Monthly Archives: March 2009
Light touch for the big, heavy hand for the small: Porsche landed a $9 billion windfall from its share options in Volkswagen, which it used to screw every hedge fund in the universe during the first half of its fiscal year. Not that there’s anything wrong with that, according to Bafin. -- Peer-to-peer lending should be regulated, say regulators. Peer-to-peer lending being the online version of hitting up a friend you don’t like much for a loan you swear you’ll pay back in two months.
These things take time: The Asia Development Bank cut its 2009 GDP outlook to 7% from 8.2%, basically due to the unreadiness for shovels of Beijing’s stimulus package. But in 2010, it sees China’s GDP at 8%. Be wary of these downward revisions. They seem to come in twos, a first one to take into account a few mitigating factors. A second one to reflect a mega-recession. See, for instance, the World Bank’s latest call on Russia’s GDP — from a 3% rise to a 4.5% contraction. -- While it waits for the effects of the first one to go through, Japan plans a second stimulus.
…and you want to defend yourself. Then point out that it wasn’t even the stupidest regulatory policy reversal of the age. (I’m obviously coming late to the action here if it’s the point the New York superintendent of insurance is making … for the second time.)
The bank panic of 1907 is remembered for J.P. Morgan forcing all the bankers to stay in a room until they agreed to contribute to fixing the crisis. What has been forgotten is one major cause of the crisis – unregulated speculation on the prices of securities by people who did not own them. These betting parlours, or fake exchanges, were called bucket shops because the bets were literally placed in buckets.
The states responded in 1908 by passing anti-bucket shop and gambling laws, outlawing the activity that helped to ruin that economy.[…]
But there was serious concern that swaps violated the old bucket shop laws. Thus, the Commodity Futures Modernisation Act of 2000 exempted credit default swaps from these laws. The act also exempted them from regulation by the Commodities and Futures Trading Commission and the Securities and Exchange Commission. Unregulated, the market grew enormously.
Thus, one of the major causes of the financial crisis was not how lax our regulation, or how hard we enforced, but what we chose not to regulate.
Sadly, Eric Dinallo doesn’t quite make clear in what ways the market for CDS fell foul of bucket-shop laws. Obviously, it should have raised an alarm that the law could see something in these apparently sensible and useful derivatives that looked like a casino. From links here and here, the reason is that the CDS buyers didn’t have to prove they owned Lehman Brothers bonds (as you would if you insured your house) and the sellers didn’t have to set aside capital to make good on the bet (as you would have to if you were an insurance company).
Don’t believe the hypo: – The German government denied a report of plans to merge Hypo Real Estate with Commerzbank’s unit Eurohypo, which seems like a clever idea to inject capital into Hypo without nationalization, except that Lloyds-HBOS also seemed like just such a clever idea. As Steinbrueck tries to get permission to seize Hypo, Flowers quits the board. -- The Times reports: “Britain may have to go to the IMF for a huge financial bailout, the influential investor George Soros warns today.” Except that it also reports: There has been some talk that Britain might have to go cap in hand to the International Monetary Fund. “It’s conceivable,” Mr Soros says. “You have a problem that the banking system is bigger than the economy . . . so for Britain to absorb it alone would really pile up the debt . . . if the banking system continued to collapse, it’s a possibility but it’s not a likelihood.” Note to Times: Pigs may fly, but it’s not a likelihood.
Now (2009) and then (2007): Britain in 2009 wants the G20 to pledge $2 trillion in stimulus, according to Der Spiegel. Remember in 2007 when the G8 was pledging $60 billion to fight diseases in Africa and forgiving $40 billion in third-world debt? Britain now wants them to pledge a pro-rata $800 billion to keep themselves rich. -- 2009: Ford is bringing the Fiesta to the U.S. 2007: Hummer was thinking of selling its SUV to Europe.
Hideous fathers: Marine Le Pen breaks with her father on her father’s surely bizarrely translated assertion that the “Holocaust was a detail of history.” (Surely detail in French must have a more dismissive ring to it than detail does in English? Otherwise, he’s undenying the Holocaust.) -- Along with Ponzi schemes, these times are bringing to light Fritzl schemes that come from ever darker regions of the human soul.
Unimpressive postures on the world stage: Japan prepares to shoot down debris that will rain from the sky as North Korea’s Texan backyard rocket, and the ambitions of Kim Jong Il, disintegrate against the friction of the wind. -- Australia won’t let China get its hands on the Woomera Prohibited Area weapons testing range. Unless, that is, Rio Tinto can buy Chinalco, in which case Woomera’s all yours, Beijing!
State help banks, banks help state: World’s oldest bank gets world’s newest get-out-of-jail-for-free card from Italy. -- Banks reassure Hungary that they will graciously lend to Hungarians, now that the IMF has decided to bail out Hungary (the banks being the usual suspects: Erste, Raiffeisen, Unicredit, and so on).
There are and there are: Among the surge of troops the U.S. is unleashing on Kabul, there will be a surge of civilians. The civilians are there to push the CIA’s understanding beyond Dennis Blair’s gnomic: “There are Taliban and Taliban.” -- Meanwhile, Jesse Jackson helpfully tells the British — worried about knife crime — that “There are children of the light, and there are children in the darkness.” -- Separately, Gordon Brown wants the Royals to marry whomever they choose, even Catholics! “But there are clear issues about the exclusion of people from the rights of succession, and there are clearly issues that have got to be dealt with not just in Britain but right across the Commonwealth,” he explains.
Odd titles: The unofficial holiday prize goes to Serf Emancipation Day, a new holiday China holds to celebrate the enslavement of Tibet. -- The official book prize goes to The 2009-2014 World Outlook for 60-Milligram Containers of Fromage Frais — “an area that perhaps we are all guilty of ignoring as we push our trolleys down supermarket aisles. What does the future hold for these items? Well, given that fromage frais normally comes in 60-gram containers, not 60-milligram, one would assume that the world outlook for 0.06-gram containers of fromage frais is pretty bleak. But I’m not willing to pay $795 to find out.”
The typical stages of the crisis’s sub-plots goes: a blinking red light, a sense of dread, a sense of doom, a result that exceeds your worst dreams (lehman, Iceland, Latvia). Barclays was at dread stage. For the first time, a sense of dread hasn’t been justified spectacularly. Especially if this is true.