Wednesday Night #1359

We had promised that Beryl would be with us last week to talk about the new publication, The MetropolitaIn, that he will launch next month. He was unavoidably detained, but assures us that he will be present tomorrow night.
As always, we have the U.S. presidential campaign on the Agenda and certainly this week we cannot ignore Obama’s historic speech which has attracted world-wide coverage.
Canada’s recognition of Kosovo may also spark some controversy, especially following the recent discussions with Misha Crnobrnja.
It is the eve of the fifth anniversary of the invasion of Iraq and opinions continue to be sharply divided as to the necessity of the invasion, the benefits, results and the long-term outlook. We always admire Stratfor’s analysis of foreign affairs and commend it to you.
Many more topics are worthy of consideration, but we expect the dominating theme to be the economy, with the news of the Bear Sterns’ takeover, the latest cut in the Fed’s ‘aggressive easing‘ rate, the outlook for the ‘softening’ economy and all the national and international (see China Moves to Stem Inflation and Calm Investors) ramifications.
Notes on topics
For a truly negative (are there any positives out there?) assessment of President George Bush’s handling of the economy and related issues, see Truthdig Bush’s Legacy of Failure
“That idiotic “what me worry?” look just never leaves the man’s visage. Once again there was our president, presiding over disasters in part of his making and totally on his watch, grinning with an aplomb that suggested a serious disconnect between his worldview and existing reality. Be it in his announcement that Iraq was being secured on a day when bombs ripped through that sad land or posed between his treasury secretary and the Federal Reserve chairman to applaud the government’s bailout of a failed bank, George Bush was the only one inexplicably smiling.”
The economy & markets
(Reuters) JPMorgan offers Bear Stearns staff bonuses to stay: source
(NYT) Can’t Grasp Credit Crisis? Join the Club
By DAVID LEONHARDT
The part about the housing crash seems simple enough. With banks whispering sweet encouragement, people bought homes they couldn’t afford, and now they are falling behind on their mortgages.
But the overwhelming majority of homeowners are doing just fine. So how is it that a mess concentrated in one part of the mortgage business — subprime loans — has frozen the credit markets, sent stock markets gyrating, caused the collapse of Bear Stearns, left the economy on the brink of the worst recession in a generation and forced the Federal Reserve to take its boldest action since the Depression? …
(The Economist) Wall Street’s crisis
More on Obama’s speech
(The Independent March 19)
In a breathtaking speech, delivered before a backdrop of American flags, Barack Obama attempted yesterday to lance the boil of the ugly racial row that threatens to destroy his campaign for the presidency.
Delivering what one commentator described as the most personal and extensive discussion of the legacy of slavery made by any major American politician in memory …. Commentators were quick to describe the unconventional speech, which Obama finished writing at 3am yesterday, as the most audacious and politically risky gambit of his career. More
(Huffington Post)
It didn’t make sense. A politician responding to a TV news scandal during an election and he’s not on the attack or the defensive. Instead he’s asking us to look at the forces that shape our feelings on race and understand them. My first reaction was to call DirecTV. Clearly my antenna was out of alignment and picking up old broadcasts of the Outer Limits or Playhouse 90 that are bouncing back to earth from Jupiter. Or maybe that California roll I ate was a week old and I’m unconscious on my living room floor and chemicals in my brain are sloshing towards the wish fulfillment part of my frontal lobe.
But it happened. Barack Obama spoke like an enlightened leader from 2008 instead of like the fake cowboy from 1885 that most politicians evoke or like a pharmaceutical salesman talking about change, but “not that much change” at a team building exercise in Tahoe. In other words, he didn’t pass the buck to save his own ass. It was a monumental moment in modern American politics. He didn’t distract, deflect, or attempt to frighten. He didn’t accuse, declare war, or get angry. He didn’t game play, scape goat, or blame. Can you imagine? Read full post
See also wednesday-night.com for more notes and new information.

The Report

This was the third in a series of fascinating debates on the current economic crises. Kenneth Matziorinis introduced John Evdokias, an investment manager with an impressive professional background, including several years with Richard Lafferty, whose motto is “return of capital”. But first, as promised:

The MetropolitaIn (see last week’s Report), – note that the second I is replaced by a Torch of Liberty – Wednesday Nighter Beryl Wajsman’s new bi-weekly bilingual, limited circulation publication will is be launched in April with a possible medium-term circulation area ultimately spreading to Ottawa and/or Quebec City. Beryl reports that everything is connected. Located in the Hermès Building, the office is more reminiscent of an old-fashioned newsroom albeit one with the latest computer technology. Twenty-four journalists and academics are at work on developing content that will be anti-status, anti- Nanny State, anti- language and cultural wars – just about everything that we have wasted time on in the past 30 years. It will be pro individual freedom and choice. Its main components will be news and analysis, including some six pages on Business, and a very large culture section. Its underlying mission is to differentiate the concerns and attitudes of metropolitan Montreal vis à vis the parochialism of the rest of Quebec. “A bilingual Le Devoir” from Day One, it will be distributed to the offices of all major decision makers in the city.

Bear Stearns, JPMorgan and the Fed
It has been perceived by the public as a wakeup call, but the message may not have really been clear. JPMorgan has acquired the assets of Bear Stearns, presumably at a fire sale price, but the story behind the sale is one of a system that functioned as it should have. The Federal Reserve reacted to the situation swiftly and well, concluding its moves over the weekend before the markets opened in Asia, thus minimizing uncertainty. It penalized Bear Stearns, which had been the initiator of the financial engineering that the structured investment products at the root of the problem, thereby making the greedy pay the price, leading to the subsequent positive reaction by the financial market. Additionally, over the weekend the Fed expanded the discount window of emergency financing, previously limited to banks, to all major brokerage houses, thus improving liquidity.
Bear Stearns had some $440-$450 billion in assets; some of these structured assets were being sold off at depressed levels, a subliminal message to the market that they were on the road to bankruptcy and which triggered inevitable reactions among their investors. Bear Stearns may have lost all their own money and possibly a little more, thus creating a situation that could have led to a major meltdown with almost unthinkable international repercussions had the Fed not intervened in a timely manner with the guarantee of up to thirty billion dollars for up to six months. Fortunately the Fed had the ability and will to intervene rapidly, and in J.P. Morgan there was a financial institution that was in a position to absorb the problem as it had previously done in 1929. [We are uncomfortably reminded of the 1981 movie Rollover]
The Federal Reserve has revenue of about eight hundred billion dollars of which this guarantee represents about half. The Fed’s concurrent cut in the discount rate constitutes a further commitment from revenue. Should – perhaps as the result of another crisis – the Federal Reserve use up all its credit, the government, already deep in debt, would be expected to step in. Depending on how prepared the government is, it would have response options. On occasion, a bank holiday has been the response.
In any event it is in no one’s interest to permit the United States to default on its debt. China, its major creditor, would have nothing to gain and much to lose if it were to call in the debt.
Although technically, countries cannot go bankrupt (they have assets such as land, crops, people), the equivalent, as evident in post World War I Germany or in Zimbabwe today, is inflation and impoverishment of the population. To those who raise the nightmare scenario that America would be faced between defaulting on sovereign debt or let the private system collapse, the response is that while technically possible, creditor nations would have nowhere to sell the paper. In reality, the world needs the U.S. market and it is in the global interest to keep the U.S. economy intact.
It is in no-one’s interest to have the U.S. fail
Finance in the U.S. has reached a peak only on paper so it necessary for them to come up with new tricks. The deteriorating situation would be heading towards a repeat of 1929 were it not for the existence of many more institutions capable of managing these crises that are now in place .
Despite what appears to be the defusing of a potentially disastrous situation, the question that continues to haunt even the most confident, is the extent of the devotion and motivation of legislators in military matters as well as in the realm of finance.
Doubts still linger about the motivation for the U.S. costly role in Iraq as well as the current financial crisis.
Sub-prime mortgages have been held responsible but represent only about one million households. More important has been the tendency to ignore guidelines on the ability of borrowers to repay loans in the knowledge that potentially shaky loans could be sold and resold, with each purchaser profiting from the sale until the house of cards inevitably fell.
Accompanying the inevitable inflation, the buying power of even constantly increasing personal revenue, continues to decrease, leaving productive farmland as potentially one of the few remaining productive investment possibilities.
The financial crisis represents just one of many situations that should be of concern to us. Others include the simultaneous U.S. involvement in two wars, the energy crunch and climate change. There is a high probability that in less than two decades, the rate of extraction of petroleum will be lower than the rate of consumption, affecting not only energy but the availability, hence price, of all consumer goods including food and refrigeration. There appears to be very little research and implementation of a serious alternative. Ethanol has been successful in Brazil but not only does the consumption of ethanol influence the cost and availability of the food from which it is derived but it requires a considerable amount of fossil fuel in its production.
The one spark of hope in this scenario may be found in the character of people who lived through the great depression from which they emerged clear on who they were and how they lived, realistic about the value of life and the relative importance of life and possessions as well as their effect on the present and potential crisis.

The New School of Athens (NSOA) meets in Athens April 2-5 and provides an occasion for a gathering of eminent Wednesday Nighters (Cleo Paskal, Jaime Webbe, Bert Revenaz and possibly Nicole Stellos, along with Kimon Valaskakis). Kimon has invited both Cleo and Jaime to take part in the conference programme.
In an unrelated event, Jaime has been nominated for the prestigious UN Environment Programme (UNEP) Baobab Award.
“The UNEP Baobab Awards programme is designed to officially recognize and reward individual staff members and teams at all levels of the organization who exhibit exceptional performance and dedication to achieving the goals of UNEP and the multilateral environmental agreement secretariats. The programme is also intended to reward innovative ideas and steps forward in the context of environmental sustainability and conservation”. It is a great – and well deserved – honour for Jaime and we cannot think that any nominee would be more qualified.

Loss of an influential and outstanding Canadian diplomat
Diplomat Geoffrey Pearson, son of former prime minister, dies
(Ottawa Citizen) Wednesday, March 19, 2008
Geoffrey Pearson, the retired diplomat and son of former Prime Minister Lester B. Pearson, has died.
Mr. Pearson, 80, died Tuesday.
A Canadian diplomat, he was educated at Trinity College School, Port Hope, the University of Toronto and Oxford University, and joined the department of External Affairs in 1952. He held diplomatic appointments at the Canadian embassies in Paris and Mexico City, and at the high commission in New Delhi.
From 1980 to 1983, he served as Canada’s ambassador to the Soviet Union, and in late 1983, Pearson was appointed as a special representative of the Prime Minister for arms control; in 1984 he was seconded to the Canadian Institute for International Affairs. In January 1985 he was appointed as the first executive director of the Canadian Institute for International Peace and Security, where he served for six years. Pearson is currently past president of the United Nations Association in Canada.