Central bankers, financiers and humble pie

This morning, while drinking my cappuccino, caught a glimpse of a story in the Daily Mail - which claims that Eddie George, until not long ago governor of the Bank of England - admitted yesterday to a House of Commons Select Committee that the Bank had played a key role in fuelling the credit/housing bubble....but that of course it was done in a good cause - to avoid a recession! He seems to have suggested that this credit bubble, sadly was going to be his legacy.....Have not been able to stand up this story as it does not appear in the FT or the Guardian....but if its true, it will be refreshing...if unhelpful.

Conrad Black is not eating humble pie. But, like millions of others, I am enjoying the spectacle of his court case. Recall giving a talk to the City of London School for Girls in 2004, if memory serves me correctly, in the presence of a Conservative MP, John Gummer and the deputy editor of the Economist...the talk was of course about low income countries...and very quickly turned to how corrupt they all are. I retorted that corruption was not confined to the poor, and to black people...indeed in our very own House of Lords there was a gentleman, Conrad Black who was alleged to have been guilty of thieving on a grand scale from shareholders, and the difference between him and corrupt Nigerian businessmen, say, was only a matter of scale........Shock and horror registered on the face of the Conservative MP and on the deputy editor of the Economist, who interrupted my speech with calls of 'Libel! Libel! Watch out for libel!'......As I expected him to know a great deal more about libel law than I did, was just a trifle unnerved.....but only a trifle...

Are his friends which, according to Peter Newman of Maclean's magazine include members of Hollinger's board like Margaret Thatcher, Henry Kissinger, his eminence Emmett Cardinal Carter, Chaim Herzog, a former president of Israel, James Thompson, a former governor of Illinois, Lord Carrington, the former secretary general of NATO, Richard Perle, one of the architects of George W. Bush's Iraq policy, as well as half a dozen other British lords, plus the Italian industrialist, Giovanni Agnelli - are these and the editors of the Economist all standing by Lord Conrad Black now?

Well the Economist is trying its best. Today's editorial (21st March 2007) tries hard:

"Lord Black’s defenders argue that the cure has been worse for Hollinger’s shareholders than the disease—though prosecutors would no doubt retort that breaking the law deserves punishment regardless. Sorting things out after his departure cost a fortune: the $200m cost of investigations far exceeds the sum taken in the alleged “corporate kleptocracy”. .......

'Prosecutors retort' but does the Economist? No, its still hedging its bets on whether this generous fellow could really have been that corrupt...now if he had been Nigerian.....?

Bloomberg on declining assets

Hold on to your assets, says Bob Ivry of Bloomberg (12 March 2007). The deepest housing decline in 16 years is about to get worse.

As many as 1.5 million more Americans may lose their homes, another 100,000 people in housing-related industries could be fired, and an estimated 100 additional subprime mortgage companies that lend money to people with bad or limited credit may go under, according to realtors, economists, analysts and a Federal Reserve governor. Financial stocks also could extend their declines over mortgage default worries.

The spring buying season, when more than half of all U.S. home sales are made, has been so disappointing that the National Association of Home Builders in Washington now expects purchases to fall for the sixth consecutive quarter after it predicted a gain just last month.

``The correction will last another year,'' said Mark Zandi, chief economist for Moody's Economy.com in West Chester, Penn

Of asteroids and credit

In August 2006, when most financial commentators, banks and lenders were asleep at the wheel, I posted a piece on the Guardian's Comment is Free site predicting that the fall in house sales in Florida and California were canaries in the deep vast coal mine of US credit - and that the impact of a credit/debt crisisand the associated housing crash in the US would have a much greater impact than the then crisis in Lebanon....

I got some pretty rude comments from, amongst others 'MisterD' (USA) 'Bobdoney'(UK) and others too offensive to credit. 'Bobdoney' was particularly rude...."Next week Ann writes about a six mile wide asteroid which has just collided with a butterfly in the Van Allen belt and which even now, as I eat my cucumber sandwich and drink my third cup of tea today, is heading inexorably towards its final destination just off the coast at Grimsby at 2.30pm on 29th August 2016.

Splosh!"

It was a fine piece of sardonic commentary. But Bobdoney, while pitching for the Guardian prize of best 'commenter' was, like so many other clever ostriches working in the City, a little too focused on honing his writing skills .....Since that piece appeared new home sales in the US are down 32% from their peak, and fell by 16% in January alone...Today the Wall Street Journal and Nouriel Roubini of RGE

report on the 'Splosh!' created by the sub-prime lending asteroid as it hits US credit markets. The impact of bankruptcies and collapses amongst 30 sub-prime lenders is not a pretty sight......Credit conditions are tightening, and borrowers are having mortgage applications turned down...the impact is spreading from sub-prime to a range of other credit markets........

What might transform the waves from the impact of this asteroid into a tsunami of defaults, losses, foreclosures and rising insurance costs? .......Roubini quotes Bloomberg as warning that 'subprime mortgage bonds are falling in part because Wall Street dealers are lending less money to managers of collateralized debt obligations (CDOs) that buy 'residential mortgage backed securities' (RMBSs) .....Roubini quotes the trade magazine 'Inside MBS and ABS' which warns that 'rising defaults and foreclosures in the US mortgage market could cause CDOs to pull out of the MBS market 'potentially toppling the mortgage industry'.......

The asteroid's impact still has to be felt here in the UK.....Sadly, we're likely to feel it well before the 29th August, 2016.

Borderless money and the matter of passports

The nation state is dead, we are told. Boundaries no longer matter. Globalisation is triumphant, and we should all rejoice in a borderless world. Money, trade and information can flow, uninterrupted, from Japan's capital markets via the 'carry trade' to South Africa's capital markets, where quick and big bucks can be made on the interest rate differential. Toothpicks can flow from New Zealand to Norway, with no barriers to trade. Information can flow, uninterrupted by journalistic tinkering, across the globe in the twinkling of an eye. Rejoice in such freedom!

But what of the freedom of statelessness? Imagine freedom from of the burden of citizenship, from taxation, from the obligation to live in community with fellow-citizens. Why do the rich and powerful not demand such freedom? Why do they send their secretaries to queue for passports? Why do governments not grant those that play in the global capital markets the gift of statelessness? After all cruel and heartless governments bestow the 'freedom' of statelessness on millions of people around the world...why should it not also be bestowed on the rich and powerful?

What is it about passports that persuades the rich and powerful that the borders for money be eliminated, but borders for citizenship be retained?

Atmosfear

Bought the FT this morning; fear is lurking in the credit markets. There is now talk of pension funds buying into risky credit markets at just the point hedge funds have slyly slithered out of them; of companies - like California's Fremont General Corp - dangerously exposed to the sub-prime lending market; and, because of the bundling of sub-prime loans with other less risky loans in Collateralised Debt Obligations - of the broader threat defaults in this market pose to credit markets as a whole...

All very absorbing and indeed frightening. Then, because scaring myself was insufficiently unsettling, I felt the need to be both offended and outraged. So I picked up the FT's colour magazine 'How to Spend It'. The very first ad on the very first page is of a woman picking her way through what is a volcanic eruption (Hilo, Hawaii); but which I think is intended to tap into fears about dangerous climate change. Next to her are the words: Fearless Luxury. Just when climate change threatens to prevent us having 'the time of our lives' on this earth, the FT advertises a Rolex watch, optimistically branded...'Oyster Perpetual Datejust'.

Market participants have lived with the delusion that today's asset bubbles can expand perpetually. Now Rolex seeks to delude FT readers that consumption of luxury goods can overcome atmosfear and time itself.......If only.

Real reasons to panic

Wolfgang Munchau writes intelligently today for Eurointelligence
warning of three real reasons to panic. One: a US recession is now imminent, and is going to be painful for the global economy; 'soft landing' talk is self-serving and reckless; second the threat of a 'severe financial crisis in the global credit markets'; and third, the failure of the Euro zone to stimulate domestic demand, and its over-dependence on exports....Yesterday's story about Airbus cutting 1,600 jobs in the UK is linked to the three stories: namely a) the US slowdown and the decline in value of the dollar, which has hurt Airbus, as it has hurt thousands of other people doing business with the US; b) too much debt and c) the dependence of the Eurozone on exports....

Still, very few seem to be panicking.