Opinion

Hugo Dixon

Bankers issue nostra culpa for economic crisis

Hugo Dixon
Oct 24, 2011 11:17 UTC

To: Barack Obama
From: Humboldt Pye, Chairman of First Reform Bank

Dear Mr. President:

I’m writing an open letter to you and other G20 leaders on behalf of the chairmen of the world’s leading banks to say sorry.

We do not think banks are to blame for every ill the world currently faces, as the Occupy Wall Street protests and their kin in other countries suggest. A balanced audit would attribute responsibility to policymakers too: you and your predecessors set the rules of the game that we so craftily exploited. Even the public had a hand in the current mess: excess spending in some countries and inadequate taxpaying in others allowed people to consume too much.

But we are not in a position to lecture the rest of society. During the bubble years, we focused first on our own pay packages and then on profits for our shareholders. Insofar as we thought about the wider interest, we comforted ourselves with the belief that financial markets were efficient and free markets were the best way of generating wealth. So, as we pursued our self-interest, the world must by definition get better.

There were many flaws in this intellectual edifice. But contrary to popular belief, the weakness was not so much the failure of the market as the failure to apply the market. Central banks, especially the U.S. Federal Reserve, were always cutting interest rates at the first sign of trouble. The belief that Nanny was always there to rescue the markets lulled us into taking excessive risks. Second, the notion that governments would always bail out banks meant our bondholders didn’t bother to rein us in. Finally, our compensation practices amounted to “heads I win, tails you lose” bets. If our gambles paid off, we went laughing all the way to the bank. If they didn’t, the tab was ultimately left with taxpayers.

Our apology, though, can’t stop here. How we behaved after the bubble burst was arguably even worse. If it wasn’t for the extraordinary government and central bank assistance we’ve received (and still enjoy), most of us would have gone bankrupt. Despite this, we have kept paying our staff mega packages.

Guantanamo’s detox man

Hugo Dixon
Oct 4, 2011 17:28 UTC

By Hugo Dixon

If anybody can provide a measure of legitimacy to the trials of detainees in Guantanamo Bay, Brigadier General Mark Martins may be that person. Barack Obama will certainly be hoping so. Martins, who was on the Harvard Law Review with the president when they were students, has this week taken over as chief prosecutor for military commissions at a time when the highest-profile Guantanamo detainees are coming to trial. The first death penalty moved a step closer last week when a trial was ordered for Abd al-Rahim al Nashiri, who allegedly planned the bombing of USS Cole in 2000. The case of Khalid Sheikh Mohammed (KSM), the alleged mastermind of the 9/11 attacks, is likely to follow shortly afterwards, in what some people are dubbing America’s Nuremberg trial.

The new chief prosecutor is a mixture of brain and brawn. A Rhodes scholar at Oxford, Martins is also a six-foot three-inch fitness freak. David Petraeus, the U.S. commander of the surges in both Iraq and Afghanistan and now director of the Central Intelligence Agency, describes him as a “once in a generation officer.” Martins also has a track record of tackling difficult assignments.

Guantanamo has been plagued by controversy ever since it was used as a detention camp for alleged al Qaeda and Taliban prisoners in early 2002. Military commissions were established at about the same time to try some of the detainees. The Guantanamo-cum-military commissions process has, to many critics, seemed toxic not least because some detainees were subjected to waterboarding and other coercive techniques before they arrived there; many have been detained for long periods without trial; and the few who have been tried (so far it is only six) were put through a judicial system that didn’t offer the normal protections available in U.S. courts of law.

Italian mega-tax would be game-changer

Hugo Dixon
Sep 13, 2011 21:08 UTC

By Hugo Dixon
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

An Italian mega-tax would be a game-changer. A one-off wealth tax of 400 billion euros, as proposed by the former UniCredit boss, Alessandro Profumo, would solve Italy’s debt problem, thus helping reverse the euro crisis in general. Italians are so wealthy, they could afford it. They certainly have no business asking for help from the Germans, who are actually poorer. But before such an idea has a hope of being implemented, Silvio Berlusconi would first need to be turfed out.

Italian entrepreneurs, including the head of Confindustria, the business lobby, have reacted surprisingly well to Profumo’s idea. Part of the reason is that every week Italians are effectively suffering a wealth tax as a result of plunging domestic stock and bond markets. The latest austerity programme, which would balance budgets in 2013, hasn’t stopped the rot. Even media reports that Italy was cosying up to China in the hope of getting it to buy bonds hasn’t helped. Yields rose again on Sept. 13 after a poor bond auction.

Can non-violent struggle bring down Syria’s Assad?

Hugo Dixon
Aug 1, 2011 13:40 UTC

By Hugo Dixon
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

It was 2006. A young Syrian called Ausama Monajed was on a train to London. One of his hobbies was reading e-books. On this trip, he picked Gene Sharp’s From Dictatorship to Democracy, which maps out strategies for using non-violent struggle to bring down repressive regimes.

Monajed, now one of the revolution’s leaders outside the country, became engrossed. “It was as if I was reading an exact description of Syria,” Monajed told Reuters Breakingviews. The next thing he noticed was a conductor tapping him on the shoulder. The train had arrived at its terminus in Euston Station. “He asked me if I wanted to return where I’d come from.”

Greek rescue: pig in a poke

Hugo Dixon
Jul 26, 2011 15:29 UTC

By Hugo Dixon
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

A deal was better than a disaster. But last week’s planned rescue of Greece has the astonishing by-product of increasing its debts. It also lets private creditors off lightly while making taxpayers elsewhere in the euro zone pay through the nose. It doesn’t even mark the end of the crisis.

True, the sustainability of the Hellenic Republic’s debt has been improved. Its government will receive 109 billion euros of new 15-30 year loans from the euro zone at an interest rate of only 3.5 percent. Private-sector creditors will also swap or roll over 135 billion euros of existing bonds into new longer-term instruments.

BSkyB directors should quiz James Murdoch

Hugo Dixon
Jul 26, 2011 14:37 UTC

(The author is a Reuters Breakingviews columnist. The opinions expressed are his own)

By Hugo Dixon

LONDON (Reuters Breakingviews) – Reverse ferret is a term coined by The Sun, one of the Murdochs’ UK newspapers, to refer to an abrupt U-turn in editorial line. This article is a reverse ferret, or at least a partial one.

Last week I wrote that James Murdoch should not be kicked out of his position as chairman of BSkyB. I admitted that he hadn’t covered himself with glory in dealing with the scandal at the News of the World, which he indirectly managed. But I argued that this was a separate business and his track record at BSkyB was good.

Greek rescue bizarrely increases its debts

Hugo Dixon
Jul 25, 2011 15:43 UTC

By Hugo Dixon
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Listen to the politicians and one might think that Greece’s debts will fall as a result of last week’s provisional rescue by euro zone leaders and private-sector creditors. In fact, they go up. Athens’ borrowings will increase by 31 billion euros under the rescue scheme, according to an analysis by Reuters Breakingviews. This increase, equivalent to 14 percent of GDP, will push the country’s estimated peak debt/GDP ratio next year to 179 percent.

This bizarre result comes because of the way the different elements of the fearfully complex rescue plan interact. Greece will need to borrow extra funds to enhance the creditworthiness of the new bonds it will provide the private sector. It will also need to inject capital into its own banks. These extra borrowings amount to 55 billion euros and will more than outweigh the reduction in Greece’s debts that comes as a result of haircuts to be agreed by private-sector creditors and a planned buyback of debt at a discount to its face value.

James Murdoch shouldn’t be kicked out of BSkyB

Hugo Dixon
Jul 18, 2011 19:37 UTC

By Hugo Dixon
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

James Murdoch shouldn’t be kicked out of BSkyB. Some observers want to use the Murdoch clan’s troubles at News International, their UK newspapers company, to run them out of town completely. But BSkyB, the pay-television group, is a separate business. And Murdoch Jr has done a good job first as its chief executive and now as its chairman.

Admittedly, Murdoch Jr hasn’t covered himself in glory in handling the alleged phone hacking and police bribery scandal. As well as being chairman of BSkyB, he has indirect responsibility at News Corp for the UK newspaper arm. He was slow to grip the problems — not least by allowing Rebekah Brooks, who ran the papers and reported to him, to stay in her position for too long. There are now multiple probes into the saga which could embroil him further. But nothing has yet come out which should disqualify him from his BSkyB role.

Berlusconi really must go

Hugo Dixon
Jul 13, 2011 14:04 UTC

By Hugo Dixon
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Silvio Berlusconi really must go. It’s no longer about abuse of power and “bunga bunga” sex parties. His continuation as Italy’s prime minister could drive the country into a financial death spiral. His own supporters are shaken and the public is afraid. But the left-wing opposition is behaving responsibly, so there’s some hope.

Italy pulled back from the brink — slightly -– on July 12. After nudging above 6 percent, the yield on 10-year government bonds fell back to a still uncomfortable 5.6 percent. Part of the explanation is that the opposition agreed to a fast-track parliamentary vote on the government’s new austerity program. The multi-year fiscal squeeze of more than  40 billion euros should therefore be approved by the end of the week.

The way to end the Greek farce

Hugo Dixon
Jul 12, 2011 14:10 UTC

By Hugo Dixon
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

The Greek crisis is fast descending into farce. The position of Germany, the euro zone’s main lender, is increasingly absurd. It is adamant that there will be no restructuring of Greek debt — at least, until 2013. And yet it is equally insistent that Athens’ private-sector creditors should contribute up to 30 billion euros to a new, 120 billion euro bailout. That would effectively amount to a half-cocked restructuring.

German Chancellor Angela Merkel’s inconsistencies seem based on her view that a sovereign restructuring won’t happen before 2013 just because she said it won’t. But her conflicting demands are becoming virtually impossible to reconcile. The ratings agencies are threatening to say that Greece has defaulted if there’s so much as a whiff of arm-twisting in the supposed “voluntary” rollover.