Hemant's Scribbles: 2008

06 December, 2008

Thomas Friedman : "Calling All Pakistanis"

Thomas Friedman writes in the NY Times "Calling All Pakistanis".

On the terrorist attack in Mumbai and the usual explanations about terrorists : he writes "....The best defense against this kind of murderous violence is to limit the pool of recruits, and the only way to do that is for the home society to isolate, condemn and denounce publicly and repeatedly the murderers — and not amplify, ignore, glorify, justify or “explain” their activities. ".

25 November, 2008

"The End [of Wall Street's Boom]" -- Michael Lewis

This is an article by Michael Lewis in Portfolio magazine.

25 October, 2008

"It was denial"

Comments from the WEF : "'But the financial community didn't listen,' Schwab says. 'They were told that any serious look at the economic fundamentals showed that we were in an unstable situation. It was denial, total psychological denial."

02 October, 2008

Unbelievable -- the USD is strongest ?

Right now, 11pm 02-Oct-08, Singapore time, the headlines on Bloomberg's Currencies News Page (http://www.bloomberg.com/news/markets/currencies.html ) are :

1. Euro Drops to 13-Month Low Versus Dollar as ECB Debated Interest-Rate Cut

2. Financial-Rescue Bill Sent to House For Second Vote After Senate Approval

3. Mexican Peso Drops to One-Year Low on Speculation Global Economy Slowing

4. Brazil's Real Falls to 13-Month Low on Concern Global Slowdown to Spread

5. Chilean, Colombian Pesos Lead Latin American Decline on Economic Prospects

6. British Pound Falls Against Dollar as House Prices Drop Most Since 1991

7. Russia's Ruble Near Weak End of Band as Companies Buy Dollars, Bonds Rise

8. Nordic Currencies: Iceland's Krona Declines Against Dollar on Downgrades

9. Australia, New Zealand Dollars Decline as Investors Sell High-Yield Assets

10. Asian Currencies: South Korean Won, Thai Baht Decline on Credit Concern

11. Taiwan's Dollar Falls as Demand for Funding in the U.S. Currency Increases

Someone, please remind me ! WHICH country is deseperately trying to pass legislation to save itself from serious economic damage ?

28 September, 2008

Closing the Collapse Gap

Here is a striking article comparing the possible -- inevitable -- collapse of USA with the collapse of USSR. This was a presentation made in 2006 and events over the past decade have been propelling USA in an ominous way.

It doesn't necessarily assert that the USSR was, by deliberation, better prepared. But that the US isn't in as strong a position should it's economy collapse.......

The author keeps updating his blog.

16 September, 2008

How Risky Are American Assets ?

Michael Lewis pointedly says "this is the day that American financiers, from the point of view of the Asians who sit on top of the world's biggest pile of mobile capital, became a bad risk. " and concludes with "For 25 years Asian financial firms have been amazingly indulgent of U.S. investment bankers. What do you think they're saying about them -- and us --now? "

Regulation, Oversight, Risk Management, Controls

What do we think of when we hear words like "Regulation" or "Oversight" ? Who is responsible for "Risk Management" and "Controls" ? How are "Assets" to be valued ?

Welcome to the land of the brave and free where each of these words have seemed to mean nothing. From the DotCom crisis to Enron and WorldCom to the Housing Crisis to Bank Failures. Welcome to the land of Enterprise and the Individual being more important than the Society.

And that is the sort of Economy that the U.S. wanted / still wants the rest of the world to be ?

Jonathan Weil frames the situation well "Cops Get Caught Eating Doughnuts". "Never has it been more evident that the SEC and other government agencies think their job is to protect financial companies and financial executives, rather than the investors they rip off. "

How Sound are 'Free' Financial Systems ?

The first set of fears about the U.S. Housing market emerged in March/April 2007. Those fears were ignored. There was a panic in August 2007. Hundreds of Billions of Dollars were "pumped" into the Financial System then (by the US Federal Reserve, the European Central Bank and the Bank of Japan). Did that money get invested in worthwhile assets, building up real portfolios, loans to worthy borrowers, better asset classes ?
Suprisingly, while Stock Markets were still optimistinc, the price of Oil and other commoodities continued to rise at a rapid rate.
This year we've had Bear Stearns collapse. Then "Fannie Mae" and "Freddie Mac" {why can't we know and use their proper names ?} had to be "rescued" from colossal incompetence. Next goes Lehman Brothers. Merrill Lynch is "rescued" by Bank of America.

The DotCom collapse was quickly followed by the scandals of Enron, WorldCom, Tyco and others. Sarbanes Oxley was supposed to improve controls. Like DUH ??!! The very auditors and credit rating agencies couldn't see how bad were the investment "bankers" {have we all forgotten what a "banker" was supposed to mean -- "reliable, true to his word, knowing the value of money and assets" ?} at their jobs ?

How strong is the "Free Markets" system ? How resilient is it ? How could hundreds of billions in portfolios be allowed to disappear in less than a year without anyone really knowing the "Why" of those write-offs ?

In 1997 the US, the World Bank and the IMF were critical of Asia. This year it has been Asia that has been called upon to "rescue" those masters of money management and fiscal responsibility.

08 July, 2008

Disaster Capitalism -- the Shock Doctrine

Naomi Klein comes out with some hard hitting assertions in "The Shock Doctrine". "Free Market" Capitalism, especially that espoused by Milton Friedman's Chicago "School" has been using opportunities in countries outside of the US to conduct economic "experiments". These ventures have caused great hardship to citizens of the affect countries -- Latin America in the 60s and 70s to Iraq in the past few years. Along the way, "Shock"s have been used as a cloak to introduce radical economic change or transfers from Government to Private Corporations -- whether it is in Homeland Security and the War on Terror, whether it is military actions in Iraq, whether it is the aftermath of Hurricane Katrina or the 2004 Tsunami.

24 June, 2008

A New Economic Theory

Having read George Soros's "The New Paradigm for Financial Markets" a week ago, I am currently reading Naomi Klein's "The Shock Doctrine".
Both authors find fault with Free Market "fundamentalists" (Ms Klein being very critical of Milton Friedman's Chicago School in particular). George Soros also proposes a new Theory of Reflexivity which he prefers over the classical economist's concepts of "free markets", "perfect competition" and "equilibrium".
I'll try to make a few notes about what these writers have to say about globalization, the withdrawal of controls and the abdication of responsibilities plus the human misery that such practices have caused.

Soros believes that it isn't true that the markets are right. Rather, the financial markets are always wrong. However, they do correct themselves on most occassions and it is this ability that causes many economists and observers to think that markets will correct economic imbalances. Financial markets cannot predict economic downturns accurately and can actually cause them.
The manner in which market prices react to participant's actions is flawed because those actions themselves are based on an imperfect understanding (ie, not on "perfect knowledge"). Incomplete, biased and mis-conceived interpretations of reality drive participants, resulting in varying outcomes.

19 June, 2008

"Free Trade" in Food Is 'On the Ropes'

With developed countries subsidising their farmers to compete against the poorest of the developing countries "free trade" in commodities and food was always a joke.
This Bloomberg article now indicates that some thinkers are now beginning to realise that such a policy put food security in danger.

16 June, 2008

Crude Oil surpasses the Dot-Com Craze

This article, by Michael Patterson and Elizabeth Stanton, on Bloomberg suggests that there might well be parallels between the Dot-Com craze and the rise of Crude Oil prices in recent years. Crude Oil has risen to almost 8 times the price it was at in November 2001.

So, is Crude Oil a bubble ? Or is it really factors like "increased terrorism risk, the situations in Iraq and Iran, increasing demand from China and India, the fall of the US$, the general rise in commodity prices etc, stagnating production etc" ? Are economists right in berating developing countries for subsidising oil products for the poor ?

I think it is an outright speculative jump in prices. Crude Oil began rising a few years ago. But not many people noticed a link between the release of trillions of dollars by the US Federal Reserve, the European Central Bank, even the Japanese Central Bank since the "sub-prime crisis" erupted in August 2007 and the almost 100% rise in Crude Oil prices since then. If Stock Markets haven't been strong, if homeowners and corporates are facing difficulties in getting loans, inspite of low interest rates, where did all that money go ? How could billions of dollars pumped into the banking system not go to borrowers ?