The Great Debate UK

from The Great Debate:

Dubai not a canary but another miner needing oxygen

- James Saft is a Reuters columnist. The opinions expressed are his own - Taken all in all, Dubai's debt crisis is the most significant financial development of 2007. Here in late 2009 it amounts to far less. Back in the day it would have been a newsflash that apartments ultimately require occupants, that investment needs to be ratified by cash flows, and that debt, Sharia-compliant or garden variety, someday must be repaid. Dubai's difficulties are being sold as the commercial real estate debacle somehow morphing into a sovereign debt crisis and it is true that the effective borrowing rates of the more raddled national borrowers such as Ireland have been driven up in recent days. Dubai's government said on Monday that it is not responsible for the borrowings of Dubai World, a state-controlled development conglomerate saddled with huge debts amid a property market where the going rate has halved. Dubai last week applied for, or imposed depending on your point of view, a six-month repayment freeze for Dubai World and its property developer Nakheel. "Creditors need to take part of the responsibility for their decision to lend to the companies. They think Dubai World is part of the government, which is not correct," said Abdulrahman Saleh, director general of Dubai's department of finance. Quite, and hopes that credit extended to Dubai World would be made good by the state of Dubai or by the richer emirate of Abu Dhabi seem to be foundering. This is bad news for those creditors, with the worst potential losses traceable to banks in Britain and Europe, but its probably just not that big of a deal. For one thing, the amount potentially at issue, even if you allow for an extra 50 percent off balance sheet taking it to circa $125 billion, is simply not big enough in the scale of things to tip significant players over the edge. And it tells us very little about the state of the world or the likely outlook for real estate. It is very hard to call something a canary in the coal mine when you are already cleaning up after a mining disaster. For a time the magical thinking behind Dubai, "build it and they will come", worked and despite it being remote, having an inhospitable climate and little inherent commercial reason for existing, the city boomed. It's a bit like having a feast so the harvest will be good rather than when it actually is, but it was effective for a time as prices rose and investment was attracted. DUBAI WORLD MEETS MORAL HAZARD WORLD The nub of the meme in financial markets is that this is about sovereign exposure and that creditors will be shocked if the state support they thought they had coming never arises. But is it terribly bad news for the rest of us? Probably not. Investors should have seen it coming - there have been quite a few headlines recently about the real estate crash-  and should not have conflated "implicit" with "explicit". Dubai has made clear in its own bond prospectuses that it might lend support but that it was under no obligation to do so. Teaching investors the difference between "quasi-state" and "state" is a good thing. So why then did the cost of borrowing for Greece and Ireland, as expressed in insurance contracts against default, go up? Nothing about Dubai's predicament will have much of an impact on Irish or Greek tax revenues clearly, and the banks and the pool of lendable capital has not been diminished by much. Nor is it easy to draw a new connection between Dubai and the emerging European countries which represent a muchmore substantial and potentially grave threat to banks in Europe. Perhaps this is ultimately about moral hazard - risk taking under the belief that you are "insured" -  as are all stories involving the words "quasi," "government," and "debt." Fannie Mae and Freddie Mac's quasi-government status fed moral-hazard driven risk taking, as did Dubai World's, as is most certainly the case where government insurance allows for cheap borrowing. Markets went down on Dubai because they have become addicted to moral hazard and anything that doesn't conform with the idea that all shall be bailed out is scary. It is apparently terrifying that a government should say "hard luck" to anyone anywhere, no matter how difficult the government's situation is or how ill-founded the investors claim to relief. None of this is to say that the commercial real estate crash isn't terrifying, or that countries like Ireland and Greece don't face difficult times and huge risks, but only that Dubai tells us little new about those things. There is definitely a moral hazard trade out there, but Dubai is not the event which will cause it to unwind.

(At the time of publication James Saft did not own any direct investments in securities mentioned in this article. He may be an owner indirectly as an investor in a fund. Email: jamessaft@jamessaft.)

from The Great Debate:

Dubai not a canary but another miner needing oxygen

- James Saft is a Reuters columnist. The opinions expressed are his own - Taken all in all, Dubai's debt crisis is the most significant financial development of 2007. Here in late 2009 it amounts to far less. Back in the day it would have been a newsflash that apartments ultimately require occupants, that investment needs to be ratified by cash flows, and that debt, Sharia-compliant or garden variety, someday must be repaid. Dubai's difficulties are being sold as the commercial real estate debacle somehow morphing into a sovereign debt crisis and it is true that the effective borrowing rates of the more raddled national borrowers such as Ireland have been driven up in recent days. Dubai's government said on Monday that it is not responsible for the borrowings of Dubai World, a state-controlled development conglomerate saddled with huge debts amid a property market where the going rate has halved. Dubai last week applied for, or imposed depending on your point of view, a six-month repayment freeze for Dubai World and its property developer Nakheel. "Creditors need to take part of the responsibility for their decision to lend to the companies. They think Dubai World is part of the government, which is not correct," said Abdulrahman Saleh, director general of Dubai's department of finance. Quite, and hopes that credit extended to Dubai World would be made good by the state of Dubai or by the richer emirate of Abu Dhabi seem to be foundering. This is bad news for those creditors, with the worst potential losses traceable to banks in Britain and Europe, but its probably just not that big of a deal. For one thing, the amount potentially at issue, even if you allow for an extra 50 percent off balance sheet taking it to circa $125 billion, is simply not big enough in the scale of things to tip significant players over the edge. And it tells us very little about the state of the world or the likely outlook for real estate. It is very hard to call something a canary in the coal mine when you are already cleaning up after a mining disaster. For a time the magical thinking behind Dubai, "build it and they will come", worked and despite it being remote, having an inhospitable climate and little inherent commercial reason for existing, the city boomed. It's a bit like having a feast so the harvest will be good rather than when it actually is, but it was effective for a time as prices rose and investment was attracted. DUBAI WORLD MEETS MORAL HAZARD WORLD The nub of the meme in financial markets is that this is about sovereign exposure and that creditors will be shocked if the state support they thought they had coming never arises. But is it terribly bad news for the rest of us? Probably not. Investors should have seen it coming - there have been quite a few headlines recently about the real estate crash-  and should not have conflated "implicit" with "explicit". Dubai has made clear in its own bond prospectuses that it might lend support but that it was under no obligation to do so. Teaching investors the difference between "quasi-state" and "state" is a good thing. So why then did the cost of borrowing for Greece and Ireland, as expressed in insurance contracts against default, go up? Nothing about Dubai's predicament will have much of an impact on Irish or Greek tax revenues clearly, and the banks and the pool of lendable capital has not been diminished by much. Nor is it easy to draw a new connection between Dubai and the emerging European countries which represent a muchmore substantial and potentially grave threat to banks in Europe. Perhaps this is ultimately about moral hazard - risk taking under the belief that you are "insured" -  as are all stories involving the words "quasi," "government," and "debt." Fannie Mae and Freddie Mac's quasi-government status fed moral-hazard driven risk taking, as did Dubai World's, as is most certainly the case where government insurance allows for cheap borrowing. Markets went down on Dubai because they have become addicted to moral hazard and anything that doesn't conform with the idea that all shall be bailed out is scary. It is apparently terrifying that a government should say "hard luck" to anyone anywhere, no matter how difficult the government's situation is or how ill-founded the investors claim to relief. None of this is to say that the commercial real estate crash isn't terrifying, or that countries like Ireland and Greece don't face difficult times and huge risks, but only that Dubai tells us little new about those things. There is definitely a moral hazard trade out there, but Dubai is not the event which will cause it to unwind.

(At the time of publication James Saft did not own any direct investments in securities mentioned in this article. He may be an owner indirectly as an investor in a fund. Email: jamessaft@jamessaft.)

Newspapers and Democracy in the Internet era: ‘The Italian Case’

Carlo de Benedetti, Chairman, Gruppo Editoriale L’Espresso/La Repubblica, will deliver the 2009 Reuters Memorial Lecture on ‘Newspapers and Democracy in the Internet era: The Italian Case’.

The Reuters Memorial Lecture commemorates journalists who have lost their lives in pursuit of their profession.

The lecture will be followed by a panel discussion chaired by John Lloyd, with Timothy Garton Ash and Paolo Mancini. Reuters correspondents will be live blogging throughout.

To join the discussion click on the ‘make a comment’ link at the top of the liveblog panel.

Live blog: 1pound40 conference

Welcome to our live coverage of the 1pound40 conference, a joint endeavour by Reuters and the Amplified network which brings together users of Twitter to discuss the idea that social media has evolved to the point that it can help solve real world problems.

Attendees will also be discussing whether the power of Twitter can be harnessed to improve the news and help re-engage a jaded electorate with the political process.

You can read more details about the conference and who is attending on our original blog post. We will be bringing you minute-by-minute highlights from the discussion (including video, audio and pictures) on the potential for social media. But you don’t have to be there to contribute — leave a comment on the blog below if you have something you want to say. To track the conversation about the event then follow the 1pound40 hashtag on Twitter.

You can also check out this Twitter list set up by delegates and contributors or follow an unmoderated stream of this on a second live blog on the right hand side of this page. Finally, you can also follow a visualisation of proceedings in this ‘conversation cloud’.

from Reuters Editors:

Are we now too speedy for our own good?

Last week I was told that Reuters has lost its ethical bearings. You've sacrificed the sacred tenet of accuracy by rushing to publish information without checking if it is true. Your credibility has suffered, the value of your brand will wither and the service you offer to clients has been devalued, I heard.

It was a meaty accusation, especially as it came in the midst of a debate on ethics in journalism held at the London home of ThomsonReuters, the parent of the Reuters news organisation. The charge came from former Reuters journalists and a senior member of the trustees body that monitors Reuters compliance with its core ethical principles.

So what specifically were we being accused of and what defence did I offer?

On the 8th anniversary of the Sept 11th attacks, a day of more than normal sensitivity to security matters, CNN in the United States reported that the U.S. Coast Guard had fired on a boat in the Potomac River in Washington D.C. President Obama was visiting the nearby Pentagon at the time. Reuters rushed out a story on the reports of gunfire, citing CNN as the source for the information, while urgently checking with law enforcement officials. It transpired that CNN had been monitoring radio traffic on an unencrypted Marine frequency and had overheard a training exercise in which crew members shouted 'bang bang'. Quickly we put out an update to our story making clear it was a false alarm.

I had played a part in crafting our policy on handling such stories and from my place on the debate panel I offered another example for the audience to chew on.  On Oct. 21 Britain's Sky News reported that the Lockerbie bomber Abdel Basset al-Megrahi had died in Libya. We put out a story, sourced to Sky News and repeating how it said it had the information of the death, while checking with officials and al-Megrahi's legal team in Scotland. We quickly established that Sky had it wrong and updated our story to say so.

It is grating for any journalist to publish information that turns out to be incorrect. Even if we can say that the original error was made elsewhere some of the flak hits those who replicate the mistake. After all, those who republish a libel are as liable for it as its originator. 

Can Twitter save the world?

If you think that tweets are the mindless outpourings of those with more time than sense then this one’s not for you. But if you’re curious about how social media is increasingly influencing key areas of public policy then read on.

Reuters and the Amplified network are bringing together users of Twitter to discuss the idea that social media has evolved to the point that it can help solve real world problems.

Twitter’s role in transmitting news has been demonstrated numerous times, with its role in the Mumbai bombings last year and June’s post-election protests in Iran just two examples. But can that power be harnessed to improve the news?

Twitter’s seemingly effortless ability to mobilise citizen concern has been illustrated by the #welovenhs tag used at the height of the debate in the US over universal health care provision and more recently by the overturning of the super-injunction banning the reporting of the Trafigura case. But can social media go further and help re-engage a jaded electorate with the political process?

We’ll be debating the potential for social media in these and other public policy areas in London on November 11th. If you’d like to come apply for tickets via eventbrite (you’ll need a Twitter id to register and be warned -  this is not a listening event but a highly participatory one.) If you’ve got a suggestion for a real world problem that could do with some help from social media then let us know via the comments below. To track the conversation about the event then follow the 1pound40 tag on Twitter. And we’ll be updating this post with more details including live coverage plans for those who want to contribute via social media.

Update: BBC Director of Global News Richard Sambrook (@sambrook) will act as the catalyst for the conversation on Twitter and News, and Conservative MP Nadine Dorries (@nadinedorries) will be doing likewise for Politics and Twitter (Commons business permitting).

Kerry McCarthy MP (Labour) who had hoped to come but can’t make it has left us with this challenge:

from Global Investing:

I blame the fund managers

I've been building up a couple of dummy funds on Reuters' new Portfolio tool. Not only is it a welcome diversion from actual work, but it allows me to test the mettle of the fund managers we speak to, and check out the guidance offered by the Lipper Leader fund rankings.

One of my portfolios uses the stock picks and short ideas offered up by the managers we interview for the many FUND VIEW stories which dot the Reuters wire. The other simply picks some of the funds which score highest across the Lipper fund sectors.

In theory, it gives me ample room to lay blame elsewhere when the dummy funds inevitably go belly up and I'm forced into a fire sale of assets to repay my dummy investors with dummy money. In truth though, I'm going to set the asset weightings and decide when to buy and sell so any abject failures will be more fairly laid at my door.

The early results, in fact, are pretty encouraging.

The Fund Viewer stock picking portfolio has delivered me a comforting 8 percent return since I put it up on Sept 25 (my wedding anniversary -- must be a good omen) and that's with a ridiculously cautious 36-percent weighting in cash, as well as some equally ridiculous single-stock exposures caused by misreading the denominations. (That little 'p' is pence folks, big 'P' is pounds)

My Fund Leaders fund of funds has even less of a track record, but has still managed close to 2 percent returns since Oct 6.

Both funds are outperforming the FTSE Europtop 100 index, my chosen benchmark, by more than 18 percent on a three-month view. I've not exactly been scientific about choosing the index, but fortunately my dummy investors have notoriously poor due diligence standards.

from From Reuters.com:

How has the credit crisis affected you?

The demise of Lehman Brothers a year ago sparked a collapse in financial market confidence and set of a series of reactions that have spread hardship into the four corners of the globe.

Reuters News has charted the key events and their impact in "Times of Crisis" -- a major new multimedia production on Reuters.com. (See it here.)

We'd like to add the experiences of Reuters readers. So, if you or your family have been affected by the events of the past year then use the comments section below to share your story.

from For the Record:

A is for abattoir; Z is for ZULU: All in the Handbook of Journalism

Dean Wright is Global Editor, Ethics, Innovation and News Standards. Any opinions are his own.

The first entry is abattoir (not abbatoir); the last is ZULU (a term used by Western military forces to mean GMT).

In between are 2,211 additional entries in the A-to-Z general style guide, part of the Reuters Handbook of Journalism, which we are now making available online. Also included in the handbook are sections on standards and values; a guide to operations; a sports style guide and a section of specialised guidance on such issues as personal investments by journalists, dealing with threats and complaints and reporting information found on the internet.

The handbook is the guidance Reuters journalists live by -- and we're proud of it. Until now, it hasn't been freely available to the public. In the early 1990s, a printed handbook was published and in 2006 the Reuters Foundation published a relatively short PDF online that gave some basic guidance to reporters. But it's only now that we're putting the full handbook online.

We've decided to make the handbook available to everyone for a number of reasons. Among them:

• Transparency: At a time when trust is an endangered commodity in the financial and media worlds, it's important that news consumers see the guidelines our journalists follow.
• Service: As we've seen over the past decade, the barriers to publishing have dropped so that anyone with an idea and a computer can be a publisher. But it's also become clear that publishers have a varying standard of truth, fairness and style. Our handbook is a good place for budding journalists to begin.
• Geography: Reuters serves a global audience and the handbook recognises the cultural and political differences that our journalists face in reporting for the world. This is a handbook not just for English-language journalists in the United Kingdom or the United States, but for wherever English is used.

Many entries deal with words that are sometimes confused or misused. Turning randomly to the "H" section, we learn the difference between hyperthermia and hypothermia (The latter means "Too cold. Think that o rhymes with low" while the former means "Too hot. Think of 'er' as in very."); Haarlem and Harlem (the latter is in New York City, the former in the Netherlands); hangar and hanger (the latter is for clothes, the former a shelter for aircraft); and hale and hail (the former means "free from disease, or to pull or haul by force." The latter "is to salute or call out, or an ice shower").

Ask Nick Clegg

Update: We’ve closed comments on this post as the Interview is now finished. See Nick’s Twitter stream for further responses to questions and this post for an account of how the event worked.

If you’ve got a question for Liberal Democrat leader Nick Clegg then now’s your chance: on Monday July 13th (1200 GMT). he’ll be joining the Reuters UK team to take your questions live. And no subject is off limits.

You’ll be able to see the live videostream here and you can ask questions ahead of the event or respond during it by using Twitter (#askclegg) the 12 Seconds video service (nickclegg) or use this post’s comment form below. (We’ll also feature the highlights on the reuters uk news twitterstream.) Nick introduces the event below and, to kick off the discussion, asks a couple of questions of his own.

On Monday we can change the way we do politics. Every week I travel around the country to meet people in their local town halls and listen to their views. Anyone can come along and ask me (just about) anything and in return I get a pretty good picture of how people across the UK feel about politics and how they are being affected by the recession.

Next week I am going to do another of my public Q&A meetings, but this time it is going to be live and online so that you can ask me your questions from home, your work or wherever you happen to be online. There will be no script and no special invitations – just get in touch and ask a question on subjects that concern you.

The one thing that keeps coming up again and again is the state of our politics and how we can clean it up. Many people say they would like to see action taken against MPs who seriously abuse the system. But currently voters have no power to sack those MPs who have been found guilty of serious wrong-doing. I want to change this and make politicians more accountable and politics more transparent. I am keen to hear your ideas.

This has never been done before so, on Monday 13th July post your questions and let’s discuss how we can clean up politics and fix the British economy.

Nick Clegg

Nick Clegg @ Reuters – MPs on 12seconds.tv

Nick Clegg @ Reuters – Bankers on 12seconds.tv