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1348
Wednesday Night Salon
#1348 2 Jan 2008 Page 2
Introduction
The Report
Although Conrad Black is not perceived as a hero or even as a likable character by most people with the possible exception of his peers, the crimes of which he has been accused have only hurt wealthy, ruthlessly ambitious people such as he. His conviction and the punishment meted out is judged to be problematic at the least. Beryl Wajsman neatly summarized the problems with the verdict, arguments that he also published in The Suburban
While Lord Black was judged innocent of nine of thirteen charges, the three counts of mail fraud that Black was found guilty of related to the expedition by mail of contracts and cheques related to non-compete payments that the prosecution had alleged were fraudulently obtained. There was no conviction on a main charge of fraud. The main crime for which he has been convicted appears to have been the removal of boxes of documents from his office in Canada. If so, one should ask why this is considered a crime in the U.S. where he was been tried.
The main question that arises is the validity of a prison term in a case where the victims were not the innocent poor, but men with ambition, sophistication and the same order of affluence as he. If a prison term were designed to induce penitence, it would, in this instance, be more likely to induce rage at what, objectively, appears to be a more politically motivated than justice motivated act, and/or an attempt on the part of the U.S. justice system to make amends for defects in the system.
Once Maslow’s hierarchy of needs has been fulfilled and lifetime security achieved, further acquisition of wealth represents an indication of one’s position in the pecking order among one’s peers. If indeed, Lord Black’s crimes were so heinous as to warrant a prison term as a time for reflection and penitence, as intended for run-of-the-mill criminals, a far more fitting punishment in his case would have been confiscation of a sufficient portion of his wealth as to cause him to lose his position in the pecking order and his seat in the House of Lords.
2008 has begun with the U.S. presidential election campaign well underway. Given that the winners will be known after the January and early February caucuses - at least in the case of the Democrats -, it is hard to understand how the American voters can be expected to remain interested until Election Day in November. The amount of money collected and spent by candidates is of such enormity that one questions whether the reward to the donors is uniquely benevolence or to what extent it is like the winning ticket on a horse race that has the potential for personal gain. As flawed as the Canadian system may be, it is considered by at least some Wednesday Nighters to be superior.
The suggestion that Michael Bloomberg might run as an Independent generated highly negative reactions based on his origins as a successful tekkie who likely owes his success as Mayor to the thriving economy of New York - rather than the reverse. We are also reminded of the spoiler role played by Ralph Nader which gave the U.S. and the world, George W. Bush.
In Switzerland, the president and vice president are elected by the Federal Assembly from among the members of the Federal Council for a one-year term. However, the normally routine procedure has been over-turned this year when Christoph Blocher, the charismatic leader of the right-wing Swiss People’s Party which gained 29% of the last vote, was unceremoniously voted out of Cabinet and therefore may not serve his expected term as President (the problem is still not resolved).
The $1.3-billion MSX-TSX merger, announced on December 10 has been widely applauded, reflected by the fact that the share price for the Montreal exchange immediately rose. Because of its experience in the more complicated technological aspects, Montreal will be responsible for the operation of the financial products derivatives exchange. Subject to shareholder and regulatory approval, the creation of the new entity (the TMX Group) is a done deal.
The first carbon emissions trading contract should be launched sometime in the first quarter, despite the lack of final precisions from Ottawa on the regulatory environment. It is expected to be a unique product, based on compliance credits.
Another project being examined is the hosting by the Montreal Exchange of a retail bond market, which would have great advantages in terms of transparency.
Note: As of today, the Winnipeg Commodities Exchange no longer exists although WCE Clearing Corporation and Canadian Climate Exchange Inc. will continue to operate in Winnipeg.
Despite the horror stories in the press of losses in sub-prime mortgages, it was not the financial institutions, but the poor who really hurt the most. As for the lenders, the investment in sub-prime mortgages represented a relatively minor portion of their portfolio, so the overall effect was somewhat limited. Large investors such as Goldman Sachs and UBS were aware that the mortgage markets would suffer a severe decline, but they were unaware of how quickly. Only Goldman Sachs acted rapidly enough to succeed in shorting funds. In retrospect it is obvious that neither the regulatory bodies like the SEC, nor most of top management understood what was going on in the subprime market. The tragedy of the sub-prime experience is that it was motivated not by the desire to create wealth but by the desire to create debt to the detriment of the already impoverished. Business (banks most egregiously) fails miserably in its responsibility to the poor and the lower income members of society.
One area that remains of concern to some is the changeover from Defined Benefit to Defined Contribution basis of pension funds whereby the worker is often faced with the need to make investment decisions that he or she is in no way qualified to make. In response, it was pointed out that only 5% of Canadians have a net worth of more than $5000 and thus 95% must rely on government pensions which 40 years ago covered 50% of the retiree’s basic needs. Today, they cover less than 30% and one-third of our urban households live below the federally-defined poverty levels. Although some complain bitterly that the federal government has not met its fiduciary responsibilities with respect to the CPP, it was pointed out that the CPP suffers from undercapitalization, thanks to the failure of the previous generation to contribute fully. more
The flexibility of the petroleum market appears to remain intact with hundred-dollar-per-barrel oil. A test of that flexibility would have been a reduction in consumption in response to increasing cost, an event that does not even appear on the horizon. Meanwhile, it was argued entertainingly that no government that wants to wean its population from dependency on fossil fuels can do so without control over the oil supply. To put a stop to the manipulation of the market price of oil by the cartels and small number of ‘oiligarchs’ [or would that be oily-garchs?], wrest control of the supply from the largely corrupt supplier regimes and establish an international mechanism to ration oil would require a war. This poses a dilemma for those who would seek through ethical investments to further the reduction of emissions, lessen the dependency on fossil fuels and encourage clean technologies, as most ethical investors abhor wars.
There is a high probability that the U.S. economy will grow at a one percent lower rate than in 2007. The Chinese economy is expected to grow by 7%, a rate below which the Chinese economy risks collapse. The Chinese have been trying to slow down their economy for four or five years. Internally, changes are being made such as more rationality in wages, which will boost the cost of manufacturing and exports marginally, but it is a near certainty that the bubble will not burst in China. One observer expects China to continue its aggressive pursuit of projects and business in the developing world, as we have seen it do in countries like Sudan.
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