The cover of the August 15-22,2011 New Yorker says it all.
Three Fat Cats in a lifeboat drinking champagne and smoking Cigars while the Titanic sinks in the background, with the smoke from the cigar morphing into a graph of massive economic decline.
All those people who think the problem with America is that we pay our workers too much and thereby make them uncompetitive must be sitting in that lifeboat.
For they advocate cutting worker's rights and removing pension and health care subsidies as a means of stimulating growth. What it will actually do is make it cheaper today for the owners of business who are also the (non)payers of taxes.
Their vision is one subsistence living in the land of plenty for the many so that the few may prosper?
The Republican politics as directed by the tea party resulted in a budget compromise which didn't address the cost of health care of medicare and medicaid and provided for no increase in tax revenues.
This is why Standard and Poors downgraded the USA. The main drivers of the deficit remain and the ability of the government to increase revenue i.e. tax income remains muted which will perpetuate deficit spending with no rational solution in the offing.
There are two ways out of deficit spending. Growth, or War- and their policies certainly aren't designed to stimulate Growth. They scream for austerity with nothing to increase employment which would increase GDP growth which increase tax income.
So are they preparing for the next war? I know they think they have god on their side?
Sunday 4 September 2011
Saturday 3 September 2011
What's Good for the Goose.....
I just love the fact that the big banks are upset with the Federal Mortgage Agencies who have decided to sue them for having sold them mortgages with shoddy if not outright fraudulent documentation.
Now our friends at the banks are using as a defense that the Federal Agencies were "the epitome of a sophisticated investor" and that "the forensic analysis of the mortgages" proposed should have been part of Fannie and Freddie's underwriting when they bought the securities.
The list of angry responses goes on ending, as always, that this suit will be "bad for the economy".
Now to be fair the last thing the banks need right now is a gazillion dollar lawsuit. But then again, when the banks were making a gazillion dollars selling "toxic" securities they were happy to pay themselves handsomely.
And when the music stopped and there were basically no chairs they fell over themselves to take TARP dollars. Goldman and Morgan Stanley even became banks to ensure their eligibility!
Now, when their balance sheets are relatively healthy again thanks to government support they revert to their old habits.
I am sure some of you are wondering what happened to "Buyer beware". Yes. There is definitely that aspect. But it is stretching the limits of that warning when the activities are fraudulent.
That is perhaps why the lawsuits are apparently aimed not only at the banks, but at the individuals who signed off on loan documentation which allegedly contained "materially false" statements about the quality of the underlying mortgages.
The proverbial "gander" in this case however is my friends at Halliburton who, interestingly enough, are suing BP over "inaccurate information" and "negligent misrepresentation" with regards to the Gulf of Mexico disaster.
Now that wording sounds vaguely familiar....
Now our friends at the banks are using as a defense that the Federal Agencies were "the epitome of a sophisticated investor" and that "the forensic analysis of the mortgages" proposed should have been part of Fannie and Freddie's underwriting when they bought the securities.
The list of angry responses goes on ending, as always, that this suit will be "bad for the economy".
Now to be fair the last thing the banks need right now is a gazillion dollar lawsuit. But then again, when the banks were making a gazillion dollars selling "toxic" securities they were happy to pay themselves handsomely.
And when the music stopped and there were basically no chairs they fell over themselves to take TARP dollars. Goldman and Morgan Stanley even became banks to ensure their eligibility!
Now, when their balance sheets are relatively healthy again thanks to government support they revert to their old habits.
I am sure some of you are wondering what happened to "Buyer beware". Yes. There is definitely that aspect. But it is stretching the limits of that warning when the activities are fraudulent.
That is perhaps why the lawsuits are apparently aimed not only at the banks, but at the individuals who signed off on loan documentation which allegedly contained "materially false" statements about the quality of the underlying mortgages.
The proverbial "gander" in this case however is my friends at Halliburton who, interestingly enough, are suing BP over "inaccurate information" and "negligent misrepresentation" with regards to the Gulf of Mexico disaster.
Now that wording sounds vaguely familiar....
Sunday 7 August 2011
Separate the Fools from Their Money-Part II
Sometime last year I wrote a piece on the foolishness of many European municipal treasurers who allowed themselves to enter into transactions which under the guise of providing them with lower funding costs actually put them into risk positions far outside the briefs and unfortunately their understanding.
This morning as I sat down to my coffee and the Sunday NYT I was somewhat bemused to see the headline "Wall Street's Tax on Main Street". Bemused on a number of levels. Firstly as the implication was that Wall Street was levying a tax on Main Street which is patently an incorrect use of the word tax.
Wall Street can charge fees to Main Street, and does. But to suggest that Wall Street taxes Main Street in the sense used, is ludicrous.
My bemusement continued as the article shifted from incompetent municipal treasurers to equally ignorant corporate treasurers such as the Boca Raton Medical and Surgical Specialists.
These brain surgeons entered into a 5 year financing with a 25 year swap attached to it. The loan had fees of 3.8% or US$ 800,000 on a 21 million dollar loan.
One can argue the fee structure. What one cannot defend is the bank's sale of a 25 year swap structure nor the corporate treasurer's willingness to enter into such a transaction. Whatever the supposed cost savings sold to the treasurer there is no way that the risk position associated with a 25 year swap could ever be logically explained to someone taking on a 5 year loan.
But annoyingly the article didn't focus on the inappropriate sale of swaps to unsuspecting and obviously incompetent borrowers. Instead it focuses on the level of fees associated with swap transactions and closes with the tired call for transparency in swaps pricing.
Fools have been separated from their money forever. To talk about fees and the "shadowy" nature of swaps pricing while ignoring the fact that the problem lies in the intentional use derivative terminology to bamboozle (obviously) easily fooled borrowers to assume risks they should never even entertain let alone enter into.
This morning as I sat down to my coffee and the Sunday NYT I was somewhat bemused to see the headline "Wall Street's Tax on Main Street". Bemused on a number of levels. Firstly as the implication was that Wall Street was levying a tax on Main Street which is patently an incorrect use of the word tax.
Wall Street can charge fees to Main Street, and does. But to suggest that Wall Street taxes Main Street in the sense used, is ludicrous.
My bemusement continued as the article shifted from incompetent municipal treasurers to equally ignorant corporate treasurers such as the Boca Raton Medical and Surgical Specialists.
These brain surgeons entered into a 5 year financing with a 25 year swap attached to it. The loan had fees of 3.8% or US$ 800,000 on a 21 million dollar loan.
One can argue the fee structure. What one cannot defend is the bank's sale of a 25 year swap structure nor the corporate treasurer's willingness to enter into such a transaction. Whatever the supposed cost savings sold to the treasurer there is no way that the risk position associated with a 25 year swap could ever be logically explained to someone taking on a 5 year loan.
But annoyingly the article didn't focus on the inappropriate sale of swaps to unsuspecting and obviously incompetent borrowers. Instead it focuses on the level of fees associated with swap transactions and closes with the tired call for transparency in swaps pricing.
Fools have been separated from their money forever. To talk about fees and the "shadowy" nature of swaps pricing while ignoring the fact that the problem lies in the intentional use derivative terminology to bamboozle (obviously) easily fooled borrowers to assume risks they should never even entertain let alone enter into.
Friday 5 August 2011
Growth IS the Answer
So the equity markets have their biggest one day fall since 2010 bringing up fears of 2008 and the fall of Lehman Brothers. The greed that led to the ever increasing leverage and more and more outlandish-some would say criminal-financial products that articulated the bull markets is now being overtaken by the other side of the equation.
Fear is now stalking the corridors of everyman. A continuing employment recession; a government trapped in its' own ideological straitjacket; a European fiscal crisis that keeps threatening to engulf the big players after swallowing the minnows- small wonder that the markets are in a tailspin.
And what is the apparent answer? Austerity. Cuts to the left of us, cuts to the right. It's as if none of the people making decisions, from the politicians at the top to the lowly employed at the bottom, have ever had to make any economic choices.
Throughout my years on Wall Street generally speaking when things got tough or when a new manager took over the first message to come across was the need to cut costs. Now that is not to say that one shouldn't look at the cost side of a business, but it was almost invariably done without any reference to the revenue side of the business other than to state the obvious-'there isn't enough revenue'.
And so the easy response is to cut costs. Easy because except for the guy who actually has to deliver the message it requires no great understanding or strategic insight other than to know-or more likely to think you know that that cutting costs will solve the problem.
But here is the crossover from the business world to the governmental one. One of the most apparent costs is headcount. You look at your headcount and make a quick revenue per headcount calculation and decide to cut 10 to 20%. So far so good.
But then something strange creeps in. How do you determine who to cut? The first to go are generally the youngest, therefore the cheapest and therefore the most expendable. They are followed by the politically inept, the complainers, and those that fall outside the golden circle which basically means are important to someone elses' business but not to the immediate business of the individual making the choices. The last to go are the big salaries who have a good track record and so despite the fact they might be having a tough year are saved.
So where is the crossover. In the range of spending cuts recently being enacted each party searches for cuts in the other's electorate. This is especially true of those congressmen following the dictates of their Tea Party constinuecy- or so the Tea Party members think. The truth is that they should all sit down together and actually come up with a bipartisan agreement as to what is important to cut "for the good of the country"- and what isn't.
And neither in the USA nor in Europe is there a serious discussion as to how to stimulate the economy, which of course would result in an increase in revenue. The focus is exclusively on the spending side. They introduce austerity in a Nimby sort of way and hope to have enough of a populist agenda to attract enough votes to stay in power.
Welcome to the continuing Great Recession.
Fear is now stalking the corridors of everyman. A continuing employment recession; a government trapped in its' own ideological straitjacket; a European fiscal crisis that keeps threatening to engulf the big players after swallowing the minnows- small wonder that the markets are in a tailspin.
And what is the apparent answer? Austerity. Cuts to the left of us, cuts to the right. It's as if none of the people making decisions, from the politicians at the top to the lowly employed at the bottom, have ever had to make any economic choices.
Throughout my years on Wall Street generally speaking when things got tough or when a new manager took over the first message to come across was the need to cut costs. Now that is not to say that one shouldn't look at the cost side of a business, but it was almost invariably done without any reference to the revenue side of the business other than to state the obvious-'there isn't enough revenue'.
And so the easy response is to cut costs. Easy because except for the guy who actually has to deliver the message it requires no great understanding or strategic insight other than to know-or more likely to think you know that that cutting costs will solve the problem.
But here is the crossover from the business world to the governmental one. One of the most apparent costs is headcount. You look at your headcount and make a quick revenue per headcount calculation and decide to cut 10 to 20%. So far so good.
But then something strange creeps in. How do you determine who to cut? The first to go are generally the youngest, therefore the cheapest and therefore the most expendable. They are followed by the politically inept, the complainers, and those that fall outside the golden circle which basically means are important to someone elses' business but not to the immediate business of the individual making the choices. The last to go are the big salaries who have a good track record and so despite the fact they might be having a tough year are saved.
So where is the crossover. In the range of spending cuts recently being enacted each party searches for cuts in the other's electorate. This is especially true of those congressmen following the dictates of their Tea Party constinuecy- or so the Tea Party members think. The truth is that they should all sit down together and actually come up with a bipartisan agreement as to what is important to cut "for the good of the country"- and what isn't.
And neither in the USA nor in Europe is there a serious discussion as to how to stimulate the economy, which of course would result in an increase in revenue. The focus is exclusively on the spending side. They introduce austerity in a Nimby sort of way and hope to have enough of a populist agenda to attract enough votes to stay in power.
Welcome to the continuing Great Recession.
Thursday 4 August 2011
The Fears of Contagion-but of what Malady?
The history of Europe has been a constant battle for Continental hegemony. The power players on the board have changed over the centuries with Germany taking pride of place as the most persistent contestant for the last 125 years albeit with a respite following the end of the Second World War until the game was continued following German reunification in 1989.
So it is with mixed feelings for much of Europe to see the rise of Germany yet again although this time in a much more acceptable fashion.
According to Fritz Fischer Germany's aims in the First World War were actually to create a ZEP of Central Economics Zone which at the time was looking to central and eastern Europe.
In the Second World War one of the underlying themes was to create Lebensraum-again in the east, for the future generations of Germans.
This time around Germany's rise to continental preeminence didn't ride in on the coattails of tanks and didn't include warped ideologies and armies of occupation.
No, this time around the virtues of organisation, a strong work ethic and the willingness to accept austerity measures on themselves-and now to expect that others follow-have led to a German-led Europe.
There are many, outside and even inside of Germany who have their doubts that the Greeks, for example, will be able to adjust to a German-style approach to solving their fiscal problems. There are also concerns that the Portuguese, and following the fears of contagion coursing through the psyche of the European markets these concerns are voiced on Portugal and Spain.
In France however, there are outright fears that the old enemy has completely and comprehensively outmaneuvered them and that the French star is setting for the foreseeable future.
The recent statements out of Britain actively accepting that they are on the outside looking in regarding continental developments highlights the comprehensive nature of the German renaissance.
Coupled with this German resurgence is the reappearance on the European stage of the Russians who also had a brief hiatus following the collapse of the Soviet Union. The real question is whether the contagion of which one speaks is a southern European one, or yet again a meeting of the minds between the Russians and the Germans.
Historically this has not been good.
So it is with mixed feelings for much of Europe to see the rise of Germany yet again although this time in a much more acceptable fashion.
According to Fritz Fischer Germany's aims in the First World War were actually to create a ZEP of Central Economics Zone which at the time was looking to central and eastern Europe.
In the Second World War one of the underlying themes was to create Lebensraum-again in the east, for the future generations of Germans.
This time around Germany's rise to continental preeminence didn't ride in on the coattails of tanks and didn't include warped ideologies and armies of occupation.
No, this time around the virtues of organisation, a strong work ethic and the willingness to accept austerity measures on themselves-and now to expect that others follow-have led to a German-led Europe.
There are many, outside and even inside of Germany who have their doubts that the Greeks, for example, will be able to adjust to a German-style approach to solving their fiscal problems. There are also concerns that the Portuguese, and following the fears of contagion coursing through the psyche of the European markets these concerns are voiced on Portugal and Spain.
In France however, there are outright fears that the old enemy has completely and comprehensively outmaneuvered them and that the French star is setting for the foreseeable future.
The recent statements out of Britain actively accepting that they are on the outside looking in regarding continental developments highlights the comprehensive nature of the German renaissance.
Coupled with this German resurgence is the reappearance on the European stage of the Russians who also had a brief hiatus following the collapse of the Soviet Union. The real question is whether the contagion of which one speaks is a southern European one, or yet again a meeting of the minds between the Russians and the Germans.
Historically this has not been good.
Wednesday 3 August 2011
Into the Wilderness
I had a number of heated conversations around my analysis of the Deficit Reduction Deal just signed in to law by Mr Obama. The gist of the arguments ranged from "what did you expect there weren't really any alternatives given the intransigence of the right" to "don't worry, Obama will get reelected in 2012 and then he will get down to business".
I am quite concerned by the whole range of the counter-arguments. I know that politics is the art of the possible and by definition that means compromise. But compromise means a move to the middle. I saw this as a lurch to the right.
Of course there are extremists on both sides of the aisle, but there is no question that the rise of the right within an already right leaning Republican party completely overshadows the supposed extremism of the Democratic left.
We need to keep this in context. Left or right, they are all capitalists. The question is merely one of unfettered versus regulated, and more importantly, the invisible hand of the markets versus the visable hand of a social conscience.
What makes America great is the opportunity open to all to get ahead. And what is crushing that opportunity is the use of base populism on an ignorant electorate manifesting itself as the Tea Party who are puppets dancing on the strings of crony capitalism-American style.
Look at the response to the deficit compromise. Stock markets retreat, spreads widen and the safe-haven trade marches relentlessly on. Cash, Treasuries and Gold continue to be the investments of choice and in the stock markets even the defensive stocks of Health Care and Defense are slaughtered on the altar of uncertainty.
The great American consumer in the form of individual equity investors is running for the hills. Hedge funds, the majority of which sold alpha and delivered beta are 75% in cash and still charging 2 and 20.
Instead all eyes are on China and how it will react in the event that the US is downgraded-which is still a strong possibility. The spending cuts voted in without any tax increases to help balance things leaves the government's hands tied as far as any stimulus spending is concerned to help stimulate employment.
We have the uncertainty of when, and frankly, what the rating agencies will do. In all likelihood they will wait and see. Wait and see who gets on the Committee of Twelve. Wait and see if more compromises are possible or if there will be six Republicans continuing their mantra of "No" and if the six Democrats suddenly find some steel in their spines only to realise that it is too late and that their line of defense has already been breached and the only thing left is to also say no leaving us with a government without the ability to govern.
Now I am not a student of the Great Depression but I know it lasted over a decade with many false dawns. I also know that what got the US out of it was the Second World War.
A "relatively" unified nation was able to put aside many of their differences and focus on the more pressing challenges of a world war. I don't think however that we need to wait for a military war to get our act together. We are in the midst of an economic war of epic dimensions.
This compromise was supposed to deliver stability. It was supposed to take the uncertainty out of investing, our of consuming-out of our everyday lives. It smells much more like hope, that false comforter in times of need. If American capitalism is to survive, rational compromises are going to have to be made. If not, we just might be on the edge of a great wilderness.
I am quite concerned by the whole range of the counter-arguments. I know that politics is the art of the possible and by definition that means compromise. But compromise means a move to the middle. I saw this as a lurch to the right.
Of course there are extremists on both sides of the aisle, but there is no question that the rise of the right within an already right leaning Republican party completely overshadows the supposed extremism of the Democratic left.
We need to keep this in context. Left or right, they are all capitalists. The question is merely one of unfettered versus regulated, and more importantly, the invisible hand of the markets versus the visable hand of a social conscience.
What makes America great is the opportunity open to all to get ahead. And what is crushing that opportunity is the use of base populism on an ignorant electorate manifesting itself as the Tea Party who are puppets dancing on the strings of crony capitalism-American style.
Look at the response to the deficit compromise. Stock markets retreat, spreads widen and the safe-haven trade marches relentlessly on. Cash, Treasuries and Gold continue to be the investments of choice and in the stock markets even the defensive stocks of Health Care and Defense are slaughtered on the altar of uncertainty.
The great American consumer in the form of individual equity investors is running for the hills. Hedge funds, the majority of which sold alpha and delivered beta are 75% in cash and still charging 2 and 20.
Instead all eyes are on China and how it will react in the event that the US is downgraded-which is still a strong possibility. The spending cuts voted in without any tax increases to help balance things leaves the government's hands tied as far as any stimulus spending is concerned to help stimulate employment.
We have the uncertainty of when, and frankly, what the rating agencies will do. In all likelihood they will wait and see. Wait and see who gets on the Committee of Twelve. Wait and see if more compromises are possible or if there will be six Republicans continuing their mantra of "No" and if the six Democrats suddenly find some steel in their spines only to realise that it is too late and that their line of defense has already been breached and the only thing left is to also say no leaving us with a government without the ability to govern.
Now I am not a student of the Great Depression but I know it lasted over a decade with many false dawns. I also know that what got the US out of it was the Second World War.
A "relatively" unified nation was able to put aside many of their differences and focus on the more pressing challenges of a world war. I don't think however that we need to wait for a military war to get our act together. We are in the midst of an economic war of epic dimensions.
This compromise was supposed to deliver stability. It was supposed to take the uncertainty out of investing, our of consuming-out of our everyday lives. It smells much more like hope, that false comforter in times of need. If American capitalism is to survive, rational compromises are going to have to be made. If not, we just might be on the edge of a great wilderness.
Tuesday 2 August 2011
All to be Reelected?
I have to admit that my thoughts today are much more of a visceral response as opposed to a well researched piece, but I am devastated at the continual "caving" on the part of President Obama in the face of ridiculous Tea Party demands.
As if to say that the ravings of a right wing fringe who are not even aware of the fact that they are being completely manipulated by a phalanx of the nation's ultra-wealthy to perpetuate a system that is totally skewed to their purposes should determine the economic future of the entire nation.
I am baffled by Obama's either unwillingness or inability to confront these fringe elements and force the imposition of tax increases in conjunction with spending cuts augmented by a stimulus program designed to put the nation back to work.
Instead we are presented with a President who continually depends upon a Republican Party do to the "right thing" when they have shown time and time again that they are incapable of doing so.
It is a perpetual "jam tomorrow" approach to governing. Holding out the fact that the next onslaught against the budget deficit will occur after the 2012 elections is a political victory which could quite easily turn out to be Phyrric.
The Republican solution to the challenges facing the nation of cutting spending in the middle of an employment recession; keeping tax cuts for the wealthy; and blathering on about a balanced-budget amendment to the constitution comes as close to guarantying a continuing if not an accelerating recession as I can imagine. And all at the altar of misplaced ideology.
Just look at the ideological bloody mindeness of the the current British government which has imposed an austerity budget of such magnitude that they are breaking one campaign promise after another as their cutting zeal drives a struggling economy into the ground.
nAnd what is the Tory solution solution? Taking a page from the Repulichans they now want to lower the 50& top rate of taxation which hits the top 6% of the population as a means of stimulating the economy.
All it takes is to look to the Chinese and their adherence to one overriding tenet-everything to ensure employment of the great masses as that is the only way to maintain the supremacy of the ruling party to recognise the fallacy of the current compromise in the US.
The greed of American hardball capitalism is to pursue the tenet of low taxes-for the wealthy-to ensure the continued supremacy of the wealthy.
There is perhaps a revolution coming in the United States- and it just might not come for the Tea Party.
Yes, with a nod to the evangelical American Right- "And you shall reap what you have sown..."
As if to say that the ravings of a right wing fringe who are not even aware of the fact that they are being completely manipulated by a phalanx of the nation's ultra-wealthy to perpetuate a system that is totally skewed to their purposes should determine the economic future of the entire nation.
I am baffled by Obama's either unwillingness or inability to confront these fringe elements and force the imposition of tax increases in conjunction with spending cuts augmented by a stimulus program designed to put the nation back to work.
Instead we are presented with a President who continually depends upon a Republican Party do to the "right thing" when they have shown time and time again that they are incapable of doing so.
It is a perpetual "jam tomorrow" approach to governing. Holding out the fact that the next onslaught against the budget deficit will occur after the 2012 elections is a political victory which could quite easily turn out to be Phyrric.
The Republican solution to the challenges facing the nation of cutting spending in the middle of an employment recession; keeping tax cuts for the wealthy; and blathering on about a balanced-budget amendment to the constitution comes as close to guarantying a continuing if not an accelerating recession as I can imagine. And all at the altar of misplaced ideology.
Just look at the ideological bloody mindeness of the the current British government which has imposed an austerity budget of such magnitude that they are breaking one campaign promise after another as their cutting zeal drives a struggling economy into the ground.
nAnd what is the Tory solution solution? Taking a page from the Repulichans they now want to lower the 50& top rate of taxation which hits the top 6% of the population as a means of stimulating the economy.
All it takes is to look to the Chinese and their adherence to one overriding tenet-everything to ensure employment of the great masses as that is the only way to maintain the supremacy of the ruling party to recognise the fallacy of the current compromise in the US.
The greed of American hardball capitalism is to pursue the tenet of low taxes-for the wealthy-to ensure the continued supremacy of the wealthy.
There is perhaps a revolution coming in the United States- and it just might not come for the Tea Party.
Yes, with a nod to the evangelical American Right- "And you shall reap what you have sown..."
Sunday 12 June 2011
The Urban Jungle
I can understand if most readers will automatically assume that I am making reference to the any number of ills afflicting our inner cities with the title of my post today. They would be completely mistaken.
I am referring to the actual "jungle" of nature and wildlife which survives despite the concrete and the asphalt, the residential, the commercial and even the industrial despoliation of our environment.
London has a 50 odd mile Circle Route which is a walk around and through the city called the Capital Ring. We walked a 5 mile section of it yesterday from Richmond to Osterley.
It was a very strange feeling to leave our house and walk down the hill towards the station and then veer off to a part of town I had never explored walking past a house first "built" by one of William the Conqueror's liege men, lived in by many Kings and died in by Elizabeth the First.
This then spilled us out onto the Thames Tow Path going North along the river, a section I had never walked.
A renovated River Barge chugged past us, 70 feet long and about 7 feet wide, a lone woman at the helm. We were to meet her and her husband many locks and about 4 miles further down river, but I get ahead of myself.
The river Thames is both a tidal estuary and has a natural bottom which explains the muddy nature of the river making it appear even dirtier than it is. To be fair the clean-up projects have been relatively successful in that salmon have been sighted quite far upriver returning to natural spawning grounds.
The path meanders along the river passing cute, not so cute and outright trashy pubs reflecting the various housing offerings ranging from gated communities to council estates which then repeats itself in the river life.
The riverside has a cacophony of houseboats ranging from the long narrow barges already mentioned to much larger conversions of channel barges which are only movable with much time and money.
The river has been a major thoroughfare for over a 1000 years with the last of the cargo barges having given up the ghost in the 60's and 70's.
We veered off the Thames to follow the Grand Canal tow path past the Glaxo-Smith Kline global headquarters which uses canal water to cool their air conditioning unit creating a water feature out of a cooling water outlet.
Around the bend we suddenly found ourselves on a stretch of canal with trees hanging into the water on the far bank and the tow path narrowing to a footpath wide enough for one horse to walk along. Crossing a high narrow bridge, over which said horses would have traversed the canal had a fork with a weir to one side by which the river Brent was directed back onto its natural route.
Brentford is now perhaps famous in our family for the rough nature of the supporters of the Brentford Bees who have yo-yo'd between the 1st and 3rd divisions in the English football leagues and should be our local team.
Aside from football Brentford has been the site of at least three major battles, an the oldest a battle led by Julius Caesar against the local king, Cassivellaunus, in 54 BC during the second invasion of Britain.
More recently there was a pitched battle between the Danes (Vikings) and the English in 1016 and decisively in 1642 the town was sacked by both the Royalists and the Parliamentarians in the Battle of 1642 which the Royalists won.
The sacking, or more specifically the foraging/looting of the town, although devastating for the inhabitants was part and parcel of the continental style of warfare which Oliver Cromwell apparently had learned while fighting in the 30 Year's war and for which the Irish would hold him in contempt for forever and a day following his campaigns there as the Grand Protector.
Rounding another bend we came across a medieval stone church tower with an ugly brick addition, all of which looked as if it had been hit by a bomb. Given that often in England when a building looks like it has been bombed the chances are more likely than not that it was, by the Germans. I have to assume this is one of the reasons that the War is so close to the surface of English culture and that is but one of the ways by which history is "maintained".
In this case my wife groaned and the English smirked only to have their eyes go wide with surprise as I read "...on the night of November 12th, 1943...TWO ENGLISH SCHOOLBOYS SET THE CHURCH ON FIRE"!
We then crossed under the A4, the M4, a railway bridge and then just before the lock at Osterely caught up with the barge we had seen at the start of our journey.
The lone woman had been joined on deck by her husband and were now waiting patiently for the lock-which they had to operate manually-to fill up. We struck up a conversation he watching the water level and she dancing with the tiller. They had been travelling the waterways for the past 3 months this time around and were now returning to Rugby. They were retired however, and had been living on their barge for the last 8 years.
The reason we caught up with them, despite having stopped for pints twice on the walk, was that each lock takes them 15 minutes to transit and they could only go 3 miles an hour in the canal.
Behind them was a second barge on its way to Paddington. They still had 12 locks to pass until they reached their destination, some 8 miles away, and they didn't expect to reach there until late that day!
It suddenly put everything into a different light. That walk had taken us from the pressure and demands of living in London, from the street noise, the cars and trucks, the crowded pavements and relentless motion of a city and dropped us into a parallel universe of coots and moorhens, abandoned wharfs, questionable dry dock marina facilities, and travellers moving at the pace of the canals, which just happens to be the same speed that the average human walks.
Perhaps we are more connected to our natural environment than we think.
I am referring to the actual "jungle" of nature and wildlife which survives despite the concrete and the asphalt, the residential, the commercial and even the industrial despoliation of our environment.
London has a 50 odd mile Circle Route which is a walk around and through the city called the Capital Ring. We walked a 5 mile section of it yesterday from Richmond to Osterley.
It was a very strange feeling to leave our house and walk down the hill towards the station and then veer off to a part of town I had never explored walking past a house first "built" by one of William the Conqueror's liege men, lived in by many Kings and died in by Elizabeth the First.
This then spilled us out onto the Thames Tow Path going North along the river, a section I had never walked.
A renovated River Barge chugged past us, 70 feet long and about 7 feet wide, a lone woman at the helm. We were to meet her and her husband many locks and about 4 miles further down river, but I get ahead of myself.
The river Thames is both a tidal estuary and has a natural bottom which explains the muddy nature of the river making it appear even dirtier than it is. To be fair the clean-up projects have been relatively successful in that salmon have been sighted quite far upriver returning to natural spawning grounds.
The path meanders along the river passing cute, not so cute and outright trashy pubs reflecting the various housing offerings ranging from gated communities to council estates which then repeats itself in the river life.
The riverside has a cacophony of houseboats ranging from the long narrow barges already mentioned to much larger conversions of channel barges which are only movable with much time and money.
The river has been a major thoroughfare for over a 1000 years with the last of the cargo barges having given up the ghost in the 60's and 70's.
We veered off the Thames to follow the Grand Canal tow path past the Glaxo-Smith Kline global headquarters which uses canal water to cool their air conditioning unit creating a water feature out of a cooling water outlet.
Around the bend we suddenly found ourselves on a stretch of canal with trees hanging into the water on the far bank and the tow path narrowing to a footpath wide enough for one horse to walk along. Crossing a high narrow bridge, over which said horses would have traversed the canal had a fork with a weir to one side by which the river Brent was directed back onto its natural route.
Brentford is now perhaps famous in our family for the rough nature of the supporters of the Brentford Bees who have yo-yo'd between the 1st and 3rd divisions in the English football leagues and should be our local team.
Aside from football Brentford has been the site of at least three major battles, an the oldest a battle led by Julius Caesar against the local king, Cassivellaunus, in 54 BC during the second invasion of Britain.
More recently there was a pitched battle between the Danes (Vikings) and the English in 1016 and decisively in 1642 the town was sacked by both the Royalists and the Parliamentarians in the Battle of 1642 which the Royalists won.
The sacking, or more specifically the foraging/looting of the town, although devastating for the inhabitants was part and parcel of the continental style of warfare which Oliver Cromwell apparently had learned while fighting in the 30 Year's war and for which the Irish would hold him in contempt for forever and a day following his campaigns there as the Grand Protector.
Rounding another bend we came across a medieval stone church tower with an ugly brick addition, all of which looked as if it had been hit by a bomb. Given that often in England when a building looks like it has been bombed the chances are more likely than not that it was, by the Germans. I have to assume this is one of the reasons that the War is so close to the surface of English culture and that is but one of the ways by which history is "maintained".
In this case my wife groaned and the English smirked only to have their eyes go wide with surprise as I read "...on the night of November 12th, 1943...TWO ENGLISH SCHOOLBOYS SET THE CHURCH ON FIRE"!
We then crossed under the A4, the M4, a railway bridge and then just before the lock at Osterely caught up with the barge we had seen at the start of our journey.
The lone woman had been joined on deck by her husband and were now waiting patiently for the lock-which they had to operate manually-to fill up. We struck up a conversation he watching the water level and she dancing with the tiller. They had been travelling the waterways for the past 3 months this time around and were now returning to Rugby. They were retired however, and had been living on their barge for the last 8 years.
The reason we caught up with them, despite having stopped for pints twice on the walk, was that each lock takes them 15 minutes to transit and they could only go 3 miles an hour in the canal.
Behind them was a second barge on its way to Paddington. They still had 12 locks to pass until they reached their destination, some 8 miles away, and they didn't expect to reach there until late that day!
It suddenly put everything into a different light. That walk had taken us from the pressure and demands of living in London, from the street noise, the cars and trucks, the crowded pavements and relentless motion of a city and dropped us into a parallel universe of coots and moorhens, abandoned wharfs, questionable dry dock marina facilities, and travellers moving at the pace of the canals, which just happens to be the same speed that the average human walks.
Perhaps we are more connected to our natural environment than we think.
Saturday 4 June 2011
What's Going on Here?
I was mildly surprised last Thursday to read an article in none other than the Financial Times (FT) by a Mr Joseph Dear, Chief Investment Officer of the California Public Employees Retirement System (Calpers). I was not surprised that Mr Dear had written, but rather how well he had written and what it was that he had to say.
Unfairly when I think of Calpers I can't help but bunch them together with the clowns at Orange County whose bawdy incompetence in investments led them to make completely unsuitable purchases of structured products which then blew up and bankrupted the county.
So when I saw Mr Dear's article I steeled myself for a Republican attack on financial reform. What followed however was a very well written commentary on the continuing farce of financial reform in the United States.
He launched into a beratement of our legislators and the captains of finance who in his opinion are on the verge of "forgetting that it was our belief in market efficiency and our reliance on self-regulation to contain irrational behaviour and systemic risk" that got us into this mess in the first place.
He went on to defend Frank-Dodd and to highlight the role of corporate governance, increased risk intelligence and the build up of sufficient liquidity reserves as the pillars of institutional investing.
It was a pleasure to see someone in the public sector defend the rights of the public and challenge the holders of public office to fulfil their oaths of public service as opposed to being the lapdogs of powerful interest groups.
My mild surprise turned into near disbelief when this morning the US Economics editor of the same austere FT a Mr Robin Harding challenged the US policy makers to break the "taboo" of discussing government stimulus, to stop grandstanding and to recognise that the US economy is perilously close to a double-dip recession.
To be fair he does not suggest that the only path to economic recovery is to be found through and economic stimulus program, but he does weigh in heavily to the need to look at all options to help reinvigorate the economy and deal with the deficit.
Interestingly he doesn't care to suggest that part of any stimulus could-or in my opinion should include a tax hike on the super rich. But credit given where credit is due-speaking about taboos is the only way to break them.
Unfairly when I think of Calpers I can't help but bunch them together with the clowns at Orange County whose bawdy incompetence in investments led them to make completely unsuitable purchases of structured products which then blew up and bankrupted the county.
So when I saw Mr Dear's article I steeled myself for a Republican attack on financial reform. What followed however was a very well written commentary on the continuing farce of financial reform in the United States.
He launched into a beratement of our legislators and the captains of finance who in his opinion are on the verge of "forgetting that it was our belief in market efficiency and our reliance on self-regulation to contain irrational behaviour and systemic risk" that got us into this mess in the first place.
He went on to defend Frank-Dodd and to highlight the role of corporate governance, increased risk intelligence and the build up of sufficient liquidity reserves as the pillars of institutional investing.
It was a pleasure to see someone in the public sector defend the rights of the public and challenge the holders of public office to fulfil their oaths of public service as opposed to being the lapdogs of powerful interest groups.
My mild surprise turned into near disbelief when this morning the US Economics editor of the same austere FT a Mr Robin Harding challenged the US policy makers to break the "taboo" of discussing government stimulus, to stop grandstanding and to recognise that the US economy is perilously close to a double-dip recession.
To be fair he does not suggest that the only path to economic recovery is to be found through and economic stimulus program, but he does weigh in heavily to the need to look at all options to help reinvigorate the economy and deal with the deficit.
Interestingly he doesn't care to suggest that part of any stimulus could-or in my opinion should include a tax hike on the super rich. But credit given where credit is due-speaking about taboos is the only way to break them.
Monday 30 May 2011
Where are the Jobs?
Having fully immersed myself in the rigours and demands of the financial world I realise how quickly I reverted to my old habits and views.
It is not that I no longer have an interest beyond the immediate financial impact of an event. It is however true that my analysis of a situation has taken on a more mercantile bent than during the time that I was happily retired and had the time and inclination to look past the economic consequences of things.
My focus had been the geo-political impact of world events falling quickly into the power politics of the "is this good for the West" nuance of my underlying cultural and ethnic nationalism.
I say this cautiously. Fully recognising that the concept of nations and nationalism are somewhat recent and arbitrary, I still find it to be a huge leap of faith to move from being an American, or at least a member of the West and rather than joining the Global village so often heralded as the only way to salvation.
Perhaps it is my early belief in Malthus perfectly executed in the life cycle of the humble muskrat. This gregarious water rodent breeds like crazy until they overpopulate an area resulting in mass starvation. This continues until the population levels have been lowered enough to sustain the local muskrats such that they can start the cycle over again.
It is all a question of resource management. Muskrats don't have much to work with in terms of reshaping their environment and expanding the relevant yields of those resources necessary to sustain their population. Their complete reliance on the natural level of available nourishment determines the rise and fall of their "civilisations".
I have always thought that the life cycle of muskrat society was unfortunately a good example of what in the end would be the fate of our human society. Yes we could extend crop yields, expand our control of nature to farm just about everything and yet, in the end, we would find that overpopulation would be the heaviest burden a society would have to bear.
To the normal local world of rich and poor, haves and have-not's we have now added the geopolitics of nation states and are now confronted by the dual challenges of managing resources within our regional groupings as well as within the global village.
What is now being heralded as the Arab Spring, is in my opinion nothing more than the calculations of Malthus coming to the fore.
Depending on your source somewhere between 50 and 60% of the populations of the Arab world are under the age 25. Of these, according to the Financial Times some 40% are unemployed. They live in relatively infertile regions albeit in many cases in countries with valuable natural resources. The distribution of the wealth created by the exploitation of these resources is heavily weighted to a small minority of the the ruling elites leaving much of the remaining population with neither readily available food or the means to acquire it.
A few months ago I quoted Russ Limbaugh as threatening President Obama to adhere to Mr Limbaugh's view of the world or America might "go Egypt" on him.
Now Mr Limbaugh is an idiot and thankfully the USA is still in relative terms the land of plenty. But raise our total unemployment levels to those currently being realised by Afro-Americans and Hispanics (~20%)and we might not be that far from our own Arab Spring.
This fear of social unrest is one of the biggest drivers of the Chinese governments policy making doing what they consider to be right for China at the possible expense of the world at large.
And just for the record, German unemployment in 1933 peaked around 22.5%....
It is not that I no longer have an interest beyond the immediate financial impact of an event. It is however true that my analysis of a situation has taken on a more mercantile bent than during the time that I was happily retired and had the time and inclination to look past the economic consequences of things.
My focus had been the geo-political impact of world events falling quickly into the power politics of the "is this good for the West" nuance of my underlying cultural and ethnic nationalism.
I say this cautiously. Fully recognising that the concept of nations and nationalism are somewhat recent and arbitrary, I still find it to be a huge leap of faith to move from being an American, or at least a member of the West and rather than joining the Global village so often heralded as the only way to salvation.
Perhaps it is my early belief in Malthus perfectly executed in the life cycle of the humble muskrat. This gregarious water rodent breeds like crazy until they overpopulate an area resulting in mass starvation. This continues until the population levels have been lowered enough to sustain the local muskrats such that they can start the cycle over again.
It is all a question of resource management. Muskrats don't have much to work with in terms of reshaping their environment and expanding the relevant yields of those resources necessary to sustain their population. Their complete reliance on the natural level of available nourishment determines the rise and fall of their "civilisations".
I have always thought that the life cycle of muskrat society was unfortunately a good example of what in the end would be the fate of our human society. Yes we could extend crop yields, expand our control of nature to farm just about everything and yet, in the end, we would find that overpopulation would be the heaviest burden a society would have to bear.
To the normal local world of rich and poor, haves and have-not's we have now added the geopolitics of nation states and are now confronted by the dual challenges of managing resources within our regional groupings as well as within the global village.
What is now being heralded as the Arab Spring, is in my opinion nothing more than the calculations of Malthus coming to the fore.
Depending on your source somewhere between 50 and 60% of the populations of the Arab world are under the age 25. Of these, according to the Financial Times some 40% are unemployed. They live in relatively infertile regions albeit in many cases in countries with valuable natural resources. The distribution of the wealth created by the exploitation of these resources is heavily weighted to a small minority of the the ruling elites leaving much of the remaining population with neither readily available food or the means to acquire it.
A few months ago I quoted Russ Limbaugh as threatening President Obama to adhere to Mr Limbaugh's view of the world or America might "go Egypt" on him.
Now Mr Limbaugh is an idiot and thankfully the USA is still in relative terms the land of plenty. But raise our total unemployment levels to those currently being realised by Afro-Americans and Hispanics (~20%)and we might not be that far from our own Arab Spring.
This fear of social unrest is one of the biggest drivers of the Chinese governments policy making doing what they consider to be right for China at the possible expense of the world at large.
And just for the record, German unemployment in 1933 peaked around 22.5%....
Friday 29 April 2011
A Fine Balance Between Transparency and Clarity
My title today is a quote by the CEO of Barclays Bank in describing the qualtity and quantity of information that they provide in their Annual Report.
Now to be fair the two words, transparency and clarity are not synonyms in each and every case of their use, but I wonder just what differentiation he intended to highlight by stating there was a need to achieve this fine balance between the two.
Perhaps he was referring to a potential lack of understanding on the part of the shareholders reading the Annual Report and so it was better to dumb things down such that they would be clear to even the most ignorant capitalist.
Or maybe he was focusing on the quants in the audience who want everything to be laid out in a transparent fashion that means give us all the numbers and considerations and we will draw our own conclusions.
Or perhaps he was just waffling and wishing to draw attention away from the recent decision to take a portfolio named Protium back on to its balance sheet.
Without going into great detail at the height of the financial crisis Barclays created a new company called C12 and put around $12.5 billion worth of toxic loans into it and then loaned the company the same $12.5 billion to finance the new vehicle called Protium. C12 and Protium were managed by the same Barclays personnel who were responsible for the portfolio in the first place.
Protium is also the name of a medicine to fight reflux so somehow aptly named in that the aim of the transaction was to ensure that these toxic assets didn't rear up and create heartburn of the highest degree for Barclays.
So far so good. A little creative accounting and Barclays doesn't have to hold capital against the positions and because it was then classified as a loan it didn't have to be marked to market daily creating volatility and frankly losses for Barclays.
So now they decide to bring it back onto their books. In so doing they first mark up the value of the portfolio by about $320 million although the indices relating to the assets in the portfolio fell over the period. They then pay the former Barclays bankers $83 million for the 18 months they managed the portfolio and for breaking the original contract-C12 was designed to run the portfolio down over a 10 year period.
Just to make things even more transparent Barclays has also agreed to buy out unidentified third-party investors in the fund for $270m. Or perhaps that bit falls under clarity.
The transparency and clarity provided by the transaction might not conform to Barclays original intentions for it would appear that they are shedding some light on their own subterfuge.
The Liberal Democrat Peer Lord Oakeshott certainly thinks so as he is requesting that Her Majesty's Revenue and Customs-the taxman-look into to this to ensure it wasn't just tax avoidance.
Finding that fine balance just got harder.
Now to be fair the two words, transparency and clarity are not synonyms in each and every case of their use, but I wonder just what differentiation he intended to highlight by stating there was a need to achieve this fine balance between the two.
Perhaps he was referring to a potential lack of understanding on the part of the shareholders reading the Annual Report and so it was better to dumb things down such that they would be clear to even the most ignorant capitalist.
Or maybe he was focusing on the quants in the audience who want everything to be laid out in a transparent fashion that means give us all the numbers and considerations and we will draw our own conclusions.
Or perhaps he was just waffling and wishing to draw attention away from the recent decision to take a portfolio named Protium back on to its balance sheet.
Without going into great detail at the height of the financial crisis Barclays created a new company called C12 and put around $12.5 billion worth of toxic loans into it and then loaned the company the same $12.5 billion to finance the new vehicle called Protium. C12 and Protium were managed by the same Barclays personnel who were responsible for the portfolio in the first place.
Protium is also the name of a medicine to fight reflux so somehow aptly named in that the aim of the transaction was to ensure that these toxic assets didn't rear up and create heartburn of the highest degree for Barclays.
So far so good. A little creative accounting and Barclays doesn't have to hold capital against the positions and because it was then classified as a loan it didn't have to be marked to market daily creating volatility and frankly losses for Barclays.
So now they decide to bring it back onto their books. In so doing they first mark up the value of the portfolio by about $320 million although the indices relating to the assets in the portfolio fell over the period. They then pay the former Barclays bankers $83 million for the 18 months they managed the portfolio and for breaking the original contract-C12 was designed to run the portfolio down over a 10 year period.
Just to make things even more transparent Barclays has also agreed to buy out unidentified third-party investors in the fund for $270m. Or perhaps that bit falls under clarity.
The transparency and clarity provided by the transaction might not conform to Barclays original intentions for it would appear that they are shedding some light on their own subterfuge.
The Liberal Democrat Peer Lord Oakeshott certainly thinks so as he is requesting that Her Majesty's Revenue and Customs-the taxman-look into to this to ensure it wasn't just tax avoidance.
Finding that fine balance just got harder.
Tuesday 26 April 2011
Carrion Eaters and other Foul Beings
My jump from anonymous donations to highlighting the lack of morals and responsibility of unbridled capitalism was referring to the the grain traders at the world's largest commodity trading house which is about to go public, Glencore. For those of you unfamiliar with the Glencore story I recommend you look into it. At its core is Mr Marc Rich. Never one to let anything get in the way of making money Mr Rich is infamous for his alleged transactions with rogue states.
I say alleged, for although the mighty CIA, itself no strong friend of moral rectitude nor stranger to questionable operations accused Mr Rich of numerous UN and US trade embargo violation, they were never able to take him to court. Why you might ask. Well, thanks to the largess of then President Clinton, he was granted a presidential pardon the result of which is that he will never have to answer to any of the allegations against him.
But to the question of manipulation and transparency. According to reports in the Financial Times, during the early stages of the drought in Russia last summer and prior to making public statements to the Russian authorities exhorting them to impose an export ban on Russian grains, the grain traders as Glencore made large speculative bets that the price of wheat and corn would rise.
Now there is nothing wrong with making speculative bets. It is the basic tenet of every investment. Yes, every investment, except for fraud where the investment result is known before the bet is made.
In this instance, the distinction takes on a new twist. The bets were made, and then the traders at Glencore made an concerted effort to influence the Russian authorities to act in their favour. This was all made made public in the pre-IPO information being marketed by the investment banks bringing the deal.
I have to assume this was in an attempt to illustrate both the trading acumen and their willingness to be more transparent. In any event Glencore stated that "[Glencore's] agricultural team received very timely reports from Russia farm assets that growing conditions were deteriorating aggressively in the spring and summer of 2010, as the Russian drought set in".
So far so good. But then on August 3, 2010 Mr Yury Ognev, head of Glencore's Russian grain unit encouraged Moscow to ban wheat exports. Glencore tried to distance itself saying that the statements were Mr Ognev's personal views. Interestingly on August 5Moscow imposed the ban sending the price of wheat 15% higher in 2 days.
Now over to Mr Sarkozy. In a similar vein as the chairman of the German Social Democrat party Mr Muentefering who claimed that 'hedge funds are like a plague of locusts', Mr Sarkozy blames the rise in global food prices on speculators.
I don't agree with Mr Muenterfering, or Mr Sarkozy, for they are focusing on the symptom of unbridled capitalism rather than looking to the cause-weak regulation and poor enforcement.
In any event, the statements made by Mr Ognev/Glencore- I really can't separate the two-are certainly prime examples of market manipulation and of how the desire for profit by a few can cause widespread fear and unrest-just ask the Chinese.
I say alleged, for although the mighty CIA, itself no strong friend of moral rectitude nor stranger to questionable operations accused Mr Rich of numerous UN and US trade embargo violation, they were never able to take him to court. Why you might ask. Well, thanks to the largess of then President Clinton, he was granted a presidential pardon the result of which is that he will never have to answer to any of the allegations against him.
But to the question of manipulation and transparency. According to reports in the Financial Times, during the early stages of the drought in Russia last summer and prior to making public statements to the Russian authorities exhorting them to impose an export ban on Russian grains, the grain traders as Glencore made large speculative bets that the price of wheat and corn would rise.
Now there is nothing wrong with making speculative bets. It is the basic tenet of every investment. Yes, every investment, except for fraud where the investment result is known before the bet is made.
In this instance, the distinction takes on a new twist. The bets were made, and then the traders at Glencore made an concerted effort to influence the Russian authorities to act in their favour. This was all made made public in the pre-IPO information being marketed by the investment banks bringing the deal.
I have to assume this was in an attempt to illustrate both the trading acumen and their willingness to be more transparent. In any event Glencore stated that "[Glencore's] agricultural team received very timely reports from Russia farm assets that growing conditions were deteriorating aggressively in the spring and summer of 2010, as the Russian drought set in".
So far so good. But then on August 3, 2010 Mr Yury Ognev, head of Glencore's Russian grain unit encouraged Moscow to ban wheat exports. Glencore tried to distance itself saying that the statements were Mr Ognev's personal views. Interestingly on August 5Moscow imposed the ban sending the price of wheat 15% higher in 2 days.
Now over to Mr Sarkozy. In a similar vein as the chairman of the German Social Democrat party Mr Muentefering who claimed that 'hedge funds are like a plague of locusts', Mr Sarkozy blames the rise in global food prices on speculators.
I don't agree with Mr Muenterfering, or Mr Sarkozy, for they are focusing on the symptom of unbridled capitalism rather than looking to the cause-weak regulation and poor enforcement.
In any event, the statements made by Mr Ognev/Glencore- I really can't separate the two-are certainly prime examples of market manipulation and of how the desire for profit by a few can cause widespread fear and unrest-just ask the Chinese.
Monday 25 April 2011
The Evils of Anonymous Donations
Along with my regular disgust of the Reagan Administration's removal of the the Fairness Doctrine in the media there is a new enemy of the people rearing its head in the laws which allow political donations to be made by corporations and kept anonymous.
I just don't get it. If some one or some body wants to make a political donation what on earth can be their real motive for wishing it to be anonymous? I am sure that there are an number of "right to privacy" scenarios which can be rolled out to defend this desire. I am equally confident that none of them can possibly compete with the demands of transparency which a democratic society must have as one of its basic tenants.
To my mind it is again a question of regulation. I am all for the freedoms that are granted by the constitution-I remain a staunch supporter of the overall system of government in the USA. But what is worrying me is the lack of integrity.
And this integrity cuts across many lines. I am referring to the dumbing down of political discourse which ends up in soundbite rhetoric reminiscent of Newspeak and finely honed by slick speechwriters and campaign managers whose desire is to win at any cost. And the cost is at the altar of populism.
But for a populist to be truly successful there remains the need for the powers behind the throne, and these are the anonymous donors. The politicians are generally no longer concerned with serving the people and the people are often enough not informed enough to make rational decisions.
And one of the major sources of misinformation are the political action committees which have moved from the murky world of translucense to the opaque world of manipulation.
And while we are on the topic of manipulation, and a perfect example of why we not only need regulations, but also non-corrupt enforcement, tomorrow my next post will aim to draw your attention to a group of traders that manage to make even President Sarkozy look like he has some morals.
I just don't get it. If some one or some body wants to make a political donation what on earth can be their real motive for wishing it to be anonymous? I am sure that there are an number of "right to privacy" scenarios which can be rolled out to defend this desire. I am equally confident that none of them can possibly compete with the demands of transparency which a democratic society must have as one of its basic tenants.
To my mind it is again a question of regulation. I am all for the freedoms that are granted by the constitution-I remain a staunch supporter of the overall system of government in the USA. But what is worrying me is the lack of integrity.
And this integrity cuts across many lines. I am referring to the dumbing down of political discourse which ends up in soundbite rhetoric reminiscent of Newspeak and finely honed by slick speechwriters and campaign managers whose desire is to win at any cost. And the cost is at the altar of populism.
But for a populist to be truly successful there remains the need for the powers behind the throne, and these are the anonymous donors. The politicians are generally no longer concerned with serving the people and the people are often enough not informed enough to make rational decisions.
And one of the major sources of misinformation are the political action committees which have moved from the murky world of translucense to the opaque world of manipulation.
And while we are on the topic of manipulation, and a perfect example of why we not only need regulations, but also non-corrupt enforcement, tomorrow my next post will aim to draw your attention to a group of traders that manage to make even President Sarkozy look like he has some morals.
Saturday 23 April 2011
Why Isn't It Perjury
In today's Weekend FT there is an article on Guy Hands and his Private Equity vehicle Terra Firma. Now I am respectful of Mr Hands vision as he brought the idea of private equity as an internal business to Nomura and pioneered the concept of asset based securitisation as a means of financing whole business purchases to the UK.
To be fair his first big coup was to take advantage of the grossly mismanaged process by the then Conservative UK government of selling off the railways and then guarantying 85% of the costs. Not a bad deal for Nomura and Mr Hands, but perhaps a little less so for the British taxpayer.
The same game was played in selling off the housing stock of the married personnel of Her Majesty's Military. Pure Thatcherism,and perhaps a precursor to the public debt/private profit results of the financial crisis bailouts.*
He got paid handsomely for so doing, and left Nomura a wealthy man to start his own firm. At Terra Firma he bought into the entertainment industry.
He purchased two cinema chains, Odeon and UCI and is now trying to sell them for somewhere between 10 and 12 times earnings. Suffice to say that this is optimistic. Maybe he is hoping that 3D will prove to be a great money spinner-until the pirates figure out how to copy it. It does put a bit of a spotlight on valuations though, depending if you are the seller, or the buyer.
But back to the title of my post today and the question of perjury. In a highly publicised trial Mr Hands tried to sue Citibank and his personal friend and banker David Wormsely claiming that he had been misled and tricked into paying £4 billion for EMI.
As it turns out this was a rather inflated price. So inflated that during his testimony in the trial Mr Hands estimated that the real value was around £1.8 billion. And yet today he rejected charges claiming that he had overpaid for EMI. He went on to say that if EMI merged with Warner it would have a combined value of £4 billion.
Now I know Mr Hands is reasonably good a math. He can't have it both ways. Or maybe Warner has negative equity.
I always thought that when on the stand one swore to tell the truth, the whole truth, and nothing but the truth.
I also thought that not to do so constituted perjury.
There aughta be a law.....
*Despite my frustration at the lack of moral hazard in the massive bailouts in the wake of the credit crisis I believe they were absolutely necessary. I also believe that a proper post mortem should have been done and those responsible should have be prosecuted according to the 3 "R's": relentlessly, remorselessly, and ruthlessly.
To be fair his first big coup was to take advantage of the grossly mismanaged process by the then Conservative UK government of selling off the railways and then guarantying 85% of the costs. Not a bad deal for Nomura and Mr Hands, but perhaps a little less so for the British taxpayer.
The same game was played in selling off the housing stock of the married personnel of Her Majesty's Military. Pure Thatcherism,and perhaps a precursor to the public debt/private profit results of the financial crisis bailouts.*
He got paid handsomely for so doing, and left Nomura a wealthy man to start his own firm. At Terra Firma he bought into the entertainment industry.
He purchased two cinema chains, Odeon and UCI and is now trying to sell them for somewhere between 10 and 12 times earnings. Suffice to say that this is optimistic. Maybe he is hoping that 3D will prove to be a great money spinner-until the pirates figure out how to copy it. It does put a bit of a spotlight on valuations though, depending if you are the seller, or the buyer.
But back to the title of my post today and the question of perjury. In a highly publicised trial Mr Hands tried to sue Citibank and his personal friend and banker David Wormsely claiming that he had been misled and tricked into paying £4 billion for EMI.
As it turns out this was a rather inflated price. So inflated that during his testimony in the trial Mr Hands estimated that the real value was around £1.8 billion. And yet today he rejected charges claiming that he had overpaid for EMI. He went on to say that if EMI merged with Warner it would have a combined value of £4 billion.
Now I know Mr Hands is reasonably good a math. He can't have it both ways. Or maybe Warner has negative equity.
I always thought that when on the stand one swore to tell the truth, the whole truth, and nothing but the truth.
I also thought that not to do so constituted perjury.
There aughta be a law.....
*Despite my frustration at the lack of moral hazard in the massive bailouts in the wake of the credit crisis I believe they were absolutely necessary. I also believe that a proper post mortem should have been done and those responsible should have be prosecuted according to the 3 "R's": relentlessly, remorselessly, and ruthlessly.
Friday 22 April 2011
We've Been Here Before
Friends of mine have a Book Club to which I am a semi-vicarious member insofar that I read the books but don't participate in the dinners-they are all in New York. Two of the more recent readings were "The Best and the Brightest" by David Halberstrom and one of my all time favourites T.E. Lawrence's "The Seven Pillars of Wisdom"
The former is a clear illustration of how poor geopolitical understandings coupled with populist domestic politics can make a mountain out of a molehill, or perhaps better said, take the relative minor bumblings of the French in Indochina in the fifties and turn them into a full-fledged land war.
Vietnam was not the first time that the US got bogged down in an ideological war-we were in Korea-but it was followed with the abomination of Iraq and the pit of Afghanistan. Now the West is standing at the gates of a land war in Libya after discovering yet again that air strikes are a necessary but certainly not a sufficient action in winning wars, especially when they are as messy as the unraveling of Libya.
Mr Lawrence writes eloquently about the idiosyncrasies of the Middle East in his flowing prose. For those of you less enamoured with musings of a romanticist like Mr Lawrence I would direct you to Bernard Lewis' "From Babel to Dragomans".
Both books discuss the Muslim world although I believe Mr Lawrence's is all the more powerful as in the end he is personally confounded if not outright devastated by the tribalism of the Muslim world. Mr Lewis for his part does give a reasonable analysis as to why the region missed out on the creation of Nations and Nationalism which have defined the West most specifically since the late 18th century, but that is a longer discussion.
What is most bizarre is that it is exactly people like Colonel Qaddafi who have tried to create a nation-state and it is the intervention of the West that exacerbates the resurgence of the underlying tribalism which permeates much of the Arab world.
But I stray. Some four weeks ago as the military forces of the Qaddafi regime were about to crush the rebels in Benghazi which forced the West in general and the UN specifically to create an armed response to the imminent civilian catastrophe.
At the time the Germans were castigated by the West for not only abstaining from voting for the resolution, but were then roundly denounced by their NATO allies for not sending German arms again to the battlefields of North Africa.
Four weeks later, as the limits of air power have been reached the German fears are about to be realised. Specifically they were concerned about the eventual need to send ground troops. Qaddafi's forces are now threatening Misrata. The rebel forces who were so adamant that they didn't want Western troops but welcomed Western air power are now pleading for ground troops.
And the British, despite the fact that they are already overstretched militarily and are in the middle of a severe austerity plan have send advisers.
I can only say we have definitely been here before, and the result were always dog's breakfasts of the highest order.
The former is a clear illustration of how poor geopolitical understandings coupled with populist domestic politics can make a mountain out of a molehill, or perhaps better said, take the relative minor bumblings of the French in Indochina in the fifties and turn them into a full-fledged land war.
Vietnam was not the first time that the US got bogged down in an ideological war-we were in Korea-but it was followed with the abomination of Iraq and the pit of Afghanistan. Now the West is standing at the gates of a land war in Libya after discovering yet again that air strikes are a necessary but certainly not a sufficient action in winning wars, especially when they are as messy as the unraveling of Libya.
Mr Lawrence writes eloquently about the idiosyncrasies of the Middle East in his flowing prose. For those of you less enamoured with musings of a romanticist like Mr Lawrence I would direct you to Bernard Lewis' "From Babel to Dragomans".
Both books discuss the Muslim world although I believe Mr Lawrence's is all the more powerful as in the end he is personally confounded if not outright devastated by the tribalism of the Muslim world. Mr Lewis for his part does give a reasonable analysis as to why the region missed out on the creation of Nations and Nationalism which have defined the West most specifically since the late 18th century, but that is a longer discussion.
What is most bizarre is that it is exactly people like Colonel Qaddafi who have tried to create a nation-state and it is the intervention of the West that exacerbates the resurgence of the underlying tribalism which permeates much of the Arab world.
But I stray. Some four weeks ago as the military forces of the Qaddafi regime were about to crush the rebels in Benghazi which forced the West in general and the UN specifically to create an armed response to the imminent civilian catastrophe.
At the time the Germans were castigated by the West for not only abstaining from voting for the resolution, but were then roundly denounced by their NATO allies for not sending German arms again to the battlefields of North Africa.
Four weeks later, as the limits of air power have been reached the German fears are about to be realised. Specifically they were concerned about the eventual need to send ground troops. Qaddafi's forces are now threatening Misrata. The rebel forces who were so adamant that they didn't want Western troops but welcomed Western air power are now pleading for ground troops.
And the British, despite the fact that they are already overstretched militarily and are in the middle of a severe austerity plan have send advisers.
I can only say we have definitely been here before, and the result were always dog's breakfasts of the highest order.
Sunday 17 April 2011
Cuba Revisitied
As I had previously reported we went to Cuba earlier this year to visit the last functioning communist/socialist state. I had come away with a relatively positive view of the state. Recently however, there has been somewhat of a media campaign highlighting the troubles confronting Cuba.
First there was a program on German television discussing the beauty of the land, the music the people, and the fact that the state is rapidly running out of money. This was followed by an article in Die Zeit and this morning on BBC News was an extended report on Cuba.
Last November Raul Castro, Fidel's younger brother at a sprightly 80 years old changed the laws to allow Cubans to hire Cubans removing the state monopoly on employment with the exception of being able to hire family members.
The real driver behind this change was that the state was planning to cut 500,000 jobs which in a population of 11 million is quite an austerity measure. And that is the problem. Despite all the positive aspects of Cuba which attracted me to the country, Cuba is in deep trouble.
Its external debt is around US$40 billion and it is really not capable of servicing it. Granted that about 50% of the debt was to the Soviet Union and now Russia, but still it has not been a self-sustaining economy.
Cuba imports around 80% of its foodstuff requirements-the majority of which comes from the USA. The average monthly wage of a Cuban is $20. Surviving on this subsistence salary has only been possible due to food rationing and the heavy subsidies on housing, health and education.
But here is the problem. These handouts have bred a culture of dependency, with no incentives to work. Cuba's struggling inefficient economy can no longer afford to be so generous. This year's agricultural yield was the worst for 20 years and it looks to be one of the worst sugar crops specifically for even longer than that.
At yesterday's 50th anniversary of the defeat of the American-backed invasion at the Bay of Pigs Raul Castro announced amongst the sweeping changes of transforming Cuba into a social market economy that term limits of 10 years would apply to political leaders, including himself.
Lest the "free" world stand up and proclaim the fall of yet another "communist dictatorship" one should reflect a moment on the achievements of the revolution.
Life expectancy in Cuba is to 80-even longer than in the US. The child mortality rate is lower than that of the US. Almost all children are in school until they are 16 with a 90% literacy rate. And, from a social point of view perhaps most amazingly, Cuba has the lowest rate of crime including murder and violent crimes in all of Latin America.
I can only hope that this political/economic evolution that Raul is instigating will be able to steer a course that provides a more efficient socio-economic basis without losing the outstanding achievements of ridding the state from the clutches of organized crime and the murder, violence, drugs and general exploitation that accompanied it before Castro's victory in 1959.
First there was a program on German television discussing the beauty of the land, the music the people, and the fact that the state is rapidly running out of money. This was followed by an article in Die Zeit and this morning on BBC News was an extended report on Cuba.
Last November Raul Castro, Fidel's younger brother at a sprightly 80 years old changed the laws to allow Cubans to hire Cubans removing the state monopoly on employment with the exception of being able to hire family members.
The real driver behind this change was that the state was planning to cut 500,000 jobs which in a population of 11 million is quite an austerity measure. And that is the problem. Despite all the positive aspects of Cuba which attracted me to the country, Cuba is in deep trouble.
Its external debt is around US$40 billion and it is really not capable of servicing it. Granted that about 50% of the debt was to the Soviet Union and now Russia, but still it has not been a self-sustaining economy.
Cuba imports around 80% of its foodstuff requirements-the majority of which comes from the USA. The average monthly wage of a Cuban is $20. Surviving on this subsistence salary has only been possible due to food rationing and the heavy subsidies on housing, health and education.
But here is the problem. These handouts have bred a culture of dependency, with no incentives to work. Cuba's struggling inefficient economy can no longer afford to be so generous. This year's agricultural yield was the worst for 20 years and it looks to be one of the worst sugar crops specifically for even longer than that.
At yesterday's 50th anniversary of the defeat of the American-backed invasion at the Bay of Pigs Raul Castro announced amongst the sweeping changes of transforming Cuba into a social market economy that term limits of 10 years would apply to political leaders, including himself.
Lest the "free" world stand up and proclaim the fall of yet another "communist dictatorship" one should reflect a moment on the achievements of the revolution.
Life expectancy in Cuba is to 80-even longer than in the US. The child mortality rate is lower than that of the US. Almost all children are in school until they are 16 with a 90% literacy rate. And, from a social point of view perhaps most amazingly, Cuba has the lowest rate of crime including murder and violent crimes in all of Latin America.
I can only hope that this political/economic evolution that Raul is instigating will be able to steer a course that provides a more efficient socio-economic basis without losing the outstanding achievements of ridding the state from the clutches of organized crime and the murder, violence, drugs and general exploitation that accompanied it before Castro's victory in 1959.
Saturday 16 April 2011
The Merry-go-Round Continues
Well I have just finished my fourth week of work or as my wife describes it, day 20 in the Big Brother House. After two and a half years it was quite a shock, although not in the way that one might think. If we used to joke that the most common refrain of the retired was "No time, no time" and at the time I wondered how I had ever found the time to actually work, I am now in the reverse position where I don't quite understand where I am to find the time to "live"!
Twelve hour days in which I have to have a close eye on markets and restructure/rebuild and create a new paradigm for the fixed income markets which find themselves in the middle of a "back to the future" mindset is both a physical and intellectual challenge.
So what do i mean with my "back to the future" quote.
It's actually very simple. The large investment banks have had a relatively easy ride for the last two and a half years. After receiving the national bailouts so necessary and yet so decried by the Republican party, despite the fact that the TARP plan and Quantitative Easing were first instituted under Messrs Bush and Paulson, the banks had their funding costs cut to zero allowing them to essentially play a carry game.
Carry in this sense just means that they would fund overnight at .5% and invest in longer term AAA government assets that yielded 2.5-3%, depending on the maturity of the security purchased, and clear 2-2.5% "carry" profit. Add to that the positive effects on the market place and the yield curve of QE I and II and they not only accrued carry p&l, they also made capital gains on their positions.
So where are we today. With the introduction of Basle III and the more stringent requirements for Capital levels and risk weightings in assets held on bank balance sheets there was plenty for bankers to complain about. The most comment complaint was the projected decrease in profitability as a result of regulatory enforced deleveraging due to the increased capital requirements.
Of course at the same time it opened up a whole new business of unwinding bank portfolios which held securities that were no longer capital efficient under Basle III.
And not surprisingly, the creation of these portfolios, especially .the use of AAA rated CDO's, was as a result of Basle II.
I have always maintained that the change in the calculation of risk weightings, essentially going to a rating agency based methodology was one of the prime causes for the eventual credit crisis.
What is disturbing, but completely understandable is that the introduction of Basle III addresses some of the problems inherent in Basle II, and equally importantly, opens up the door to the massive unwinding of portfolios by the commercial banks who are basically distressed sellers of assets that in and of themselves are not necessarily distressed assets.
It just means that a new account base has to be found that is not subject to the same risk-weighted capital calculations as the banks. And, again unsurprisingly, it is the Hedge Funds and CDO managers who end up buying back assets at fire sale prices which they had previously sold to the bank as bull market prices.
And just to ensure that the circus continues, the insurance industry is in the throes of dealing with Solvency 2 requirements which will force them to restructure their portfolios predicated on capital efficiency, which is supposed to relate to creditworthiness.....
So were CDO'2.
Twelve hour days in which I have to have a close eye on markets and restructure/rebuild and create a new paradigm for the fixed income markets which find themselves in the middle of a "back to the future" mindset is both a physical and intellectual challenge.
So what do i mean with my "back to the future" quote.
It's actually very simple. The large investment banks have had a relatively easy ride for the last two and a half years. After receiving the national bailouts so necessary and yet so decried by the Republican party, despite the fact that the TARP plan and Quantitative Easing were first instituted under Messrs Bush and Paulson, the banks had their funding costs cut to zero allowing them to essentially play a carry game.
Carry in this sense just means that they would fund overnight at .5% and invest in longer term AAA government assets that yielded 2.5-3%, depending on the maturity of the security purchased, and clear 2-2.5% "carry" profit. Add to that the positive effects on the market place and the yield curve of QE I and II and they not only accrued carry p&l, they also made capital gains on their positions.
So where are we today. With the introduction of Basle III and the more stringent requirements for Capital levels and risk weightings in assets held on bank balance sheets there was plenty for bankers to complain about. The most comment complaint was the projected decrease in profitability as a result of regulatory enforced deleveraging due to the increased capital requirements.
Of course at the same time it opened up a whole new business of unwinding bank portfolios which held securities that were no longer capital efficient under Basle III.
And not surprisingly, the creation of these portfolios, especially .the use of AAA rated CDO's, was as a result of Basle II.
I have always maintained that the change in the calculation of risk weightings, essentially going to a rating agency based methodology was one of the prime causes for the eventual credit crisis.
What is disturbing, but completely understandable is that the introduction of Basle III addresses some of the problems inherent in Basle II, and equally importantly, opens up the door to the massive unwinding of portfolios by the commercial banks who are basically distressed sellers of assets that in and of themselves are not necessarily distressed assets.
It just means that a new account base has to be found that is not subject to the same risk-weighted capital calculations as the banks. And, again unsurprisingly, it is the Hedge Funds and CDO managers who end up buying back assets at fire sale prices which they had previously sold to the bank as bull market prices.
And just to ensure that the circus continues, the insurance industry is in the throes of dealing with Solvency 2 requirements which will force them to restructure their portfolios predicated on capital efficiency, which is supposed to relate to creditworthiness.....
So were CDO'2.
Sunday 27 March 2011
Before the Storm
I just read Bob Herbert's swan song Op-Ed "Losing our Way". He touched a nerve which has been pulsating under the surface, has recently been exposed and now is being prodded. Specifically he states that "The current maldistribution of wealth is also scandalous. In 2009, the richest 5 percent claimed 63.5 percent of the nation’s wealth. The overwhelming majority, the bottom 80 percent, collectively held just 12.8 percent."
In 2004 Thomas Frank published a book called "What's the Matter with Kansas" which was an attempt to explain how the conservatives in America were able to get a majority of Americans to vote "against" themselves.
The wealth statistics quoted above say all that needs to be said, or perhaps not. The group representing the 15% of the population between the top 5% and the bottom 80% controls 23.7% of the nation's wealth. Their focus is on joining the top 5%-not sliding down to the bottom 80%.
So they throw their weight of numbers in with the elite, and presto, the 20/80 rule appears as if by magic. For those of you who aren't familiar with the rule it basically states that 20% or whatever resource you are discussing will generate/receive 80%-or more- of the pie.
And in the US, the top 20% gets over 87%. In business, this calculation is the root of redundancies and revolving door employment practices. If you can get over 80% of your revenue from 20% of the group, why have the other 80%.
I believe this logic has been applied to the US as a whole. Political strategists are caught in a symbiotic relationship in which they either focus on or are driven by the top 20% who are united in their goal to keep their position which must come at the expense of the rest.
This is why we have developed gated communities, red lined areas, homelessness next door to affluent communities and every other manifestation of what is essentially an America made up of haves and have-nots. The trouble is that this combination of unbridled greed and unrestrained/unregulated corporations comes at our peril.
Mr Herbert paints a bleak picture of America. He tells us that only 1 in 5 job seekers will find employment (note the 20/80 ratio), and that even those that find work will be less well off than their elders. He is correct when he says this is unsustainable even if his figures appear to be inverted. An unemployment rate of 20%is murder on the remaining 80%- and that might just be what we get.
In one of my previous posts I mentioned that Glen Beck threatened that America would "go Egypt" on him if he didn't toe the line. Of course Glen Beck is a populist demagogue masquerading as the voice of the people while clearly representing the top 20% if not the top 5%.
His threats of creating civil unrest along the lines of the Middle East uprisings reflect a poor understanding of revolutions. Be it the "rising expectations" of the French which resulted in formation of a Republic, or the complete and utter despair of the Russians in joining the Bolsheviks, both were followed by bloodshed and terror.
So the answer to Mr Frank's question: the top 20% play the music. And they play it loudly. And they keep reciting how America is the land of endless opportunity to the 80%, the top of which is striving to join the ranks of the elite, and so on and so on. We have become a nation that believes its own rhetoric despite the fact that it is no longer relevant.
What about Mr Obama you might ask. Isn't he different. Didn't he represent a change from the previous group? Well he too is aspirational. Harvard, US Senator, he was already on his way to the upper echelons. But as soon as he entered the White House he crossed the threshold into the real elite.
He is now part of the machine. And the machine is in trouble. The nation is in trouble. Unskilled unemployed are a problem. They are highly susceptible to being manipulated by the mouthpieces of the elite. And,if their despair reaches epic proportions, they are prone to violence.
But we are entering a phase where even the educated are un(der)employed. They are even more dangerous.
They will flock to the populist banner which is most likely to provide them with a future. That means jobs. That means industry. And in the US that means the military-industrial complex.
Watch out for anyone wishing to reintroduce the draft. Watch out for those who advocate military action as the solution to our problems. Bush went into Iraq to secure oil. It appears to me that our entry into Libya is energy related-despite the PR blitz to the contrary.
And the term blitz might not be so far afield. The scent of wars of conquest is in the air, and as Mr Herbert said, we are addicted to foreign oil and I don't have to outline the extremes to which an addict will go for their fix...
In 2004 Thomas Frank published a book called "What's the Matter with Kansas" which was an attempt to explain how the conservatives in America were able to get a majority of Americans to vote "against" themselves.
The wealth statistics quoted above say all that needs to be said, or perhaps not. The group representing the 15% of the population between the top 5% and the bottom 80% controls 23.7% of the nation's wealth. Their focus is on joining the top 5%-not sliding down to the bottom 80%.
So they throw their weight of numbers in with the elite, and presto, the 20/80 rule appears as if by magic. For those of you who aren't familiar with the rule it basically states that 20% or whatever resource you are discussing will generate/receive 80%-or more- of the pie.
And in the US, the top 20% gets over 87%. In business, this calculation is the root of redundancies and revolving door employment practices. If you can get over 80% of your revenue from 20% of the group, why have the other 80%.
I believe this logic has been applied to the US as a whole. Political strategists are caught in a symbiotic relationship in which they either focus on or are driven by the top 20% who are united in their goal to keep their position which must come at the expense of the rest.
This is why we have developed gated communities, red lined areas, homelessness next door to affluent communities and every other manifestation of what is essentially an America made up of haves and have-nots. The trouble is that this combination of unbridled greed and unrestrained/unregulated corporations comes at our peril.
Mr Herbert paints a bleak picture of America. He tells us that only 1 in 5 job seekers will find employment (note the 20/80 ratio), and that even those that find work will be less well off than their elders. He is correct when he says this is unsustainable even if his figures appear to be inverted. An unemployment rate of 20%is murder on the remaining 80%- and that might just be what we get.
In one of my previous posts I mentioned that Glen Beck threatened that America would "go Egypt" on him if he didn't toe the line. Of course Glen Beck is a populist demagogue masquerading as the voice of the people while clearly representing the top 20% if not the top 5%.
His threats of creating civil unrest along the lines of the Middle East uprisings reflect a poor understanding of revolutions. Be it the "rising expectations" of the French which resulted in formation of a Republic, or the complete and utter despair of the Russians in joining the Bolsheviks, both were followed by bloodshed and terror.
So the answer to Mr Frank's question: the top 20% play the music. And they play it loudly. And they keep reciting how America is the land of endless opportunity to the 80%, the top of which is striving to join the ranks of the elite, and so on and so on. We have become a nation that believes its own rhetoric despite the fact that it is no longer relevant.
What about Mr Obama you might ask. Isn't he different. Didn't he represent a change from the previous group? Well he too is aspirational. Harvard, US Senator, he was already on his way to the upper echelons. But as soon as he entered the White House he crossed the threshold into the real elite.
He is now part of the machine. And the machine is in trouble. The nation is in trouble. Unskilled unemployed are a problem. They are highly susceptible to being manipulated by the mouthpieces of the elite. And,if their despair reaches epic proportions, they are prone to violence.
But we are entering a phase where even the educated are un(der)employed. They are even more dangerous.
They will flock to the populist banner which is most likely to provide them with a future. That means jobs. That means industry. And in the US that means the military-industrial complex.
Watch out for anyone wishing to reintroduce the draft. Watch out for those who advocate military action as the solution to our problems. Bush went into Iraq to secure oil. It appears to me that our entry into Libya is energy related-despite the PR blitz to the contrary.
And the term blitz might not be so far afield. The scent of wars of conquest is in the air, and as Mr Herbert said, we are addicted to foreign oil and I don't have to outline the extremes to which an addict will go for their fix...
Saturday 26 March 2011
Reflections on Greed
I returned to work last week and so went from a comfortable life style of pursuing my interests, managing a portfolio, reading and writing to the center of capitalism in one of its cruder forms.
I entered this realm knowingly after a two and a half year hiatus although my timing was somewhat precarious. The Middle East was in turmoil-the decision to enforce the no-fly zone was just being agreed bringing to light a myriad of geopolitical thrusts under crisis conditions. Japan was reeling from the devastation of an earthquake, tsunami and the spread of radiation. And the fate of the Euro was again being thrown into the balance with the next round of insolvency surfacing in the form of Portugal.
Obviously as part of trading my own portfolio the macro component meant that I was constantly following world events in terms of what I thought the medium to long term effects would be. My daily micro focus however was somewhat limited to market movements and trying to pick entry and exit points.
Once comfortable with that I would then step away from the financial aspect and reflect on the political, environmental and philosophical meaning of world events.
Now in reentering the work world I suddenly find myself analysing events strictly on a financial basis. Either something is deemed to have an immediate effect on the economy and will be pursued accordingly, or it is dropped.
There is no time for philosophical reflection during the trading day. The focus is on the next trade. Execute and move on. As we primarily facilitate clients transactions with very little principal risk the longer term ramifications of events are only interesting in terms of how they will impact various economic sectors and how will we as a firm position ourselves with respect to the affected areas.
And when I say position I mean the future (re)allocation of human resources, not the purchase or sale of securities in a proprietary book.
It doesn't really come as a surprise given that this was the world in which I had spent 30 years before retiring. In that world one has little time for reflection. The market is all encompassing and so the financial dimension is not just the most important aspect, one could say it the only aspect.
I am purposefully painting a black and white picture. Of course outside of work one could reflect on the broader implication of events beyond the financial realm. Now however with the benefit of hindsight I see how much that was the exception, and not the rule.
In retirement one has the time to indulge one's interests regardless of the financial implications. To do so at work would be construed to be "fluffy" or "woolly", and certainly not relevant to the work at hand.
I believe this is not just the case in the world of finance. I think it takes place in almost every commercial endeavour. It is the explanation, to a degree, as to why reactors are built on fault lines or on coastlines which are susceptible to tidal waves. It explains how sub-prime spun out of control; how disasters like Bhopal occur. It is the driver behind the Nestle "white ladies" programs, the BCE outbreaks, and, my pet peeve, GM crops to name but a few calamities that have befallen us.
It is why we need regulation. So every time someone complains about red-tape and unwarranted costs and bureaucracies, we have to point out that almost all or our disasters are man made, in pursuit of financial gain, whatever the cost.
It doesn't stop commerce. It stops catastrophe.
I entered this realm knowingly after a two and a half year hiatus although my timing was somewhat precarious. The Middle East was in turmoil-the decision to enforce the no-fly zone was just being agreed bringing to light a myriad of geopolitical thrusts under crisis conditions. Japan was reeling from the devastation of an earthquake, tsunami and the spread of radiation. And the fate of the Euro was again being thrown into the balance with the next round of insolvency surfacing in the form of Portugal.
Obviously as part of trading my own portfolio the macro component meant that I was constantly following world events in terms of what I thought the medium to long term effects would be. My daily micro focus however was somewhat limited to market movements and trying to pick entry and exit points.
Once comfortable with that I would then step away from the financial aspect and reflect on the political, environmental and philosophical meaning of world events.
Now in reentering the work world I suddenly find myself analysing events strictly on a financial basis. Either something is deemed to have an immediate effect on the economy and will be pursued accordingly, or it is dropped.
There is no time for philosophical reflection during the trading day. The focus is on the next trade. Execute and move on. As we primarily facilitate clients transactions with very little principal risk the longer term ramifications of events are only interesting in terms of how they will impact various economic sectors and how will we as a firm position ourselves with respect to the affected areas.
And when I say position I mean the future (re)allocation of human resources, not the purchase or sale of securities in a proprietary book.
It doesn't really come as a surprise given that this was the world in which I had spent 30 years before retiring. In that world one has little time for reflection. The market is all encompassing and so the financial dimension is not just the most important aspect, one could say it the only aspect.
I am purposefully painting a black and white picture. Of course outside of work one could reflect on the broader implication of events beyond the financial realm. Now however with the benefit of hindsight I see how much that was the exception, and not the rule.
In retirement one has the time to indulge one's interests regardless of the financial implications. To do so at work would be construed to be "fluffy" or "woolly", and certainly not relevant to the work at hand.
I believe this is not just the case in the world of finance. I think it takes place in almost every commercial endeavour. It is the explanation, to a degree, as to why reactors are built on fault lines or on coastlines which are susceptible to tidal waves. It explains how sub-prime spun out of control; how disasters like Bhopal occur. It is the driver behind the Nestle "white ladies" programs, the BCE outbreaks, and, my pet peeve, GM crops to name but a few calamities that have befallen us.
It is why we need regulation. So every time someone complains about red-tape and unwarranted costs and bureaucracies, we have to point out that almost all or our disasters are man made, in pursuit of financial gain, whatever the cost.
It doesn't stop commerce. It stops catastrophe.
Saturday 19 March 2011
And For My Next Trick.....
Despite my many concerns about the state of the world in general and the dog's breakfast which makes up the moral and legal cesspool of much of the financial industry I have been coaxed out of retirement by an offer to build a Fixed Income business for a newcomer to the European markets.
I will admit I was somewhat ambivalent given that I am throughly enjoying myself and the freedoms granted me by retirement so the decision was not an easy one.
That being said being retired put me essentially in the position of being in the "Opposition". Now I will be "back in power" as it were which will bring more opportunities, and of course challenges.
I will endeavour to write albeit most likely less frequently in the first instance. In any event I will certainly bring a closer focus to the markets while trying to maintain a socio-political perspective, so please do keep reading.
I will admit I was somewhat ambivalent given that I am throughly enjoying myself and the freedoms granted me by retirement so the decision was not an easy one.
That being said being retired put me essentially in the position of being in the "Opposition". Now I will be "back in power" as it were which will bring more opportunities, and of course challenges.
I will endeavour to write albeit most likely less frequently in the first instance. In any event I will certainly bring a closer focus to the markets while trying to maintain a socio-political perspective, so please do keep reading.
Friday 18 March 2011
The Chickens Come Home to Roost. Part III: Self Determination, Religion and Energy.
While in Cuba the Middle East decided to try and overthrow their governments. Tunisia succeeded with the result that there are now more Tunisian immigrants trying to enter Europe than ever before. The Egyptians got rid of Mubarak only to replace him with a group of military officers so no real change there. The Libyan "rebels" suddenly find themselves hung out to dry as Qaddafi's military is finally unleashed and the West realises that it doesn't really want to get drawn into a civil war.
But the real battle is in Bahrain. Iran and Saudi Arabia find themselves in their own proxy war. The conflict between Shia and Sunni, between Iran and the Saudis is reaching the critical stage. Back in the UK I read reports comparing the uprisings in the Middle East with the "Velvet Revolutions" of 1989 as the Eastern Bloc came unravelled. Personally they smell much more like 1936/7 in continental Europe.
And then the earthquake in Japan, the Tsunami, and the nuclear crisis. Without any question the physical destruction in Japan has been made significantly worse by the damage to the reactors at Fukishima. The combination of a massive earthquake and a Tsunami-they were called tidal waves when I was a kid and we all thought they were specific to Japan-obviously wasn't in the calculations of the nuclear plant security planners and that can be seriously questioned.
But the furore which has broken out in many western countries, most specifically Germany is reaching the heights of hysteria.
The reactors at Fukishima withstood an earthquake even stronger than the worst-case scenario for which they were designed. They did not survive the Tsunami. As mentioned, why you would build a reactor on the coast in a region known for earthquakes and Tsunamis without planning for the latter is beyond me. But that is not the discussion in Germany.
The risk of earthquakes in Germany is significantly lower than in Japan. None of the German reactors are in coastal regions which alleviates the risk of Tsunamis. Some are built close to earthquake faults, but the Japanese experience shows that that can be planned for.
No, the discussion in Germany is that some of the reactors were built before the risk of terrorists using airplanes as "flying bombs" was recognised and so they are not safe against crashing airplanes!
So Frau Merkel suggests that the 7 oldest nuclear facilities in Germany should be taken off the grid while safety checks are carried out given the new concerns of reactor safety following the Japanese crisis.
The opposition screams that she is doing this because of the regional elections currently taken place although it is what they have been clamouring for. Three months ago after much rancour all the parties agreed that over time Germany would exit from nuclear energy but because there is a law blocking the construction of new plants-the last German Nuclear Plant was built in 1989-the current plants operational lifespans would be extended 8 to 14 years depending on their age.
Now Merkel is hounded for deciding to review the 7 oldest plants. The opposition has even accused her of acting illegally in this decision as a means of trying to force her to resign.
Regardless of one's view on nuclear energy I am astonished at the hypocrisy of the political classes and the ignorance of the electorate.
Everyone gives lip-service to the needs of the environment but few actually are willing to accept the short to medium-term sacrifices that will be required before we can truly rely on renewable energy sources.
In the interim in addition to worries about nuclear energy no one wants coal-fired plants; no one wants next-generation high tension electrical lines or storage stations near their homes; no one wants windmill farms near them; no one wants new hydroelectric dams; and no one wants to remain dependent on oil.
I think everyone wants to go to heaven, and nobody wants to die.
But the real battle is in Bahrain. Iran and Saudi Arabia find themselves in their own proxy war. The conflict between Shia and Sunni, between Iran and the Saudis is reaching the critical stage. Back in the UK I read reports comparing the uprisings in the Middle East with the "Velvet Revolutions" of 1989 as the Eastern Bloc came unravelled. Personally they smell much more like 1936/7 in continental Europe.
And then the earthquake in Japan, the Tsunami, and the nuclear crisis. Without any question the physical destruction in Japan has been made significantly worse by the damage to the reactors at Fukishima. The combination of a massive earthquake and a Tsunami-they were called tidal waves when I was a kid and we all thought they were specific to Japan-obviously wasn't in the calculations of the nuclear plant security planners and that can be seriously questioned.
But the furore which has broken out in many western countries, most specifically Germany is reaching the heights of hysteria.
The reactors at Fukishima withstood an earthquake even stronger than the worst-case scenario for which they were designed. They did not survive the Tsunami. As mentioned, why you would build a reactor on the coast in a region known for earthquakes and Tsunamis without planning for the latter is beyond me. But that is not the discussion in Germany.
The risk of earthquakes in Germany is significantly lower than in Japan. None of the German reactors are in coastal regions which alleviates the risk of Tsunamis. Some are built close to earthquake faults, but the Japanese experience shows that that can be planned for.
No, the discussion in Germany is that some of the reactors were built before the risk of terrorists using airplanes as "flying bombs" was recognised and so they are not safe against crashing airplanes!
So Frau Merkel suggests that the 7 oldest nuclear facilities in Germany should be taken off the grid while safety checks are carried out given the new concerns of reactor safety following the Japanese crisis.
The opposition screams that she is doing this because of the regional elections currently taken place although it is what they have been clamouring for. Three months ago after much rancour all the parties agreed that over time Germany would exit from nuclear energy but because there is a law blocking the construction of new plants-the last German Nuclear Plant was built in 1989-the current plants operational lifespans would be extended 8 to 14 years depending on their age.
Now Merkel is hounded for deciding to review the 7 oldest plants. The opposition has even accused her of acting illegally in this decision as a means of trying to force her to resign.
Regardless of one's view on nuclear energy I am astonished at the hypocrisy of the political classes and the ignorance of the electorate.
Everyone gives lip-service to the needs of the environment but few actually are willing to accept the short to medium-term sacrifices that will be required before we can truly rely on renewable energy sources.
In the interim in addition to worries about nuclear energy no one wants coal-fired plants; no one wants next-generation high tension electrical lines or storage stations near their homes; no one wants windmill farms near them; no one wants new hydroelectric dams; and no one wants to remain dependent on oil.
I think everyone wants to go to heaven, and nobody wants to die.
Thursday 17 March 2011
The Chickens Come Home to Roost. Part II: The Need For Social Democracy
After a week in Cuba we flew to California. We have a German friend there who we join on an early morning walk in the foothills of the Santa Monica Mountains. The walk is with an eclectic group of anthropology, sociology and psychology professors who were all very interested in our trip to Cuba.
In trying to put my impressions into context I described myself as a Social-Democrat. When pressed to define what that was I explained that it meant that although I was a capitalist economically I believed in democracy politically, and more specifically in the need for (relatively) high taxes and the need for regulation in almost every facit of life.
There are more people in the Greater Los Angles area than in Cuba. In California even the riverbeds are covered with concrete. The amount of traffic is overwhelming, as is the number of homeless people. Driving from Central LA to Pacific Palisades on Sunset Boulevard the chasm between rich and poor is breathtaking, and this doesn't even take into account truly depressed areas of the city.
Cuba has free health care for all. And free education. The literacy rate is 90%. In California the literacy rate is 75% and the poverty rate is over 15%. Travel to Montecito, one of the most expensive towns in America, and then to its neighbour Santa Barbara which just suffered it's seventh homeless death in 2011.
Cuba is ranked 117th in the world economically. California is 8th.
But again I get ahead of myself.
As much as I appreciated what Castro had achieved-if nothing else he rid Cuba of a brutal and corrupt military dictatorship intimately interwoven with organised crime-he demonstrated that even under a somewhat benevolent and honest communist dictatorship it was still a dictatorship. The flip side of the social welfare provided by the communist state is that there is essentially no ambition, no real progress, and no growth. This is not paradise.
And yet when compared to California, that part of the USA which epitomizes the American Dream, when confronted by the blight of an incongruent mishmash of gated communities and abject poverty as the result of unregulated captialism and failed social policies, I am left nostalgic for the mythical past of my childhood as presented by the Cuba of today.
In trying to put my impressions into context I described myself as a Social-Democrat. When pressed to define what that was I explained that it meant that although I was a capitalist economically I believed in democracy politically, and more specifically in the need for (relatively) high taxes and the need for regulation in almost every facit of life.
There are more people in the Greater Los Angles area than in Cuba. In California even the riverbeds are covered with concrete. The amount of traffic is overwhelming, as is the number of homeless people. Driving from Central LA to Pacific Palisades on Sunset Boulevard the chasm between rich and poor is breathtaking, and this doesn't even take into account truly depressed areas of the city.
Cuba has free health care for all. And free education. The literacy rate is 90%. In California the literacy rate is 75% and the poverty rate is over 15%. Travel to Montecito, one of the most expensive towns in America, and then to its neighbour Santa Barbara which just suffered it's seventh homeless death in 2011.
Cuba is ranked 117th in the world economically. California is 8th.
But again I get ahead of myself.
As much as I appreciated what Castro had achieved-if nothing else he rid Cuba of a brutal and corrupt military dictatorship intimately interwoven with organised crime-he demonstrated that even under a somewhat benevolent and honest communist dictatorship it was still a dictatorship. The flip side of the social welfare provided by the communist state is that there is essentially no ambition, no real progress, and no growth. This is not paradise.
And yet when compared to California, that part of the USA which epitomizes the American Dream, when confronted by the blight of an incongruent mishmash of gated communities and abject poverty as the result of unregulated captialism and failed social policies, I am left nostalgic for the mythical past of my childhood as presented by the Cuba of today.
Wednesday 16 March 2011
The Chickens Come Home to Roost. Part I: Der Klassenfeind
I apologise for my negligence in writing recently but I was overwhelmed by a number of circumstances which made it almost impossible to sit down and coherently put my thoughts together.
To begin with, in addition to my trip to California which I mentioned in my previous post, my wife son and I also visited the last remaining Worker's and Farmer's Paradise of Cuba. I was torn as to how to address it in the first place and I will admit it was very disconcerting to be in a country where you have no consular support-but that is a different story.
To get the timing right, on the second or third day there we woke to the earthquake in New Zealand. Cuba and New Zealand are about the same size and surprisingly (to me) there are more Cubans (~11 million) than there are New Zealanders (~4 million).
But I get ahead of myself.
My son is a student of Political Science who has moved around quite a bit on the left-right axis. He has somewhat followed Mark Twain's axiom that if you aren't a communist by the time you are sixteen you have no heart, and if you aren't a capitalist by the time you are 25 you have no brain.
I say somewhat because his path has not been so straight forward. A staunch Republican at the age of 12, as a 20 year old he spent last summer going door-to-door raising funds and garnering signatures for the American Family Workers Party in the harsh environs of Bridgeport, Connecticut, so I'm not sure where he is on the spectrum currently although he is definitely leaning towards capitalism.
But he is not the real focus here other than it was his burning desire to see how Communism/Socialism works in practice which took us to Cuba in the first place. We supported his interest. My wife and I fit Mark Twain's view of human evolution so we were especially interested to see how Socialism worked in a warm climate given that our previous exposure was to East-Bloc Socialist States.
This last point is important. A lot of recent anthropology discussions have revisited the ideas of the energy and determination of those inhabitants of the northern climes in contrast to the relative indolence and lack of ambition of those in southern climes.
So there we were suddenly in Cuba. For me it was a weird mixture of my childhood in eastern Tennessee in the Fifties and of trips to Spain, southern Italy and Yugoslavia in the Sixties. For my wife it was post-war Germany followed by similar reminiscences of southern Europe in the late Sixties and early Seventies. The cars were from my youth, as was the (lack of)traffic density. The horse and ox-carts in the city as well as on the major highway were straight from a bygone era in our western culture, albeit 90 miles from the US mainland.
It was a land stuck in time, or perhaps better said, stuck in various times. Arriving at Jose Marti Airport my son and I were singled out for an interview by some immigration officers. It was uncomfortable, unorganised and somehow what I expected/feared from a communist state.
But then you get into a cab to Old Havana, and as you dodge potholes, street sellers, dogs and the ever present throngs of people looking for a ride the backdrop of Cuban music starts to take over and you just sit back and take it all in.
Our expectations were unclear for although we had done a reasonable amount of research beforehand about the only thing friends had told us who had been (almost uniformly) was how bad the food was. As part of our preparation we read "The Old Man and the Sea" and "Our Man in Havana" so we were prepared for the old cars, rum, cigars and unfortunately prostitution. We were not however prepared for the crumbling infrastructure, nor however, the calm almost tranquil feel which either despite or perhaps because of the organised chaos pervaded the place.
Havana is amazing. First it is much larger than I imagined. Our hotel had a rooftop terrace where we sat looking out over the cityscape drinking the first of many daiquiris. There are few streetlights and no advertising so as the sun settled over the bay the city slowly darkened but for the headlights of cars and buses.
This too is important. Cuba's demand for energy is quite low. They drill their own oil which is apparently not of good enough quality to sell profitably on the open market but sufficient for their needs.
In every neighbourhood there is a state store where Cubans go to get their basic foodstuffs. Either everyone, relatively speaking, or no one goes hungry. After 1989 and the collapse of the Soviet Union malnutrition had stalked the land as the loss of Soviet support in conjunction with the ongoing embargo by the United States was devastating. The economy didn't really stabilise until the turn of the century. Since then it has bounced along above a subsistence level but not overwhelmingly so. Housing, food, education and health are all provided by the state.
This has the benefit that although no one appeared to be wealthy, in a week I only saw 1 or 2 apparently destitute people, and they were in Havana. It also has the disadvantage that there was no room for ambition and growth reflecting some grafitti I once saw in Leipzig proclaiming that security and comfort makes one fat and lazy. I didn't see many signs of obesity, but there was a distinct lack of drive which translated into a very slow orderliness.
The tool of choice in the countryside was the machete be it in a sheath on a saddle or just stuck in someones belt. But in 7 days I never felt threatened despite getting lost many times in back alleyways or country roads.
I mention this only in passing as a week later we were driving in Palm Springs one night after dinner and inadvertently crossed a border into a part of town where I felt extremely uncomfortable.
But far more important was the contrast encountered when I left Cuba and entered that other paradise, California, but that is for Part II.
To begin with, in addition to my trip to California which I mentioned in my previous post, my wife son and I also visited the last remaining Worker's and Farmer's Paradise of Cuba. I was torn as to how to address it in the first place and I will admit it was very disconcerting to be in a country where you have no consular support-but that is a different story.
To get the timing right, on the second or third day there we woke to the earthquake in New Zealand. Cuba and New Zealand are about the same size and surprisingly (to me) there are more Cubans (~11 million) than there are New Zealanders (~4 million).
But I get ahead of myself.
My son is a student of Political Science who has moved around quite a bit on the left-right axis. He has somewhat followed Mark Twain's axiom that if you aren't a communist by the time you are sixteen you have no heart, and if you aren't a capitalist by the time you are 25 you have no brain.
I say somewhat because his path has not been so straight forward. A staunch Republican at the age of 12, as a 20 year old he spent last summer going door-to-door raising funds and garnering signatures for the American Family Workers Party in the harsh environs of Bridgeport, Connecticut, so I'm not sure where he is on the spectrum currently although he is definitely leaning towards capitalism.
But he is not the real focus here other than it was his burning desire to see how Communism/Socialism works in practice which took us to Cuba in the first place. We supported his interest. My wife and I fit Mark Twain's view of human evolution so we were especially interested to see how Socialism worked in a warm climate given that our previous exposure was to East-Bloc Socialist States.
This last point is important. A lot of recent anthropology discussions have revisited the ideas of the energy and determination of those inhabitants of the northern climes in contrast to the relative indolence and lack of ambition of those in southern climes.
So there we were suddenly in Cuba. For me it was a weird mixture of my childhood in eastern Tennessee in the Fifties and of trips to Spain, southern Italy and Yugoslavia in the Sixties. For my wife it was post-war Germany followed by similar reminiscences of southern Europe in the late Sixties and early Seventies. The cars were from my youth, as was the (lack of)traffic density. The horse and ox-carts in the city as well as on the major highway were straight from a bygone era in our western culture, albeit 90 miles from the US mainland.
It was a land stuck in time, or perhaps better said, stuck in various times. Arriving at Jose Marti Airport my son and I were singled out for an interview by some immigration officers. It was uncomfortable, unorganised and somehow what I expected/feared from a communist state.
But then you get into a cab to Old Havana, and as you dodge potholes, street sellers, dogs and the ever present throngs of people looking for a ride the backdrop of Cuban music starts to take over and you just sit back and take it all in.
Our expectations were unclear for although we had done a reasonable amount of research beforehand about the only thing friends had told us who had been (almost uniformly) was how bad the food was. As part of our preparation we read "The Old Man and the Sea" and "Our Man in Havana" so we were prepared for the old cars, rum, cigars and unfortunately prostitution. We were not however prepared for the crumbling infrastructure, nor however, the calm almost tranquil feel which either despite or perhaps because of the organised chaos pervaded the place.
Havana is amazing. First it is much larger than I imagined. Our hotel had a rooftop terrace where we sat looking out over the cityscape drinking the first of many daiquiris. There are few streetlights and no advertising so as the sun settled over the bay the city slowly darkened but for the headlights of cars and buses.
This too is important. Cuba's demand for energy is quite low. They drill their own oil which is apparently not of good enough quality to sell profitably on the open market but sufficient for their needs.
In every neighbourhood there is a state store where Cubans go to get their basic foodstuffs. Either everyone, relatively speaking, or no one goes hungry. After 1989 and the collapse of the Soviet Union malnutrition had stalked the land as the loss of Soviet support in conjunction with the ongoing embargo by the United States was devastating. The economy didn't really stabilise until the turn of the century. Since then it has bounced along above a subsistence level but not overwhelmingly so. Housing, food, education and health are all provided by the state.
This has the benefit that although no one appeared to be wealthy, in a week I only saw 1 or 2 apparently destitute people, and they were in Havana. It also has the disadvantage that there was no room for ambition and growth reflecting some grafitti I once saw in Leipzig proclaiming that security and comfort makes one fat and lazy. I didn't see many signs of obesity, but there was a distinct lack of drive which translated into a very slow orderliness.
The tool of choice in the countryside was the machete be it in a sheath on a saddle or just stuck in someones belt. But in 7 days I never felt threatened despite getting lost many times in back alleyways or country roads.
I mention this only in passing as a week later we were driving in Palm Springs one night after dinner and inadvertently crossed a border into a part of town where I felt extremely uncomfortable.
But far more important was the contrast encountered when I left Cuba and entered that other paradise, California, but that is for Part II.
Wednesday 16 February 2011
More Dumbing Down....
Yesterday I complained about the dumbing down of America through the conservative media. I take it back. Depressingly Ms Zito must represent the intellectuals of the right wing media. This morning while flipping through various news agencies I came across the Fox Nation website with Rush Limbaugh's response to a caller on his talk show about the recent elections.
Now I don't think Rush Limbaugh is actually as stupid as he sounds so I have to assume that his suggestion that if the Health Care Reform isn't repealed then "We go Egypt on Obama" is insinuating running street battles with the police until Obama resigns?
Is he serious? I will be travelling to California for the next couple of weeks-should I be worried? Jesting aside, just what is Mr Limbaugh suggesting. He goes on to say "And, by the way, Obama can't complain if we go Egypt on him because he said that's how democracy works, that's what he said on Friday. This is the way real democracy works, so he can't complain if it happens to him, and it will."
We are a democracy. Egypt wasn't, and still isn't. But then if I look at the Fox Nation website I get a pretty good idea of their idea of democracy. They are "opposed to intolerance, excessive government control of our lives and attempts to monopolize opinion..." Really?
Sounds more like do what we say, or prepare to do battle.
Now I don't think Rush Limbaugh is actually as stupid as he sounds so I have to assume that his suggestion that if the Health Care Reform isn't repealed then "We go Egypt on Obama" is insinuating running street battles with the police until Obama resigns?
Is he serious? I will be travelling to California for the next couple of weeks-should I be worried? Jesting aside, just what is Mr Limbaugh suggesting. He goes on to say "And, by the way, Obama can't complain if we go Egypt on him because he said that's how democracy works, that's what he said on Friday. This is the way real democracy works, so he can't complain if it happens to him, and it will."
We are a democracy. Egypt wasn't, and still isn't. But then if I look at the Fox Nation website I get a pretty good idea of their idea of democracy. They are "opposed to intolerance, excessive government control of our lives and attempts to monopolize opinion..." Really?
Sounds more like do what we say, or prepare to do battle.
Tuesday 15 February 2011
It's called Feudal Modernity
I just read an article by a Ms Salena Zito of the Pittsburgh Tribune-Review entitled "Our New Jeffersonian Era".
It was an attempt to explain the success of the Republicans in the last election. To me it clearly illustrated the dumbing-down of American history by the conservative press in their attempts to define modern America.
She quotes a Dr Lara Brown, I think, as her prose is unclear, whose focus is on the fact that Jefferson's clothes were slightly worn-ignoring the fact that this was a deliberate move by Jefferson. He came from Virginia, a rural slave-owning state, and took great pains to position himself, scion of a planter's family, as the champion of the yeoman farmer distrusting cities and financiers.
She goes on to say that this anti-elitist pose by Jefferson is the source of fast food, plaid shirts, cowboy boots and jeans. That is one way to describe a cultural wasteland. Actually sounds suspiciously like GW?
Ms Zito goes on to explain how the Tea Party is a return to a Jeffersonian vision of an agrarian nation. Who is she kidding? Jefferson's agrarian ideal included plantations with hundreds of slaves and the forced removal and extermination of Native Americans.
But that is not my theme today. No, I want to focus on the manipulation of the populist dream of an agrarian utopia that never existed, except for the elite few. There is an air of the Luddites in her message. Granted, she has exchanged a Washington-centric government for a revolt against the advent of industrialism, but the two are intimately connected.
The rise of National Socialism was also carried on a wave of nostalgia for an agrarian past equally mired in a feudalistic society. The reality was an incestuous relationship with big business/industrialists, although there was a place for the little man to live out his agrarian fantasy as a soldier-farmer on the edges of the empire.
Sound familiar?
What I find most striking is Ms Zito's closing quote of the inscription on Jefferson's statue in Washington.* It is the most rational statement one could wish for, proclaiming an understanding of progress, enlightenment and cultural evolution. I would have thought it anathema to the Tea Party and its supporters. But then again it might be too long a quote.
*"I am not an advocate for frequent changes in laws and constitutions. But laws and institutions must go hand in hand with the progress of the human mind. As that becomes more developed, more enlightened, as new discoveries are made, new truths discovered and manners and opinions change, with the change of circumstances, institutions must advance also to keep pace with the times."
It was an attempt to explain the success of the Republicans in the last election. To me it clearly illustrated the dumbing-down of American history by the conservative press in their attempts to define modern America.
She quotes a Dr Lara Brown, I think, as her prose is unclear, whose focus is on the fact that Jefferson's clothes were slightly worn-ignoring the fact that this was a deliberate move by Jefferson. He came from Virginia, a rural slave-owning state, and took great pains to position himself, scion of a planter's family, as the champion of the yeoman farmer distrusting cities and financiers.
She goes on to say that this anti-elitist pose by Jefferson is the source of fast food, plaid shirts, cowboy boots and jeans. That is one way to describe a cultural wasteland. Actually sounds suspiciously like GW?
Ms Zito goes on to explain how the Tea Party is a return to a Jeffersonian vision of an agrarian nation. Who is she kidding? Jefferson's agrarian ideal included plantations with hundreds of slaves and the forced removal and extermination of Native Americans.
But that is not my theme today. No, I want to focus on the manipulation of the populist dream of an agrarian utopia that never existed, except for the elite few. There is an air of the Luddites in her message. Granted, she has exchanged a Washington-centric government for a revolt against the advent of industrialism, but the two are intimately connected.
The rise of National Socialism was also carried on a wave of nostalgia for an agrarian past equally mired in a feudalistic society. The reality was an incestuous relationship with big business/industrialists, although there was a place for the little man to live out his agrarian fantasy as a soldier-farmer on the edges of the empire.
Sound familiar?
What I find most striking is Ms Zito's closing quote of the inscription on Jefferson's statue in Washington.* It is the most rational statement one could wish for, proclaiming an understanding of progress, enlightenment and cultural evolution. I would have thought it anathema to the Tea Party and its supporters. But then again it might be too long a quote.
*"I am not an advocate for frequent changes in laws and constitutions. But laws and institutions must go hand in hand with the progress of the human mind. As that becomes more developed, more enlightened, as new discoveries are made, new truths discovered and manners and opinions change, with the change of circumstances, institutions must advance also to keep pace with the times."
Monday 14 February 2011
And a Penny's not a Penny
This morning there was a discussion about the introduction of the decimal system to Britain. I lived in England during the 60's as a schoolboy and not only did we have Shillings and Pence, we still had talked about Guineas-equal to 21 Schillings, and actually had half-penny coins.
What was actually more interesting however was the discussion of the metallurgical value of the coinage. According to the US Mint, it currently costs almost twice as much to produce and ship a penny then its face value.
As of January 14, 2011, the pre-1982 penny which is made of 95% copper has a metallurgical value 289.56% of its face value. 1982–present US pennies, which weigh 2.5 grams, are 97.5% zinc and 2.5% copper (coated over the zinc) by weight and have a metallurgical value of 64.376% of the face value.
I guess it's something I should have thought about previously but I am still surprised to find out that not only is the value of our paper money predicated on a willingness to accept a piece of paper as a medium of exchange, but our coins are also part of this belief system.
I guess alchemy does work.
What was actually more interesting however was the discussion of the metallurgical value of the coinage. According to the US Mint, it currently costs almost twice as much to produce and ship a penny then its face value.
As of January 14, 2011, the pre-1982 penny which is made of 95% copper has a metallurgical value 289.56% of its face value. 1982–present US pennies, which weigh 2.5 grams, are 97.5% zinc and 2.5% copper (coated over the zinc) by weight and have a metallurgical value of 64.376% of the face value.
I guess it's something I should have thought about previously but I am still surprised to find out that not only is the value of our paper money predicated on a willingness to accept a piece of paper as a medium of exchange, but our coins are also part of this belief system.
I guess alchemy does work.
Friday 11 February 2011
Sometimes a Cigar is Just a Cigar
Yesterday I was annoyed with Doug Lowenstein, president of the Private Equity Growth Capital Council who suggested that the private equity industry was somehow totally removed from the rest of the world financial system. It was breathtaking to me how he could utter such self-serving statements and keep a straight face.
Today however I am confronted with an argument that goes to the other extreme. Paul Ryan, the new Budget Committee Head in the now Republican-controlled House of Representatives seems intent on blaming anything and everything on Professor Bernanke. Mr Ryan's game plan is to make Bernanke responsible for every economic ill facing "the ordinary American voter".
The charge today is that soaring global commodity prices are all as a result of the Federal Reserve's monetary policy.
The thought process goes like this. Rather than seeing TARP and QEI and QEII as actions designed to save the financial system in the former and to provide economic stimulus in the latter all of the actions are described as budget-busting and inflation-stoking.
These actions by the Fed allegedly created anxiety and panic in investors about the long-run stability of the US$ and "forced" investors to become prey to commodity fund salespeople!
Adding fuel to the inflationary fire the argument continues that keeping US rates abnormally low spurred investment in emerging markets causing the equity, bond and commodity prices in those countries to overheat. The same people who decry the Fed's decision to keep rates low accuse the European Central Bank (ECB) of mistakenly raising rates in '08 out of fear for inflation at a time Europe's economy was crashing.
To be fair, some commentator's also blame the monetary policy of the People's Bank of China for some of the global inflationary pressures they see on the horizon. They do however completely ignore the fact that China's rapacious economic expansion is consuming commodities at an incredible rate both in terms of today's needs as well as in trying to secure resources for the future.
They also seem to forget that economic growth, and that is what they are clamouring for, puts inflationary pressure on commodities-unless you have an inexhaustible supply of resources. We don't.
Today however I am confronted with an argument that goes to the other extreme. Paul Ryan, the new Budget Committee Head in the now Republican-controlled House of Representatives seems intent on blaming anything and everything on Professor Bernanke. Mr Ryan's game plan is to make Bernanke responsible for every economic ill facing "the ordinary American voter".
The charge today is that soaring global commodity prices are all as a result of the Federal Reserve's monetary policy.
The thought process goes like this. Rather than seeing TARP and QEI and QEII as actions designed to save the financial system in the former and to provide economic stimulus in the latter all of the actions are described as budget-busting and inflation-stoking.
These actions by the Fed allegedly created anxiety and panic in investors about the long-run stability of the US$ and "forced" investors to become prey to commodity fund salespeople!
Adding fuel to the inflationary fire the argument continues that keeping US rates abnormally low spurred investment in emerging markets causing the equity, bond and commodity prices in those countries to overheat. The same people who decry the Fed's decision to keep rates low accuse the European Central Bank (ECB) of mistakenly raising rates in '08 out of fear for inflation at a time Europe's economy was crashing.
To be fair, some commentator's also blame the monetary policy of the People's Bank of China for some of the global inflationary pressures they see on the horizon. They do however completely ignore the fact that China's rapacious economic expansion is consuming commodities at an incredible rate both in terms of today's needs as well as in trying to secure resources for the future.
They also seem to forget that economic growth, and that is what they are clamouring for, puts inflationary pressure on commodities-unless you have an inexhaustible supply of resources. We don't.
Thursday 10 February 2011
"Risk is Risk" and Other Tautologies
My ire today is primarily directed at the US managing editor and assistant editor of the Financial Times (FT) Gillian Tett. In an article in last Thursday's paper she stated that the reason the so-called "shadow banking" world was never talked about was because pre-2007 no one knew how to describe non-bank institutions in an eye-catching way.
It is certainly cute to suggest that the lack of a catchy name meant that the entire world of shadow banking was allowed to grow to a point that it managed assets greater than the "real" banking world-but it is completely ridiculous.
It is a weak attempt to try and explain away why the regulators failed to deal with a problem which everyone knew about.
The institutional fixed income sales desk at every investment bank has a set of clients designated as Non-Bank Financial Institutions. Certainly not catchy, but clear for anyone to see during a regulatory review. So when the FSA or the SEC or BaFin or any regulatory body does a review of an institution they not only see it, they query it.
They want to know what it contained, and why. This is where the "shadow world" of Hedge Funds, Conduits, SPV's, Money Market Funds, Repo Facilities and Insurance companies are housed. And they are regulated, and often enough, rated by those pillars of independence, the Rating Agencies. One of the questions a Head of Sales has to deal with from an inquisitive regulator is how they determined whether an account belonged on the Non-Bank Financial Institutions desk, or on the Bank Desk.
Where, for example, should you put the conduit of a major bank? Overlooking the fact that the conduit was set up to avoid the capital requirements that a bank had to hold against its investments, they were interested in the rational as to why some investment houses had them on the bank desk, and others on the non-bank desk. The truth was that it was political but that is a different story.
2008 showed us that regardless of where the conduit sat on an institutional sales desk, the risk was ultimately at the conduit's bank. These conduits essentially destroyed a host of banks for despite the off-balance sheet nature of the structure, the liabilities effectively ended up being on-balance sheet.
One of the first conduits was set up by Citibank. The managers of it recognised the potential and so took the idea and set up a Limited Purpose Operating Company owned by Deutsche Bank (32%), Sarofim & Co.(8%) and the management team (60%). Very clever of Deutsche Bank. They owned a third of the company, but didn't guarantee it. This meant that it wasn't even a contingent liability (beyond their initial investment). A distinction missed by the majority of banks which only looked at return on capital numbers and not risk.
Ms Tett ends her article suggesting that the banks aren't happy with the term "shadow". Already upset by the fact that the "discovery" of the shadow-banking world has resulted in new regulations stipulating higher capital and liquid asset requirements and, according to the banks therefore lower profits, they are now lobbying to create a new less sinister designation for "good" and "bad" forms of non-bank finance.
It is all posturing by the banks and their lackeys to try and maintain their positions, and, to be fair, by members of the shadow world to avoid the spotlight.
Leave it to Citgroup's CEO Vikram Pandit to try and confuse things claiming "Shifting risk into unregulated or differently regulated sectors won't make the banking system safer. On the contrary, overall risk could rise". We all know how well the banks handled risk, don't we Mr Pandit, especially Citibank.
Or what should one deduce when Gary Cohn, President of that paragon of transparency Goldman Sachs states "Risk is risk" and that his concern is "that risk will move from the regulated, more transparent banking sector to a less regulated, more opaque sector."? Really?
But the best quote in defense of unbridled capitalism goes to Doug Lowenstein, president of the Private Equity Growth Capital Council which represents the biggest US buy-out groups. Twisting and turning to avoid tighter regulation being applied to systemically important companies/sectors, he claims "Private equity firms lack the scale, interconnectivity, dependence on short-term funding and most importantly the taxpayer support that characterise systemically significant institutions"!
So now the definition of systemically important means that taxpayer support is implicit in the organisation?
He's obviously never seen "The Butterfly Effect".
It is certainly cute to suggest that the lack of a catchy name meant that the entire world of shadow banking was allowed to grow to a point that it managed assets greater than the "real" banking world-but it is completely ridiculous.
It is a weak attempt to try and explain away why the regulators failed to deal with a problem which everyone knew about.
The institutional fixed income sales desk at every investment bank has a set of clients designated as Non-Bank Financial Institutions. Certainly not catchy, but clear for anyone to see during a regulatory review. So when the FSA or the SEC or BaFin or any regulatory body does a review of an institution they not only see it, they query it.
They want to know what it contained, and why. This is where the "shadow world" of Hedge Funds, Conduits, SPV's, Money Market Funds, Repo Facilities and Insurance companies are housed. And they are regulated, and often enough, rated by those pillars of independence, the Rating Agencies. One of the questions a Head of Sales has to deal with from an inquisitive regulator is how they determined whether an account belonged on the Non-Bank Financial Institutions desk, or on the Bank Desk.
Where, for example, should you put the conduit of a major bank? Overlooking the fact that the conduit was set up to avoid the capital requirements that a bank had to hold against its investments, they were interested in the rational as to why some investment houses had them on the bank desk, and others on the non-bank desk. The truth was that it was political but that is a different story.
2008 showed us that regardless of where the conduit sat on an institutional sales desk, the risk was ultimately at the conduit's bank. These conduits essentially destroyed a host of banks for despite the off-balance sheet nature of the structure, the liabilities effectively ended up being on-balance sheet.
One of the first conduits was set up by Citibank. The managers of it recognised the potential and so took the idea and set up a Limited Purpose Operating Company owned by Deutsche Bank (32%), Sarofim & Co.(8%) and the management team (60%). Very clever of Deutsche Bank. They owned a third of the company, but didn't guarantee it. This meant that it wasn't even a contingent liability (beyond their initial investment). A distinction missed by the majority of banks which only looked at return on capital numbers and not risk.
Ms Tett ends her article suggesting that the banks aren't happy with the term "shadow". Already upset by the fact that the "discovery" of the shadow-banking world has resulted in new regulations stipulating higher capital and liquid asset requirements and, according to the banks therefore lower profits, they are now lobbying to create a new less sinister designation for "good" and "bad" forms of non-bank finance.
It is all posturing by the banks and their lackeys to try and maintain their positions, and, to be fair, by members of the shadow world to avoid the spotlight.
Leave it to Citgroup's CEO Vikram Pandit to try and confuse things claiming "Shifting risk into unregulated or differently regulated sectors won't make the banking system safer. On the contrary, overall risk could rise". We all know how well the banks handled risk, don't we Mr Pandit, especially Citibank.
Or what should one deduce when Gary Cohn, President of that paragon of transparency Goldman Sachs states "Risk is risk" and that his concern is "that risk will move from the regulated, more transparent banking sector to a less regulated, more opaque sector."? Really?
But the best quote in defense of unbridled capitalism goes to Doug Lowenstein, president of the Private Equity Growth Capital Council which represents the biggest US buy-out groups. Twisting and turning to avoid tighter regulation being applied to systemically important companies/sectors, he claims "Private equity firms lack the scale, interconnectivity, dependence on short-term funding and most importantly the taxpayer support that characterise systemically significant institutions"!
So now the definition of systemically important means that taxpayer support is implicit in the organisation?
He's obviously never seen "The Butterfly Effect".
Wednesday 9 February 2011
If It Walks Like a Duck.....
Last night I had dinner with a friend who for his sins is an advisor to banks in the Middle East helping them devise Islamic Banking Products.
For those of you who don't know, under Islamic or Sharia Law the payment of interest is not allowed. That is not so surprising given that in the Old Testament there were prohibitions on charging interest-except to strangers-and at the end of seven years all debts were remitted except, again, to strangers.
In the early history of the Christian Church Christians were prohibited from indulging in interest. Jews, not being Christians were allowed to fill this role, and as the Torah didn't forbid charging interest to "strangers" it all fit together. Eventually this prohibition was removed from Christians as there developed a separation of church dogma and economic realities. The prohibition on interest was first removed from commercial ventures-the emergence of venture capital-and eventually even from interest on money although usury was forbidden.
The prohibition on interest remains in Islam and the solution to the problem would raise an eyebrow of respect from the best Talmudic scholars. Interest is forbidden; but profit is allowed. So essentially all Islamic Banking products are focused on how to turn interest into profit. And the simplest way to do that? Call it profit.
In the middle of a recent negotiation which went on for weeks my friend got somewhat exasperated and got up from the meeting and went outside to cool down. One of the Sharia scholars followed him to try and help calm him. In the ensuing discussion my friend asked the Sharia expert if he thought God was omnipotent. "Yes" the scholar answered. "So wouldn't God be able to see through this ruse to circumvent the payment of interest?" continued my friend.
The scholar reflected for a moment and said, "but Jews and Christians have the same restrictions and the same God so how can you criticise us?"
Maybe because two wrongs don't make right, but more likely because we live in a secular society. And by the way we still haven't come up with a rational definition of usury.
For those of you who don't know, under Islamic or Sharia Law the payment of interest is not allowed. That is not so surprising given that in the Old Testament there were prohibitions on charging interest-except to strangers-and at the end of seven years all debts were remitted except, again, to strangers.
In the early history of the Christian Church Christians were prohibited from indulging in interest. Jews, not being Christians were allowed to fill this role, and as the Torah didn't forbid charging interest to "strangers" it all fit together. Eventually this prohibition was removed from Christians as there developed a separation of church dogma and economic realities. The prohibition on interest was first removed from commercial ventures-the emergence of venture capital-and eventually even from interest on money although usury was forbidden.
The prohibition on interest remains in Islam and the solution to the problem would raise an eyebrow of respect from the best Talmudic scholars. Interest is forbidden; but profit is allowed. So essentially all Islamic Banking products are focused on how to turn interest into profit. And the simplest way to do that? Call it profit.
In the middle of a recent negotiation which went on for weeks my friend got somewhat exasperated and got up from the meeting and went outside to cool down. One of the Sharia scholars followed him to try and help calm him. In the ensuing discussion my friend asked the Sharia expert if he thought God was omnipotent. "Yes" the scholar answered. "So wouldn't God be able to see through this ruse to circumvent the payment of interest?" continued my friend.
The scholar reflected for a moment and said, "but Jews and Christians have the same restrictions and the same God so how can you criticise us?"
Maybe because two wrongs don't make right, but more likely because we live in a secular society. And by the way we still haven't come up with a rational definition of usury.
Tuesday 8 February 2011
Not a Rant....
Recently I read an article by a Blogger whose claim to fame was that he was not a Rant Blogger but rather only discussed the facts-of course as he saw them.
Unfortunately I don't remember where I read it but I am pretty sure it was a feed from RealClearPolitics who despite their attempts to be non-partisan seem to have a Republican leaning.
Regardless, I did think it was worth reflecting upon as I didn't wish to fall into the Rant Blogger category.
And yet today I read an interview in the Wall Street Journal (WSJ) which seemed designed to illicit rants. It was with Mr Steve Eckhaus, a lawyer at Katten Muchin Rosenman LLP who claimeed he has negotiated well over $5 billion in banker pay over the years. In general he said his clients are "pure as the driven snow" and doing work that supports the economy and justifies their pay.
Now I don't know anything about Steve Eckhaus and I can only assume it was his way of drumming up business-who wouldn't want to be represented by a lawyer who negotiates extravagant pay packages! But what a weird comment. "In general"? So by definition some of his clients aren't "pure"; their work doesn't support the economy; and their pay isn't justified? He is a lawyer so I would have thought he chose his words carefully!
Then I move to the purchase of Huffington Post by AOL. Interesting move by AOL to try and regain its position in the market. Interesting move by Huffington. $300 million to be paid in cash to co-founder Arianna Huffington, Chairman Kenneth Lerer and a group of investors. And $15million in shares. Doesn't leave me warm and fuzzy about the long term intentions of the Huffington people.
I wonder if Mr Eckhaus negotiated their deal? And what's their view on Capital Gains Tax now?
Unfortunately I don't remember where I read it but I am pretty sure it was a feed from RealClearPolitics who despite their attempts to be non-partisan seem to have a Republican leaning.
Regardless, I did think it was worth reflecting upon as I didn't wish to fall into the Rant Blogger category.
And yet today I read an interview in the Wall Street Journal (WSJ) which seemed designed to illicit rants. It was with Mr Steve Eckhaus, a lawyer at Katten Muchin Rosenman LLP who claimeed he has negotiated well over $5 billion in banker pay over the years. In general he said his clients are "pure as the driven snow" and doing work that supports the economy and justifies their pay.
Now I don't know anything about Steve Eckhaus and I can only assume it was his way of drumming up business-who wouldn't want to be represented by a lawyer who negotiates extravagant pay packages! But what a weird comment. "In general"? So by definition some of his clients aren't "pure"; their work doesn't support the economy; and their pay isn't justified? He is a lawyer so I would have thought he chose his words carefully!
Then I move to the purchase of Huffington Post by AOL. Interesting move by AOL to try and regain its position in the market. Interesting move by Huffington. $300 million to be paid in cash to co-founder Arianna Huffington, Chairman Kenneth Lerer and a group of investors. And $15million in shares. Doesn't leave me warm and fuzzy about the long term intentions of the Huffington people.
I wonder if Mr Eckhaus negotiated their deal? And what's their view on Capital Gains Tax now?
Monday 7 February 2011
Which is the Greater Evil.....
There is an ongoing debate as to whether we have more to fear from inflation, or deflation. What is disturbing in the discussion is the fact that often the steps taken to combat the one leads to the other.
The digital approach taken by proponents of both sides of the argument doesn't lend itself to a rational dialogue. On the contrary, there seems to be a movement to immediately politicise the question.
Personally I think the truth is that there is a fine balancing act required to avoid excesses in either direction, and in any event trying to manage the economy is like trying to type with stiff mittens.
I appreciate the difficulties facing Central Bankers and I understand the Fed's decision under Professor Bernanke to target "core inflation" (excluding food and energy prices).
Although the effect of raising oil/energy prices on the economy can be devastating, raising interest rates to combat them often lead to stagflation, which is perhaps even worse than the other two "flations".
At some point the Fed will have to react to the inflationary pressures that they themselves have at least partially created in their attempts to stimulate the economy, but that day is still somewhere in the future.
Anyone arguing that the Quantitative Easing (QE)"time bombs" being laid by the Fed have to be dealt with today runs the risk of demanding actions that might in the long run help avoid an inflation, but in the near term crush the economy.
The digital approach taken by proponents of both sides of the argument doesn't lend itself to a rational dialogue. On the contrary, there seems to be a movement to immediately politicise the question.
Personally I think the truth is that there is a fine balancing act required to avoid excesses in either direction, and in any event trying to manage the economy is like trying to type with stiff mittens.
I appreciate the difficulties facing Central Bankers and I understand the Fed's decision under Professor Bernanke to target "core inflation" (excluding food and energy prices).
Although the effect of raising oil/energy prices on the economy can be devastating, raising interest rates to combat them often lead to stagflation, which is perhaps even worse than the other two "flations".
At some point the Fed will have to react to the inflationary pressures that they themselves have at least partially created in their attempts to stimulate the economy, but that day is still somewhere in the future.
Anyone arguing that the Quantitative Easing (QE)"time bombs" being laid by the Fed have to be dealt with today runs the risk of demanding actions that might in the long run help avoid an inflation, but in the near term crush the economy.
Thursday 3 February 2011
Blind Perhaps, But Educated-To a Point.
To ensure that I too do not allow myself to be "blinded" by my opinions I took the time to read Judge Vinson's Health Care Ruling.* I do not normally read legal opinions as I find that they tend to be somewhat obtuse and focus on an arcane fact or decision which is often beside the point.
So it was an almost pleasant surprise to find that Judge Vinson's Ruling took almost 42 pages before his personal subjectivity started to appear. Indeed, up to that point his review of the judicial precedents of the Commerce Clause, which is Article I, Section 8 as I mentioned in a previous posting, was actually interesting, enlightening, and well presented.
Specifically the Commerce Clause states that Congress has the power "To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes". The plaintiffs and the defendants essentially use the clause to attack or defend the requirement in the Health Care Act(HCA) for individuals to buy health insurance.
But, as I said, on Page 42 Judge Vinson manages to nail his colors to the mast. Suddenly his attack on the HCA is predicated on the Boston Tea Party. He suggests that requiring citizens to buy health insurance would be the equivalent of forcing people to buy tea. To allow Congress to mandate the purchase of health insurance would be tantamount to removing all limitations on federal power.
Interestingly our judge didn't deign to delve into the use of the Commerce Clause in enabling Congress to impose a Federal Income Tax. I am sure he would put federal income tax in the same category as requiring people to buy tea.
Unfortunately Judge Vinson spends the next 14 pages on an emotional almost irrational bent berating, even ridiculing the individual mandate until he finally moves the discourse on to the "Necessary and Proper Clause".
Even here he feels compelled to editorialise derogatorily describing any discussion of the clause as “the last, best hope of those who defend ultra vires congressional action.”
To be fair the Necessary and Proper Clause is only relevant in ensuring that the HCA insurance requirement is enforceable under the Commerce Clause. Again he can't resist and while barging down this blind alley Judge Vinson forgets his judicial purpose, jettisoning the legal discussion and lambasting the economics of the HCA.
Finally, on page 63 we get to the discussion on Severability. Here the defendants have been hoisted somewhat on their own petard. They stated clearly that the individual insurance mandate is absolutely necessary, even essential for the Act's insurance market reforms to work as intended.
This left the door to "severability" open. It is not clear why they left a severability clause out of the act. Perhaps it is because without the individual mandate the Act is toothless, and so the real battle is still to be fought in the Supreme Court in determining the validity of the Commerce Clause in this case.
One can only hope they are less partisan in their deliberations...
*http://www.realclearpolitics.com/docs/2011/Vinson_HCRuling_0131.pdf
So it was an almost pleasant surprise to find that Judge Vinson's Ruling took almost 42 pages before his personal subjectivity started to appear. Indeed, up to that point his review of the judicial precedents of the Commerce Clause, which is Article I, Section 8 as I mentioned in a previous posting, was actually interesting, enlightening, and well presented.
Specifically the Commerce Clause states that Congress has the power "To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes". The plaintiffs and the defendants essentially use the clause to attack or defend the requirement in the Health Care Act(HCA) for individuals to buy health insurance.
But, as I said, on Page 42 Judge Vinson manages to nail his colors to the mast. Suddenly his attack on the HCA is predicated on the Boston Tea Party. He suggests that requiring citizens to buy health insurance would be the equivalent of forcing people to buy tea. To allow Congress to mandate the purchase of health insurance would be tantamount to removing all limitations on federal power.
Interestingly our judge didn't deign to delve into the use of the Commerce Clause in enabling Congress to impose a Federal Income Tax. I am sure he would put federal income tax in the same category as requiring people to buy tea.
Unfortunately Judge Vinson spends the next 14 pages on an emotional almost irrational bent berating, even ridiculing the individual mandate until he finally moves the discourse on to the "Necessary and Proper Clause".
Even here he feels compelled to editorialise derogatorily describing any discussion of the clause as “the last, best hope of those who defend ultra vires congressional action.”
To be fair the Necessary and Proper Clause is only relevant in ensuring that the HCA insurance requirement is enforceable under the Commerce Clause. Again he can't resist and while barging down this blind alley Judge Vinson forgets his judicial purpose, jettisoning the legal discussion and lambasting the economics of the HCA.
Finally, on page 63 we get to the discussion on Severability. Here the defendants have been hoisted somewhat on their own petard. They stated clearly that the individual insurance mandate is absolutely necessary, even essential for the Act's insurance market reforms to work as intended.
This left the door to "severability" open. It is not clear why they left a severability clause out of the act. Perhaps it is because without the individual mandate the Act is toothless, and so the real battle is still to be fought in the Supreme Court in determining the validity of the Commerce Clause in this case.
One can only hope they are less partisan in their deliberations...
*http://www.realclearpolitics.com/docs/2011/Vinson_HCRuling_0131.pdf
Tuesday 1 February 2011
Blind Justice?
This morning I read that a Federal Judge in Florida has declared the Patient Protection and Affordable Care Act (ObamaCare)to be void because "the individual mandate is unconstitutional and not severable". I am not a Constitutional lawyer but I do know that in a contract what severable means so it is interesting that he chose to focus on this point.
He bases his declaration of the entire act being void because the individual mandate is unconstitutional. I haven't read every page of the act, but it seems strange that it would have been written in such a manner as to make the entire act void if a section of it were to be declared void.
But then again, U.S. District Judge Roger Vinson, who was appointed to the bench by Ronald Reagan in 1983 might have an ax to grind here. He is a Republican.
Judge Vinson's decision to base his opposition on the severable aspect might show some nuance many of the opponents of the act don't have.
Some of his fellow Republicans decided to base their opposition to the act on Article I Section 8 of the Constitution which specifies exactly 18 enumerated powers of Congress, and, unsurprisingly, health care is not one of them.
From there they jump to the Tenth Amendment which grants to the states and people those powers not granted to the federal government by the Constitution. Unfortunately for them they missed the fact that the Tenth Amendment intentionally omits the word "expressly" when describing the powers not granted to the federal government. Our Founding Fathers were aware that it was dangerous to prescribe the future down to the letter.
As always, it's a question of context.
After realising that the Articles of Confederation left the Federal Government essentially powerless vis-a-vis the States our Founding Fathers convened a convention in Philadelphia in 1787. At this Convention they threw out the Articles and in their place created the Constitution. In order to get it ratifed there was quite a bit of horse-trading. The Tenth Amendment, a favorite of the Tea Party, was actually a means of placating those States which condoned slavery as it was used to support the right to own property (i.e. slaves) granted by State's constitutions.
That might not be a coincidence.
He bases his declaration of the entire act being void because the individual mandate is unconstitutional. I haven't read every page of the act, but it seems strange that it would have been written in such a manner as to make the entire act void if a section of it were to be declared void.
But then again, U.S. District Judge Roger Vinson, who was appointed to the bench by Ronald Reagan in 1983 might have an ax to grind here. He is a Republican.
Judge Vinson's decision to base his opposition on the severable aspect might show some nuance many of the opponents of the act don't have.
Some of his fellow Republicans decided to base their opposition to the act on Article I Section 8 of the Constitution which specifies exactly 18 enumerated powers of Congress, and, unsurprisingly, health care is not one of them.
From there they jump to the Tenth Amendment which grants to the states and people those powers not granted to the federal government by the Constitution. Unfortunately for them they missed the fact that the Tenth Amendment intentionally omits the word "expressly" when describing the powers not granted to the federal government. Our Founding Fathers were aware that it was dangerous to prescribe the future down to the letter.
As always, it's a question of context.
After realising that the Articles of Confederation left the Federal Government essentially powerless vis-a-vis the States our Founding Fathers convened a convention in Philadelphia in 1787. At this Convention they threw out the Articles and in their place created the Constitution. In order to get it ratifed there was quite a bit of horse-trading. The Tenth Amendment, a favorite of the Tea Party, was actually a means of placating those States which condoned slavery as it was used to support the right to own property (i.e. slaves) granted by State's constitutions.
That might not be a coincidence.
Monday 31 January 2011
Egypt and the Limits of Intervention
I tend to avoid the Middle East as it crosses too many lines of faith/belief and rapidly leaves the realm of rational thought and dives in to the emotional.
That being said with the regime change in Tunisia-funny how that story has dropped from the headlines-and now the ongoing turmoil in Egypt suddenly the region has taken on even greater significance in the minds of geopolitical strategists.
What is most striking to me is how quickly the western media leaps to the conclusion that it is the voices of liberty and a desire for democracy that has been the driving force. I think that the great mass of the population, be it in Tunisia or Egypt is much more concerned with the state of the economy and the cost of food.
That is not to say that there are not aspects of a desire for liberal democracy involved in the demonstrations, but we in the west should be wary of projecting our values, hopes and desires on to the rest of the world.
What I think is missing in the discussion is what is actually in the interests of the Egyptian people, and frankly speaking, I doubt it is how Egypt fits in to the designs of geopolitical concerns.
Hillary Clinton's comments suggesting a desire to keep Mubarak in place suits the geopolitical vision of the US and by extension Israel, and quite possibly Iran. Egypt is the most populous of the Middle Eastern states and unlike Iran is overwhelmingly Sunni as opposed to Shia.
If Egypt were to experience a revolution resulting in the creation of an Islamic Republic this would be a major counterweight to the Shia Islamic power of Iran. This does not mean necessarily that the Iranians are active in any meaningful manner on either side of the Egyptian divide.
It does mean that everyone is watching.
The transition from a monarchy/British "directed" Egypt to a secular Military dictatorship under Nasser, then Sadat and now Mubarak was a form of progress, even if the British didn't see it that way.
A shift to an Islamist Egypt would unwind the U.S. strategy in place since the Yom Kippur War of 1973 and the shift by Sadat to move out of his alliance with the Soviet Union and into the American sphere of influence. Presumably an Islamist Egypt would eventually threaten Israel and could be cataclysmic to the region.
I think what the Egyptian population is really desiring is a stable economy able to provide food and stability to the country. It is not for nothing that the Chinese have removed all references to Egypt and social unrest there from the internet traffic of their citizenry.
The fact is that inflation in general, and spiralling food and energy prices specifically have historically gone hand in hand with social and political turmoil.
Whoever offers this, and delivers, will run the show.
That being said with the regime change in Tunisia-funny how that story has dropped from the headlines-and now the ongoing turmoil in Egypt suddenly the region has taken on even greater significance in the minds of geopolitical strategists.
What is most striking to me is how quickly the western media leaps to the conclusion that it is the voices of liberty and a desire for democracy that has been the driving force. I think that the great mass of the population, be it in Tunisia or Egypt is much more concerned with the state of the economy and the cost of food.
That is not to say that there are not aspects of a desire for liberal democracy involved in the demonstrations, but we in the west should be wary of projecting our values, hopes and desires on to the rest of the world.
What I think is missing in the discussion is what is actually in the interests of the Egyptian people, and frankly speaking, I doubt it is how Egypt fits in to the designs of geopolitical concerns.
Hillary Clinton's comments suggesting a desire to keep Mubarak in place suits the geopolitical vision of the US and by extension Israel, and quite possibly Iran. Egypt is the most populous of the Middle Eastern states and unlike Iran is overwhelmingly Sunni as opposed to Shia.
If Egypt were to experience a revolution resulting in the creation of an Islamic Republic this would be a major counterweight to the Shia Islamic power of Iran. This does not mean necessarily that the Iranians are active in any meaningful manner on either side of the Egyptian divide.
It does mean that everyone is watching.
The transition from a monarchy/British "directed" Egypt to a secular Military dictatorship under Nasser, then Sadat and now Mubarak was a form of progress, even if the British didn't see it that way.
A shift to an Islamist Egypt would unwind the U.S. strategy in place since the Yom Kippur War of 1973 and the shift by Sadat to move out of his alliance with the Soviet Union and into the American sphere of influence. Presumably an Islamist Egypt would eventually threaten Israel and could be cataclysmic to the region.
I think what the Egyptian population is really desiring is a stable economy able to provide food and stability to the country. It is not for nothing that the Chinese have removed all references to Egypt and social unrest there from the internet traffic of their citizenry.
The fact is that inflation in general, and spiralling food and energy prices specifically have historically gone hand in hand with social and political turmoil.
Whoever offers this, and delivers, will run the show.
Wednesday 26 January 2011
State of the (Political) Union
Given that I am sitting in the UK I read President Obama's State of the Union Address this morning, and Representative Paul Ryan's response.
In my reading of President Obama's speech I picked up what I considered to be his 10 point program, and my understanding of his underlying message. The 10 points: Innovation; Education; Energy Policy; Illegal Immigration; Infrastructure; Tax Code; Exports; Health Care; Debt/Deficit; and Bipartisanship. The underlying message-"We have great challenges; we are a resilient people; and we can do this as one nation, indivisible, with liberty and justice for all.
I also tried to pick out 10 points from Mr Ryan's speech, and to summarize his underlying message. The former was difficult, and the latter crystal. So his 10 points were: Deficit/Debt; Overspending; Failed Stimulus; Failed Health Care; Limited Government; Self-Government; Comparing the USA to Greece, Ireland and the UK(!);and Poor Decisions made in Washington and Wall Street- and yes I know-I only found 8 points.
And the underlying message. It's all somebody else's fault.
I appreciate that both gentleman are positioning for the 2012 election so of course there would be political messages. I am also fully aware that Obama is an optimist bordering on the evangelical and so his speech was always intended to be uplifting.
What I hadn't realised was that it appears that the Republican leadership intends to continue with their negative approach despite the fact that they now command a majority in the House.
But I can overlook all that. What I can't ignore is his comparison of the US with Greece, Ireland, or even the UK. Are any of these nations about to overtake the US as the leading world economic power? Are they competing with us for global hegemony? I think not.
President Obama speaks of the need to work together for a successful American future. To rebuild at home and turn our energy towards combating our external challenges.
Representative Ryan speaks of cutting taxes and, frankly, cutting taxes. And ignoring the fact that our geopolitical rivals have stolen a march on us, and somehow, it's somebody else's problem.
In my reading of President Obama's speech I picked up what I considered to be his 10 point program, and my understanding of his underlying message. The 10 points: Innovation; Education; Energy Policy; Illegal Immigration; Infrastructure; Tax Code; Exports; Health Care; Debt/Deficit; and Bipartisanship. The underlying message-"We have great challenges; we are a resilient people; and we can do this as one nation, indivisible, with liberty and justice for all.
I also tried to pick out 10 points from Mr Ryan's speech, and to summarize his underlying message. The former was difficult, and the latter crystal. So his 10 points were: Deficit/Debt; Overspending; Failed Stimulus; Failed Health Care; Limited Government; Self-Government; Comparing the USA to Greece, Ireland and the UK(!);and Poor Decisions made in Washington and Wall Street- and yes I know-I only found 8 points.
And the underlying message. It's all somebody else's fault.
I appreciate that both gentleman are positioning for the 2012 election so of course there would be political messages. I am also fully aware that Obama is an optimist bordering on the evangelical and so his speech was always intended to be uplifting.
What I hadn't realised was that it appears that the Republican leadership intends to continue with their negative approach despite the fact that they now command a majority in the House.
But I can overlook all that. What I can't ignore is his comparison of the US with Greece, Ireland, or even the UK. Are any of these nations about to overtake the US as the leading world economic power? Are they competing with us for global hegemony? I think not.
President Obama speaks of the need to work together for a successful American future. To rebuild at home and turn our energy towards combating our external challenges.
Representative Ryan speaks of cutting taxes and, frankly, cutting taxes. And ignoring the fact that our geopolitical rivals have stolen a march on us, and somehow, it's somebody else's problem.
Subscribe to:
Posts (Atom)