Cluster Family Office Blog

Whilst many are determined to find solutions to the current financial crisis, perhaps thinking about a future that is still some way off might help us find the path to take today. To know which path to choose, we must be clear about the final destination. And I know that this contradicts some of my earlier reflections, in which we prioritised avoiding serious immediate damage over tackling the root of the problem. But rigorous analysis and reality are convincing me otherwise. The damage is already palpable and very serious. We have reached a point of no return where, as if we were on a plane, we have passed V1 and we can no longer expect everything to go back to the way it was. The damage is already very severe for financial institutions, businesses, household finances and even nations. The injection of vast sums of money is only providing relative relief, and is proving ineffective in reversing the downward spiral and financial collapse. Given that this situation is irreversible, perhaps we should focus more on our life goal collective and global. Perhaps we should give up our desperate struggle to find the miracle cure that will breathe new life into an economic model whose demise is now inevitable.

By the time we realised that something serious was happening to our financial system, in the summer of 2007, it was already too late to save it. And today, naturally, it is even later and reversing the situation is even more impossible. Therefore, Should we continue trying to inject liquidity into a system that is on the verge of collapse? My answer is yes, but not desperately. We must do so in moderation, accepting that the collapse is happening and will continue to happen, whilst keeping our eyes on the horizon. As we look to the future, we can continue to alleviate the suffering of the terminally ill as far as is prudent. However, we must ensure that these palliative measures – which we know will not reverse the financial collapse – do not divert our primary focus from rebuilding the system and establishing sound financial and business foundations.

The major banks must look to the future by moving away from the investment banking practices that we have all benefited from over the last two or three decades, and with which they had become fatally entangled. He must return to his traditional business, and in the process, in that flight to quality essential and vital, it must indeed be placed under special administration, restructured and whatever else is necessary. But only with the commitment and certainty that it will, in the near future, be the guarantor of the system’s stability. The «too big to fail» It must be redefined and expanded to include vital concepts such as soundness, transparency and ethics. And within these parameters, it must find its greatest ally in public funds today, in these most difficult of times.

The financial system we need for the future must not be thrown into turmoil by a crisis, as has happened, because crises must once again be like those we have experienced in the past: cyclical crises that entail resets sectoral crises of varying severity, but which must never again bring down the global financial system. It is therefore clear that the financial system we must create must be invulnerable, therefore different. And we must not inject liquidity just to get things back on track the same the established banking system (even if this proves to be a futile endeavour, as we have already said). We need a new playing field and new rules based on the soundness of the traditional banking business and on the the soundness of traditional corporate financing. Perhaps conceptually based on the Canadian financial model, which has proved to be less exploitative, although still excessive.

The banking sector – and, with it, all of us – committed errors, blunders, acts of recklessness and crimes that have led us to an irreversible collapse. To the rebuilding of the financial system. But we are not saying that investment banking should be banned – far from it. What we are trying to say is that that type of banking should not form part of the foundations of the banking and financial system. The major banks, which underpin the credibility of the system and the system itself, must remain uninvolved in playing with fire of the financiers and the investment speculators, which will continue to exist, even though the immediate repercussions will temporarily remove them from view. One of the most serious mistakes made by the banking sector as a whole was, for example, that over the last 20 years it dispensed with asset risk assessment departments because it relied on the credit rating agencies. Not even the investment banking arm retained its own risk assessment team. These costs were deemed dispensable if others with a better reputation were doing the work and were, moreover, publicly revered. Why bother and spend resources on it if the risk rating agencies were the Bible… We all know the outcome, and we all suffer because of it.

To round off, I’ll leave you with an anecdote recounted by Paul Volcker himself: one of his grandchildren chose to become a financial engineer, that is to say Financo. Volcker couldn’t believe that his own flesh and blood was going to fall into the hands of finance departments that rack their brains to invent new, unspeakable, marketable and polluting forms for the System. I think it hurt him as much as if he’d been told he was going to join a cult. Last year, Volcker wrote an article in which he blamed relatively the financiers for having brought down the system. His daughter (the little angel’s mother), as soon as she read it, passed it on to the grandson in question, who rang his grandfather to say: «Grandad, don’t blame us! We were simply following the orders given to us by our managers.» Paul Volcker didn’t rise to the bait, and that very afternoon he sent him an email containing just one sentence: «I will not accept the Nuremberg excuses«.

«How many times can a man turn his head,
and pretend that he simply doesn’t see?
The answer, my friend, is blowing in the wind,
»The answer is blowing in the wind.'

Bob Dylan. 1963.

Una oreja a la que contar ideas absurdas. Ya he comentado alguna vez que me gustan tus/vuestros post, excepto cuando pretenden elevar a categoría anécdotas referidas a experiencias personales relacionadas con vuestra actividad. Desde luego me gustan más o menos en la medida del grado de coincidencia con mi forma de ver las cosas, frecuentemente notable y que, mala suerte, me anima a escribirte. No tengo a nadie con quien charlar sobre «inquietudes y pensamientos vagabundos» así que te tomo como paño, no de lágrimas sino de pensamientos sin trascendencia o valor. Sí, un poco aburrido y falto de opciones de ocio, tanto como para dirigirme en estos términos contra un documento html de dudoso gusto estético (es broma, es muy chulo).

Yendo al grano, pido (educadamente, nada de exigencias) tu opinión sobre una idea que no me puedo quitar de la cabeza. Este credit crunch y todo lo que le acompaña y acompañará tiene causa, según el consenso del mercado, en los banqueros, que son muy egoistas, avariciosos y tan tontos como para preocuparse exclusivamente por quién tiene el Lear más grande. Unos chimpancés con escopetas cargadas. También tienen mucha culpa los banqueros centrales, que son mucho más listos que las acémilas de los bancos privados, pero que guiados por su dogmatismo liberal han hecho dejación de sus mandatos regulatorios y de supervisión. Y como una construcción sólida no se sostiene sin al menos tres patas, la sociedad, o una parte relevante de ella, cuyo infantilismo e irresponsabilidad les ha llevado a asumir compromisos financieros que les permitieran satisfacer sus caprichos consumistas sin contar con auténtica capacidad para hacerlo. Mira como les echan la culpa:

Habiendo sucedido todo ello, yo no me lo creo. Nada de lo anterior es un accidente, no es el resultado de un cataclismo. Muchos observadores sagaces avanzaron la deriva de los acontecimientos por llegar, los que ahora comentamos. Bueno, mira el caso de Marx (he empezado a leer, de verdad, El Capital. Luego vendrá el Quijote).

Alguien está dirigiendo ésto, aquí hay un plan de largo recorrido. ¿Que es absurdo? Sí. ¿Que es la única explicación lógica? También. Esta situación es provocada, no es posible tanta estulticia y abandono de las más elementales reglas, aquéllas que han sido observadas religiosamente durante 150 años de desarrollo del capitalismo. Y de repente, en los diez últimos años, hey, a calzón quitado vamos a meternos una pasada homérica que merezca ser contada. Luego veremos qué sucede. Aquí se han quemado etapas a lo bestia, se ha forzado el sistema muy por encima de sus posibilidades, se ha quemado a propósito. Y sólo se me ocurre una causa para hacer eso: la perentoria necesidad de cambiar un modelo basado en el consumo de unos hidrocarburos que se agotan. Un cambio así no se puede hacer en un sistema más o menos operativo que progresa a velocidad de crucero. Los individuos sólo cambian sus hábitos si no tiene más remedio, si perciben la necesidad de alterarlos para sobrevivir. Y me parece a mí que en esas estamos, toca el palo para reeducarnos. ¿Quién nos está breando con él? Pues supongo que gente como Rex Tillerson y sus señoritos. No sé, probablemente son memeces sin sentido, siento haberte metido semejante turre, no era mi intención, pero me lié. Si llegas a leerlo, y te quedan ganas, cuéntame. Y si no, no pasa nada, la parte que me importaba ya esta cumplida. Mucho mejor.

Gracias.

El mundo de los humanos no es una excepción, aunque es cierto que nuestro cerebro ha alterado el concepto de adaptabilidad al medio, y hoy en día los procesos tecnológicos han sustituido en gran parte las limitaciones físicas. Pero aún así la selección natural y la evolución del mundo en la actualidad, sigue fiel al concepto de que sólo los capaces de evolucionar en la correcta dirección tienen futuro.

Esa implacable ley universal ha marcado siempre la diferencia en el mundo empresarial. Las corporaciones bien gestionadas sobreviven e incluso fagocitan a la competencia más débil. Otras, simplemente mueren y desaparecen, incluso dejando a sus creadores en una complicada situación deudora que les impide o dificulta futuros reintentos empresariales. Es decir un proceso perfectamente comparable a la más eficiente selección genética de la naturaleza, donde los menos capaces se extinguen sin continuidad posible. Lógicamente cuando el entorno se vuelve hostil repentinamente, la escabechina es enorme, y sólo unos pocos elegidos superarán la dificultad.

Hoy estamos ante uno de esos tiempos en que el mundo empresarial se enfrenta a una situación muy hostil y relativamente súbita: Reducción drástica de las ventas y ausencia de crédito. En este escenario muy pocas empresas van a sobrevivir si la situación no mejora a medio plazo. La recesión/depresión es un proceso con inercias muy grandes y con pocas soluciones que vayan a cambiar su rumbo de forma ágil. Pero lo peor es que no es suficiente con reducir costes o gastos, porque prescindir del endeudamiento de la noche a la mañana es inasumible para la mayoría. Así, «buenos negocios» están cerrando porque la imposibilidad de renovar los créditos les arroja a situaciones concursales sin remedio. La pregunta que cabe hacerse es: ¿Podemos considerar «buenos negocios» aquellos cuya supervivencia depende de la financiación externa? No en este Nuevo Mundo.

Muchas voces exigen que los bancos vuelvan a generar el flujo crediticio suficiente para que esas empresas que ganaban dinero y que parecían estables, puedan seguir en pie. Parece que es culpa de los bancos que muchas empresas cierren, con los consiguientes despidos y miseria social. Quizá sea una injusticia, pero la realidad es que el entorno empresarial se ha vuelto muy hostil. El resultado es y será devastador, pero los empresarios quizá debamos lamentarnos menos y adaptarnos más al medio hostil en el que nos encontramos. Entre otros motivos porque muy probablemente el flujo crediticio no va a restaurarse en los niveles conocidos jamás, y también porque si lo hace moderadamente va a ser causando un deterioro macroeconómico muy considerable, creando a su vez un entorno también muy hostil para la mayoría de empresas.

Por todo ello, la consigna política y popularmente aceptada que exige a la banca una mayor circulación del crédito, es discutible aunque pueda ser justa. La trampa de morosidad en la que se ha metido la banca (no sólo la española), prestando temerariamente a cambio de inmuebles burbujeantes y solvencias frágiles, se va a ver agravada por los efectos de la propia depresión económica a corto plazo. Hoy la banca presta con cuentagotas, y lo hace por dos motivos: El primero porque los excesos cometidos asustan y el escarmiento es palpable; pero también porque los balances están en caída libre por sus extintos beneficios y, lo que es mucho peor, por su previsible fallida técnica que precisará de ayudas públicas de todo tipo. Materialmente la banca no puede permitirse prestar a mayor ritmo. Aunque quisiera hacerlo. Sus esfuerzos se centran en su propia supervivencia, y les crecen los enanos en forma de morosidad, incapacidad de gestión de inmuebles, caída del beneficio operativo, aprovisionamientos récord, etc.

Por todo ello, parece que Darwin estará más presente que nunca en los masivos cierres empresariales. En este nuevo mundo depresivo un «buen negocio» es incompatible con un endeudamiento ni siquiera moderado, a no ser que los propios accionistas financien la empresa, como está sucediendo en muchos casos. Estas empresas financiadas por sus propios dueños serán la especie que sobrevivirá al medio hostil al que nos enfrentamos, juntamente con las privilegiadas que no precisen endeudarse. De ellas será el futuro. Quizá deberíamos dejar de demonizar a la banca como si tuvieran la obligación de hacer circular ingentes cantidades de dinero (nuestro dinero) para mantener en pie a gigantes con pies de barro debido.

Ese modelo de crecimiento empresarial basado en la financiación externa ha funcionado durante décadas, y el crecimiento ha sido sostenido y espectacular, teorizándose mucho al respecto. Pero parece evidente que quedó atrás, a pesar de nuestra incredulidad. El presente y el futuro será de unos pocos privilegiados que deberán crecer y expandirse a menor ritmo, con apalancamientos muy moderados y unos balances mucho más sólidos. Al menos hasta que seamos capaces de concebir mayores crecimientos que no se basen en el apalancamiento crediticio, que esperemos que esta vez sean más sostenibles. Darwin será implacable con todas las empresas, incluidas entidades financieras, solo que a éstas les echará una mano Keynes.

Words are superfluous when you visit the website that has been created ad hoc so that the American people are aware of where the public money being spent on the American Recovery and Reinvestment Act.

«Recovery.gov is a website that allows you, the taxpayer, to find out where the money from the American Recovery and Reinvestment Act is going. There will be a few different ways to search for information. Within days of the legislation being signed, federal agencies will begin distributing funds, and you will be able to see which states, parliamentary constituencies and even federal contractors are receiving them. As soon as we are able to, we will present that information visually, using maps, charts and graphics.»

Here, taxpayers will not only find the most comprehensive account of where their money is going and how it is being used, but also an interactive tool to give their views, report irregularities, comment on specific cases, put forward ideas, make complaints, share experiences regarding how the Recovery Act is affecting them personally, and so on… In short, an exceptional tool for exceptional circumstances.

Regardless of the effectiveness of the American Recovery and Reinvestment Act, an initiative such as this government website inspires a great deal of confidence and promotes transparency. It also boosts morale at a very difficult time for the whole world and helps restore the pride and self-esteem of the American people, who are about to face the worst depression ever seen. It is a matter of substance – the rigour with which such extraordinary resources are allocated – but above all of form, as it demonstrates, at the very least, the intention to ensure maximum transparency. The actual implementation, which will be carried out by various politicians across all the US states, is another matter entirely. But this website is a clear statement of intent that many of us in Europe envy. Do take a look at the welcome video:

Can you imagine something like that happening in the European Union? I can’t.. Not even Zapatero, Merkel, Papoulias, Cavaco or Berlusconi would make a compromising video like the one that the Obama's Team hangs on the very Recovery.gov, which we have included above. To begin with, the fragmentation of bureaucratic powers would make it impossible to reach the prior decision that has been necessary for the AR&RA; (American Recovery and Reinvestment Act) sees the light of day. Moreover, it should do so diligently and efficiently – something unthinkable in a European parliament such as ours. State-centred mistrust and short-sightedness would be the order of the day, and the ECB It would be just one more voice when it comes to exercising the right of veto, which, moreover, would be necessary in the face of so much political incompetence and second-rate bureaucracy. It would be Eurosclerosis itself taken to the level of historic political and economic decision-making. Furthermore, the leadership required to take decisions of any kind is lacking in Europe; indeed, it has not even proved to be agile, effective or courageous when it has had to take sides in international conflicts. It is unthinkable that the current EU President (a curious concept) should make decisions of any significance during his a glorious term. In fact, current legislation does not even give him the power to attempt it, and all Europeans are aware that it would be reckless.

Regardless of whether one might debate their responsibility as the main culprits behind the situation we have reached, there is no doubt that the US is the country making the most extraordinary and historic efforts to try to mitigate the global collapse. Fortunately, global leadership in steering the ship through this depression lies with the US Government, which represents the necessary – though perhaps not sufficient – change of course to prevent the world from suffering irreparable damage. Let us imagine that it were Europe that had to lead the global economy and politics in the bleak present and future scenario: our chances of even minimal success would be nil. We are neither prepared nor organised to lead the world in difficult times. We have not even been capable of doing so in times that now seem peaceful by comparison.

A case in point: on 25 November, when Esperanza Aguirre left Mumbai in a hurry following the extremist attacks on various hotels, there was considerable diplomatic chaos. Various EU politicians were attempting to coordinate the evacuation of their compatriots during a few hours of utter confusion. A Spanish MEP (the chair of the European Parliament delegation, and the last EU diplomat to leave Mumbai at that time), who found himself right in the eye of the terrorist storm, attempted to evacuate several EU citizens via the emergency arrangements set up by some prominent German MEPs in the European Parliament. But their response was a true statement of political and humanitarian intent: «Only Germans»And it is in such difficult times that one’s true nature comes to the fore and the true political and personal calibre of any so-called leader is revealed. Not even a Spanish or Italian citizen can use or request the services or support of an embassy or consulate of an EU Member State other than their own when travelling abroad, for any administrative procedure or formalities as a mere tourist. It is deplorable and shameful for an EU that claims to be more than just a bureaucratic mega-structure, the partridge a high-stakes poker game or the healthcare team single-use and disposable.

It’s just as well we’re not world leaders, because we’d do a very poor job of it in the situation that lies ahead. In this case – and without this setting a precedent – I’m glad to be tagging along behind the BHO effect in this global recession. We certainly stand a better chance of survival this way than if an old, ossified, weary, bourgeois, divided, corrupt, disillusioned and sceptical Europe were to take the lead.

I shall face the day-to-day political, economic and financial news from our exasperating Europe in the best of spirits. And I shall periodically renew my enthusiasm, my confidence in the future and my motivation by visiting Recovery.gov and catching up on the details of the measures taken to help others recover.

These are exceptional measures designed for extreme situations. The situation facing these banks is so precarious that they can no longer exchange any more property for cash. Furthermore The Ninjas will be grateful and they will, at least for the time being, go from being Ninjas to be Squatters. But with a «c» rather than a «k», as their radicalism and alternative approach have gone hand in hand with the state’s financial authorities themselves, and it is the banks that have decided to halt the enforcement proceedings. It is these financial institutions that ought to be called Bankos, and we’re not talking about Triodos Bank. Seeing is believing…

If these practices are not rolled out, even on a temporary basis, the social problem posed by millions of people facing eviction would become unsustainable. This applies both to society and to financial institutions, which are physically unable to convert any more loans into property. Both need the state’s help to keep these mortgages afloat. Whether this involves retaining ownership of the properties or, in some cases, transferring ownership to semi-public bodies (Mac & Mae) or other entities created ad hoc, whatever they may be called bad banks or bad owners (such as alternatives to SOCIMIs or REITs, for example). In other words, property owners de facto, whether or not they are owner-occupied, and whether they are run on a for-profit or quasi-public basis, which maintain permanent purchase options for their occupants in exchange for «the will«. In a sense, that – and no other – will be the best market price for these properties, since in most cases, if the foreclosures were to go ahead and the banks were to flood the market with millions of properties, supply would overwhelm the limited demand, causing prices to plummet to levels that are difficult to assess.

No one will fail to notice the source of the funds needed to keep financial institutions afloat and the creation of these funds bad owners. Just as we have argued in various articles that the socialisation of bank losses was a necessary injustice, we also believe that the mass socialisation of these mortgages is an inevitable injustice. We say ‘harm’ because the taxes paid by solvent citizens will be used to partially pay for the homes of those who recklessly sought to become homeowners on precarious terms. And also because the complicit financial institutions will not pay for their recklessness through their just and Darwinian extinction. Why are both these arbitrary measures in our interests? Because there are so many of them, and the sums involved are so vast, that bringing them to justice would undermine the very foundations of society and the financial system. If we add to this a looming economic depression, the result is that the socialisation of the losses (of financial institutions) and of the mortgages of those involved becomes a vital necessity for everyone.

Meanwhile, the number of non-payments in Spain is rising in tandem with unemployment, and is inversely proportional to the consumer price index. Some Spanish banks (only those at the top of the rankings) boast that they have the financial strength to withstand defaults and mortgage repossessions until the end of 2010. It is true that Spanish mortgage holders, unlike American squatters, use all their personal assets as collateral for these mortgages, but despite this, the economic downturn is set to cause defaults to soar far beyond what the Spanish banking sector can withstand. From that point onwards, we are also likely to see the socialisation of mortgages in Spain.

«There cannot be a thriving and happy society when the majority of its members are poor and unhappy.«
Adam Smith (1723-1790)

«The dispossessed have a world to win.»
Karl Marx (1818-1883)

If Marx and Smith were to look up…

In fact, just a few years ago, these issues were traded indiscriminately in the same risk segment as senior debt maturing from multinational issuers. And this was relatively understandable, as neither the prices nor the creditworthiness of these issues had ever been affected. It’s true that nobody could explain what lay behind those indecipherable, technical Anglo-Saxon names. But what the hell! After all, everyone was investing in indecipherable financial products! In fact, anyone who didn’t was dismissed as an investment illiterate, becoming the butt of jokes amongst their social circle. and, above all, banking.

It was unthinkable that this nebulous fixed-income product, created by financiers at the behest of investment speculators (a prescient article from June 2007), could result in losses for their holders. After all, it was a fixed-income product. But we now know that it was only as ‘fixed’ as the profits of the underlying institutions (which we would never have imagined could falter), or as ‘fixed’ as a ninja’s ability to pay their mortgage. Who could have predicted that financial institutions (not just banks) would disappear or require massive bailouts; or that mortgage loans would be granted to insolvent households in a systematic, widespread and perverse manner? Of course, the credit rating agencies do not, and back then they looked just like the Bible.

It is not, therefore, a question of demonising those who sold those emissions a few years ago, when no one could have imagined that they might become worthless. They were marketed as safe because, at the time, no one could claim otherwise. But from the summer of 2007 onwards, the financial world began to change. And those securities began to lose value, although we continued to view them as a safe product that simply offered more attractive prices. Since then, the situation regarding this type of security has changed radically, and along the way most of us have stopped viewing them as a safeguard, a safe asset, and now regard them as risky investments. This has been happening gradually, and the personal impact has depended on each individual’s adaptability and agility in analysing and responding to this dramatic and ever-changing reality. It is understandable that the reaction of advisers and bankers may have come later than would have been desirable, and that their supposed training and expertise may not have been sufficient to safeguard the bulk of their clients’ assets. What is reprehensible, however, is that there are still advisers and/or bankers today who continue to regard this type of investment as a safe fixed-income asset with which to protect wealth, without having adapted to the reality of the situation.

In this way, they are allowing, The Death of the Frog of their clients, despite the fact that some of these securities have literally plummeted due to the very volatility of that market. And many have been unable to react, not out of mere incompetence but due to a lack of honesty with themselves and with their clients. The directives from the institutions they work for are, even today, to hold on to these investments and even buy more at ridiculous prices to make up for the losses. They have completely forgotten the origin and rationale behind these portfolios, which have long since ceased to be stable and secure and are now crumbling one after the other, sweeping away a lifetime’s worth of savings and hard work.

The enquiries received would not be quite so dramatic if, just a few months ago, the managers and advisers of their respective portfolios had taken the bull by the horns. If they had explained that their clients’ portfolio assets had, in these turbulent times of financial crash, become high-risk investments. It might even have been reasonable to attribute the blame to the financial collapse itself, thereby exonerating those advisers. And although clients would have criticised them for having given poor advice from the outset, the advisers’ defences would have been supported by the exceptional circumstances of the systemic crisis and also by their professional integrity. But what really matters is that a greater proportion of clients’ assets would have been saved (even though their returns would have fallen dramatically). Unfortunately, many professionals did not do this and preferred – and still prefer – to advise under the head-in-the-sand attitude and, what is far worse, the marketability.

These issues, as high-risk investments, may represent another option for investors, but they must be aware of the risk of non-payment of interest or coupons, as well as the risk of a credit event or even default, and consequently their extremely high volatility and potential loss of value.

When it comes to issues by relatively sound banks, such as those proposed by Fernan2 o Llinares, may represent an attractive investment, but they should never be used to safeguard a lifetime’s savings. They have become high-risk investments, and as such they have their own following. Even the issues we are seeing in the portfolios featured in the enquiries we have received – despite the fact that most of the issuers currently have dubious creditworthiness – could also find a place in a portion of certain investors’ portfolios. But the dramatic thing is that they continue to make up the bulk of these portfolios, which were originally designed to safeguard all a family’s assets and protect them from the risks of the stock market.

You can well imagine the result: the savings of workers who, through a lifetime of hard work and sacrifice, have managed to accumulate hundreds of thousands (or even a million) euros, only to suffer losses of 60, 70 and even 80%. Savings which, now in their old age, have been lost without them ever having wanted to put them at risk. Deficits that their managers and advisers have been unable or unwilling to cut in time, and which, even today, when one bond issue after another is failing to pay even the interest, they continue to justify with the slogan «Once all this is over, the exchange rate will recover«I repeat that It is not reprehensible that they recommended this type of RF a few years ago. But what is utterly unforgivable is that they were unwilling to respond courageously and honestly to products which, for many months now, have objectively ceased to be suitable for safeguarding assets. That, and nothing else, was their job.

It is also very difficult for us to have to open these families’ eyes to the reality of the situation. They come to us with such desperate situations that they have led them to lose trust in the bank in which they have placed their faith and their assets all these years. They arrive for consultations in a state of panic, seeing that the balances in their investment portfolios are dwindling month after month. Yet they still want to believe what their bankers and advisers tell them, and cannot bring themselves to believe that their future has changed so radically at this stage in their lives, through no fault of their own. Obviously, there is also no guarantee that all these issues will be phased out one after the other, as some have already begun to be. Therefore The million-dollar question these families need to ask themselves is whether the current value of their portfolios is really vital to their lives. If the current residual value of their savings is a risk they can afford to take in the hope of a potential recovery, perhaps they could hold on to some positions and keep their fingers crossed. But if losing the remaining value of your assets at current valuations (15 or 25% of what they were just a year ago) is a risk you cannot afford to take, you have no choice but to sell and protect your capital in line with current criteria.

It has always been harder to face reality than to live in self-deception, but the consequences of failing to respond courageously to adversity often lead to terrible outcomes. A tragedy and an injustice.

This trend towards an increase in part-time work inevitably leads to a substantial reduction in earnings. The fact is, however, that there are many full-time workers who, once they have lost their jobs, will struggle to find even part-time work. Whether because of their age, their physical condition, their professional qualifications, their geographical location (living in an area where there are no part-time employment options), etc.

In short, we are now witnessing, to our disbelief, a Western society where people are left out on the streets and are beginning to desperately seek out part-time jobs to scrape by. The problem is that these decimated earnings are not enough (and in many cases they are not) to enable these families to put food on the table and pay the rent on a flat in which they are crammed together. But another major problem is the debt that these families have accumulated during the recent ‘golden age’, when the banks and the system led them to believe they were middle class. And there are no part-time jobs that can cover a mortgage, a car and a holiday for which the instalment is still due for the all-inclusive. They will never be able to pay off their debts, and will have to focus their efforts on working part-time solely to buy food and pay the rent for a few years. This is likely to be much longer than would be desirable and than financial institutions are willing to tolerate.

The only priority now for this majority segment of society is to secure a few part-time jobs so they can put a roof over their heads and put food on the table. All other debts are now being neglected. Financial institutions are turning into pseudo-estate agents – acting as everyone’s unwitting money changers, exchanging funds for devalued gadgets and superfluous luxuries. And with balance sheets that are extremely difficult to balance, despite the inflated profits they still report.

Part-time jobs and debt default are concepts that, unfortunately, go hand in hand in a climate of credit abuse. And what we used to call the middle class is now tragically and rapidly being transformed into the poor or lower classes. The dreams of millions and millions of people are being shattered into a thousand pieces as they lose their jobs, their mortgaged or indebted assets, their creditworthiness and, in many cases, their dignity. And we are not just talking about immigrants – far from it.

When the economy is collapsing as it is doing, social impoverishment is merely a matter of time in a deeply saddening countdown. Unfortunately, many are already working part-time.

Being m = the amount of money in circulation; v = the speed at which it flows through the financial system; p = price of things; and q = the amount of output (GDP).

In the expansionary scenario we left behind, financial innovations strongly boosted the flow of money (virtual or real) into the system. But now we are in the opposite situation. The dryness of credit circulation causes consumption to collapse, thus feeding back into the very dryness of money flows. It is therefore inevitable that the velocity of money circulation (v) collapses. The million-dollar question is: What should we do to compensate for the decline of v and that the rebalancing of the formula does not relegate us to extreme poverty? Leaving aside the classical theoretical considerations and taking the rest as variables, we have several options, but all of them very mathematical and unfortunately not very human., as we shall see below:

1. Increase mCentral banks are on board. In discreet euphemisms, but they are doing their job. easings (suggestions for translation welcome) quantitative and qualitative by the bucketload. In other words, everyone against the fire. At the end of the article, I will give you the English definition of these two concepts
2. Increase pPrices (CPI) seem to be sinking or at best staying the same, despite the efforts to make them rise in terms of the prices set by the States themselves: public services, supplies, etc. In other words, demand is falling, but desperate efforts are being made to keep prices afloat so that the little formula does not collapse too much.
3. Increase qProductivity, divine treasure. Spain is the antithesis of what GDP growth should be. But it seems hard to imagine that global GDP can compensate for the formula at all, even if we keep hope in emerging countries such as China, India, Brazil, etc.

In short, given the dryness of the financial system, collapse can only be avoided by increasing the rest of the variables. until the restoration of the expansive equilibrium (or imbalance).. Global production can only be saved by the emerging countries. But with the first world (a creaky definition) in a deep depression, it seems very difficult for emerging growth to compensate to any great extent. They are our only hope, and yet double-digit growth is already history. Crisis, not collapse, is also hitting these countries. As for prices, those that can be set by governments will probably rise disproportionately. But falling consumption will drag prices down, and the average will hardly rise above the minimum required for bureaucrats and optimists to be able to boast that the recession is behind us. If it does happen, it will be intermittent, as in the 1930s at best. And as for the increase in money in circulation, one need only read the news. Central banks issue, exchange money for junk, buy sovereign and tainted debt, etc. Some voices even pointed to new modalities in the increase of the m, The central banks' own debt issuance, for example. For the first time in history, both qualitative and quantitative concepts are being applied at the same time.:

Quantitative easingIncrease in the size of the balance sheet of the central bank through an increase in its monetary liabilities that holds constant the average liquidity/riskiness of its asset portfolio.

Qualitative easing: Shift in the composition of the assets of the central bank towards less liquid and riskier assets, holding constant the size of the balance sheet, and the official policy rate and the rest of the list of usual suspects.

It will now be clearer to understand why I have said that the options for compensating for the fall of v in the formula are more mathematical than human. We are already living, even if many still want to think that in a year or two everything will be back to the «...".«normality«The "depressive spiral" is going to be very difficult to escape from without leaving behind many victims. Of all kinds. Both sides of the equation will be greatly diminished.. The question is whether we should continue with an inflationary growth model like the one we have been following. mv=pq, or, on the contrary, we can create wealth sustainably without reaching the absurd supra-generational loop of bubble-collapse-bubble. But just as a politician is unlikely to think of sacrifices and government decisions that will yield results beyond the terms of office in which he or she can be re-elected, we cannot be expected to devise economic systems that are sustainable beyond our own generations. If we are offered the possibility of patching up the known system, so that we and our children die of old age without living through a liquidity trap and a collapse of the Financial System, how many would gladly accept? My admiration for those who would prefer to purge all our guilt now and sow, sacrificially in the coming decades, a new system from which our grandchildren and beyond would benefit, but personally I confess that I find it difficult to think beyond the future of my children.

Only he who builds the future has the right to judge the past.
Friedrich Nietzsche (1844-1900)

If you don't think about your future, you won't have one.
John Kenneth Galbraith (1908-2006)

However For many, work is still a right that an evil, exploitative entity cruelly denies them in exchange for greedy profits, and for which we must fight through protest, threats and social pressure.

The bar for securing new jobs in the near future – and indeed right now – is rising day by day. In other words, wages for highly qualified staff are falling, whilst competition for unskilled roles is fierce and candidates are disproportionately well-prepared for those tasks. Supply and demand, after all, but they turn into harsh realities accompanied by deeply personal tragedies.

In this setting, I read an article by Putabolsa with the straightforward title «Looking for work» which I would like to modestly highlight here. I find it a sincere and honest piece, though in my view somewhat overly defeatist, written by someone who is a leading figure in the world of stock market blogging in Spain. Yet another example of how a situation is unfolding that has long been on the cards. I recommend that you read it and don’t miss the nearly hundred comments of all kinds received on the post in question, some of which come from the most prestigious bloggers in this country. As for me, Cesc, I’ll repeat what I already told you in comment number 59 (although I know that isn’t the point of your article). All the best, and see you soon. I’ll leave you with a pithy quote from that article:

«If you're one of those who still have a job, whether it's a crap job or a a real treat »It's a really well-paid job – count yourself lucky, believe me."

Bitchbag.

The other day I was talking to a businessman about this bleak social future, and he said to me: «In Spain, we’re not going to learn our lesson; the middle class will weather the storm and carry on with its reckless habits of producing little and getting heavily into debt.» But I suppose not. That inertia, ingrained in the virtual welfare state, is going to be corrected the hard way. Not only will the social crisis last for one or two years, but we will not be able to survive without radically changing our way of life through many, many casualties. And when we say casualties We are talking about companies that vanish off the map, fortunes that are wiped out, and modest household incomes that are literally left out on the street. And what will happen to these millions of people who are left without any means of support? It is not hard to guess, provided we do not bury our heads in the sand. The former middle and lower-middle classes, whose unemployment benefits are about to run out with no prospect of securing any other income, will have no choice but to turn to crime, emigrate (where to?) and, at the same time, protest and make their discontent known. At first, this will take the form of more or less organised demonstrations and strikes of all kinds, but after a few months, this social emergency affecting millions of people will lead to street riots and a breakdown in public safety. Common sense tells us that the immediate future lying ahead of us cannot be any different, even though we are inclined to look the other way.

The venue will be a unimaginable hell for the generation of young people who bought and owned everything, thanks to credit and their ancestors’ savings. But that will be his subjective view, and in reality we are heading towards a scenario that is all too familiar in Central and South American countries – in other words, neither hell in the strict sense nor unimaginable. South American society has existed for many decades with virtually no middle class, comprising a small, affluent minority and a poor majority who struggle to get by and make a living (not a life of luxury) as best they can. And let’s not even mention African society, which doesn’t even attain the status of society. In the East, too, we can find examples of societies facing difficulties that are a far cry from the Western welfare state we are familiar with. But it is perhaps easier to extrapolate our imminent future by looking at our Latin American counterpart.

Generally speaking, public safety in these South American countries leaves a great deal to be desired. And it cannot be otherwise in countries where the majority of the population lives in precarious conditions. We can improve and soften the image we have of these countries as we see fit before comparing it with what we anticipate will happen in Spain. We might think that our precarious situation will stop halfway towards the current situation in any South American country, or that recovery will come even before we reach that halfway point. But this is the direction we have taken, and no other.

I suppose some of you will say it’s an exaggeration to talk of riots in Spain, but the unrest that has started in Greece and France will undoubtedly reach our streets. It’s only a matter of time. There are currently more than 1,000,000 families in Spain in which all members are unemployed, whether they are receiving benefits or not. And we are only seeing the tip of a growing iceberg that is still being fuelled by public subsidies. A macabre countdown to waking up from a dream into which many were already born. This means they are unaware of any other way of life, and that the shock will be far more traumatic. These generations will try in vain to revolutionise the world (through unrest) in pursuit of a once-in-a-lifetime dream, with no other point of reference for what the world of the 20th century was like before these young people were born. This generation will soon begin to ask itself: Is there life beyond credit? And the answer is ‘Yes, but it’s much worse, my dear friends’. Welcome to the real world, No more blue pills.

The shock caused by this recession amongst young people of the ‘credit generation’ does nothing to improve the prospects or the timing for a global recovery; quite the contrary. And the effects of this scenario on middle- and high-income households are becoming increasingly evident day by day if we analyse the situation honestly and rigorously calculation of changes in net worth in the past, present and future.