Nintendo began life in the late 19th century as a maker of card games, and that emphasis on gaming survived their transition to newer technologies. That might sound like a truism – video-game maker has background in games – but as it happens the company’s two great rivals have different histories. Sony is a consumer technology company, Microsoft is a software company, and both have been more reluctant than Nintendo to understand that what people mainly want to do with games is play; their interest has recently focused more on their desire to ‘win the battle of the living-room’. Translated, that means to sell consumers a super-powerful omnicompetent console which sits in the corner of the room and gives the parent company a share of all sorts of potential future revenue streams. Sony’s PS3 is a wonder of the world, with two astounding new technologies inside, the multi-threading Cell computer chip and the new generation Blu-Ray Disc; the Xbox 360 is a powerful computer in its own right; but the much lower-tech Nintendo Wii is a lot more fun than either of them.
Wednesday 31 December 2008
Skidelsky on Ferguson's The Ascent of Money in the New York Review of Books
"His thesis is that state policy determines the development of finance, not vice versa. This reverses the usual Marxist argument that finance controls governments.
"England's rise to world power in the eighteenth century was based on the ability of the British government to borrow larger sums at cheaper rates than any of its rivals; hence the importance for the nineteenth-century public mind of maintaining the state's creditworthiness by balancing the government budget. In the twentieth century it was the eagerness of democratic governments to extend home ownership—as an antidote to revolution—that later led to the practice by which home mortgages are converted into securities and sold around the world.
"Ferguson points out that property "is a security only to the person who lends you money.... By contrast, the borrower's sole security against the loss of his property to such creditors is his income." This is not quite true. The lender's security also depends on the income—actual or expected—of the borrower, because, although the property cannot "run away," it may lose its value, or it may be costly, and even impossible, for the creditor to get possession of it. Ferguson might have told the story of the costly mistake made by France's Credit Lyonnais, which set up its own proprietary credit-rating agency in the late nineteenth century. Its mistake was to rate the credit-worthiness of governments not on their debt-to-income but on their debt-to-property ratios. The imperial government of Russia got top rating, because, despite its disordered finances, of all governments it owned the most property. On the basis of this rating, French investors snapped up tsarist bonds. They lost all their money, not because the property disappeared but because the government did. Credit Lyonnais failed to take into account "political risk."
"Ferguson's last chapter, "From Empire to Chimerica," argues convincingly that it was the investment of billions of dollars of Chinese savings in US Treasury bonds that fueled the US debt binge, by enabling Greenspan to keep money so cheap for so long. In a bravura passage that rounds off his story of money's ascent, Ferguson writes:
""Chimerica"—China plus America—seemed like a marriage made in heaven. The East Chimericans did the saving. The West Chimericans did the spending. [Cheap] Chinese imports kept down US inflation. Chinese savings kept down US interest rates. Chinese labour kept down US wage costs. As a result, it was remarkably cheap to borrow money and remarkably profitable to run a corporation. Thanks to Chimerica, global real interest rates...sank by more than a third below their average over the past fifteen years. Thanks to Chimerica, US corporate profits in 2006 rose by the same proportion above their average share of GDP....
"The more China was willing to lend to the United States, the more Americans were willing to borrow. Chimerica, in other words, is the underlying cause of the surge in bank lending, bond issuance and new derivative contracts that Planet Finance witnessed after 2000. It was the underlying cause of the hedge fund population explosion. [It] was the underlying reason why the US mortgage market was so awash with cash in 2006 that you could get a 100 per cent mortgage with no income, no job or assets.
"England's rise to world power in the eighteenth century was based on the ability of the British government to borrow larger sums at cheaper rates than any of its rivals; hence the importance for the nineteenth-century public mind of maintaining the state's creditworthiness by balancing the government budget. In the twentieth century it was the eagerness of democratic governments to extend home ownership—as an antidote to revolution—that later led to the practice by which home mortgages are converted into securities and sold around the world.
"Ferguson points out that property "is a security only to the person who lends you money.... By contrast, the borrower's sole security against the loss of his property to such creditors is his income." This is not quite true. The lender's security also depends on the income—actual or expected—of the borrower, because, although the property cannot "run away," it may lose its value, or it may be costly, and even impossible, for the creditor to get possession of it. Ferguson might have told the story of the costly mistake made by France's Credit Lyonnais, which set up its own proprietary credit-rating agency in the late nineteenth century. Its mistake was to rate the credit-worthiness of governments not on their debt-to-income but on their debt-to-property ratios. The imperial government of Russia got top rating, because, despite its disordered finances, of all governments it owned the most property. On the basis of this rating, French investors snapped up tsarist bonds. They lost all their money, not because the property disappeared but because the government did. Credit Lyonnais failed to take into account "political risk."
"Ferguson's last chapter, "From Empire to Chimerica," argues convincingly that it was the investment of billions of dollars of Chinese savings in US Treasury bonds that fueled the US debt binge, by enabling Greenspan to keep money so cheap for so long. In a bravura passage that rounds off his story of money's ascent, Ferguson writes:
""Chimerica"—China plus America—seemed like a marriage made in heaven. The East Chimericans did the saving. The West Chimericans did the spending. [Cheap] Chinese imports kept down US inflation. Chinese savings kept down US interest rates. Chinese labour kept down US wage costs. As a result, it was remarkably cheap to borrow money and remarkably profitable to run a corporation. Thanks to Chimerica, global real interest rates...sank by more than a third below their average over the past fifteen years. Thanks to Chimerica, US corporate profits in 2006 rose by the same proportion above their average share of GDP....
"The more China was willing to lend to the United States, the more Americans were willing to borrow. Chimerica, in other words, is the underlying cause of the surge in bank lending, bond issuance and new derivative contracts that Planet Finance witnessed after 2000. It was the underlying cause of the hedge fund population explosion. [It] was the underlying reason why the US mortgage market was so awash with cash in 2006 that you could get a 100 per cent mortgage with no income, no job or assets.
Tuesday 30 December 2008
Soros on high gearing
George Soros likened the predilection for high gearing to “driving along a straight, clear freeway with a sharp spike pointing from the centre of the steering wheel” to your chest. “All would be fine if the road and the traffic continued as they were, but any sudden application of the brakes would stab you through the heart.”
Thursday 13 November 2008
Lex - Over-stretched banks
Forget Tarp and its mutant offspring. The long-term shape of global finance will be shaped by future levels of bank leverage. But what is the right amount? Regulatory frameworks, such as Basel II, have steered banks towards having a minimum amount of equity-type capital versus assets. The assets are then given risk weightings: more equity backing here, a little less required there.
But even when playing within the rules, the most conservative banks still became ridiculously geared. Under the most basic version of Basel II, triple-A corporate bonds have a 25 per cent risk weighting. That means banks can theoretically ramp up their exposure to this asset class by 50 fold and still not breach the required capital ratio of 8 per cent. Government bonds, with a no risk weighting at all, can be leveraged to the stars.
To illustrate the insanity of such gearing, analysis by Banca del Ceresio shows that most hedge funds look like church pension plans in comparison with banks. Applying Basel II risk weightings to the assets of a standard directional portfolio suggests that hedge funds typically operate with more than 3 times the minimum regulatory capital requirement for banks. And whereas leverage at banks can easily reach north of 30 times, supposedly risk-loving directional hedge funds with no capital adeqacy requirements manage similar assets to banks with only about 4 times gearing.
Of course, relative value hedge funds (such as arb funds) are more geared. Still, the fact that even the least geared banks have been bailed out during this crisis proves that bank leverage is far too high. But reducing the total leverage in the banking system by at least a half – not an unreasonable start – would probably guarantee a worldwide depression. That leaves injecting capital, but the private sector is nowhere near big enough to stump up what in some countries could be up to 10 per cent of output. Historic banking crises often resulted in wholesale nationalisations. This one could too.
But even when playing within the rules, the most conservative banks still became ridiculously geared. Under the most basic version of Basel II, triple-A corporate bonds have a 25 per cent risk weighting. That means banks can theoretically ramp up their exposure to this asset class by 50 fold and still not breach the required capital ratio of 8 per cent. Government bonds, with a no risk weighting at all, can be leveraged to the stars.
To illustrate the insanity of such gearing, analysis by Banca del Ceresio shows that most hedge funds look like church pension plans in comparison with banks. Applying Basel II risk weightings to the assets of a standard directional portfolio suggests that hedge funds typically operate with more than 3 times the minimum regulatory capital requirement for banks. And whereas leverage at banks can easily reach north of 30 times, supposedly risk-loving directional hedge funds with no capital adeqacy requirements manage similar assets to banks with only about 4 times gearing.
Of course, relative value hedge funds (such as arb funds) are more geared. Still, the fact that even the least geared banks have been bailed out during this crisis proves that bank leverage is far too high. But reducing the total leverage in the banking system by at least a half – not an unreasonable start – would probably guarantee a worldwide depression. That leaves injecting capital, but the private sector is nowhere near big enough to stump up what in some countries could be up to 10 per cent of output. Historic banking crises often resulted in wholesale nationalisations. This one could too.
Monday 10 November 2008
John Bayley on Tennyson
"Together with Dickens he represented the peak of the Victorian populist achievement, an achievement which high art has not risen to since....But Tennyson was not Herbert or Dunne. His poetry, however full of "good things" is essentially and continuously naïve, moving us altogether if it moves us at all."
John Bayley on Wordsworth
"William Wordsworth's poems are like one's parents clothes: always out of fashion....Most artists redeem their natural solipsism as artists by continual suggestions in their art of personal chaos, drama, disaster...But no artist could be less accident prone than Wordsworth. If he fell he always fell on his feet."
Sunday 19 October 2008
Anna Schwartz on why recapitalisation is wrong, from the WSJ
"Why are they 'toxic'?" Ms. Schwartz asks. "They're toxic because you cannot sell them, you don't know what they're worth, your balance sheet is not credible and the whole market freezes up. We don't know whom to lend to because we don't know who is sound. So if you could get rid of them, that would be an improvement." The only way to "get rid of them" is to sell them, which is why Ms. Schwartz thought that Treasury Secretary Hank Paulson's original proposal to buy these assets from the banks was "a step in the right direction."
The problem with that idea was, and is, how to price "toxic" assets that nobody wants. And lurking beneath that problem is another, stickier problem: If they are priced at current market levels, selling them would be a recipe for instant insolvency at many institutions. The fears that are locking up the credit markets would be realized, and a number of banks would probably fail.
Ms. Schwartz won't say so, but this is the dirty little secret that led Secretary Paulson to shift from buying bank assets to recapitalizing them directly, as the Treasury did this week. But in doing so, he's shifted from trying to save the banking system to trying to save banks. These are not, Ms. Schwartz argues, the same thing. In fact, by keeping otherwise insolvent banks afloat, the Federal Reserve and the Treasury have actually prolonged the crisis. "They should not be recapitalizing firms that should be shut down."
Tuesday 14 October 2008
Buiter on the US-SARP
'Voluntary’ is clearly used here in the sense it is used in the armed forces: “I need three volunteers: you, you and you there!”
Friday 10 October 2008
Paul de Grauwe - temporary nationalisation is the answer
From the FT:
"The essence of what banks do in normal times is to borrow short and lend long. In doing so, they transform short-term assets into long ones, thereby creating credit and liquidity. Put differently, by borrowing short and lending long, banks become less liquid, thereby making it possible for the non-banking sector to become more liquid; that is, have assets that are shorter than their liabilities. This is essential for the non-banking sector to run smoothly."
"The generalised distrust within the banking system has led to a situation where banks do not want to lend any more. That means that they continue to borrow short but lend equally short; that is, acquire the most liquid assets."
"How to get out of this bad equilibrium? There is only one way. The governments of the big countries (US, UK, the eurozone, possibly Japan) must take over their banking systems (or at least the significant banks). Governments are the only institutions that can solve the co-ordination failure at the heart of the liquidity crisis. They can do this because once the banks are in the hands of the state, they can be ordered to trust each other and to lend to each other. The faster governments take these steps, the better."
"Government interventions have consisted of recapitalising banks. These have not worked. The main reason is that they have been triggered by bank failures as they pop up and, as a result, have only dealt with the symptoms. The liquidity crisis is pulling down asset prices in an indiscriminate way, thereby transforming the liquidity crisis into solvency problems of individual banks. The governments, then, are forced to step in and to recapitalise the bank only to find out later that when the liquidity crisis strikes again, the capital has evaporated. The governments throw fresh capital into a black hole, where it disappears quickly."
"Central bank liquidity provision, although necessary, has also failed to address the co-ordination failure and has only made it easier for banks to dispose of long assets to acquire short ones (cash). Thus central banks’ liquidity provisions do not stop the massive destruction of credit and liquidity that is going on in the economy."
"The essence of what banks do in normal times is to borrow short and lend long. In doing so, they transform short-term assets into long ones, thereby creating credit and liquidity. Put differently, by borrowing short and lending long, banks become less liquid, thereby making it possible for the non-banking sector to become more liquid; that is, have assets that are shorter than their liabilities. This is essential for the non-banking sector to run smoothly."
"The generalised distrust within the banking system has led to a situation where banks do not want to lend any more. That means that they continue to borrow short but lend equally short; that is, acquire the most liquid assets."
"How to get out of this bad equilibrium? There is only one way. The governments of the big countries (US, UK, the eurozone, possibly Japan) must take over their banking systems (or at least the significant banks). Governments are the only institutions that can solve the co-ordination failure at the heart of the liquidity crisis. They can do this because once the banks are in the hands of the state, they can be ordered to trust each other and to lend to each other. The faster governments take these steps, the better."
"Government interventions have consisted of recapitalising banks. These have not worked. The main reason is that they have been triggered by bank failures as they pop up and, as a result, have only dealt with the symptoms. The liquidity crisis is pulling down asset prices in an indiscriminate way, thereby transforming the liquidity crisis into solvency problems of individual banks. The governments, then, are forced to step in and to recapitalise the bank only to find out later that when the liquidity crisis strikes again, the capital has evaporated. The governments throw fresh capital into a black hole, where it disappears quickly."
"Central bank liquidity provision, although necessary, has also failed to address the co-ordination failure and has only made it easier for banks to dispose of long assets to acquire short ones (cash). Thus central banks’ liquidity provisions do not stop the massive destruction of credit and liquidity that is going on in the economy."
Wednesday 1 October 2008
Willem Buiter on Grandson of Tarp
The first fundamental problem of the US banking system is now that that there are too many banks with too little capital. The second fundamental problem is that we still don’t know what the true value of the capital shortfall is and how it is distributed. The ‘we’ in the previous sentence certainly applies to those outside the banks holding the toxic assets. It may well include the management of some of these banks also.
TARP and its descendants are ‘value revelation mechanisms’. At the very least, if trades take place under the scheme, it will reveal the reservation prices of the sellers. Without TARP there are 3 valuations for a toxic asset. From low to high they are: its fire-sale value in illiquid private markets, the value at which it is carried on the bank’s balance sheet and the hold-to-maturity value.
For a bank to offer an asset for sale under the TARP, the TARP price has to be at least equal to its fire-sale value. Most likely, it will have to be at least as high as the fair or unfair value at which it is carried on the bank’s books. Otherwise a bank would effectively decapitalise itself by selling the asset at the TARP price. The only exception would be when the bank knows it is carrying the asset at an inflated value and expects its bluff to be called soon.
If the TARP succeeds in pricing most the toxic assets on the banks’ books, we will at least gain clarity about the true financial position of the banks. Only then can the recapitalisation of the banks be considered.
Grandson of TARP is a bad way to recapitalise the banking system
TARP could help recapitalise the banking system if the Treasury were to pay more for the toxic assets that what they are valued at on the banks’ balance sheets. That would be a terrible way to inject capital into the system, however. The banks would, of course, love it. But it would be an unconditional capital injection, giving the tax payer no upside on his risky investment and no voice in the management of the banks that are benefiting. I therefore propose that the TARP value the assets it purchases as aggressively as possible (that is, as close to the fire-sale price as possible).
How to inject capital into the banks?
A capital injection by the Treasury into the banks in exchange for equity (ordinary shares or preference shares with a warrant to convert into equity at a known price) would have two obvious consequences.
First, it would continue the nationalisation of the US banking sector.
Second, it would increase the total capital of the banking sector. From a longer-term perspective, that seems unwise. The sector will have to contract its employment and balance sheet to shrink the supply of financial services and products to match a much-reduced demand.
An alternative would be for the government to set a maximum leverage ratio (or a minimum capital ratio) but to give the existing shareholders pre-emptive rights to bring the actual capital up to the target level, with the government filling in the remaining gap, if any.
I would, however, prefer a mandatory debt-to-equity conversion for the banking system. Again, the government would set a maximum leverage ratio or minimum capital ratio, but now existing bank debt would be converted (in inverse order of seniority) into stock.
Effectively, a mandatory debt-to-equity conversion would be a sector-wide high-speed version of Chapter 11.
The disappearance of money and credit markets
I propose that the authorities for the time being socialise the interbank market. They can do this in one of two ways. Either the central bank becomes the universal counterparty in all interbank transactions, secured and unsecured. Banks lend only to the central bank and borrow only from the central bank, not to and from each other directly. This is already effectively the case in the overnight market.
TARP and its descendants are ‘value revelation mechanisms’. At the very least, if trades take place under the scheme, it will reveal the reservation prices of the sellers. Without TARP there are 3 valuations for a toxic asset. From low to high they are: its fire-sale value in illiquid private markets, the value at which it is carried on the bank’s balance sheet and the hold-to-maturity value.
For a bank to offer an asset for sale under the TARP, the TARP price has to be at least equal to its fire-sale value. Most likely, it will have to be at least as high as the fair or unfair value at which it is carried on the bank’s books. Otherwise a bank would effectively decapitalise itself by selling the asset at the TARP price. The only exception would be when the bank knows it is carrying the asset at an inflated value and expects its bluff to be called soon.
If the TARP succeeds in pricing most the toxic assets on the banks’ books, we will at least gain clarity about the true financial position of the banks. Only then can the recapitalisation of the banks be considered.
Grandson of TARP is a bad way to recapitalise the banking system
TARP could help recapitalise the banking system if the Treasury were to pay more for the toxic assets that what they are valued at on the banks’ balance sheets. That would be a terrible way to inject capital into the system, however. The banks would, of course, love it. But it would be an unconditional capital injection, giving the tax payer no upside on his risky investment and no voice in the management of the banks that are benefiting. I therefore propose that the TARP value the assets it purchases as aggressively as possible (that is, as close to the fire-sale price as possible).
How to inject capital into the banks?
A capital injection by the Treasury into the banks in exchange for equity (ordinary shares or preference shares with a warrant to convert into equity at a known price) would have two obvious consequences.
First, it would continue the nationalisation of the US banking sector.
Second, it would increase the total capital of the banking sector. From a longer-term perspective, that seems unwise. The sector will have to contract its employment and balance sheet to shrink the supply of financial services and products to match a much-reduced demand.
An alternative would be for the government to set a maximum leverage ratio (or a minimum capital ratio) but to give the existing shareholders pre-emptive rights to bring the actual capital up to the target level, with the government filling in the remaining gap, if any.
I would, however, prefer a mandatory debt-to-equity conversion for the banking system. Again, the government would set a maximum leverage ratio or minimum capital ratio, but now existing bank debt would be converted (in inverse order of seniority) into stock.
Effectively, a mandatory debt-to-equity conversion would be a sector-wide high-speed version of Chapter 11.
The disappearance of money and credit markets
I propose that the authorities for the time being socialise the interbank market. They can do this in one of two ways. Either the central bank becomes the universal counterparty in all interbank transactions, secured and unsecured. Banks lend only to the central bank and borrow only from the central bank, not to and from each other directly. This is already effectively the case in the overnight market.
Thursday 25 September 2008
Soros on Paulson and TARP
Hank Paulson’s $700bn rescue package has run into difficulty on Capitol Hill. Rightly so: it was ill-conceived. Congress would be abdicating its responsibility if it gave the Treasury secretary a blank cheque. The bill submitted to Congress even had language in it that would exempt the secretary’s decisions from review by any court or administrative agency – the ultimate fulfillment of the Bush administration’s dream of a unitary executive.
Mr Paulson’s record does not inspire the confidence necessary to give him discretion over $700bn. His actions last week brought on the crisis that makes rescue necessary. On Monday he allowed Lehman Brothers to fail and refused to make government funds available to save AIG. By Tuesday he had to reverse himself and provide an $85bn loan to AIG on punitive terms. The demise of Lehman disrupted the commercial paper market. A large money market fund “broke the buck” and investment banks that relied on the commercial paper market had difficulty financing their operations. By Thursday a run on money market funds was in full swing and we came as close to a meltdown as at any time since the 1930s. Mr Paulson reversed again and proposed a systemic rescue.
Mr Paulson had got a blank cheque from Congress once before. That was to deal with Fannie Mae and Freddie Mac. His solution landed the housing market in the worst of all worlds: their managements knew that if the blank cheques were filled out they would lose their jobs, so they retrenched and made mortgages more expensive and less available. Within a few weeks the market forced Mr Paulson’s hand and he had to take them over.
Mr Paulson’s proposal to purchase distressed mortgage-related securities poses a classic problem of asymmetric information. The securities are hard to value but the sellers know more about them than the buyer: in any auction process the Treasury would end up with the dregs. The proposal is also rife with latent conflict of interest issues. Unless the Treasury overpays for the securities, the scheme would not bring relief. But if the scheme is used to bail out insolvent banks, what will the taxpayers get in return?
Barack Obama has outlined four conditions that ought to be imposed: an upside for the taxpayers as well as a downside; a bipartisan board to oversee the process; help for the homeowners as well as the holders of the mortgages; and some limits on the compensation of those who benefit from taxpayers’ money. These are the right principles. They could be applied more effectively by capitalising the institutions that are burdened by distressed securities directly rather than by relieving them of the distressed securities.
The injection of government funds would be much less problematic if it were applied to the equity rather than the balance sheet. $700bn in preferred stock with warrants may be sufficient to make up the hole created by the bursting of the housing bubble. By contrast, the addition of $700bn on the demand side of an $11,000bn market may not be sufficient to arrest the decline of housing prices.
Something also needs to be done on the supply side. To prevent housing prices from overshooting on the downside, the number of foreclosures has to be kept to a minimum. The terms of mortgages need to be adjusted to the homeowners’ ability to pay.
The rescue package leaves this task undone. Making the necessary modifications is a delicate task rendered more difficult by the fact that many mortgages have been sliced up and repackaged in the form of collateralised debt obligations. The holders of the various slices have conflicting interests. It would take too long to work out the conflicts to include a mortgage modification scheme in the rescue package. The package can, however, prepare the ground by modifying bankruptcy law as it relates to principal residences.
Now that the crisis has been unleashed a large-scale rescue package is probably indispensable to bring it under control. Rebuilding the depleted balance sheets of the banking system is the right way to go. Not every bank deserves to be saved, but the experts at the Federal Reserve, with proper supervision, can be counted on to make the right judgments. Managements that are reluctant to accept the consequences of past mistakes could be penalised by depriving them of the Fed’s credit facilities. Making government funds available should also encourage the private sector to participate in recapitalising the banking sector and bringing the financial crisis to a close.
Mr Paulson’s record does not inspire the confidence necessary to give him discretion over $700bn. His actions last week brought on the crisis that makes rescue necessary. On Monday he allowed Lehman Brothers to fail and refused to make government funds available to save AIG. By Tuesday he had to reverse himself and provide an $85bn loan to AIG on punitive terms. The demise of Lehman disrupted the commercial paper market. A large money market fund “broke the buck” and investment banks that relied on the commercial paper market had difficulty financing their operations. By Thursday a run on money market funds was in full swing and we came as close to a meltdown as at any time since the 1930s. Mr Paulson reversed again and proposed a systemic rescue.
Mr Paulson had got a blank cheque from Congress once before. That was to deal with Fannie Mae and Freddie Mac. His solution landed the housing market in the worst of all worlds: their managements knew that if the blank cheques were filled out they would lose their jobs, so they retrenched and made mortgages more expensive and less available. Within a few weeks the market forced Mr Paulson’s hand and he had to take them over.
Mr Paulson’s proposal to purchase distressed mortgage-related securities poses a classic problem of asymmetric information. The securities are hard to value but the sellers know more about them than the buyer: in any auction process the Treasury would end up with the dregs. The proposal is also rife with latent conflict of interest issues. Unless the Treasury overpays for the securities, the scheme would not bring relief. But if the scheme is used to bail out insolvent banks, what will the taxpayers get in return?
Barack Obama has outlined four conditions that ought to be imposed: an upside for the taxpayers as well as a downside; a bipartisan board to oversee the process; help for the homeowners as well as the holders of the mortgages; and some limits on the compensation of those who benefit from taxpayers’ money. These are the right principles. They could be applied more effectively by capitalising the institutions that are burdened by distressed securities directly rather than by relieving them of the distressed securities.
The injection of government funds would be much less problematic if it were applied to the equity rather than the balance sheet. $700bn in preferred stock with warrants may be sufficient to make up the hole created by the bursting of the housing bubble. By contrast, the addition of $700bn on the demand side of an $11,000bn market may not be sufficient to arrest the decline of housing prices.
Something also needs to be done on the supply side. To prevent housing prices from overshooting on the downside, the number of foreclosures has to be kept to a minimum. The terms of mortgages need to be adjusted to the homeowners’ ability to pay.
The rescue package leaves this task undone. Making the necessary modifications is a delicate task rendered more difficult by the fact that many mortgages have been sliced up and repackaged in the form of collateralised debt obligations. The holders of the various slices have conflicting interests. It would take too long to work out the conflicts to include a mortgage modification scheme in the rescue package. The package can, however, prepare the ground by modifying bankruptcy law as it relates to principal residences.
Now that the crisis has been unleashed a large-scale rescue package is probably indispensable to bring it under control. Rebuilding the depleted balance sheets of the banking system is the right way to go. Not every bank deserves to be saved, but the experts at the Federal Reserve, with proper supervision, can be counted on to make the right judgments. Managements that are reluctant to accept the consequences of past mistakes could be penalised by depriving them of the Fed’s credit facilities. Making government funds available should also encourage the private sector to participate in recapitalising the banking sector and bringing the financial crisis to a close.
Bungled and Badly
Bradford and Bingley has the classic balance sheet of a bank in big trouble. On the left side there is not much right. On the right side there is not much left
Buffett bails out Goldman
Mr Buffett’s downside is protected. His $5bn of perpetual preferred stock is essentially permanent capital, but with a cushion of Goldman’s $50bn of shareholders’ equity beneath it. It carries as sweet 10% yield. It is basically a very big insurance premium against another vicious leg-down in capital markets. Throw in Mr Buffett’s warrants to buy $5bn in Goldman’s common stock at a price that is already well in the money, and he looks to have played a blinder.
Wednesday 24 September 2008
Daniel Gross and Stefano Micossi on how Europe can't afford TARP
The crucial problem on this side of the Atlantic is that the largest European banks have become not only too big to fail, but also too big to be saved. For example, the total liabilities of Deutsche Bank (leverage ratio over 50!) amount to about €2,000bn (more than Fannie Mae) or more than 80 per cent of the gross domestic product of Germany. This is simply too much for the Bundesbank or even the German state, given that the German budget is bound by the rules of the European Union’s stability pact and the German government cannot order (unlike the US Treasury) its central bank to issue more currency. Similarly, the total liabilities of Barclays of around £1,300bn (leverage ratio 60!) are roughly equivalent to the GDP of the UK. Fortis bank has a leverage ratio of “only” 33, but its liabilities are three times the GDP of its home country of Belgium.
Gavekal research ask WHY DO HEDGE FUNDS EXIST?
Why do hedge funds make money?...After all, virtually every industry, every business, everything that makes money, does so because it makes our lives better. The provision of investment capital is a vital function in society. Is that the function hedge funds provide? Not really. That is the function of long-only investors. Hedge funds and investment banks on the other hand, are both long and short - and long and short and long and short and long and short ad infinitum. And that's just the stocks. They can also be long and short the options, futures, and corporate bonds, credit default swaps, convertible bonds, etc. And that's just the corporate cpaital structures! We still have interest rates, commodities and currencies to think about.
...They may not provide investment capital, but they still make capital markets work better. They maket them more liquid. As speculators, they take the other side of derivative contracts from hedgers who need to transfer risk to someone willing to take it for a price. In short, they make markets more efficient.
...By the late 1990s, the prop desks were feedign their top students into the hedge fund industry and we witnessed a wholesale migration on efficiency capital from investment banks to hedge funds.
...In recent years, hedge funds started to compete with investment banks as the primary source of the world's efficiency cpaital. Investment banks fought back by inceasing salaries and increasing leverage. In short, as hedge funds started to steal away the business of banks, the banks, rather than learn to live with lower returns, elected to take on more risk in a bid to continue making just as much money. Worse yet, in their battle against hedge funds, banks were forced to fight with a hand tied behind their by the very governments now spending billions to rescue them.
Since 1998 and the LTCM hedge fund crisis, every year, domm-monger have been predicting that the hedge fund industry, the least regulated entity in our financial markets, would see massive bankruptcies and engender large scale destruction of capital. Meanwhile, at the first hint of a liquidity squeeze, it is the banks (again, the most regulated entities), that are going bankrupt in alarming numbers. Is this a coincidence? We do not believe that is. Meanwhile, and very alarmingly, policymakers are getting ready to prescribe yet more regulation to solve a crisis which finds its source in...excessive regulation.
....From 2000 to 2003 we had a huge bear market in equities, created by the previous Ponzi scheme called indexation. As a result of the indexation craze, pension funds, banks and insurance companies around th world found themselves undercapitalised. The regulators, always keen to close the barn door once the horses have fled, decided to prevent the undercapitalised institutions from buying any more equities. This left them with a pressing question: how to replace equities, the high return part of their portfolios? Since, according to the new regulations, they could ony buy bonds, they were forced, if they wanted to boost returns, to buy very low quality bonds, offering very high immediate returns.
...Now the beauty of capitalism is that a demand usually does not have to wait too long until a supply emerges....We have also learnt that there is no such things as a simulation which does not look good. And sure enough, the mathematical geniuses in charge of building new produces started to "design" portfolios of mortgages, mixing them in a way that, in the past, would have guaranteed the high returns needed, and the repayment of the principal at the end.
...The fact that the historical sample on which they built their computations had nothing to do with the current issus was of course never discussed. The ratings agencies, impressed by the soundness of the computation, and even more by the huge fees that they were getting for rating these (toxic) products, started to deliver investment grade ratings to products that had never met a free market...We had, at last, a junk bond with an AAA rating....
...It is thus fair to say that everything started with regulatory or political intervention, forcing a change in the asset or liability side of the balance sheets of financial institutions, without changing the other side. Preventing insurance companies, pension funds or banks from buying equities at the bottom of a bear market was a mistake of massive proportions. This decision reduced the future returns without reducing the future costs (since they are a function of contracts signed long before the intervention).
...Every crisis needs a scapegoat. Rather than take ownership of the monster that they have created, or simply explaining the temporary measures needed to be taken to reduce volatility and allow for an orderly clearing of markets, policymakers seem a little too eager to point the finger at "evil hedge funds".
...Instead of trying to figur out which hedge fund made the most moeny out of this crisis, and then attacking that manager for doing his job well, the public would be better served if journalists started to ask policymakers why the books of Lehmans et al were loaded with paper bought just a year or two ago and now worth cents in the dollar? And why was almost all of that toxic paper on the banks' balance sheets and not the hedge funds? Is it because people who work at hedge funds are so much smarter than people who work at investment banks? Or is it because hedge funds are free to look for returns in placess that make sense while banks and insurance companies, because of regulations, were made to chase yields in places where they did not really exist?
...They may not provide investment capital, but they still make capital markets work better. They maket them more liquid. As speculators, they take the other side of derivative contracts from hedgers who need to transfer risk to someone willing to take it for a price. In short, they make markets more efficient.
...By the late 1990s, the prop desks were feedign their top students into the hedge fund industry and we witnessed a wholesale migration on efficiency capital from investment banks to hedge funds.
...In recent years, hedge funds started to compete with investment banks as the primary source of the world's efficiency cpaital. Investment banks fought back by inceasing salaries and increasing leverage. In short, as hedge funds started to steal away the business of banks, the banks, rather than learn to live with lower returns, elected to take on more risk in a bid to continue making just as much money. Worse yet, in their battle against hedge funds, banks were forced to fight with a hand tied behind their by the very governments now spending billions to rescue them.
Since 1998 and the LTCM hedge fund crisis, every year, domm-monger have been predicting that the hedge fund industry, the least regulated entity in our financial markets, would see massive bankruptcies and engender large scale destruction of capital. Meanwhile, at the first hint of a liquidity squeeze, it is the banks (again, the most regulated entities), that are going bankrupt in alarming numbers. Is this a coincidence? We do not believe that is. Meanwhile, and very alarmingly, policymakers are getting ready to prescribe yet more regulation to solve a crisis which finds its source in...excessive regulation.
....From 2000 to 2003 we had a huge bear market in equities, created by the previous Ponzi scheme called indexation. As a result of the indexation craze, pension funds, banks and insurance companies around th world found themselves undercapitalised. The regulators, always keen to close the barn door once the horses have fled, decided to prevent the undercapitalised institutions from buying any more equities. This left them with a pressing question: how to replace equities, the high return part of their portfolios? Since, according to the new regulations, they could ony buy bonds, they were forced, if they wanted to boost returns, to buy very low quality bonds, offering very high immediate returns.
...Now the beauty of capitalism is that a demand usually does not have to wait too long until a supply emerges....We have also learnt that there is no such things as a simulation which does not look good. And sure enough, the mathematical geniuses in charge of building new produces started to "design" portfolios of mortgages, mixing them in a way that, in the past, would have guaranteed the high returns needed, and the repayment of the principal at the end.
...The fact that the historical sample on which they built their computations had nothing to do with the current issus was of course never discussed. The ratings agencies, impressed by the soundness of the computation, and even more by the huge fees that they were getting for rating these (toxic) products, started to deliver investment grade ratings to products that had never met a free market...We had, at last, a junk bond with an AAA rating....
...It is thus fair to say that everything started with regulatory or political intervention, forcing a change in the asset or liability side of the balance sheets of financial institutions, without changing the other side. Preventing insurance companies, pension funds or banks from buying equities at the bottom of a bear market was a mistake of massive proportions. This decision reduced the future returns without reducing the future costs (since they are a function of contracts signed long before the intervention).
...Every crisis needs a scapegoat. Rather than take ownership of the monster that they have created, or simply explaining the temporary measures needed to be taken to reduce volatility and allow for an orderly clearing of markets, policymakers seem a little too eager to point the finger at "evil hedge funds".
...Instead of trying to figur out which hedge fund made the most moeny out of this crisis, and then attacking that manager for doing his job well, the public would be better served if journalists started to ask policymakers why the books of Lehmans et al were loaded with paper bought just a year or two ago and now worth cents in the dollar? And why was almost all of that toxic paper on the banks' balance sheets and not the hedge funds? Is it because people who work at hedge funds are so much smarter than people who work at investment banks? Or is it because hedge funds are free to look for returns in placess that make sense while banks and insurance companies, because of regulations, were made to chase yields in places where they did not really exist?
Tuesday 12 August 2008
E M Forster - daring to be a liberal humanist....
From Zadie Smith's review of The BBC Talks of E.M. Forster, 1929–1960, published in the New York Review of Books.
.....He was free of many vices commonly found in novelists of his generation—what's unusual about Forster is what he didn't do. He didn't lean rightward with the years, or allow nostalgia to morph into misanthropy; he never knelt for the Pope or the Queen, nor did he flirt (ideologically speaking) with Hitler, Stalin, or Mao; he never believed the novel was dead or the hills alive, continued to read contemporary fiction after the age of fifty, harbored no special hatred for the generation below or above him, did not come to feel that England had gone to hell in a hand-basket, that its language was doomed, that lunatics were running the asylum, or foreigners swamping the cities.
Still, like all notable English novelists, he was a tricky bugger. He made a faith of personal sincerity and a career of disingenuousness. He was an Edwardian among Modernists, and yet—in matters of pacifism, class, education, and race—a progressive among conservatives. Suburban and parochial, his vistas stretched far into the East. A passionate defender of "Love, the beloved republic," he nevertheless persisted in keeping his own loves secret, long after the laws that had prohibited honesty were gone. Between the bold and the tame, the brave and the cowardly, the engaged and the complacent, Forster walked the middling line.
.....He was free of many vices commonly found in novelists of his generation—what's unusual about Forster is what he didn't do. He didn't lean rightward with the years, or allow nostalgia to morph into misanthropy; he never knelt for the Pope or the Queen, nor did he flirt (ideologically speaking) with Hitler, Stalin, or Mao; he never believed the novel was dead or the hills alive, continued to read contemporary fiction after the age of fifty, harbored no special hatred for the generation below or above him, did not come to feel that England had gone to hell in a hand-basket, that its language was doomed, that lunatics were running the asylum, or foreigners swamping the cities.
Still, like all notable English novelists, he was a tricky bugger. He made a faith of personal sincerity and a career of disingenuousness. He was an Edwardian among Modernists, and yet—in matters of pacifism, class, education, and race—a progressive among conservatives. Suburban and parochial, his vistas stretched far into the East. A passionate defender of "Love, the beloved republic," he nevertheless persisted in keeping his own loves secret, long after the laws that had prohibited honesty were gone. Between the bold and the tame, the brave and the cowardly, the engaged and the complacent, Forster walked the middling line.
Wednesday 2 April 2008
Niebuhr on Libeal Protestantism - the CoE in a nutshell
H Richard Niebuhr characterised liberal Protestantism as religion reduced to telling how "a God without wrath brought men without sin into a kingdom without judgement through the ministrations of a Christ without a Cross."
Martin Wolf thinks hedge funds are a scam
Incentive structures encourage unscrupulous hedge fund managers to invest in strategies with a high probability of modest gains and a low probability of huge losses in any period. Eventually the low probability disastrous event will occur but by then the manager has grown fat on his 2:20 fees and no system of clawback exists for the repayment of losses. Hedge funds essentially are a scam.
The US military as the welfare state
The military does not consist of society's dregs. Rather, it consists mainly of young men and women who, raised in working and lower middle class families yearn to make it into the middle class. Unable to achieve this in the hyper competitive and expensive market economy they have instead sought to achieve it in the Army. With its guarantees of employment housing health insurance and medical assistance the US military today seems the last output of the welfare state in America.
W B Yeats as I apply him to evangelical fundamentalists in the US
"The best lack all conviction, while the worst/Are full of passionate intensity."
Friday 14 March 2008
The Fed bails out The Bear
The financial market disruption has reached a new level of mayhem. Margin calls abound and Bear Stearns is being bailed out by the Fed via J P Morgan. Like Willem Buiter, I puzzle over the wisdom of the Fed's action. Inflationary expectations are rising and gold, the ultimate inflation hedge, is touching $1000 per troy ounce. It seems to me that inflation targeting is dead. Central banks have tacitly decided to inflate their way out of a prolonged recession. Consumers and companies have caught on. Problem is, we're not fundamentally in a liquidity crisis but a market for lemons. The problems are lack of transparency, information and the inability to assess default risk. Pumping in liquidity doesn't solve these problems. Indeed, it may exacerbate them by propping up unsound institutions that would otherwise go bust - finally providing the market with some information. Seems to me we are headed toward a classiic liquidity trap.
At any rate, back to Bear Stearns and Willem Buiter's list of questions:
"Why hasn’t the Fed declared “unusual and exigent circumstances” yet, so non-deposit-taking financial and other institutions in need of liquidity (like Bear Stearns) and blessed with eligible collateral can go directly to the discount window?
Why was Bear Stearns offered the Fed lifeline rather than being left to sink or swim on its own? What were the systemic stability concerns that prompted this intervention to assist a non-deposit-taking institution?
If Bear Stearns was deemed too systemically important to fail, why was it not taken into public ownership, preferably at a zero price?
What are the securities the Fed is, directly or indirectly, accepting as collateral from Bear Stearns?
What is the interest rate charged on the loan?
How are these securities valued?
What is the haircut applied to this valuation"
At any rate, back to Bear Stearns and Willem Buiter's list of questions:
"Why hasn’t the Fed declared “unusual and exigent circumstances” yet, so non-deposit-taking financial and other institutions in need of liquidity (like Bear Stearns) and blessed with eligible collateral can go directly to the discount window?
Why was Bear Stearns offered the Fed lifeline rather than being left to sink or swim on its own? What were the systemic stability concerns that prompted this intervention to assist a non-deposit-taking institution?
If Bear Stearns was deemed too systemically important to fail, why was it not taken into public ownership, preferably at a zero price?
What are the securities the Fed is, directly or indirectly, accepting as collateral from Bear Stearns?
What is the interest rate charged on the loan?
How are these securities valued?
What is the haircut applied to this valuation"
Monday 10 March 2008
Willem Buiter on the rising NAIRU in the US
Some extracts from consistently the most provocative and sentient economics blog. For those of you interested in the way we live now, I strongly recommend you sign up for RSS feeds from Willem Buiter's blog.
"The Fed...is not the party designed to orchestrate an insolvency-preventing bail out. That’s what the Sovereign Wealth Funds are for. If there is no private solution, a fiscal bailout financed, directly or indirectly, by the US Treasury, perhaps through the FDIC, is required if and only if systemic risks are deemed to be present. Personally, I don’t believe that, with effective deposit insurance in place, any US bank is too large to fail. But fortunately that is a judgment I will not be asked to act upon.
"The Fed should do no more than act as MMLR, however. US interest rates are already too low to maintain the credibility of the price stability objective of the Fed, and of its medium term implicit inflation target. The Fed should certainly not cut the target for the Federal Funds rate simply to prevent or delay the insolvency of US banks or other financial institutions, unless this action is also warranted by the need to meet its triple mandate: maximum employment, stable prices and moderate long-term interest rates.
"A falling actual unemployment rate and a rising natural unemployment rate call for higher rates
"The latest labour market figures show a large fall in employment and an even larger fall in labour supply, resulting in an actual decline in the unemployment rate to 4.8%. There is also evidence to support the view that the natural (equilibrium) rate of unemployment in the US is increasing. The combination of a declining actual unemployment rate and a rising natural unemployment rate means that there are now higher domestic inflationary pressures associated with any observed level of employment and unemployment than before.
"It makes economic sense that the US natural rate of unemployment is increasing, if only because of compositional changes in the labour force that are reducing, on average, its quality and employability. The post-9/11 imposition of additional obstacles to the immigration of skilled labour are one factor reducing labour force flexibility. So is the long-standing decline in the numeracy and literacy standards of the high-school graduates.
"The US needs to restore external balance through an increase of (at least) six percentage point of GDP in the saving - investment balance. This should be achieved through an increase in the national saving rate rather than a reduction in domestic capital formation. The slowdown/recession the country is experiencing now is the (almost) inevitable by-product of this necessary rebalancing. It is in principle possible to have the ex-ante trade surplus rise instantaneously and by the same amount as the increase in ex-ante saving over ex-ante investment. In practice, the world is stubbornly Keynesian in the short run, and a decline in economic activity will tend to accompany an increase the the planned national saving rate. This is why the Fed, the White House and the Congress are so misguided about wanting to prevent a significant weakening of consumption at all cost.
"The other side of the required rebalancing of the US external account is a large shift of resources from the non-traded sectors (e.g residential construction) into the traded sectors. At least a six percentage points of GDP increase in the production of exportable and import-competing goods and services and reduction in the production of non-traded goods and services is required, matching the increase in the saving-investment balance."
"The Fed...is not the party designed to orchestrate an insolvency-preventing bail out. That’s what the Sovereign Wealth Funds are for. If there is no private solution, a fiscal bailout financed, directly or indirectly, by the US Treasury, perhaps through the FDIC, is required if and only if systemic risks are deemed to be present. Personally, I don’t believe that, with effective deposit insurance in place, any US bank is too large to fail. But fortunately that is a judgment I will not be asked to act upon.
"The Fed should do no more than act as MMLR, however. US interest rates are already too low to maintain the credibility of the price stability objective of the Fed, and of its medium term implicit inflation target. The Fed should certainly not cut the target for the Federal Funds rate simply to prevent or delay the insolvency of US banks or other financial institutions, unless this action is also warranted by the need to meet its triple mandate: maximum employment, stable prices and moderate long-term interest rates.
"A falling actual unemployment rate and a rising natural unemployment rate call for higher rates
"The latest labour market figures show a large fall in employment and an even larger fall in labour supply, resulting in an actual decline in the unemployment rate to 4.8%. There is also evidence to support the view that the natural (equilibrium) rate of unemployment in the US is increasing. The combination of a declining actual unemployment rate and a rising natural unemployment rate means that there are now higher domestic inflationary pressures associated with any observed level of employment and unemployment than before.
"It makes economic sense that the US natural rate of unemployment is increasing, if only because of compositional changes in the labour force that are reducing, on average, its quality and employability. The post-9/11 imposition of additional obstacles to the immigration of skilled labour are one factor reducing labour force flexibility. So is the long-standing decline in the numeracy and literacy standards of the high-school graduates.
"The US needs to restore external balance through an increase of (at least) six percentage point of GDP in the saving - investment balance. This should be achieved through an increase in the national saving rate rather than a reduction in domestic capital formation. The slowdown/recession the country is experiencing now is the (almost) inevitable by-product of this necessary rebalancing. It is in principle possible to have the ex-ante trade surplus rise instantaneously and by the same amount as the increase in ex-ante saving over ex-ante investment. In practice, the world is stubbornly Keynesian in the short run, and a decline in economic activity will tend to accompany an increase the the planned national saving rate. This is why the Fed, the White House and the Congress are so misguided about wanting to prevent a significant weakening of consumption at all cost.
"The other side of the required rebalancing of the US external account is a large shift of resources from the non-traded sectors (e.g residential construction) into the traded sectors. At least a six percentage points of GDP increase in the production of exportable and import-competing goods and services and reduction in the production of non-traded goods and services is required, matching the increase in the saving-investment balance."
Tuesday 4 March 2008
Provocative statements from Michael Burleigh's Blood and Rage
The readiness of the British government to treat with individuals (Sinn Fein) it had recently dismissed as murderers was noteworthy, with the lengthy talks themselves generating all manner of human sympathies among the negotiating parties. Just in case they failed, Lloyd George threatened to wage all-out war with the entire resources of the British Empire within three days....Ironically, the provisional government resorted to measures indistinguishable from the British to win what had become a civil war - although unlike the British it had the support of the Catholic Church, which eagerly excommunicated the IRA.
It was Alexander's tragedy that, having failed to institute thoroughgoing liberal reforms, he proved incapable of re-establishing his father's austere police regime too....The intelligentsia were a sub-set of the educated classes, encompassing those who talked about books they hadn't read....They were kept afloat like some speculative fraud, on a bubble of liberal good taste, for among an older generation corrupted by liberalism it was not done to challenge youth or its progressive causes until the example of renegade Dostoyevsky gave birth to a right-wing intelligentsia late in the day....Middle-aged and elderly dupes saw in Nechaev the wayward idealism of youth rather than a psychopathic conman.....Many people with liberal views irresponsibly sympathised with the terrorists up to the point of aiding and abetting them....
The British Labour Party and the German Social Democrats acting as ignorant cheerleaders....Indeed, fear of foreign liberal opinion inhibited a tsarist regime sensitive to the charge of being Asiatic from adopting effective measures to repress terrorism.
This was the first in a spate of assassinations that made the years 1894-1901 more lethal for rulers than at any other time in history.....The multfarious acts of anarchist violence achieved nothing beyond the individual tragedies of the people killed and maimed. [US] immigrants who "converted" to anarchism in their first three years in the country could be deported, an interesting example of conditional citizenship....the British persisted in maintaining liberal asylum law that anarchists were manifestly abusing.
Mrs Thatcher on the Fenian hunger strikers: "There is no such thing as political murder, political bombing or political violence. There is only criminal murder, criminal bombing and criminal violence. We shall not compromise on this. There will be no political status." The fact that special category status had been conceded in 1972 rather militated against that degree of certainty, as did the wording of The Prevention of Terrorism Act itself, under which these men had been imprisoned, since it spoke of "the use of violence for political ends".
Books on German left-wing terrorism never include chapters on the working class, a revealing omission that distinguishes Germany from Italy. There was no significant radicalism in working-class Germany unless you count young neo-Nazis., chiefly because workers were generally represented, as of right, on the managing boards of most companies.... But, as in Italy, the West German higher education system had been massified...."The Vietnam War is not what interests me, but difficulties with my orgasm do," as one Communard put it.
The group's preference was for powerful BMWs, so much so hat colloquially they were known as Baader Meinhof Wagen.
Insofar as the RAF prisoners had a strategy, it was to dramatise their predicament, making it seem as if the German state had finally let slip its mask to receal a Fascist inner heart...The detainees claimed they were being held in conditions resembling Auschwitz...The remand prisoners were permitted radios and record players...They received any reading matter they wished, which enable Baader to study theories he had spouted as slogans for years. In this fashion they built up extensive libraries (Baader some 974 books, Raspe a further 550)....Left-liberal defence lawyers, whose cynical occuupation of the high ground spared them from close press scrutiny, played a major role in facilitating communication between their imprisoned clients and the next generation of RAF terrorists.
There is something narcissistic about this assumption that the West is obsessed with Islam and seeks to destroy it. It is not. It is obsessed with itself, followed by China, India, and Russia, which jostle for Westerners' short attention span. It is drawn, wearily, into so many Middle Eastern crises because this region, with a manufacturing capacity only equal to that of...Nokia...is the primary source of instability in the modern world and sits on top of two thirds of the world's known oil reserves. If huge oil deposits were discovered beneath Canada, the West would disengage from the Middle East tomorrow, leaving it to implode amid its multiple conflicts.
Multiculturism means that each diverse group adopted a story of victimhood so as to put itself beyond close scrutiny, enveloping itself in the myth of moral purity that comes with being the historically oppressed. These diverse communities spoke to the government through their so-called community leaders, a liberal version of an imperial power dealking through nabobs and tribes with the natives....
Multiculturalism is likewise negligent of the shared moral values that make civilised living possible.
By sharing a common password, it was possible to access messages left in the Draft box, which technically, therefore, were read but never sent, thereby preventing the NSA from intercepting them.
Within weeks of 9/11 Bush became the first US President to ackowledge the desirability of the two state solution in Israel-Palestine, in an attempt to cauterise the issue that so antagonises the Muslim world. He then spent six years doing nothing about it.
It was Alexander's tragedy that, having failed to institute thoroughgoing liberal reforms, he proved incapable of re-establishing his father's austere police regime too....The intelligentsia were a sub-set of the educated classes, encompassing those who talked about books they hadn't read....They were kept afloat like some speculative fraud, on a bubble of liberal good taste, for among an older generation corrupted by liberalism it was not done to challenge youth or its progressive causes until the example of renegade Dostoyevsky gave birth to a right-wing intelligentsia late in the day....Middle-aged and elderly dupes saw in Nechaev the wayward idealism of youth rather than a psychopathic conman.....Many people with liberal views irresponsibly sympathised with the terrorists up to the point of aiding and abetting them....
The British Labour Party and the German Social Democrats acting as ignorant cheerleaders....Indeed, fear of foreign liberal opinion inhibited a tsarist regime sensitive to the charge of being Asiatic from adopting effective measures to repress terrorism.
This was the first in a spate of assassinations that made the years 1894-1901 more lethal for rulers than at any other time in history.....The multfarious acts of anarchist violence achieved nothing beyond the individual tragedies of the people killed and maimed. [US] immigrants who "converted" to anarchism in their first three years in the country could be deported, an interesting example of conditional citizenship....the British persisted in maintaining liberal asylum law that anarchists were manifestly abusing.
Mrs Thatcher on the Fenian hunger strikers: "There is no such thing as political murder, political bombing or political violence. There is only criminal murder, criminal bombing and criminal violence. We shall not compromise on this. There will be no political status." The fact that special category status had been conceded in 1972 rather militated against that degree of certainty, as did the wording of The Prevention of Terrorism Act itself, under which these men had been imprisoned, since it spoke of "the use of violence for political ends".
Books on German left-wing terrorism never include chapters on the working class, a revealing omission that distinguishes Germany from Italy. There was no significant radicalism in working-class Germany unless you count young neo-Nazis., chiefly because workers were generally represented, as of right, on the managing boards of most companies.... But, as in Italy, the West German higher education system had been massified...."The Vietnam War is not what interests me, but difficulties with my orgasm do," as one Communard put it.
The group's preference was for powerful BMWs, so much so hat colloquially they were known as Baader Meinhof Wagen.
Insofar as the RAF prisoners had a strategy, it was to dramatise their predicament, making it seem as if the German state had finally let slip its mask to receal a Fascist inner heart...The detainees claimed they were being held in conditions resembling Auschwitz...The remand prisoners were permitted radios and record players...They received any reading matter they wished, which enable Baader to study theories he had spouted as slogans for years. In this fashion they built up extensive libraries (Baader some 974 books, Raspe a further 550)....Left-liberal defence lawyers, whose cynical occuupation of the high ground spared them from close press scrutiny, played a major role in facilitating communication between their imprisoned clients and the next generation of RAF terrorists.
There is something narcissistic about this assumption that the West is obsessed with Islam and seeks to destroy it. It is not. It is obsessed with itself, followed by China, India, and Russia, which jostle for Westerners' short attention span. It is drawn, wearily, into so many Middle Eastern crises because this region, with a manufacturing capacity only equal to that of...Nokia...is the primary source of instability in the modern world and sits on top of two thirds of the world's known oil reserves. If huge oil deposits were discovered beneath Canada, the West would disengage from the Middle East tomorrow, leaving it to implode amid its multiple conflicts.
Multiculturism means that each diverse group adopted a story of victimhood so as to put itself beyond close scrutiny, enveloping itself in the myth of moral purity that comes with being the historically oppressed. These diverse communities spoke to the government through their so-called community leaders, a liberal version of an imperial power dealking through nabobs and tribes with the natives....
Multiculturalism is likewise negligent of the shared moral values that make civilised living possible.
By sharing a common password, it was possible to access messages left in the Draft box, which technically, therefore, were read but never sent, thereby preventing the NSA from intercepting them.
Within weeks of 9/11 Bush became the first US President to ackowledge the desirability of the two state solution in Israel-Palestine, in an attempt to cauterise the issue that so antagonises the Muslim world. He then spent six years doing nothing about it.
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