Brexit -- what's next? --- Update

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Update:  Perhaps we've underestimated Labour (see last paragraph below). Gaby Hinsliff writes in The Guardian:

But politics is all about opportunism, recognising the moment when it comes and ruthlessly exploiting it...Corbyn’s goal-hanging strategy of letting someone else put in the hard yards over Brexit, before swooping in to electoral glory when it all goes wrong, has served him very well for two years.

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Original post:

The six fans of this blog have been clamoring---hold on, it’s only five now, five fans---clamoring that we shine our Machiavellian light on the future of Brexit.

It took us a little while---we were as confused as the prognosticators of The Guardian, for example---but today we had an epiphany, and now we are almost certain what's going to happen. We base ourselves on two axioms, namely:

(1) the axiom of egocentric rationality among the opportunistic supporters of Brexit, ie, Boris Johnson and his ilk. They, of course, are even more Machiavellian than we are, and so they will base their calculation on the

(2) axiom of memory shortage in the internet age.

Here’s their calculation:

(a) May’s Brexit deal will be voted down in Parliament;

(b) Confusion will rule thence; Labour remains split into semi-closeted Euro-skeptics and semi-closeted Europhiles, and unable/unwilling to rally around the Peoples Votes (a second referendum). Britain crashes out of the E-Union with no deal on March 29, 2019.

(c) There will be chaos (read this week’s detailed and fact-filled prognosis in The Economist): traffic around Dover backed up to Manchester; thousands of people dying in hospitals for lack of medication (disrupted supply chains); tear-gassed closures of manufacturing plants (disrupted supply chains), etc. Unemployment surges, inflation surges, housing prices slump. Google relocates to Berlin, unrest in Northern Ireland reignites. The government falls inside weeks. New elections bring about a Labour government.

(d) And now the second axiom: Inside a few more weeks, people have forgotten about its true cause, but the chaos will persist for months on end. AND SO, SOON THE PEOPLE WILL BLAME THE LABOUR GOVERNMENT for all of this shit. Inside a year, the not-so-new government will fall, and a refreshed, reasserted Tory government under the egocentric leadership of Boris Johnson returns to power at the very moment that misery has bottomed out and a semblance of normality returns.

The only factor left out of this calculation is the matter of residual rationality among the Labour leadership. Don’t bet on it.

Brexit (4) (Maud)

Brexit no. 3

Brexit no.2

Zurich Airport (3)

So, we are in Kloten, home of the airport (this must be the first time in creative writing that somebody attributed a "home" to an airport), and we are strolling through the lazy afternoon, and the weather improves.

We are not alone, a creek strolls through the lazy downtown setting, too.

What's wrong. What's this? In Switzerland. Something in the water, that doesn't belong there? No, it doesn't.


It's an Irish licence plate, and a fancy one at that, "en guerre" (at war). Euromess in Switzerland? What else.

Fortunately, a sense of order is quickly restored further downstream, at least in a geo-topological way:

Why banks have become dysfunctional

James Saft, the Reuters' columnist, has a piece in the IHT about a talk by Andrew Haldane, the executive director for financial stability of the Bank of England. Once in a while, somebody writes a few lines we ("we") really should read, and here they are:

The purchaser of a portfolio of global banking stocks in the early 1990s is today sitting on a real loss. So who exactly is it extracting value from today's banks? The answer is twofold: shorter-term investors and bank management. Because banks have, over the past two centuries, migrated to a limited liability, shareholder-owned model, there is a natural tendency for owners to make riskier loans and trades and to increase the bank's assets.

Andrew Haldane

A bigger, riskier balance sheet with more leverage produces terribly volatile results, with many good-size profits mixed in with the occasional catastrophic loss. But with limited liability, executives and shareholders can simply walk away from the smoking wreckage, having pocketed the gains when times were good.

Bank of England

Banks then have a built-in incentive always to increase leverage, and the tyranny of quarterly earnings places huge pressure on them to enlarge their asset books, even if there is no one creditworthy left to lend to.
That was one of the main causes of the subprime episode. Faced with the prospect of not increasing earnings, banks simply began to manufacture borrowers where none really should have existed.
The situation is exacerbated by the fact that debt is tax-deductible while equity is not, giving banks even more incentive to borrow. While the typical leverage of an American or British bank in 1900 was five or six times equity, that figure peaked at about 30 times before the crisis, and is higher still now for many euro zone banks.
Bank bondholders have been unwilling to play their role as vigilantes, in part because they quite rightly expect to be bailed out by governments if banks go to the wall.
In the past 30 years, many banks have moved to measure their performance -and set their bonuses -on the basis of a measure called return on equity, which measures profit compared with equity. What return on equity does not adjust for, of course, is risk, and it looks as if return-on-equity targets in a leverage driven business have produced a lot of risk in the form of extreme bank earnings volatility, and badly compensated volatility at that.

PS: Conspiracy, conspiracy. If you search for James Saft on IHT's web site, it comes back with " 'James Saft' did not match any documents under Past 30 Days." If you search for the column's title "Why banks take such huge risks," it comes back with all sorts of articles (about Berlusconi, among others), but not with Saft's column. However, if your search for the same title on Google, it comes back with a mirror site of the column as first result. (Lol)

Help me, help me (washed-up script writer)

We haven't heard from the washed-up scriptwriter in quite some time. He was washed up in Kazakhstan, and wrote some poems for President Brftzerk, the guy from the rotating golden statue, and then Brftzerk got arrested or something, and Sacha, who was supposed to keep him company, is back in Europe.

Finally, finally, we have some new news from the washed up scriptwriter.

"For obvious reasons," he writes, "I am setting my next script in the realm of financial stability. And here is my first try. A brief soliloquy (we want our soliloquies short these day's, don't we), that I put into the mouth of this Trichet person, you know who I mean, the president of this European Bank:

Reporter:

What is your answer to German people and economists who want the return of the DM? Trichet: You want answers?
Reporter: I think the Germans are entitled.
Trichet: You want answers? (SHOUTING)
Reporter: Germans want the truth! (SHOUTING)
Trichet: *You can’t handle the truth!* (SHOUTING) [pauses]…
Trichet: Son, we live in a world that has prices, and those prices have to be guarded by men with bonds. Who’s gonna do it? You? You, Sylvia Wadhwa? I have a greater responsibility than you could possibly fathom. You weep for Lehman Brothers, and you curse Ben Bernanke. You have that luxury. You have the luxury of not knowing what I know. That Lehman’s collapse, while tragic, probably saved banks. And my existence, while grotesque and incomprehensible to you, saves banks. You don’t want the truth because deep down in places you don’t talk about at parties, you want me on that committee, you need me on that committee. We use words like rate, target, expectation. We use these words as the backbone of a life spent defending something. You use them as a profitline. I have neither the time nor the inclination to explain myself to a man who rises and sleeps under the blanket of price stability that I provide, and then questions the manner in which I provide it. I would rather you just said congratulations and went on your way. Otherwise I suggest you pick up a Greek bond, and suffer a haircut. Either way, I don’t give a damn what you think you are entitled to!

And you know what? I didn't make this up. Heres what Trichet really said:

“We have delivered price stability over the first 12 years and 13 years of the euro — impeccably, impeccably!” Trichet said, his voice rising. “I would like very much to hear the ‘congratulations’ for an institution that has delivered price stability in Germany for … almost 13 years at an annual inflation rate of around 1.55%. It was not by chance; it was because we decided very frequently to do things that were not recommended by the various governments. Our independence is inflexible… We are in the worst crisis since World War II. We do our job. It is not an easy job.”

Seen on a Greek beach

Dominique Strauss-Kahn stark naked (2)

Q: So, what does it all mean?
A: The end of Strauss-Kahn's (DSK) career, of course, and more.
Q: He could deny it; then it's his word against hers.
A: Well, first, he left his cell-phone behind, so he fled the scene. Equally important, a famous person is always guilty until proven innocent, especially in America.
Q: Could it be a conspiracy?
A: Sure, as always. He was the most important threat to Sarkozy's bid for a second term, so Sarkozy could have tried to engineer the whole thing. However...
Q: ...however...?
A: It would have been difficult for Sarkozy to do so, even with the French secret services at his disposal. It's unlikely the maid was an agent, since she was working at the hotel on a permanent basis (presumably), and it was unforeseeable that DSK would stay there...well, who knows, changing my mind, perhaps he's always staying there, in the same suite, in which case they actually could have planted her there, perhaps paying off the service manager to have her assigned to this suite (soon to be dubbed the Kahn suite). And so on and so forth.
Q: But the cell-phone?
A: Élémentaire, cher Watson. DSK will deny this is his phone, but the records, oh là là, the records, the most beautiful cell-phone records in the history of the French secret services.
Q: We're in full conspiracy mode now?
A: I'd say 60-40.
Q: Which way?
A: Don't know yet.
Q: Will the Euro collapse?
A: It's in the cards. Expect a weakening of the Euro tomorrow, just for starters.
Q: Why?
A: Sarkozy's ratings are the lowest in the history of the French presidency. He's unlikely to get re-elected, even if the whole thing was his conspiracy. So it's either a socialist next time (to our American readers: DSK was a member of the Socialist Party, no, the SOCIALIST party), but, with the exception of DSK himself, all other contenders are unreconstructed dinosaurs, real tax-and-spend ideologues, all of them, or it's Marine LePen from the Front National. France's standing as a debtor will be weakened, and the markets might fear its collapse, comparable with other members of the Club Med.
Q: This could mean the end of the Euro.
A: Yes, if France does not get its act together, the Euro will collapse.
Q: How about the extreme right?
A: Yes, good question. Marine LePen, the new, charming leader of the Front National is collecting followers left and right with her compassionate xenophobia and an economic program from the dark ages.
Q: How so?
A: Her economic program calls for France leaving the Euro, and for erecting high import barriers to save domestic jobs. To do that, France would have to leave the European Union.
Q: Is that going to happen?
A: Possibly not, since the French farmers would lose their European subsidies, and so on. But I would not rule out a debt spiral triggered by weakening French credit scores (rising interest rates on French sovereign debt raise the deficit, etc), which leads to France's exit from the Euro, the end of the Euro, the end of the European Union...
Q: The end of the world as we know it?
A: It looks bad. But 500 years from now, the only thing we will remember is that the 3rd world war was caused by a man stepping out of his bath room stark naked.

And when the markets get into a funk, they'll buy your paper, even though it's junk