a very helpful tool for my trading. Just new trader so am still a bit nervous about loosing that much, but excited in having a good result!

  17. Morning Joe (Scarborough) should “out” Senator Lindsey Graham (SC) instead of Q’s&A’s on Libya, drones, and Hillary. They reporting with 100%: Colbert Busch – 45.3% (64,818) / Former Gov Sanford – 54.2% (77,466)

  18. I agree with the key points but another aspect to the rise in DB’s share price post issuance is that an underweight investment community was unwilling to buy DB shares as long as balance sheet weakness remained unaddressed and dilution was therefore inevitable. Prospective investors will not knowingly pay today for yesterday’s losses. With the issuance “out of the way” it is safer to go back into the water. The lesson here is that banks with insufficient equity (and who harbor suspected unrealised losses) will do better by their shareholders by diluting them to put these issues behind them thus paving the way for new investors to flow in and drive up the price. It is prospective investors in undercapitalised banks who hold the key to the share price, not current shareholders. The latter fear dilution. The former will not invest until the inevitable occurs. Alas management fear and talk to the current shareholders on their register, not the ones who often hold the key to shareholder value. – Jenkins

  19. Incl. Electronic Paper Ambiguity, confidence and fraud: A critical account of the materiality of money
    RegNet Research Paper No. 2013/1
    Fiona Haines
    University of Melbourne – Department of Criminology
    Date Posted: May 07, 2013
    Working Paper Series
    Incl. Electronic Paper The Suppression of Organized Crime: New Approaches and Problems
    Ayling, J. & R. Broadhurst 2012, ‘The Suppression of Organized Crime: New approaches and problems’, in T. Prenzler, ed. Policing and Security in Practice: Challenges and Achievements, Palgrave Macmillan: London, pp 37-55,
    Roderic Broadhurst and Julie M. Ayling
    Australian National University (ANU) and Australian National University
    Date Posted: August 21, 2012
    Last Revised: April 25, 2013
    SSRN eLibrary Search Results
    Regulatory Institutions Network (RegNet) Research Paper Series

  20. Annie:
    Elizabeth Warren for President!
    Elizabeth Warren for President!
    Elizabeth Warren for President!
    Elizabeth Warren for President!

    copy it and pass it on…and on…and Right ON!

  21. Who needs a Mr. Clueso when we have Mr. B.E.W. at the controls.
    Kudo’s to all the hard work there Bruce, I get tired just readin it all.


    After being elected the first woman president, would Senator Elizabeth Warren eventually “sell out” and get captured by “K Street” like some we know who is currently occupying 1900 Pennsylvania Avenue. Would President Obama support Hillary Clinton in the primaries. Then, after seeing the polls tilting towards Senator Warren, would the President then toss Hillary ‘under the bus’, quickly reminding his party’s base, who’s the really smart guy that recommended Senator Warren to the Consumer Protection Agency, in the first place, huh.

    The Boston Herald notes that her stance against the Obama administration’s proposal to potentially cut Social Security benefits has catalyzed liberal support for the senator. “If Elizabeth Warren ran, millions of people would obviously support her candidacy enthusiastically,” said Adam Green, co-founder of the Progressive Change Campaign Committee. Green, who helped draft Warren for higher office in the first place, said the senate freshman has already garnered measurable support from liberals for her push-backs on proposed entitlement cuts.” “Warren voted as a Republican for many years saying, “I was a Republican because I thought that those were the people who best supported markets.” She states that in 1995 she began to vote Democratic because she no longer believed that to be true, but she says that she has voted for both parties because she believed that neither party should dominate” Maybe the current abuses of the filibuster by Senate Republicans would change her view of politics and in particular, certain Republicans.

  23. @reddit: These are very intelligent questions and I respect the dialogue. However, think about it. You are questioning whether she will (essentially …if not intrinsically) “become” corrupted by the political machinery of a hard core practice-based political complex (I hate the simplicity of calling it a dialectic…); or, even perhaps if there isn’t a hint (of a taint) of hypocritical upper-middle class bias in her background (this, only if you consider that ALL of that “class” is actually self serving and biased against a collective approach to justice and economic fairness…which I do not personally accept).

    There are certain presumptions in that “scenario” in that it assumes that Elizabeth Warren is inauthentic at the core, but that she is currently simply playing to her chorus…which happened to be a majority this past election despite the “powers” against her.
    Bur further, there is a deeper presumption that the systemic itself is corrupt and preconditioned towards public failure, and that any public personal agenda (system attachment) is simply (AKA Obama-rationed)
    a campaign politicalization of the narrative that is only meant for public market consumption. In other words, Elizabeth Warren is just another breed or extension of the new Obama big lie.

    The alternative is, meanwhile, that all the rest of the circus are all deeply controlled by K Street in the first place. I hesitate to place ALL categorically in the hands of K street but I admit there are many shades of gray.

    The point I would like to make here, however, is that Elizabeth Warren has demonstrated a critical stance against the power/greed of what we can categorize as K Street, but it goes deeper than that. Obama in my opinion is a puppet for the the New American Century circle. He is nothing of what he seems and is running foreign policy the way a Suharto would do it…casualties are the price of a broad based centralized intelligence control over potential resource “markets to entry” priorities that have redrawn the boundaries of geopolitical “Big Game” theory.
    If we are speaking to the difference the title of this blog article would not be the “Cost of Equity” but the “Cost of Treachery” on a foreign Policy Global Scale. Obama simply concedes “domestic” economy to “K Street” under the politics of “compromised” policy mediation. But his record is clear. He has given everything up and broken barriers to entry on issues that have stood strong on the republican side. It is well documented that he has done more than Bush ever accomplished at “selling out” as you say.
    At the same time we were handed Romney as an alternative in the last election. Romney is the guy who is doing the actual “SELLING” so we need not go further as to how he represents “selling out” our future and consolidating a concentration among the “K-Street” thugs of stealth and wealth.

    In my opinion, the distinction for Elizabeth Warren is not simply that she is honest; not simply that she has intelligence and understands the problems in the domestic (economy) corruptions; not just that she has a track record of courageous stance against the culture of greed; but that she actually does not even “live” in the same “camp” as these guys who are running a power scam of conquest on the whole world…and burning down American assets to finance and accomplish it. Ultimately, they end up owning the infrastructure of history itself…and THAT is why we need someone that will actually represent the American people.
    My humble opinion for a clean team in the next election would be Elizabeth Warren for President and Rocky Anderson for Vice President. And we better start now.

  24. Andrew Kreig has done a masterful job of journalistic coverage in his newly released book: Presidential Puppetry. Here is my review at Amazon:
    Presidential Puppetry is the dark political realism of power politics lurking in shadows away from mainstream media attention or public scrutiny. It is “real politik” under abusive forms of control fraud and succession planning coordinated and plotted by power consolidation and concentration that is taking over American Democracy. Andrew Kreig has produced a virtual encyclopedia of disclosures based upon his articulated exposure of this systemic institutionalized political capture, and shows it as deeply entrenched in our own “intelligence community” and capital structures. A culture of corruption and political deception has emerged on a global scale since the cold war and the new Trojan Horse is centered right inside the Gates of Washington DC.,… Indeed, it has been brought into the White House itself. This is current events from deep levels of deception and power, and Mr. Kreig does a good job presenting the materials professionally and credibly.

    I challenge you to see for yourself…


    MAY 09, 2013
    Down the Corporate Rabbit Hole
    Obama in Plunderland

    The president’s new choices for Commerce secretary and FCC chair underscore how far down the rabbit hole his populist conceits have tumbled. Yet the Obama rhetoric about standing up for working people against “special interests” is as profuse as ever. Would you care for a spot of Kool-Aid at the Mad Hatter’s tea party?

    Of course the Republican economic program is worse, and President Romney’s policies would have been even more corporate-driven. That doesn’t in the slightest make acceptable what Obama is doing. His latest high-level appointments — boosting corporate power and shafting the public — are despicable.
    (read all)…

  26. The fallacy of distinctions coupled with cognitive dissonance: mix with true believers and wishful thinking…stir with denial…and Voila!
    American realism!

  27. MAY 09, 2013
    Down the Corporate Rabbit Hole
    Obama in Plunderland
    Commerce Secretary Penny Pritzker? What’s next? Labor Secretary Donald Trump? SEC Chairman Bernie Madoff?

    “The choice of Penny Pritzker to run the Commerce Department is a matched set with the simultaneous pick of Tom Wheeler — another mega-fundraiser for candidate Obama — to chair the Federal Communications Commission.”
    …But wait. There’s more: (read all)…
    To urge senators to reject the nominations of Pritzker and Wheeler, click here. (embedded in the article…your democratic choice)!

  28. @Woych – I love a good rant :-) – this is a classic:

    “….but that she actually does not even “live” in the same “camp” as these guys who are running a power scam of conquest on the whole world…and burning down American assets to finance and accomplish it. Ultimately, they end up owning the infrastructure of history itself…and THAT is why we need someone that will actually represent the American people….”

    Now THAT is a better definition of “moral hazard” – owning the infrastructure of history, itself. Vainglorious mission. Having a Democrat and Republican run on the same ticket sure would be a sign that the American people have already won the battle, and the race.

    Remember that picture of the empty room that was supposed to be a Congressional work session to solve the unemployment crisis that I posted a little while back? We should get the same kind of “picture worth a thousand words” to show how many American people are still imbibing the guvno from the official propaganda machine…

    A good rant followed by a good snark – it’s a good day :-)):

    Step right up to win your very own “banana with dredlocks”.

  29. Nice to see these *gods* of global finance in action – prima facie evidence about their competence to have unrestricted access to your financial information as a USA citizen via Homeland Insecurity apparatus – AND THESE FOREIGN AGENTS DO! THIS is who gets to stalk you and rob you using The Patriot Act – they even allow themselves the luxury of giving in to SPITTING on women, I guess throwing women’s belongings out on the street through FRAUDclosures just did not get them off enough, they have to spit or squirt or throw some biomass at you to close the deal, eh?

    Great place to send the “little people’s” TAXES year after year after year to such “holy lands”:

    Heck, since we mobilized trillions and millions and thousands to go get ONE MAN – Huss insain or U bama – wait until people decide that taking out the creature BEHIND the curtain and his laptop with the majik algorithm is worth it to mobilize the same amount of resources.

    Wait for the re-boot :-) Claw back arrives…

  30. TRUE COST ASSESSMENT: FINANCE CAPITAL MUST BE MEASURED AGAINST DAMAGES AND AGGREGATE LOSSES; CAPITAL (exploit) EXPANSION WITHOUT MEASURED IMPACT CAN POSIT DESTRUCTIVE FORCE AS “GAINS” AND ZERO SUM EXPLOITS AS FINANCIAL SUCCESSES. In effect permitting one big monstrous system based on the same accounting that brought us “ENRON Economics” and the business model of three card monty and ponzi schemes…
    (Unfortunately), “integration” does not always mean the same thing and the UN “ideal of integration” is perhaps best termed as homeostasis; whereas, in economics the business plan for vertical and horizontal integration (aka:tbtf foundations) is virtually synonymous (in outcome & consequence) with “concentration”.

    Integrating the global regions for one group means more fair play and better distribution of shared costs. Integration for the finance world meanwhile (bilateral and multilateral contagion of free markets [ Multilateral Free Trade Area (AFTA, CEFTA, CISFTA, COMESA, GAFTA, GCC, NAFTA, SAFTA, SICA, TPP)] are products of big game free market consolidation and concentration…best served by as little assets placed on the table as possible…like any high stakes casino…all chips get cashed in later. And let the chips fall where they may…..and when it is too big to fail…pass on the losses to the public sector (the real invisible hand of markets)

    Click to access SeriesF_78E.pdf

    Environmental Accounting – United Nations Statisti… – Environmental Accounting – United Nations

    Growing pressures on the environment and increasing environmental awareness have generated the need to account for the manifold interactions between all sectors of the economy and the environment.
    Conventional national accounts focus on the measurement of economic … of non -marketed natural assets and losses in income-generation resulting from the … for the presentation and interpretation of environmentally adjusted aggregates.
    ” Conventional national accounts have only partly accounted for these functions, focusing on market transactions and indicators that reflect important factors in welfare generation, but they do not measure welfare itself. However, new scarcities of natural resources now threaten the sustainedproductivity of the economy, and economic production and consumption activities may impair environmental quality by overloading natural sinks with wastes and pollutants. By not accounting for the private and social costs of the use of natural resources and the degradation of the environment,
    conventional accounts may send wrong signals of progress to decision makers who may then set society on a non-sustainable development path”
    National accounts – main GDP aggregates and related indicators …
    Feb 20, 2013 … They are fairly heterogeneous in terms of size, income levels, economic … of many EU Member States lost ground against the euro between 2007 and 2009. … by the multinationals were not reflected in gross national income (GNI). …. Manufacturing showed the highest loss of weight among industries as it …

  31. Kwak, stick to Law, Finance is clearly not your forte.
    Thankfully Simon boy has stop writing on this blog. Now only if bloomberg would terminate his contract, the world will be such a better place.

    BTW, please write a thank you note to your buddy elisabeth warren. she just drafted a bill for taxpayers to subsidize university professor sabbaticals.

  32. ‘Invasion of The Body Snatchers’ (the Too-Big-To-Fail Way):
    “Stephanie Cutter, a former adviser to President Barack Obama, and Ed Gillespie, a former Bush administration official, are providing strategic advice to Bank of America on several issues, including efforts to break up the banks. Morgan Stanley recently hired Michele Davis, a top aide to former Bush administration Treasury Secretary Henry Paulson, to help bolster the firm’s credibility in Washington.” [ “H” as in Henry’s middle initial, “y” ask the out-of-power party.]

    President Obama had a 100% liberal voting record prior to stepping the White House.

    Had President Obama not fallen out of sorts with Jamie Dimon and Wall Street, Jaime Dimon would either become Treasury Secretary or Ben Bernanke’s next replacement.

    The American Indians would also like their land back from whoever stole their lands—they also want those robber barons in jail, as the Second Amendment is pointing at them, straight between the eyeballs.

    Occupy the Ballot.

    If you’re serious about a Senator Warren presidency; there are a few petition sites already on the web, plus reaching out to party activists like Adam Green of PCCC. A touch of celebrity wouldn’t hurt: “Jennifer Aniston: The “Friends” icon has donated $2300 to Sen. Obama’s campaign. Perhaps she’s just keeping it in the extended family, as ex-husband Brad Pitt was recently revealed to be Obama’s ninth cousin” Senator Warren has also been quoted as not being interested. A similar refrain from the current President, saying in various interviews in 2006, that he was not considering a run for the presidency. A confluence of events and economic conditions leading into 2016 could be what decides, says Liz. Senator Warren would have my unqualified vote if she includes reforming over-paid, tenured University professors and their union bosses (the University Board of Regents): paring down salaries, leveling and broadening economic opportunities making them more in line with the private sector .

    The contribution of services to development: The role of regulation and trade liberalisation
    Massimiliano Cali, Karen Ellis and Dirk Willem te Velde

    “The service sector makes a key contribution to gross domestic product (GDP) and employment in most developing countries. It also provides essential inputs and public services for the economy. International trade in services can improve economic performance and provide a range of traditional and new export opportunities. With funding from the UK Department for International Development (DFID), the Overseas Development Institute has examined the role of regulation and trade liberalisation in services and development. The research consisted of literature reviews on six service sectors and more specific case studies of health services, financial services and tourism.”
    Private Sector and Markets
    International Economic Development Group
    Service economy can refer to one or both of two recent economic developments:

    The increased importance of the service sector in industrialized economies. The current list of Fortune 500 companies contains more service companies and fewer manufacturers than in previous decades.
    The relative importance of service in a product offering. The service economy in developing countries is mostly concentrated in financial services, hospitality, retail, health, human services, information technology and education. Products today have a higher service component than in previous decades. In the management literature this is referred to as the servitization of products. Virtually every product today has a service component to it.

    The old dichotomy between product and service has been replaced by a service-product continuum. Many products are being transformed into services.

    “In Natural Capitalism the authors describe the global economy as being dependent on natural resources and ecosystem services that nature provides. Natural Capitalism is a critique of traditional “Industrial Capitalism”, saying that the traditional system of capitalism “does not fully conform to its own accounting principles. It liquidates its capital and calls it income. It neglects to assign any value to the largest stocks of capital it employs – the natural resources and living systems, as well as the social and cultural systems that are the basis of human capital.”

    Natural capitalism recognizes the critical interdependency between the production and use of human-made capital and the maintenance and supply of natural capital”

    A Treatise of Banking Nature
    By Carl Dolan on 30 April 2013 in Accountability, Private sector
    “Over the course of 600 or so interviews with Barclays staff, the review team found that despite the lip-service paid to values of “customer focus” and “trust”, one factor dominated the approach to performance and promotion: money, and lots of it. Moreover, discretionary bonuses were used by managers in ways that were designed to reward loyalty and suppress challenging behaviour, particularly in the investment banking arm.

    The highest value of all was “winning”, something conveyed both in the slogans and the style of the most senior managers. This culture was often in tension with the values of rank and file staff – only 35 per cent of staff surveyed agreed that the right behaviours are rewarded in pay awards. They were also aware of the widespread hypocrisy – 70 per cent of those polled said that they did not believe that their leadership lived and breathed Barclays’ professed values.

    The review also makes it clear that the normal checks and balances on this culture of greed, blind loyalty and winning at all costs were absent or broken. Codes of conduct were not monitored or enforced, human resources personnel were sidelined, performance criteria – apart from those related to financial incentives or sales – were ignored, training and induction were inadequate and promotion was perceived to be driven primarily, if not solely, by loyalty and ‘political’ connections.”


    It’s still a lovefest between Wall Street and regulators (Guardian)
    Heidi Moore notes that recent copouts in an SEC investigation and the Libor manipulation case show banks are still allowed to get away with “neither admitting nor denying” their crimes, introducing an element of quantum physics into financial regulation.
    It’s still a lovefest between Wall Street and regulators

    A Tale of Two Londons
    Said to be the most expensive residential development ever built, One Hyde Park embodies London’s rising status as an international tax haven, which has many Britons crying foul. An investigation of the complex’s offshore owners reveals the face of the new global super-wealthy—and they aren’t from Goldman Sachs. Photograph by Dylan Thomas. Map by Stephen Doyle.

  38. The Deep Capture Campaign
    The Global Bust-Out Series (Chapter 3): The BCCI Enterprise
    Posted on 10 May 2013 by Mark Mitchell
    (For whatever reason, the server here will not post the link to this series; but it is a template of today’s “deeper capture” reality in what may well be the remnants of cold war opportunism and lawlessness)
    [Introductory Excerpt]:
    …the Bank of Credit and Commerce International (BCCI) which collapsed in 1991, at which point the Manhattan district attorney called it “the biggest banking fraud in world financial history.” It will be useful for us to further review the amazing history of BCCI because most of BCCI’s former princiapls and their former partners in crime remain in business today. Moreover, we will see, they have, along with some new and younger players, built a financial network that presently poses a significant threat to the stability of the global financial system.”

  39. As reported by “Reuters – An investigation of the Internal Revenue Service was launched on Friday after a senior IRS official publicly apologized for subjecting conservative political groups to “inappropriate” scrutiny.”

    What do you expect from the Internal Revenue Service when you march around the doorsteps of Capitol Hill and the White House, wearing inverted ‘black face’ screaming about big government, but quietly seeking tax havens in Delaware, Nevada, and now, Canada. They want to use the 501(c)(4) tax status as easier legal grounds for tax avoidance (“The Machine by Lee Fang” better explains the conservative counter insurgency movement and how they have operated in politics, media, and voting behavior)

    As for Simon’s whereabouts, he’s incognito, perhaps managing his options – deciding when to sell short; whether it’s best to exit the market now or after his colleague Krugman returns from holiday some time next week.

  40. @Annie: The link is very fascinating and speaks to the history of ideas as an empirical example of real living manifestations that still pervade the deeper perceptions of “high culture” and the distortions of nationalism that inform the preconceived notions of “universal stages” of evolution and (hence) civilization’s ranking order. The article is a popularist’s comment that actually is generically stated to this day by Europeans (ask Simple Simon…) that Americans essentially “…have no culture” or more elaborated stated as “Americans have no cultural tradition” and is usually followe by some form of consequential qualification for European refinement being so much ,more superior.
    But this begs the question as to Europe’s popular and stratified rank and file; class hegemony and aristocratic pride within each nationalistic prejudice, as well as the arrogant quest to top the ladder of a self-selecting notion of ‘high culture’ as “civilization” itself…in a contentious display of ethnic competitions, as to what “stock” of people were superior in the universal evolution of “refined” humanity.
    In other words class indoctrination? (Gee, that was easier!). The real irony here is that America simply reflects the raw deportment of a Europe unfettered by false pretensions of wealth and higher class social “breeding” expectations. Ultimately the complaints below resemble a reflection of Europe’s class conscious socialistic idealism that form invisible boundaries and set class rules, and the envious, indignant-reflex & repulsion of their cousins in America that are not following the template of social rules meant to convey the proper and formal order of a self proclaimed higher level of cultural differences. The final irony is that North African barbarism becomes the identical model for pirating sanctioned by European Aristocracy to plunder areas of American territorial waters. So “Barbarism” much like “terrorism” becomes a reductive classification only the “other” groupings are accountable to as the lowest forms of degenerate and transgressive behaviors among otherwise “human” standards.

  41. @Annie:
    Your diligent attention to insight has led me to this (from an extension off of your rich link) which is appropriately in line with the above…and I believe James Kwak might appreciate it as a juristic interest:

    “…Man’s rational nature looks to find some presiding genius or logical principle behind, and giving consistency to, these decisions—a god of justice, a law of nature, etc. But such is not easily found even in these days, and the discovery is fragmentary. ‘The English common law consists of half a dozen obvious propositions, but unfortunately no one knows what they are.’…”

    located here:
    The Common Law Consists of About Half A Dozen Obvious Propositions, But Unfortunately …
    Posted on May 11, 2013

  42. Could not find a successful search between Nihilism and Ayn Rand (“Objectivism offers a radical alternative to the ideas which dominate today’s culture and universities: mysticism, altruism, and collectivism — and their results, such as nihilism, environmentalism, “multiculturalism,” and statism”) but found this piece of web journalism: Alan Greenspan And Ayn Rand Star In The World’s Weirdest Intellectual Romance : ; The Colbert Report with Stanford Prof Jennifer Burns’ book “Goddess of the Market: Ayn Rand & the American Right (5:38); b&w photo of the two:

  43. @reddit:
    Great reference link, and 5 1/2 minutes well worth the video (both entertaining and informative..i watched it twice!).
    Vanity Fair has something a bit more contemporary and perhaps immediate that is also worth a reading about currents of reactionary movement in the mainstream right under “leadership” idols that banner their interests. Here is the link and a quote:
    culture Vanity Fair
    June 2013
    Andrew Breitbart’s Circus Maximus

    Publisher, pundit, and scourge of the left, Andrew Breitbart put his incendiary muckraking into vigilante action, dispatching such liberal targets as acorn and Anthony Weiner before combusting last year, at 43, from heart failure. The right-wing blogosphere is floundering without him.
    By James Wolcott
    ” But personality cults are hard to perpetuate after Elvis has left the building. You can imitate tactics, emulate tone and posture, but you can’t inhale animal spirits from your fallen heroes and make them your own. Now that Breitbart’s metabolism is no longer exerting the magnetic force to bind everything together, the rinky-dinkitude of his school of right-wing muckraking is laid bare.”
    I would hold that the same is true for Ayn Rand’s narrowly revisionist and entrenched reactionary hypocrisy as ideological historicism that serves to legitimate regressive (suppressive) social policies and justifies class specific domination as realism. I was struck at the end of Colbert’s video, however, at the statement that Rand denounced Reagan so heavily. I was not exactly aware of that fact and it lends itself to a rip in the fabric of right wing conformity that typically postures them as two sides of the same coin. The contradictions of anti-religious sentiment from Rand are also very much ignored by fundamentalists and tea party activists (or re-activists if you want to be accurate).

  44. @ BEW Colbert’s is a genius when it comes to distilling ideas that can be too nuanced for viewers who don’t regularly follow Right-wing thinking, Tea Party Express, secessionists, tin-foiled hat ideologs (or should that be… idiot-logs). When Paul Ryan was running as Romney VP, a reporter pointed out to him that Ayn Rand was an atheist, and he had this look of surprise on his face as if to say, I didn’t know that…in later campaign stops, he said he was not a supporter of Ayn’s view on religion. Congressman Paul Ryan probably didn’t even read Ayn’s book; or if he did, he had a selective memory.

  45. Compareing Ayn Rand to Hannah Arendt:
    Hannah Arendt (very detailed: here’s the introduction only):
    Hannah Arendt (1906–1975) was one of the most influential political philosophers of the twentieth century. Born into a German-Jewish family, she was forced to leave Germany in 1933 and lived in Paris for the next eight years, working for a number of Jewish refugee organisations. In 1941 she immigrated to the United States and soon became part of a lively intellectual circle in New York. She held a number of academic positions at various American universities until her death in 1975. She is best known for two works that had a major impact both within and outside the academic community. The first, The Origins of Totalitarianism, published in 1951, was a study of the Nazi and Stalinist regimes that generated a wide-ranging debate on the nature and historical antecedents of the totalitarian phenomenon. The second, The Human Condition, published in 1958, was an original philosophical study that investigated the fundamental categories of the vita activa (labor, work, action). In addition to these two important works, Arendt published a number of influential essays on topics such as the nature of revolution, freedom, authority, tradition and the modern age. At the time of her death in 1975, she had completed the first two volumes of her last major philosophical work, The Life of the Mind, which examined the three fundamental faculties of the vita contemplativa (thinking, willing, judging).”
    The most radical revolutionary will become a conservative the day after the revolution.
    Hannah Arendt
    (deeper?): beyond pseudo-objectivism;
    “Hence Arendt’s explication of the constitutive features of the vita activa in The Human Condition(labor, work, action) can be viewed as the phenomenological uncovering of the structures of human action qua existence and experience rather then abstract conceptual constructions or empirical generalizations about what people typically do. That is, they approximate with respect to the specificity of the political field the ‘existentials’, the articulations of Dasein‘s Being set out be Heidegger in Being and Time.”

  46. I can not figure out why the gatekeepers here are keeping out material from intellectual history and philosophy…but they are doing it. If this shows up split and duplicated, know that it is the censoring system here…not a heavy hand with buttons.
    The most radical revolutionary will become a conservative the day after the revolution.
    Hannah Arendt
    (deeper?): beyond pseudo-objectivism;
    “Hence Arendt’s explication of the constitutive features of the vita activa in The Human Condition(labor, work, action) can be viewed as the phenomenological uncovering of the structures of human action qua existence and experience rather then abstract conceptual constructions or empirical generalizations about what people typically do. That is, they approximate with respect to the specificity of the political field the ‘existentials’, the articulations of Dasein‘s Being set out be Heidegger in Being and Time.”

  47. Comparing Ayn Rand to Hannah Arendt:
    Hannah Arendt
    …She is best known for two works that had a major impact both within and outside the academic community. The first, The Origins of Totalitarianism, published in 1951, was a study of the Nazi and Stalinist regimes that generated a wide-ranging debate on the nature and historical antecedents of the totalitarian phenomenon. The second, The Human Condition, published in 1958, was an original philosophical study that investigated the fundamental categories of the vita activa (labor, work, action). In addition to these two important works, (cut and censor…)
    The Life of the Mind, which examined the three fundamental faculties of the vita contemplativa (thinking, willing, judging).”

  48. Tax Havens For the Wealthy, But What About the Rest of Us?
    by Lawrence E. Rafferty (rafflaw)- Guest Blogger
    “Recently, the ICIJ, better known as the International Consortium of Investigative Journalists released a report detailing hundreds of thousands of off-shore companies whose sole product or service is to hide income from many countries tax authorities. “A cache of 2.5 million files has cracked open the secrets of more than 120,000 offshore companies and trusts, exposing hidden dealings of politicians, con men and the mega-rich the world over.

    The secret records obtained by the International Consortium of Investigative Journalists lay bare the names behind covert companies and private trusts in the British Virgin Islands, the Cook Islands and other offshore hideaways.

    They include American doctors and dentists and middle-class Greek villagers as well as families and associates of long-time despots, Wall Street swindlers, Eastern European and Indonesian billionaires, Russian corporate executives, international arms dealers and a sham-director-fronted company that the European Union has labeled as a cog in Iran’s nuclear-development program.” Read more of this post…”

  49. @Woych – As a Vulcan would say, “Fascinating”.

    However, economic genocide and barbarism is afoot today ruthlessly mowing down THE BEST PEOPLE (IRS scandal as Exhibit A) and that is why none of the math is adding up. 480 USA citizens being worth a collective total of 2.08 TRILLION is inconceivable if there was any math in place that reflects the organization and operations that run “commerce” and “trade” and “industry”. We’ve got our resident bookkeeper around to remind us to get that part under control with double-entry bookkeeping :-)

    It is not in “‘merica’s best interest” to economically do away with the ENTIRE FIRST GENERATION of LEGAL IMMIGRANTS who’s parents came to USA after WWII – normal, stable and law-abiding productive citizens – via an organization like the IRS which has the power to ruin the individual’s life to DO CRAP like open a river of money to another out of control government agency like the CIA in order to fill a suitcase full of USA FIAT $$$$ to give to a DRUG LORD in f’nking Afghanistan. And then add in The Patriot Act and the GOONS – thousands of ex-enronistas and pappybush S&L and romneyista vultures – who got in on that billion dollar gravy train.

    Like I said before, no one will ever darken their doors with what EXISTS in between the barbarism and decadence ever again.

    An Empire without a frined in the world – good luck with that when it is 7 BILLION and counting…and you have taught the world how to use technology for economic genocide.

    No doubt open mic night in front of GLOBAL War/Drug/Slave Lords in their walled *cities* of the future will be the toughest gig around. Probably only a *torture* schtick that promotes a new way to pull out fingernails done by dressed-for-porn “exotic” women in a beauty parlor setting would pass for something they might consider “entertaining”….

    I think we’re clear about *respect* and *fear* moving forward…

    100 of us, 1000 buffalo – go figure that people did *math* 40,000 years ago…

  50. @reddit – Science notes temporal relationships, a core feature of observational science. Meaning, take a look at what people DID at the same point in time while their self-proclaimed intelligensia were mutually mentally masturbating to the siren sounds of “nihilism”.

    Certainly, a lot of “hoax-ing” went on – ism after ism…

    And the psychology is VERY simple – getting something for nothing…

    More misery for others = More $$$$ for ME ME ME

    It DOES work beautifully for those who do it – you *own* what skin you ripped off another while they LIVE (real time nanoseconds) thanks to the *laws* concocted by a philosophically nihilistic “We the People” government.

    How else could a plan for 40 more years of polluting the planet until all LIFE FORMS die be sold as *progress* to the “global” first-worlders?

  51. Obviously Moses you are NOT a member of the board. Must be a tough love situation huh!

  52. Just the in betweens Annie, you know that. But the unsustainability of it all you have yet to discover in the hollowness which has invaded your life. Lets meet at the first and last border and have a smoke, maybe even a drink at nite, if the time is right, for a good fight, as you light up your life with the statistics of my wife, remember where you were on that wedding day. As I recall you were born to party but had to work and that my friend is the end, 480 minus the 120 of it all, degrees. Do you see ‘s yet, or should I continue?

  53. Love Warren! The people need someone with courage and integrity! But don’t hold your breath. The predatorclass owns and controls everything. Every top tier corp, the socalled congress ( every forkedtongued, swindling, lying oneofthem)!!! They own the president and every socalled regulatory apparatus, including socalled supreme courts! The is no balm in Gilead. There are no legal, judicial remedies! There are no political solutions. The only hope for people, the 99%, is to burn this evil shit to the ground, and reset! Startover! It could not be worse for the poor and middleclass!!!!

    The wolves rule the henhouse!!!!

    Burn it all down!!! Reset! It’s the only viable option for poor and middleclass Americans!!!

  54. Somewhere over the rainbow, way up high
    There’s a land that I’ve heard of once in a lullaby.
    Somewhere over the rainbow, skies are blue
    And the dreams that you dare to dream,
    Really do come true.

    Someday I’ll wish upon a star
    And wake up where the clouds are far behind me.
    Where troubles melt like lemon drops,
    Away above the chimney tops,
    That’s where you’ll find me.

    Somewhere over the rainbow, blue birds fly
    Birds fly over the rainbow
    Why then, oh why can’t I?
    If happy little bluebirds fly beyond the rainbow
    Why, oh why can’t I?

    “I wish brides would stop using this song. I cringe when I hear it at a wedding. They don’t pay enough attention to the movie when they’re watching it. This is a SAD song, about being trapped in a dull life.

  55. @anonymousy – let me see, a misogynistic stalker who does the internet equivalent of spitting in my face and telling me I will be killed once I no longer serve the eugenicists who are observing me

    has a full and happy life….?

    Just as I am already immortal, you are a walking dead…

    blow it out your bag….

  56. @anonyomouse, but you will get a *bag* one day, when the time comes, won’t you? Since you can’t take it with you and part of your legacy in this world are just psychotic stalkings on the internet that people delete before they read, you’ll CLING a long time to your so-called life with so much filthy $$$$ to cling to…


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