ECB’s Stark takes aim at euro bears, rating agencies
Top European Central Bank policymaker Juergen Stark took aim at investors and ratings agencies for playing up worries about the future of the euro zone, accusing credit agencies of irresponsible behaviour and saying there was “no alternative” to the single currency.
“Markets are clearly, in the current circumstances, overshooting,” he told a Reuters Insider panel discussion in Frankfurt, saying investors were not taking the region’s economic fundamentals into account when they drove down the euro and drove up the cost of some countries’ debt.
Credit rating agencies compounded the problem by downgrading countries even as they announced ambitious plans to cut costs and debt, he said, pointing darkly to the possibility of “vested interests” at work.
During a lively exchange of views, Stark scolded fellow panellist Thomas Mayer, from Deutsche Bank, for saying the euro zone had become a region of transfers and told Goethe University’s Volker Wieland the ECB was not fuelling inflation with its purchases of government bonds.
“There is only one among the three of us who takes responsibility for what he decides on a day-by-day basis,” Stark said, having the final word in the discussion.
from Funds Hub:
Markets could be derailed again, warns Soros
Railway porter-turned-billionaire financier George Soros delivered a stark warning last night that the financial world is on the wrong track and that we may be hurtling towards an even bigger boom and bust than in the credit crisis.
The man who 'broke' the Bank of England (and who is still able to earn a cool $3.3 bln in a year) said the same strategy of borrowing and spending that had got us out of the Asian crisis could shunt us towards another crisis unless tough lessons are learned.
Soros, who worked as a porter to pay for his studies at the London School of Economics after emigrating from Hungary, warned us to heed the lesson that modern economics had got it wrong and that markets are not inherently stable.
"The success in bailing out the system on the previous occasion led to a superbubble, except that in 2008 we used the same methods," he told a meeting hosted by The Economist at the City of London's modern and impressive Haberdashers' Hall.
"Unless we learn the lessons, that markets are inherently unstable and that stability needs to the objective of public policy, we are facing a yet larger bubble.
"We have added to the leverage by replacing private credit with sovereign credit and increasing national debt by a significant amount."
One crumb of comfort could be the 10-year period between the 1998 Asian crisis and the 2008 credit crisis. If the pattern is repeated, it should at least mean we have another 8 years to go before the next crash...
Press that reset button…
Mohamed El-Erian, CEO and co-CIO of the world’s biggest bond fund PIMCO, says 2010 is the beginning of the multi-year resetting of the global economy.
In the period up to the crisis, there were two labels that dominated the world — Great Moderation and Goldilocks. Not too cold, not too hot. 2009 was about crisis management — the label was ‘whatever it takes’. The 2010 label is post-crisis. It’s not just about post-crisis. In our view, 2010 is about multi-year resetting of the global economy. It will be a bumpy journey to the new normal.
Speaking in London ths week, he warned that migration of wealth and growth dynamics of advanced economies to systemically important emerging economies must be on top of investor radar screen in 2010, as well as sovereign risks.
It is the year of sovereign risk. Everyone has to recognise sovereign balance sheets themselves (as) an issue. Sovereigns are called sovereigns for reasons. Everyone gets influenced.
Insider recalls the day that Lehman died
Joseph Tibman was a senior banker at Lehman Brothers for 20 years and is now the author of “The Murder of Lehman Brothers, An Insider’s Look on the Global Meltdown”. Tibman writes under a pseudonym to preserve his ability to work in finance. The views expressed are his own.
September 12, 2008 was a Friday like no other.
Just one day earlier, I was somewhat concerned about the hammered Lehman Brothers share price and the persistent rumors about my firm, but I had been here before. Well not exactly here. But I was sure Lehman would survive as an independent firm.
Had I overdosed on the Lehman-distributed talking? Soon after I arrived at my office in the Lehman headquarters at 745 Seventh Avenue on the north end of Time Square, it was clear my world, and that of all those around me, was spinning off its axis. The word was out. The Federal Reserve Bank and U.S. Treasury were in the building. So were Bank of America and Barclays Capital. Or were they?
What did it matter where they were? This was it. Two of our competitors, far weaker in investment banking, were negotiating to buy us. All I can remember, even after just a couple of months, is obsessively trading Blackberry messages with restless colleagues and perpetually scanning television general and business news channels for just one more sliver of incremental info, for hope. My world had stopped rotating.
Throughout the weekend, our Blackberries continuously hummed, expressing the collective freak-out. Then a bombshell dropped. Merrill Lynch was to be acquired by Bank of America in a government-brokered deal. We were toast. We would fail. If there were to be a Lehman deal, it would have been announced at the same time. Fail. This was surreal. On Sunday, many of us rushed to the office to retrieve personal possessions, just in case we were locked out on Monday. The firm had not yet been pronounced dead, but the Lehman I had long made my second home was teetering on the brink.
Another overpaid banker gets teary-eyed over his 2008 bonus being smaller than his 2007 or his forthcoming 2009 bonus.
If you have a job that pay the bills, be happy, 9.7% of the country don’t.
SWF 2.0
The easing of the credit crisis is giving way for a new generation of sovereign wealth funds.
Japan, Taiwan, Thailand, Bolivia, Nigeria, Canada are just some of the places where a public debate has begun on establishing some form of sovereign wealth fund. And even Scotland is now looking at establishing such a fund to manage oil wealth.
China is also close to launching an agency to restructure and consolidate state-owned enterprises — dubbed by Chinese media as CIC 2.0 in reference to the country’s $200 bln SWF China Investment Corp.
Ashby Monk, expert on SWFs and research fellow at Oxford University, says the crisis may have highlighted the importance of having SWFs and having extra cash to deal with the emergency.
“There is this appetite for governments to set up new SWFs. Certain countries have taken considerable utility from having SWFs and a pool of cash during the crisis,” he says.
“Coming out of this crisis, we are going to see SWFs increase in the same way central bank reserves increased coming out of the 1997 crisis. All these new funds may be the conduits for a real dramatic ramp-up of sovereign wealth funds.”
Who do you blame for the credit crisis?
Greedy bankers are routinely blamed for the credit crisis but one British-based poll of — well, financiers — spreads the blame more widely.
Gary Jenkins, head of fixed income research at Evolution Securities, wanted a more specific scapegoat and ran a poll of about 200 mostly fund managers and investors asking them to pick their credit crisis culprit. Former U.S. Federal Reserve Chairman Alan Greenspan was the clear winner, picking up 35 percent of the votes. He has been widely criticised over the past year for low interest rate policies that helped fuel the credit boom.
Former U.S. president Bill Clinton also figured quite prominently with about 10 percent of votes, and British prime minister Gordon Brown got quite a few.
Some bankers were singled out, including Fred Goodwin, former chief executive of Royal Bank of Scotland and Richard Fuld, the head of collapsed Lehman Brothers.
In a related article in Euroweek, Jenkins also had a unique culprit — Bill Gates of Microsoft. None of the maths behind structured credit could be done without spreadsheets like Excel, Jenkins reckons.
So who do you think is to blame?
(Reuters photo: Kevin Lamarque)
I have a hard time blaming lenders because of their greed. I certainly don’t feel sorry for them. They took the risk and now they have to pay for their greed. Massive losses on bad loans. Got what they deserved. Borrowers, though? How can you borrow more than you can afford. Spend it. Then blame someone for lending you too much?
A little Schadenfreude after IMF slip-up
The International Monetary Fund’s bumbled calculations on the financing needs of some eastern European countries revealed last week were met in Austria with disbelief, ridicule but also a quiet smile.
The IMF said it had overstated external financing needs of some countries in its Global Financial Stability Report, released on April 21, largely because of double-counting errors. The corrections have trickled in.
Worrying reports earlier this year indicating west European banks had lent $1.7 trillion to IMF-bailed-out states like Ukraine and Hungary worsened a steep selloff in the region’s assets. Policymakers lashed back at the time, saying the fear was blown out of proportion.
from Global Investing:
Explaining the credit crisis
Los Angeles-based designer Jonathan Jarvis has created a great animated video explaining the credit crisis, produced as his part of his thesis at the Art Center College of Design:
The Crisis of Credit Visualized from Jonathan Jarvis on Vimeo.
If you prefer your explainers audio-only, you can't go wrong with "The Giant Pool of Money" and "Bad Bank," from Alex Blumberg and Adam Davidson of Planet Money.
from Global Investing:
Bowling for Whistleblowers
Attention Wall Street whistleblowers: your banking job might be at risk, but here's your shot at Hollywood stardom.
The Academy Award-winning filmmaker is looking for “brave” financial industry insiders to help him make his next film which will focus on the financial crisis – or what Moore calls “the biggest swindle in American history.”
“Based on those who have already contacted me, I believe there are a number of you who know "the real deal" about the abuses that have been happening. You have information that the American people need to hear, “ Moore said on his website.
He called on those working for banks, brokerage firms or insurance companies to “participate in the telling the greatest crime story ever told” by contacting him.
The director, who took on the gun lobby in Bowling for Columbine in 2002, the Bush administration in his controversial 2004 documentary Fahrenheit 9/11 and the U.S. healthcare system in his 2007 polemic Sicko, pledged to protect the identities of those who step forward.
Moore says the unnamed film – currently in production – will shed light on the “abuses” that have led to crisis, which has claimed Wall Street giants Lehman Brothers and Bear Sterns and prompted a government bailout worth hundreds of billions of dollars.
“I just can't say much right now. I'm sure you can understand why. One thing I can tell you is that you're gonna like this movie when I'm done with it," he says.
from Global Investing:
Moldova — ultimate crisis-proof country?
It's the poorest country in Europe and its main export is alcohol but it can still beat the world's largest economy when it comes to financial muscle. Yes you've guessed it, Moldova trumps the United States in the Banker magazine's 2009 World Financial Health Index.
Caution is the watchword of the magazine's latest index, which is careful not to reward financial risk-taking. According to the Banker's new model, Moldova, Chile, Bolivia and Peru are less likely to be affected by the global financial storm than the U.S., UK or Japan.
Small is beautiful when it comes to debts and that's where Moldova wins. Its debt is $763 per capita, compared with the UK's $171,000. Its banks have only extended loans worth 35 percent of GDP, while in the mighty U.S., the figure's 230 percent.
Moldova pays 2.8 percent of public sector revenues to service government debt, compared with Italy which spends 11.9 percent on interest payments.
The rule of thumb may be that if your economy has never been fully developed, it has far less potential to crash.
