The Austrian government debt agency’s two-year old foray into subprime investments has turned into a political hot potato and sparked an increasingly heated debate between the Social Democrats and conservatives, caught in an uneasy but coalition government without viable alternative.

Austria’s audit court last week revealed that the agency, which in its staid day job issues government bonds and makes sure state coffers are full when they need to be, started to moonlight on money markets in 2002 to earn a little extra money on the side.

Its cash position ballooned from an average 4.5 billion euros in 2002 to a peak of 26.8 billion euros in October 2007. This level “was not only determined by economic necessities, but was also meant to generate additional revenues,” the audit court said in its report.

Sure enough, as much as 10.8 billion euros went into asset-backed commercial paper (ABCP), a class of structured investments that became disreputable when the subprime crisis broke out in 2007. Luckily, the debt agency got away only slightly bruised, with up to 380 million euros in possible losses from those investments.

Even though the loss looks manageable (it equals 0.13 percent of Austria’s GDP), and no rules seem to have broken, two former and the current finance minister – all conservatives – as well as the agency itself find itself at the centre of a debate seeking someone to blame.

The conservatives were caught slightly wrong-footed. Still basking in election successes based on voters’ perception that they, rather than the Social Democrats, were the safe pair of hands to steer the country through the economic crisis, they suddenly faced charges of gambling away taxpayers’ money.

Karl-Heinz Grasser, under whose reign as finance minister the agency’s side business started, and whose life after politics mainly consisted of modelling and launching an ill-fated joint venture with coffee-roasting heir and banker Julius Meinl, said the losses didn’t happen under him – dodging the question why the side business was started in the first place.

His successor Wilhelm Molterer – one of the possible Austrian candidates for European Commissioner – said he stopped the investment when the losses occurred – leaving unanswered why he presided over the greatest expansion of the play money purse. And incumbent Josef Proell, who took office only in 2008, had no convincing explanation why he didn’t mention the losses when he answered a parliamentary inquiry about the agency’s investment policy earlier this year.

The opportunity to milk the incident has not been lost on Social Democrat Chancellor Werner Faymann. "If more than 300 million euros in tax money are at risk you cannot pretend this is business as usual, everything’s alright. This is an insult for taxpayers,” he told Austrian radio. Faymann has summoned Proell, central bank governor Ewald Nowotny – who had to cut short his holiday – and the audit court head to discuss the case next Friday before the occasion to present himself as the true guardian of taxpayers’ money goes away.

Photos: 1) Chairman of Meinl Power Management Karl-Heinz Grasser listens during a news conference in Vienna July 1, 2008. REUTERS/Heinz-Peter Bader. 2) Austrian Finance Minister Wilhelm Molterer addresses a news conference in Vienna April 12, 2007. "Holen Sie sich Ihr Geld zurueck" reads "Retrieve your money". REUTERS/Heinz-Peter Bader

By Barani Krishnan

A decade ago, Malaysia’s former deputy prime minister Anwar Ibrahim was on trial for sodomy and corruption in a trial that exposed the seamy side of Malaysian justice and the anxieties of a young country grappling with a crushing financial crisis and civil unrest.

Anwar is Malaysia’s best known political figure, courted in the U.S. and Europe and probably the only man who can topple the government that has led this Southeast Asian country for the past 51 years.

Photo: Anwar Ibrahim, with a bruised eye, at court on Sept 30, 1998 during his his first trial. REUTERS/David Loh

Now the leader of the opposition, will go on trial next week again charged with sodomising a 23-year old male aide. The trial once again looks likely to provide gory evidence and bringing some unwanted attention from the world’s media on this Southeast Asian country of 27 million people. It could also embarrass the government and draw international criticism.

Anwar vowed in a recent interview to fight what he says are trumped up charges.

The 14 months I spent covering the 1998 trials saw Anwar accused of sodomy with three men and having sex with a woman over a period of years. This case is simpler, there is just one accuser. All homosexual acts are illegal in this mainly Muslim country and sex outside marriage is illegal for Muslims.

The first trial was gruelling. Lines began as early as four in the morning as people tried to get into the court that could seat less than 200. Most of the spectators were ordinary people, but there was a sprinkling of dignitaries and businessmen who had known Anwar when he was in office.

There was a separate media queue and again a fight to get in line as dozens of reporters from local and international outlets jockeyed for space. Ringing the court were hundreds of riot police, backed by watercannon, waiting for trouble in a country where there were daily protests at the time, often involving tens of thousands of people.

Once inside the courtroom, things were equally unpredictable. Judge Augustine Paul, plucked from obscurity to oversee Malaysia’s most important criminal trial, won national fame for his oft-repeated response of “not relevant” to evidence introduced by the defence team.

The evidence itself was often contradictory and often bizarre. Ummi Hafilda Ali, a star witness for the prosecution called Anwar a “dog” and prayed that he would contract AIDS. At one stage the prosecution paraded a mattress in and out of the courtroom, saying that semen stains showed Anwar had had sex with a man on it.

One day outside the court, a witch doctor cast a spell, for no apparent reason.

Anwar showed up sporting a black eye that he said had been inflicted on him in prison by the country’s police chief. This time round he says that he was forced to strip and his sexual organs measured in a hospital.

The evidence to be presented by the prosecution this time looks likely to be just as sensational. The malaysianmirror web portal, backed by one of the government parties, said there will be 30 witnesses, a carpet and a video recording, as well as a DNA evidence brought into court.

Anwar’s team, citing two medical reports, says there is no evidence that Saiful Bukhari Azlan was sodomised. Saiful meanwhile has sworn on the Koran that he was and wasn’t best pleased when the charge against Anwar was changed to consensual sex.

One key actor in the whole drama is missing this time round. Former prime minister Mahathir Mohamad, who critics say used the 1998 trial to drive Anwar from office and to humiliate him, is no longer in power. That removes some of the sting.

Even so, incumbent premier Najib Razak attracts plenty of ire from the opposition. He has been forced to deny allegations from the opposition and opposition-supporting websites that he was involved in the lurid murder of a Mongolian model.

The country remains tense in the wake of the 2008 general election in which the government lost its customary two-thirds majority.

Can Anwar survive another trial? Without him, can the opposition prosper and have a real chance of winning at the ballot box  in elections due to be held by 2013. Can Najib survive as prime minister if Anwar remains free and can he implement economic reforms?

    The recent run-up in oil prices could have further to go as most analysts are likely to begin raising their year-end oil price targets, according to market research firm Birinyi Associates in Stamford, Connecticut.
    “Given several considerably lower expectations, we think it is reasonable to expect upgrades,” they said in a research commentary, noting that crude oil prices were already above most firms’ year-end targets.
    U.S. front-month crude hit an intraday high of $73.23 on Thursday, the highest intraday level since prices hit $75.69 on Oct. 21.
    A year-end oil price target of note recently came from Goldman Sachs, which raised its end-of-2009 oil price forecast on June 4 to $85 a barrel from $65.
    Oil’s climb partly reflects weakness of the U.S. dollar and expectations that demand may be picking up as the global recession abates.

— Graphic courtesy of Birinyi Associates, Inc.

Exotic animals trapped in net of Mexican drug trade - From the live snakes that smugglers stuff with packets of cocaine to the white tigers drug lords keep as exotic pets, rare animals are being increasingly sucked into Mexico’s deadly narcotics trade.

End of an era for the Amazon’s turbulent priests - They avoid taking buses, make sure friends know their schedules, and rarely go out when it’s dark. For the three foreign-born Roman Catholic bishops under death threat in Brazil’s northeastern state of Para, speaking out against social ills that plague this often-lawless area at the Amazon River’s mouth has come at a price.

West risks repeating Soviet mistakes in Afghanistan - The foreign warplanes swooped in just as the Afghan village of Ali Mardan was celebrating a wedding. Bombs slammed into the crowded village square, killing 30 men, women and children. After the smoke cleared and the dead were buried, all the able-bodied men left alive took up arms against the invaders. That was 1982…

Drought starts to bite in northern Kenya - Clouds of dust rising above the harsh scrub herald the arrival of more livestock at a borehole in northeastern Kenya, the end for some of a 45 km (28 mile) trek for water that must be repeated every few days. Drought is starting to bite into east Africa’s biggest economy and the government says 10 million people may face hunger and starvation.

World’s largest wetland threatened in Brazil - Jaguars still roam the world’s largest wetland Hyacinth Macaws nest in its trees, but advancing farms and industries are destroying Brazil’s Pantanal region at an alarming rate. “It’s a type of Noah’s Ark but it risks running aground,” biologist and tourist guide Elder Brandao de Oliveira says of the Pantanal.

Indonesian city grapples with quake threat - Remember the name Padang. Geologists say this Indonesian city of 900,000 people may one day be destroyed by a huge earthquake. “Padang sits right in front of the area with the greatest potential for an 8.9 magnitude earthquake,” said Danny Hilman Natawidjaja, a geologist at the Indonesian Science Institute.

‘Protest TV’ tries to bring down Georgian leader - It’s been dubbed “Protest TV”. A man in an improvised prison cell under the 24-hour gaze of television cameras, promising to stay put until Georgia’s president quits. Four cameras and a microphone on the ceiling capture his every shuffling move and political rant.  An edited version is broadcast in the evening, before Gachechiladze goes live all night, often with guests.

U.S. farmland fetches top dollar despite recession - On a chilly day in January, more than 200 investors gathered in west central Illinois to haggle over 4,000 acres of prime farmland called the Kilton Farm in the heart of U.S. Corn Belt. The auction came during the most depressing climate for the U.S. economy in decades. But when the hammer fell…

Sunken Green treasures at risk from scuba looters - A corroded mechanism recovered by sponge divers from a sunken wreck near the Greek island of Antikythera in 1902 changed the study of the ancient world.  Hundreds more wrecks beneath the eastern Mediterranean may contain treasures, but a new law opening Greece’s coastline to scuba diving has experts worried that priceless artifacts could disappear into the hands of treasure hunters.

In the north, Afghans fight hunger, not the Taliban - The United States’ decision to send more troops to Afghanistan will mean little to the people of northern Sang-i-Khel village, whose fight is not against Taliban insurgents but against hunger. “Life is not good. There was nothing last year. No water. No wheat. If there is no water this year, I will have to leave…”

Bankers are having a rough time of it lately.  It is not just that their companies are collapsing beneath them and their bonuses are the subject of global hate and derision. They also have to put up with the barbs of journalists (who are very familiar with being at the bottom of the popularity pile).

The latest example comes from Tim Dowling, scribbling away for Britain's Guardian newspaper.  Mr Dowling has penned a useful primer for bankers who suddenly find themselves living in the real world.

You can read the complete guide by clicking here.  But Global Investing's favourite tip concerns the use of London's celebrated buses:

"When a bus comes into view, raise your right hand as if you were hailing a taxi. Get on at the front and tell the driver where you are going. He will name a price. Haggling is frowned upon, as is suggesting a route. Buses have no business class as such, but the top deck, if there is one, offers superior views."

So cruel. So very cruel.

As sterling sinks to a 7-1/2 year low against the dollar, traders and investors are wondering who was the established political figure that made the following comments when Britain was kicked out of the Exchange Rate Mechanism in 1992.

"A weak currency arises from a weak economy which in turn is the result of a weak government."

Answer: Gordon Brown, then Shadow Chancellor, in an article in London's Evening Standard newspaper.

Thanks are due to the World Economic Forum for clearly  explaining the interlinked web of misery currently facing the world.  Make what you will of the details in the graphic below -- and if you can, please do let us know! -- but the overall impact really does spell it all out.

This Vonnegutesque cat's cradle, incidently, comes from the forum's new report, Global Risks 2009, released ahead of its annual meeting in Davos between January 28 and February 1. It shows an interlinked world facing a monumental series of interlinked risk, some of which  investors are having to confront for the first time.  Sheana Tambourgi, head of WEF's global risk network, explains the report in this video:

William Safire, the language maven whose musings on how we use words have graced The New York Times and other newspapers for decades, has discovered something about the current crisis. Not for the first time, politicians are scrambling to avoid using common words that might get too close to the truth.

This time the target is the economy, specifically what needs to be done about it. In a column, Safire notes that some Democrats, notably the incoming White House chief of staff Rahm Emanuel, are steering away from using the world "stimulus" when referring to efforts to, er, stimulate the economy. "Recovery" is being used instead. As in, recovery plan.

Who could argue with that? Republicans, apparently. According to Safire, they are favouring "spending", presumably as in spend, spend, tax, tax etc.

 Let's think up some more. How about the "defibrillation" plan?

It's not often that economists turn their attention to military hardware, but Deutsche Bank has done just that in its latest world outlook. The subject is aircraft carriers and what it sees as the strange desire among a number of countries to build them.

Russia has suggested it may build up to six carriers, DB notes, while China plans one and Britain and France three between them. Like the true economists they are, DB first questions the need, saying such boats are vulnerable, make no sense for coastal defence and are for projecting offensive power over long distances. Then comes the cost:
  

"To build a serious aircraft carrier costs well above $5 billion. But then you need to build half a dozen escort vessels and the aircraft to produce a battle unit that will require upwards of 10,000 sailors. Since it is for distant power projection, to keep a single aircraft carrier group on constant deployment requires at least two and more likely three groups."

It reckons China can afford this because it only plans to build one. But Russia, even with a recent surge in wealth, is unlikely to launch a programme soon, it concludes.

Malcolm McLaren, the man who gave us The Sex Pistols, has found the real punks -- bankers. In an interview with Britain's The Observer, he says punk was not just about spiky hair and ripped t-shirts.

"It was all about destruction, and the creative potential within that. It turns out that the bankers may have been the biggest punks of all."

McLaren says we are now at a transformative moment.

"We're at the end of the culture of desires; we may be going back to a culture of necessity."

God Save The Queen