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Ekonomi 02 (2019) 155–204 Journal of Ekonomi 02 (2019) 155–204 Ekonomi journal homepage: https://dergipark.org.tr/ekonomi Novacene: The emergence of low cost microchip enabled information-economy from inexpensive petroleum based mass-production economy aTunç Özelli aNew York Institute of Technology, New York City, New York, United States. ARTICLE INFO ABSTRACT Keywords: The text examines the main insights of the new sciences and disciplines, and shows how they reveal the flaws Asset manager capitalism of orthodox NEOCLASSICAL ECONOMIC THEORY hacked from NEWTONIAN PHYSICS, in explaining and Managerial capitalism predicting the catastrophic events of the near economic history, and provides new ways of understanding the Attention merchant’s capitalism role of Alan Greenspan’s monetary policy of the United States [1987-2006] in the emergence of unimpeded Chimarica global dominance of plutocratic intangible economy of ASSET MANAGER CAPITALISM that simultaneously produced a decade long secular stagnation in the rich world with global sharp steady increases in inequality of wealth and income distribution during and after the 2008 financial crisis. A brief history of the transition from MANAGERIAL CAPITALISM of nation states of the post-World War II institutionalized with the BRETTON WOODS AGREEMENT, to global ASSET MANAGER CAPITALISM, is presented to enlighten CHIMERICA’s evolution [China+America], and President Trump’s attempts to dismember it by enabling the emergence of a bipolar world- TECHNOLOGY COLD WAR by weaponized global interdependence. The globally interdependent techno-sphere is shown as an enabled outcome of the implementation of WASHINGTON CONCENSUS of Anglo-American ASSET MANAGER CAPITALISM, that survived a comatose near death experience in 2007-2008. The major warriors and battlegrounds of THE TECHNOLOGY COLD WAR are identified. The text shows how GAIA THEORY sheds new light on economic growth, how fuzzy logic affects the national accounts, how accounting systems over-value the assets of publicly traded multinational companies balance sheets, and how network theory reveals the value of relationships, and argues that the economy needs to be viewed as a complex, chaotic system, as scientists view nature, not as an equilibrium seeking NEWTONIAN construct. 1. Mise en scene In the self-regulating banking system, put in place with GRAMM-LEACH- transparent mutual of 600+ unlimited partnerships of about equal size to BLILEY FINACIAL SERVICES MODERNIZATION ACT that with President profit seeking oligopolies of broker-dealer owned dark pools of fragmented Clinton’s signature in 1999 repealed GLASS-STEAGALL BANKING ACT OF 1933 markets served by proprietary high-speed computer trading firms as with FED’s CHAIRMAN, Alan Greenspan’s enthusiastic lobbying, 97% of money explained by Walter Mattli in DARKNESS BY DESIGN: HIDDEN POWER IN that were in the hands of the public consisted of bank deposits, and in the GLOBAL CAPITAL MARKETS1 [Princeton University Press 2019]. absence of a state-issued debt-free money, money needed for an economy to After 200 years of not-for-profit, member-owned U.S. exchanges have function, had to be borrowed from the banking sector, and hence the lender of transitioned to a for-profit model that has proven itself to be costly to last resort, the Central Bank. investors, unfair to broker-dealers and rife with conflicts for the exchanges After the implosion of NASDAQ’s dot-com bubble in March 2000 that the themselves. The exchanges geared to serve their shareholders had evolved GREENSPAN PUT was instrumental in inflating, Greenspan kept the benchmark price for money below 2% for too long at the beginning of 21st century, and thus to favor the high-frequency trader. Institutional investors moved into dark, enabled the residential real estate bubbles in the United States and in different opaque pools. In 2007, the NYSE launched a $500million initiative, PROJECT scales in various parts of the world, and in 2007 the real estate bubble collapsed ALPHA, building a mammoth computer trading facility in Mahwah, New in the United States ushering in a full blown global financial crisis in 2008, and Jersey. With PROJECT ALPHA high-frequency trading had officially taken that led to massive bailouts of the global financial system by their central banks over the BIG BOARD. While the floor remained open for business, it was a and by their governments. shadow of its former self, a puppet show for TV as the NYSE share of trading During the 19 years [1987-2006] Alan Greenspan was at the helm of fell to about 20% from 70-80% explained Scott Patterson in DARK POOLS: monetary policy, at every opportunity he had to address the law makers at the THE RISE OF THE MACHINE TRADERS AND THE RIGGING OF THE U.S. STOCK CAPITOL HILL, he lectured them on how unimpeded competitive markets MARKET1 [Patterson 2012]. According to The ECONOMIST1, US equities deliver optimal welfare, and that the financial institutions which create money, trading market shares 5-day average to September 25, 2019 for Off exchange and through which money is allocated, have no independent effect on the real was 36%; NYSE was 21%; NASDAQ was 20%; CBOE was 19%; IEX was 4%. equilibrium of the economy, but are only acting on behalf of well-informed CBOE focuses on exchange-traded funds. Michael Lewis in FLASH BOYS: A sovereign consumers. Meanwhile, during his reign at unprecedented numbers 1 Wall Street apparatchiks rewarded each other never before seen bonuses for WALL STREET REVOLT [Lewis 2014,2015] cast IEX as champions of the profits they made from NASDAQ’s dot.com bubble Greenspan called ordinary investors against rigged markets with fair and simple fees. IEX also “irrational exuberance”, and “irrational exuberance” jump-started the routes orders over a ‘speed bump’, a coil of fiber-optic cable that slows access intangible economy. And most of the law-makers, from the ways they voted, to the market by 350 microseconds. By 2020 markets from Toronto to seemed to have bought in Greenspan’s official storyline, even when, Moscow declared their intentions of using some sort of speed bumps Greenspan’s official storylines were in stark contrast to the radical structural championing the average investor. transformations of the banking system as the bundling of Wall Street and Trading in 2019 in US equity markets is split between 12 public exchanges commercial banking under CITIGROUP’s roof, and the NEW YORK STOCK and many more off-exchange trading venues, including about 40 ‘dark pools’ EXCHANGE’s transformation from a relatively that match buy and sell orders but do not display quotations and over 200 ∗ Corresponding author. E-mail address: [email protected] (T. Özelli). Received: 02 May 2019; Received in revised from 21 June 2019; Accepted 06 July 2019 155 Özelli Journal of Ekonomi 02 (2019) 155–204 internalizing broker-dealers. This fragmentation is a feature not only of detailed summary. equity markets but also of other markets, including options, markets and During Greenspan’s reign, the forecasting models of the TREASURY and FOREIGN EXCHANGE [FX] markets. UBS, CREDIT SUISSE, DEUTSCHE BANK, the FED lacked a financial sector. The assumption that future prices would and BARCLAYS provided 43.5% of internalized dark pools of NEW YORK move in line with current expectations removed any need to take STOCK EXCHANGE in April-June 2016. The rest were provided by MORGAN precautions against financial collapse, despite a continuous history of STANLEY, JPMORGAN, CITIGROUP, BANK OF AMERICA MERILL LYNCH, and financial manias and panics. Aiming to minimize regulation, DYNAMIC GOLDMAN SACHS. Dark pools are trading platforms that match buy and sell STOCASTIC GENERAL EQUILIBRIUM models of the economy ignored the orders but do not display quotations. Dark pools report trade price and financial sector. quantity after executing a trade. They enable institutional investors to buy Greenspan with the enthusiastic lobbying of Lawrence Summers, Robert and sell large orders of stocks, block orders, away from the publicly quoted Rubin and Arthur Levitt was able to convince the law-makers to liberate market with minimal information leakage and price impact. finance from regulations and down-size whatever regulators were left, and Fragmented capital markets and their high frequency and algorithmic within a decade liberated finance span out of control, and imploded. But few trading are a growing reality in Europe as well as parts of Asia. In this hyper- months before the 2007-2008 implosion, Dick Chaney’s and George W. fast fragmented global marketplace, algorithms battle algorithms for trading Bush’s WHITEHOUSE, with impeccable prophesy, put a very competent dominance, preferential trading execution, and most sophisticated trading economic historian schooled in Milton Friedman’s and Anna J. Swartz’s A supercomputers deal not only in securities but increasingly across assets MONETARY HISTORY OF THE UNITED STATES SINCE 1867-1960 [Friedman classes, including futures, fixed income, currencies, and commodities, and and Swartz 1971]1, a play book for central banks on how to manage financial across hundreds of markets and dozens of countries. GLOBAL ALGORITHMIC crisis, showing the central bank’s management of the 1929 implosion as the CAPITAL MARKETS: HIGH FREQUENCY TRADING, DARK POOLS, AND wrong play-book, in charge of FED, Ben Bernanke. Bernanke’s academic REGULATORY CHALLENGES [Oxford University Press 2019]1, edited by reputation was grounded in his study of the GREAT DEPRESSION, Walter Mattli shows how frenzied activity of traders on the trading floors of particularly the pivotal year of 1933, when Roosevelt succeeded Hoover as New York, London and Chicago has been replaced by algorithmic trading and president of the United States. supercomputers in gigantic data centers connected by proprietary fiber The 2007-2008 FINANCIAL CRISIS started with some homeowners having optics and microwaves became extraordinarily complex and opaque bought homes they could not afford found it hard to make their monthly measured in milliseconds and microseconds beyond human perception.
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