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The Report
This was the third in a series of fascinating debates on the current economic crises. Kenneth Matziorinis introduced John Evdokias , an investment manager with an impressive professional background, including several years with Richard Lafferty, whose motto is “return of capital”. But first, as promised:
The MetropolitaIn (see last week’s Report), - note that the second I is replaced by a Torch of Liberty - Wednesday Nighter Beryl Wajsman’s new bi-weekly bilingual, limited circulation publication will is be launched in April with a possible medium-term circulation area ultimately spreading to Ottawa and/or Quebec City. Beryl reports that everything is connected. Located in the Hermès Building, the office is more reminiscent of an old-fashioned newsroom albeit one with the latest computer technology. Twenty-four journalists and academics are at work on developing content that will be anti-status, anti- Nanny State, anti- language and cultural wars - just about everything that we have wasted time on in the past 30 years. It will be pro individual freedom and choice. Its main components will be news and analysis, including some six pages on Business, and a very large culture section. Its underlying mission is to differentiate the concerns and attitudes of metropolitan Montreal vis à vis the parochialism of the rest of Quebec. “A bilingual Le Devoir” from Day One, it will be distributed to the offices of all major decision makers in the city.
Bear Stearns, JPMorgan and the Fed
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It has been perceived by the public as a wakeup call, but the message may not have really been clear. JPMorgan has acquired the assets of Bear Stearns, presumably at a fire sale price, but the story behind the sale is one of a system that functioned as it should have. The Federal Reserve reacted to the situation swiftly and well, concluding its moves over the weekend before the markets opened in Asia, thus minimizing uncertainty. It penalized Bear Stearns, which had been the initiator of the financial engineering that the structured investment products at the root of the problem, thereby making the greedy pay the price, leading to the subsequent positive reaction by the financial market. Additionally, over the weekend the Fed expanded the discount window of emergency financing, previously limited to banks, to all major brokerage houses, thus improving liquidity.
Bear Stearns had some $440-$450 billion in assets; some of these structured assets were being sold off at depressed levels, a subliminal message to the market that they were on the road to bankruptcy and which triggered inevitable reactions among their investors. Bear Stearns may have lost all their own money and possibly a little more, thus creating a situation that could have led to a major meltdown with almost unthinkable international repercussions had the Fed not intervened in a timely manner with the guarantee of up to thirty billion dollars for up to six months. Fortunately the Fed had the ability and will to intervene rapidly, and in J.P. Morgan there was a financial institution that was in a position to absorb the problem as it had previously done in 1929. [We are uncomfortably reminded of the 1981 movie Rollover]
The Federal Reserve has revenue of about eight hundred billion dollars of which this guarantee represents about half. The Fed’s concurrent cut in the discount rate constitutes a further commitment from revenue. Should - perhaps as the result of another crisis - the Federal Reserve use up all its credit, the government, already deep in debt, would be expected to step in. Depending on how prepared the government is, it would have response options. On occasion, a bank holiday has been the response.
In any event it is in no one’s interest to permit the United States to default on its debt. China, its major creditor, would have nothing to gain and much to lose if it were to call in the debt.
Although technically, countries cannot go bankrupt (they have assets such as land, crops, people), the equivalent, as evident in post World War I Germany or in Zimbabwe today, is inflation and impoverishment of the population. To those who raise the nightmare scenario that America would be faced between defaulting on sovereign debt or let the private system collapse, the response is that while technically possible, creditor nations would have nowhere to sell the paper. In reality, the world needs the U.S. market and it is in the global interest to keep the U.S. economy intact.
It is in no-one’s interest to have the U.S. fail
Finance in the U.S. has reached a peak only on paper so it necessary for them to come up with new tricks. The deteriorating situation would be heading towards a repeat of 1929 were it not for the existence of many more institutions capable of managing these crises that are now in place .
Despite what appears to be the defusing of a potentially disastrous situation, the question that continues to haunt even the most confident, is the extent of the devotion and motivation of legislators in military matters as well as in the realm of finance.
Doubts still linger about the motivation for the U.S. costly role in Iraq as well as the current financial crisis.
Sub-prime mortgages have been held responsible but represent only about one million households. More important has been the tendency to ignore guidelines on the ability of borrowers to repay loans in the knowledge that potentially shaky loans could be sold and resold, with each purchaser profiting from the sale until the house of cards inevitably fell.
Accompanying the inevitable inflation, the buying power of even constantly increasing personal revenue, continues to decrease, leaving productive farmland as potentially one of the few remaining productive investment possibilities.
The financial crisis represents just one of many situations that should be of concern to us. Others include the simultaneous U.S. involvement in two wars, the energy crunch and climate change. There is a high probability that in less than two decades, the rate of extraction of petroleum will be lower than the rate of consumption, affecting not only energy but the availability, hence price, of all consumer goods including food and refrigeration. There appears to be very little research and implementation of a serious alternative. Ethanol has been successful in Brazil but not only does the consumption of ethanol influence the cost and availability of the food from which it is derived but it requires a considerable amount of fossil fuel in its production.
The one spark of hope in this scenario may be found in the character of people who lived through the great depression from which they emerged clear on who they were and how they lived, realistic about the value of life and the relative importance of life and possessions as well as their effect on the present and potential crisis.
The New School of Athens (NSOA) meets in Athens April 2-5 and provides an occasion for a gathering of eminent Wednesday Nighters (Cleo Paskal, Jaime Webbe, Bert Revenaz and possibly Nicole Stellos, along with Kimon Valaskakis). Kimon has invited both Cleo and Jaime to take part in the conference programme.
In an unrelated event, Jaime has been nominated for the prestigious UN Environment Programme (UNEP) Baobab Award.
“The UNEP Baobab Awards programme is designed to officially recognize and reward individual staff members and teams at all levels of the organization who exhibit exceptional performance and dedication to achieving the goals of UNEP and the multilateral environmental agreement secretariats. The programme is also intended to reward innovative ideas and steps forward in the context of environmental sustainability and conservation”. It is a great - and well deserved - honour for Jaime and we cannot think that any nominee would be more qualified.
Loss of an influential and outstanding Canadian diplomat
Diplomat Geoffrey Pearson, son of former prime minister, dies
(Ottawa Citizen) Wednesday, March 19, 2008
Geoffrey Pearson, the retired diplomat and son of former Prime Minister Lester B. Pearson, has died.
Mr. Pearson, 80, died Tuesday.
A Canadian diplomat, he was educated at Trinity College School, Port Hope, the University of Toronto and Oxford University, and joined the department of External Affairs in 1952. He held diplomatic appointments at the Canadian embassies in Paris and Mexico City, and at the high commission in New Delhi.
From 1980 to 1983, he served as Canada’s ambassador to the Soviet Union, and in late 1983, Pearson was appointed as a special representative of the Prime Minister for arms control; in 1984 he was seconded to the Canadian Institute for International Affairs. In January 1985 he was appointed as the first executive director of the Canadian Institute for International Peace and Security, where he served for six years. Pearson is currently past president of the United Nations Association in Canada.
- - Beryl Wajsman intro The Metropolitain_ Mar 19, 2008 - 7 min 03 sec
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QUOTES of the EVENING from recent
Wednesday Nights2007
From #1359 invite
- It’s not a Bush problem, it’s an American problem. He is playing double or nothing. He is trying to shift the responsibility from the Coalition to the Iraqis
- New York City has more police officers than Iraq has troops
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2008 Notes for this Wed-Night
Tuesday 25 March 2008 The markets reacted favourably to the news that JP Morgan (US: JPM) would quintuple its bid for Bear Stearns (US: BSC) from $2/share to $10/share, providing a surge to the financial sector. Combined with a surprising rise in sales of U.S. pre-owned homes last month, the news sparked a debate over whether the worst period may now be over. The Financial index rose 3.1% as all big five Canadian banks were among the top ten gainers.
Monday 24 March 2008 Bear Stearns shares double as J.P. Morgan sweetens bid
Shares of Bear Stearns rise more than 50% in pre-market moves after news J.P. Morgan may raise its buyout price for the firm to $10 a share from $2 a share. See full story.
Sunday 23 March 2008 Split Is Forming Over Regulation of Wall Street
WASHINGTON — As Congress and the Bush administration struggle to contain the housing and credit crises — and prevent more Wall Street firms from collapsing as Bear Stearns did — a split is forming over how to strengthen oversight of financial institutions after decades of deregulation.
Diana's site
Sunday Mar 23, 2008 The cracks in Wall St.
The marvellous edifice of modern finance took years to build. The world had a weekend to save it from collapsing.
...On March 16, America's Federal Reserve, by nature hardly impetuous, rewrote its rule book by rescuing Bear Stearns, the country's fifth-largest investment bank, and agreeing to lend directly to other brokers. A couple of days later the Fed cut short- term interest rates - again - to 2.25 per cent, marking the fastest loosening of monetary policy in a generation.
Friday Mar 21, 2008 Partying Like It’s 1929 It’s time to relearn the lessons of the 1930s, and get the financial system back under control. Otherwise, the next few years will surely be the worst slump we’ve seen in decades.
Dec 1981 movie Rollover The most erotic thing in their world was money.
An Arab oil organization devises a plan to wreck the world economy in order to cause anarchy and chaos.
Economist and Author, David Morgan reenatcs a dramatic scene from the Movie "Rollover" (1981), a frightening worldwide currency crisis he says we should be prepared for in our lifetimes.
Thursday 20 March 2008 Bear Stearns (BSC : NYSE : US$5.33), Net Change: -0.58, % Change: -9.82%, Volume: 76,564,155
"Asses are made to bear, and so are you." - William Shakespeare. Billionaire investor Joseph Lewis and former CEO Jimmy
Cayne are pounding the pavement for a white knight, having contacted both private equity firms and overseas banks including
Barclays (BCS), HSBC (HBC), Credit Suisse (CS), and Royal Bank of Scotland (RBS) in a bid to find at least a preliminary
offer. Middle Eastern sovereign wealth funds have also been contacted. Unfortunately, this deal can be voted against by Bear
shareholders but they are not allowed to accept another bid for a year, according to Dow Jones. And even if they do vote against
the deal, JPMorgan (JPM) can still buy up to 19.9% of BSC's shares. But the Fed can't cut interest rates every day so the stock
market went back to its regular bearish self yesterday. By the way, former Fed Chairman Paul Volker questions the Bernanke
Fed's move, saying the bailout was "a new departure. And at some point, the government ought to - in my view, the government
out to be taking responsibility for that kind of actions, not the Federal Reserve, which is an independent agency designed to
provide an ample supply of liquidity to the economy but not too much, protect against inflation, not to protect particular sectors
of the economy from bad loans."
March 19, 2008
DealBook: Unhappy Billionaire Prepares to Act on Bear Deal
Bear Stearns shareholders are understandably furious about the investment bank’s sale to JPMorgan Chase for about $2 a share. Now one of the largest of them is warning that he intends to try and stop it. Joseph C. Lewis, the reclusive billionaire investor who is Bear’s second-largest shareholder, said in a regulatory filing that he will
March 19, 2008
What went wrong
Happy days
The seeds of today's disaster were sown in the 1980s, when financial services began a pattern of growth that may only now have come to an end. In a recent study Martin Barnes of BCA Research, a Canadian economic-research firm, traces the rise of the American financial-services industry's share of total corporate profits, from 10% in the early 1980s to 40% at its peak last year (see chart 1). Its share of stockmarket value grew from 6% to 19%. These proportions look all the more striking—even unsustainable—when you note that financial services account for only 15% of corporate America's gross value added and a mere 5% of private-sector jobs.
Monday, March 10 Sun has set on banks' golden age, firm says
25 years of unprecedented prosperity. Financial sector faces much leaner times, Montreal's Bank Credit Analyst predicts
..."The blow-up in the markets for subprime paper and other structured products represents a watershed event in the financial markets," said Martin Barnes , managing editor of Bank Credit Analyst. "Financial shares will likely lead the next equity market upleg, but any outperformance will be fleeting. The financial sector's share of corporate profits and market capitalization is set to shrink significantly in the coming years."
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