Saturday, 24 September 2011
Delta One and Operation Twist
Private security seems to be the only immediately available alternative to alleviate the widening security gap engendered by Delta One-like financial activity and Operations Twist.
Delta One finance
In terms of revenues, Delta One is perhaps the fastest growing segment of large financial institutions. Think of a small corner of a large financial institution where mathematical geeks and cowboy traders get together to engineer even more complex financial products that make disproportionably huge profits out of tiny deviations in indexes, for example those tracking the prices of commodities or values of currencies. Further layers of complexity are added to the already unstable mix and take the form of obscure derivative products, hedges, and securities, which, again, can be re-engineered and then sold and bought in the market. Hard to understand? Yes. Hard to explain? Yes, but that is the point. The CEOs of those financial institutions (and authorities) have no clue about what really goes on in Delta One. Hence, USB realized last week that it lost at least $2.3 billion from ‘unauthorized’ trading at its Delta One unit. No real capital is generated by Delta One, no backbone, just fat to feed the ever growing profits of those involved financial institutions (and the pockets of about 1% of their workforce), and fad to please and appease financial authorities.
Delta One imbalances
Have not Western governments learned about the risks that the merry-go-round of overly speculative finance such as Delta One pose to the global economy? The answer is simply no; they have not learned. Zillions and billions were poured into financial institutions when they brought the global economy to a standstill at the beginning of what will surely be a decade long financial downturn. A large proportion of those zillions and billions were supposed to filter down somehow to ordinary businesses and people, in order to kick start a return to economic growth. It never happened. The zillions and billions were used by financial institutions as the basis for a return to old days. If Western governments could print out money under the guise of “quantitative easing,” then they surely could have concocted something like “synergic (public-private) partnership finance,” whereby financial institutions could have been intervened and forced to lend the given public money to the ultimate desired beneficiaries. This action may have averted the crisis we seem to be sinking deeper by the day. Will the new round of $400 billion of quantitative easing in the U.S., called Operation Twist, make any difference with a government without teeth and synergic partnership finance? See similar initiatives launched throughout the G20 group of nations over the next few weeks and ponder the same question.
Delta One insecurity
The basic economic imbalances of the global economy brought about by overly speculative finance and the insatiable greed of financial institutions were never solved: no real capital (and jobs) created, just figures in balance sheets. Perhaps it is possible to think about the brotherhood of large financial institutions and its incestuous relationship with credit rating agencies as a new and unforeseen type of quasi-sovereign governance. Large financial institutions ultimately decide important aspects of your life and affect your well-being, but like governments now, they seem to be disconnected from what happens to ordinary people, in the real world. You are often hopeless if you want to bring banks to account. Large financial institutions are quasi-sovereign entities because in spite of national and international regulations, they seem to do as they please and governments are afraid of them. Nevertheless, the quasi-sovereign actions of these financial institutions are consequential and it is possible to argue that they have contributed to the climate of ongoing insecurity in which petty crime, civil disorder, and anarchism are fast becoming the order of the day.
Operation Twist law enforcement
As the economic outlook deteriorates, insecurity is on the rise. Indeed, the time might come when people start getting mugged for their supermarket shopping or a liter of milk. Under these circumstances, common sense would dictate a more robust approach to law enforcement. Really? While Operation Twist and other similar initiatives will hypothetically inject rejuvenating energy into the faltering global economy, none of the printed-out money is likely to impact law enforcement. The same situation happened during the previous rounds of quantitative easing and will happen again after whatever follows Operation Twist in the U.S.– probably a direct loan from China. In fact, in tandem with deteriorating public finances, law enforcement budgets have shrunk in real terms since 2008. Although only available for a price, private security is an available alternative for those newly concerned about their safety. Please do not think that Delta One-scale profits are being made in the domestic private security business (we are not talking here about homeland security and counter-terror), as rates have not experience a dramatic increase. Far from that, wages in the security sector have gone down in comparison to other areas of the economy due to an abundant labor supply, for example soldiers returning from Iraq and police officers made redundant to save public money.
Operation Save Yourself private security
Operation(s) Twist and quantitative easing generally have been the answer by state governance to our economic woes so far. However, the connection between rising insecurity and the collective actions of financial institutions (the new type of governance), and between rising insecurity and the need to spend more on law enforcement and policing, evades state governance. Can you think of any other alternative than the private security and military industries to fill the security gap? Quite frankly, we can not. That is to say, unless you believe that vigilante squads and armed neighborhood patrols are a good idea. Private Security Companies (PSCs) and Private Military Companies (PMCs) are correspondingly expanding their footprint in the domestic front and tailoring services to cater for a variety of budgets and needs because more and more people are demanding their services. Given that traditional governance fails to address people’s concerns about the need for more security, and financial institutions couldn’t possible care about it, this is a positive development. It is time to embrace Operation Save Yourself and think more positively about this new bread of private security.