[Archived] The End Of Global Capitalism?

[Tris]

That woman owes me nowt. End of story.

Glad you've finally admitted it ...

[philipl]

The Chinese have been investing all over the place - they're bound to be affected and the spiral will continue .

Japan went through an era of turmoil a few short years ago . They will no doubt be in a better position to get through all this as a result .

GB on the other hand have lived through an rea of spending borrowed money - from individuals at the bottom to ill regulated banks and the most irresponsible government of modern times at the top .

The issue in China and to an extent in India is that these are still essentially command economies.

So whereas in the west the banks created fancy derivatives using pure mathematics that probably nobody (not even Paulson) sat round the table at the White House could understand to drive bank profits and bonuses by using ever more improbable multiples of their underlying real capital, in India and China, banks have ploughed huge amounts into industrial and some infrastructual projects which are and ever will be complete and utter dead losses. All those investments are in those banks' accounts at book value as there has been no concerted asttempt at writing them down- they are simply too huge to face.

[philipl]

An American-Lebanese thinker on the current crisis.

If you want to see how the current banking crisis could translate into a full-on crash in the UK. read this. Upwards of a million jobs will be in businesses now owned by private equity firms.

[thenodrog]

Glad you've finally admitted it ...

Victor's really struggling with the sudden realisation that he was seduced by St Margaret all those years ago!

There's a lot like him about since the Thatcher years too Tris.... Champagne socialists I think being the correct term of reference.

[AussieinUk]

So whereas in the west the banks created fancy derivatives using pure mathematics that probably nobody (not even Paulson) sat round the table at the White House could understand to drive bank profits and bonuses by using ever more improbable multiples of their underlying real capital

Philip, I work in Equity Derivs - these derivatives are not pure maths at all.. In fact most of the quant formulas are not that complex. The problem/issue revolves on the basis of 'expected' future cashflows and the need for high leverage (so I do agree with the second half of your statement, I have highlighted).

For me, extended leverage is very dangerous and always has been. Have a read of an author called satyajit das.

[DP]

In this age of globalisation I guess foreign ownership is a good thing. But I firmly believe something as important as utlitities should be in the hands of British companies just on the off chance there's some sort of global conflict. EDF is basically owned by the French government though which is the worrying bit about the deal for me.

But then again I agree with anything that reduces our dependency on Russia.

Well I own EDF shares and I'm about as French as the Duke of Wellington.... but it is true they are still around 80% owned by the French Government.

Aside from the right and wrongs of that, who do you think currently operate the power plants EDF owns in the UK? Jean Piere and Didier from the Dordogne? No, of course not, it's local guys (and gals) from Nottinghamshire and Lincolnshire where those Power stations are. And that's exactly what the exisitng and proposed nucear plants will be run like. The beuraucrats in Paris (who take several weeks to make a decisioin) have no say in how the plants are run now and won't have in 20 years time.

[AussieinUk]

I've no seen or heard stories (yet) of any of the Asian banks being in trouble.

Should have posted this earlier, as I only just got todays edition, delivered this morning - You not read the Economist Jim? Probably not..

Early days, but a consumer 'run' can cause all types of problems, with bank confidence...

Online article available

"In response to the run, the Hong Kong authorities voiced their support for the bank, and a tycoon bought shares. They rose on September 25th as normality returned. But banks everywhere should pay attention. As storms batter global finance, depositors’ fingers are on the panic button. And that button may now be on their mobile phones."

[jim mk2]

I work in Equity Derivs -.

ie, one of the "spivs" to blame for bringing down financial institutions and helping to exacerbate the current crisis.

The spivs are partly to blame for the crisis ; principal responsibility however lies with irresponsible and greedy bank managements and governments unwilling to regulate markets .

Looking ahead, the turmoil will have done some good if

1. Financial markets have a global regulator to identify strains and excesses in the system and has the power to act .

2. Bank managements are held responsible for the actions of their employees and suffer the personal financial consequences in the event of a bank failure or heavy losses .

3. Deriviatves and other dubious trading methods by hedge funds and their ilk is strictly regulated.

4. So-called "sub-prime" lending is consigned to history by controlled mortgage lending ie, minimum downpayments, no 100 or even 90 per cent mortgages, no interest only mortgages, 2 x single income maximum.

5. House prices fall to affordable levels and people finally realise that homes are seen as places to live in and not an "investment". Excessive house price rises benefit no one.

[philipl]

As I previously mentioned, it was contracts written in London that caused the wipe-out of AIG

[grizfoot]

Bradford & Bingley has been nationalised....

It's just going to be a group of nationalised banks versus a group of banks that have been merged before long.

I don't really agree with the government rescuing banks that are in danger, we've had Northenr Rock and now Braford & Bingley how many more are they going to have to save?. Wasn't privatisation meant to improve the competition in the banking markets and therefore if these commerical banks are stupid enough to make mistakes then surely just like any other privately owned business they should be left to die and let the stronger competitors gain customers. I understand that with commerical banks it's a lot bit different because it's people life savings at state, ect. but still you wouldn't see the government stop any other type of company going into liquidation so I don't think it's really fair that these banks who have made mistakes should be given a reprieve.

[philipl]

It looks like Fortis is wobbling.

The issue with this one is that it is more than one country's problem and it is so big that the Luxembourg, Dutch and Belgian States are possibly too small to be able to rescue it. However, it looks like the ECB have brokered a three-way nationalisation of Fortis tonight.

Northern Rock and Bradford & Bingley are tiddlers compared with this one. Just as well the Belgians, Dutch and Luxembourgers no longer have their own currencies or they would have been swamped by devaluations given what this is going to do to their Government finances.

[grizfoot]

It looks like Fortis is wobbling.

The issue with this one is that it is more than one country's problem and it is so big that the Luxembourg, Dutch and Belgian States are possibly too small to be able to rescue it. However, it looks like the ECB have brokered a three-way nationalisation of Fortis tonight.

Northern Rock and Bradford & Bingley are tiddlers compared with this one. Just as well the Belgians, Dutch and Luxembourgers no longer have their own currencies or they would have been swamped by devaluations given what this is going to do to their Government finances.

Fortis in emergency talks

Won't this effect the strength of the Euro though?

[AussieinUk]

ie, one of the "spivs" to blame for bringing down financial institutions and helping to exacerbate the current crisis. The spivs are partly to blame for the crisis ; principal responsibility however lies with irresponsible and greedy bank managements and governments unwilling to regulate markets .

Looking ahead, the turmoil will have done some good if

1. Financial markets have a global regulator to identify strains and excesses in the system and has the power to act . Agreed - ISDA and governamnet regulators, such as the FSA, SEC, ASIC etc etc, should have stronger powers

2. Bank managements are held responsible for the actions of their employees and suffer the personal financial consequences in the event of a bank failure or heavy losses. Totally agree, but on the flip side of this arguement, would you still cry 'foul', when bankers earn huge bonuses? I would also argue that criminal actions should be taken in some instances. Within the banking model, tighter internal controls should also be applied to those of legal, compliance and credit risk dept's and not just trading

3. Deriviatves and other dubious trading methods by hedge funds and their ilk is strictly regulated. This was supposed to be ISDA'a domain of responsability, but they seemed to be more than happy to have allowed, ever more tradable instruments, under the derivs banner. The landscape actually changed dramatically in UK, when the FSA allowed managed funds (not talking about hedge or private equity groups) to trade in derivatives products, this was back in May 2005 (under regulation Coll 1.3). Under this change and at the time, the derivs market doubled and the risks became considerably higher

4. So-called "sub-prime" lending is consigned to history by controlled mortgage lending ie, minimum downpayments, no 100 or even 90 per cent mortgages, no interest only mortgages, 2 x single income maximum. Agreed. Although, this will a negative impact on the first home buyers out there, with it being that much more difficult to get on the housing ladder

5. House prices fall to affordable levels and people finally realise that homes are seen as places to live in and not an "investment". Excessive house price rises benefit no one. We will have to disagree on this point.

You raise some good points above, but most of what you have stated, is through hindsight and common sense

Btw - Would rather be a so called 'spiv' as you put it, than a 'churnilist hack' (and yes, I mean 'churnilist', as most people from your industry, just constantly re-hash articles from one rag to another, without any thought or understanding of the issue).

Note, a few pages back, I gave a detailed understanding of where the blame should lay for this current financial mess and this was attributable to all levels of society (borrowers, lenders, brokers, banks, ratings agencies and regulators)

It looks like Fortis is wobbling.

The issue with this one is that it is more than one country's problem and it is so big that the Luxembourg, Dutch and Belgian States are possibly too small to be able to rescue it. However, it looks like the ECB have brokered a three-way nationalisation of Fortis tonight.

Philip - Fortis decided it wanted to be a part of the ABN AMRO deal back in June 07. They bought into the consortium, and through this, wanted the acquisition of the localised Dutch clients and operations from ABN's former businesses - They essentially, paid over the top, for tangible assets with very little value and as I said, this was all in cash!

RBS, Santander & Fortis paid EUR73 billion (in Cash) for a business that was 17 times above book level. This was further exacerbated, when the banks took a 'hit' on their market capitalisations, through the recent stock market drop. Their captial reserves, had been completely tapped out.

The former ABN shareholders were laughing all the way to the bank on this deal.

[thenodrog]

It's just going to be a group of nationalised banks versus a group of banks that have been merged before long.

I don't really agree with the government rescuing banks that are in danger, we've had Northenr Rock and now Braford & Bingley how many more are they going to have to save?. Wasn't privatisation meant to improve the competition in the banking markets and therefore if these commerical banks are stupid enough to make mistakes then surely just like any other privately owned business they should be left to die and let the stronger competitors gain customers. I understand that with commerical banks it's a lot bit different because it's people life savings at state, ect. but still you wouldn't see the government stop any other type of company going into liquidation so I don't think it's really fair that these banks who have made mistakes should be given a reprieve.

Absolutely. Where is the penalty for bad business practice necessary to deter others from being irresponsible?

[philipl]

The American rescue package described here on the BBC which includes a pdf of the legislation proposed in the USA.

The video clip shows an impressive Nancy Pelosi- the contrast with Palin is stark and vast.

She makes an extremely salient point that with the Government having effectively nationalised US mortgages, it is the Government that is now turfing folks out of their homes in foreclosures.

When you look at the billion dollar tabs for paying Wall Street payrolls then there is zero compassion when the broad mass of the electorate know that those same payrolls could be used to ease their burdens in a meaningful way.

Putting this into context, cancelling the 2008 bonuses (leaving basic pay in place) in the US finance industry and sharing them out with the rest of the American people could put about $200 in the pocket of every American household.

The numbers would be bigger in the UK.

There are commentators of the opinion that the gaoling of the Enron and Worldcom people will be small beer compared with what will be revealed when the FBI et al crawl over the banking scandal.

However, whilst most of the high paid bankers are little more than sophisticated clerks and gamblers in reality, there is enough need for keeping the folk who know the territory to sort out this mess that the search for guilty parties must be secondary to keeping a system in place that can work.

We've already seen how Rumsfeld lost the Iraqi victory by immediately disbanding the Police and Army. An equivalent in the banks is the last thing we want.

[dave birch]

But surely, not the end of global capitalism?

We Know that Communism doesn't work ( because there's always someone who wants that little bit more)

What we need, is someone that wants to create, make money but is a little more altruistic in their nature.

[broadsword]

Nothing wrong with having a middle way, ie a mixed economy.

Some things should remain within state control, utilities and so, the commanding heights of the economy.

And where there is private sector, there should be restraints to stop irresponsible behavior. These b******s have wrecked economies and banks by irresponsibly gambling money that isn't their's on risks that palpably wouldn't come off, and then the short-sellers have moved in and made a killing using shares that aren't even their's. And then the bloody tax-payer has to clear up the bodies afterwards, it's absolutely outrageous. Not to mention people who have lost tehir jobs.

I'd doubt it was the end of capitalism, but hopefully the end of unfettered global capitalism where short-term profit is all and accountability doesn't exist when the house of cards collapses.

[blue phil]

Won't this effect the strength of the Euro though?

Not against the pound I bet ....

[grizfoot]

Nothing wrong with having a middle way, ie a mixed economy.

Some things should remain within state control, utilities and so, the commanding heights of the economy.

And where there is private sector, there should be restraints to stop irresponsible behavior. These b******s have wrecked economies and banks by irresponsibly gambling money that isn't their's on risks that palpably wouldn't come off, and then the short-sellers have moved in and made a killing using shares that aren't even their's. And then the bloody tax-payer has to clear up the bodies afterwards, it's absolutely outrageous. Not to mention people who have lost their jobs.

I'd doubt it was the end of capitalism, but hopefully the end of unfettered global capitalism where short-term profit is all and accountability doesn't exist when the house of cards collapses.

Nicely summed up. I agree with the idea that a mixed economy could be the way forward, some thing are just too important to be run by private companies in my eyes, the utilities being the main one.

There definately needs to be a re-think when it comes to regulations and restraints. What exactly have the FSA been doing?

[jim mk2]

Nicely summed up. I agree with the idea that a mixed economy could be the way forward, some thing are just too important to be run by private companies in my eyes, the utilities being the main one.

Where have you been for the past 20 years ? The Tories flogged off all the family silver in the 1980s .

[grizfoot]

Where have you been for the past 20 years ? The Tories flogged off all the family silver in the 1980s .

If they are nationalising all the banks we might as well get the utilities back on board as well.

[jim mk2]

If they are nationalising all the banks we might as well get the utilities back on board as well.

...... and the railways, and the mines, and the airlines, and the airports authority and all the local services that used to be provided for pennies that are now contracted out and we have to pay an arm and a leg for.

Our American cousins have shown us the way with more state-owned banks than Russia.

Long live the United Socialist States of America !! Who'd have thunk it ?

[thenodrog]

If they are nationalising all the banks we might as well get the utilities back on board as well.

Wasn't that supposed to be Labours widely declared and avowed intent in the 80's and 90's to come into fruition first job just as soon as they had kicked out the Conservative Govt? What happened to those promises? They've had much longer than a decade in power with not a cheep out of em in that direction.

Over to you Victor....

[philipl]

You raise some good points above, but most of what you have stated, is through hindsight and common sense

Btw - Would rather be a so called 'spiv' as you put it, than a 'churnilist hack' (and yes, I mean 'churnilist', as most people from your industry, just constantly re-hash articles from one rag to another, without any thought or understanding of the issue).

Note, a few pages back, I gave a detailed understanding of where the blame should lay for this current financial mess and this was attributable to all levels of society (borrowers, lenders, brokers, banks, ratings agencies and regulators)

Philip - Fortis decided it wanted to be a part of the ABN AMRO deal back in June 07. They bought into the consortium, and through this, wanted the acquisition of the localised Dutch clients and operations from ABN's former businesses - They essentially, paid over the top, for tangible assets with very little value and as I said, this was all in cash!

RBS, Santander & Fortis paid EUR73 billion (in Cash) for a business that was 17 times above book level. This was further exacerbated, when the banks took a 'hit' on their market capitalisations, through the recent stock market drop. Their captial reserves, had been completely tapped out.

The former ABN shareholders were laughing all the way to the bank on this deal.

I agree with your analysis both on the causes and the Fortis analysis. Barclays were lucky to lose the ABN battle.

What is the mood like where you are working now?

[jim mk2]

RBS shares in freefall ; 20 per cent yesterday and another 9 per cent this morning. Even without short-sellers investors are showing that this could be the next HBOS.

Anyone with NatWest savings might like to consider their options - and soon.

Amazingly after Wall St's worst fall since 1987 London is only down 87 points. Time for a rally - now which call option to go for ?