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mercerdavids

Listed below are comments made by mercerdavids between Thursday, 2nd April 2009 and Saturday, 28th November 2009.

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Friday 27 November - the plan so far 12:31pm on 28 Nov 2009 DUBAI continued

In my earlier entry I specifically talked about Dubai. I note that others have expanded this sort of argument to apply to other nations, such as Argentina and Venezuela. I do not think this is particularly helpful. These other nations may well have their own problems, but the essence of the Dubai situation is that it is so extreme (in terms of property speculation beyond the dreams of the UK amateurs who were encouraged to join in) that it highlights the failures of the banks to apply even basic commonsense to the tasks for which they are so highly paid.

Returning to Dubai, a further point to make is that its financial collapse should not precipitate another global crisis. It is much more like the situation in Iceland, which the banks coped with - though the locals were badly hit. Much the same may be true of Dubai.

Having said all that, the figures bandied about in the media - of between $50bn and $80bn - are woefully short of the likely exposures. In fact Dubai World Central developments by themselves are around $80bn (with another $60bn possibly coming from Dubai World itself); and to this can easily be added Nakheel (also at $60bn), The Lagoons ($80bn), Arabia Canal ($60bn), Business Bay ($30bn), etc etc.

Indeed, the problem is essentially that of the speculative property developer who has vastly overstretched himself; on a property which is far too large for the demand - it dwarfs even Las Vegas.

There may be some double counting in these estimates, but by themselves they add up developments costing close to $400bn - most of which are due for opening within months, so the investments have already been made - and then there are the myriad of other smaller developments!

These 'valuation' were made in the good times. But property prices have already slumped by more than a half, so the existing losses are probably in excess of $200bn; much too high to be met by charitable donations by Abu Dhabi. They will probably be even higher when tourists and business leaders find themselves surrounded by the inevitable dereliction of the half-completed buildings which will dominate the landscape.

However, the sufferings of the locals are not the essence of my message. Property speculators by their nature are hopelessly optimistic. My concern is about the global banks who, by not using even a bit of common sense (and probably bedazzled by the commissions being earned), once more put all our money at risk.
Friday 27 November - the plan so far 4:16pm on 27 Nov 2009 A year ago (October 9, 2008) I wrote about Dubai on this (BBC Newsnight) blog, in the context of the collapse of the Iceland banking system. At that time I said:

"It is important that any new regulation should address the real factors which now drive the financial markets; not those of half a century ago which still drive the IMF.

Of these new factors it seems to me that the most important may be:
.....
.....
9) Where governments are involved in supporting banks, directly or indirectly, their exact roles should also be subject to independent investigation.

In view of current proposed solutions, where nations are underwriting banks, the last item has now become significant. In view of what has happened to Iceland, this element needs just as much supervision. A year ago if its PM said the nation would stand behind all the debts we would have believed him; and presumably many then did. Of course we now know his word was worthless. But much the same might be true of other smaller nations whose economy was boosted by similarly dubious machinations. One wonders what exactly is the position of those tax havens whose trillion dollar financial activities are so carefully hidden.

One that has, in any case, worried me for some time is Dubai. Its building boom, now running into billions of dollars, has been funded on the basis that the Sheikh in effect runs his own sovereign wealth fund – much like that of other oil producers – which easily covers his ‘hobbies’. The reality seemingly is that the trillions of investment are covered by something like just $100 billion of GDP, mainly in the same finance industries which have just brought Iceland to its knees. However, of this GDP only 1% or so comes from oil – which is due to run out in a decade or so. Dubai is, therefore, literally built on sand. It is all smoke and mirrors; as befits the entertainment industry of which it really is a part."

A year later and my worries have become fact.

The important question it poses is "Why did nobody else see this? Or, at least, why did they do nothing about it?"

We now find that the banks, which have caused us so much trouble, are still exposed to the problems of Dubai. Remember that their managers are so clever that they are literally worth millions a year in salary, yet I - as a retired academic earning perhaps 1% of their salary - was able (spending a couple of hours searching the Internet) to outsmart them by the simple use of commonsense!

My own answer to the question is that we should use commonsense more often, and pay those who claim to have divine inspiration for their judgments rather less.

Indeed, I think it says something for our society that we now value snake oil salesmen above all others. What does that say about us?
Friday 12 June 2009 9:04pm on 12 Jun 2009 It is often worthwhile to put Shakespear's quotes in context. Having accepted the advice about the 'flood' Brutus went on to fight the battle of Philippi where he was defeated! Mind you in the current situation any Labour leader is likely to lose.
Wednesday 3 June 2009 9:51pm on 03 Jun 2009 It may seem we are already descending into political chaos, but I think it may be possible that we are all underestimating the scale of the changes taking place. Indeed secretly many of our leaders are heaving a sigh of relief; the worst is over and we can get back to business as usual with a few minor changes. They could not be further from the truth. What is taking place, albeit without all the bloodshed, is a real revolution comparable with those of the 18th century in the US and France.

In economic terms, as evidenced by the success of the April G20 meeting, our global leaders already fully recognise that the banking crisis is a symptom of a revolutionary shift in global trade overall. Indeed, above all, the rapidly growing power of the emerging nations, whose 80% of the global population is now the main driver for growth, indicates that the form of globalisation which was based on a US hegemony is already being superseded by a much more diverse set of factors. If truth be told, US hegemony has passed and we are already part of a multi-polar world.

But the financial and trade implications are just one part of the overall revolution. We have long recognised that the IT revolution would progressively empower individuals, and that empowerment of the individual is now sweeping all before it. Thatcherism and Reaganism talked at length about individualism, but that was in terms of the few elite individuals who needed to be freed to lead society to a better future. We have just seen where those most favoured by this philosophy, the bankers, chose to lead us. The real empowerment of the individual is therefore at last to be seen in the masses who are now taking power into their own hands. This was the inevitable outcome of the investment in education, across all nations, which means that the twentieth of the population - who half a century ago received a university education and with it entry to the elite who ran the world has now grown to half those joining the electorate and expecting to run their own affairs. Where they know far more than government ministers of a century ago, they have every right to expect to be invited in to share power.

Where recently such power, and especially the riches which accompany it, has instead been grabbed by an ever smaller group of people, the time is ripe for the masses to revolt; as the whole electorate is now ranged against MPs in general. Where this popular revolution will ultimately head is difficult to predict, but we must at least start by recognising its existence.

More practically, in the shorter term, where goes governance in the UK over the next year; until that time if nothing else intervenes Armageddon is visited on Labour. Indeed, it seems most likely that Gordon Brown reverting to his characteristic timidity - will resort to circling the wagons against the overwhelming numbers of Indians who want their chiefs scalps; if I may be excused that mixed metaphor. The test of this will come when he appoints Ed Balls to be Chancellor. Ed is, of course, the most exquisite practitioner of the dirty trick. It was he, you will remember, who ran Gordons campaign to undermine Tony Blair. That was, in his terms, successful; though it fatally soured the electorates view of politicians in general Much less successful were his machinations less than two years ago, was it really so recent for it seems like prehistory, when he destroyed Browns honeymoon overnight; overplaying the early election story. But, despite being an object of hate for so many of his own side, he is Browns closest political friend.

Can this slide into the abyss be halted, and will Cameron be allowed a blank cheque to visit on us the excesses that his right wing who are already happy to cosy up to some of the most objectionable right-wing parties in the EU will force him into; now that he has abandoned his promises about compassionate (Blairite?) conservatism - remember the similar promises Bush Jr made!

Perhaps the only hope for (New?) Labour will be to back a new Blairite candidate with a remit to find a centrist consensus. That new leader could them genuinely open up government, inviting in the best of the other parties (in particular Vince Cable, rather than Balls as the new Chancellor to replace Darling, and Menghies Campbell, as Speaker) to form a coalition. Of course Cameron, who thinks he is onto a landslide will refuse. This leaves the resulting Labour/Liberal coalition a year to put together the new constitution which should be radical (going as far as Proportional Representation not just MPs expenses!), whilst consolidating the economic recovery. If necessary, of course, the election when it comes - could then feature coalition candidates: with the strongest runner in each constituency (justifiably) being given free rein.

The result might be a very different political world, and one in which many fewer MPs would lose their seats; whilst feeling good about doing right by the country!
Wednesday, 22 April, 2009 10:20pm on 22 Apr 2009 The budget now has much less relevance of old. The decisions are now spread across a range of announcements during any year. The result is, as we have now seen, that its impact on the markets is minimal; as we should, at a time of uncertainty, hope for. Even so, it has a important psychological role; and Darling (and perhaps rather less Brown than previously?) seems to have done wahtw was necessary. At one extreme it was more honest about the magnitude of debt than before, and at the other it gave us more progressive taxation for the first time in a quarter of a century.

Politically, with the 50% tax, it painted the Tories into a corner which will cause them some difficulty.
How the IMF withdrew its shock-horror number on UK toxic debt 10:12pm on 22 Apr 2009 Unfortunately the IMF seems determined to confirm that it is part of the problem not of the solution! It has been, and continues to be, incompetent; wedded to a (structural adjustment) model which is out of date and fiscally flawed. Even worse, it does not recognise that its performance in the run-up to the credit crunch was unsuitable for purpose!

Regrettably, as the owner of the global infra-structure, it is at the heart of the proposed G20 solutions. Let us hope that the G20 brings it to heel.
Why a hung Parliament is a good bet 10:20pm on 17 Apr 2009 At a time when New Labour still is losing support, and the Liberal Democrats are not gaining any, it seems surprising that the pact which was proposed a few years back - where each would drop their candidates in constituencies where their opposite number stood a better chance of winning - has not been resuscitated.

Of course the electorate would soon hate them for it, but it would still give them five more years for a new start; and a guarnteed win at the election - where otherwise (at a time when all parties are fighting for the centre) they both might be in the wilderness for the next decade.
IMF boss kicks butt 10:14pm on 17 Apr 2009 The IMF has long seen itself as the scourge of governments. Only it, and its very negative (and indeed punitive) packages for those who have failed, are to be taken seriously. It sees itself as the global establishment set in place to keep the rest of us in line. Despite its recent conversion to a perverted form of Keynesianism, it still seems to want an authoritarian form od liberalism.

Unfortunately it should be central to the G20's work. Fortunately those governments in the G20, which it so despises, seem to be leading the wway to solutions despite its best efforts to sabotage them.

Above all, though, it is by far the most pessimistic forecaster; at a time when real optimism is needed from our leaders ("We have nothing to fear but fear itself").
Thursday, 16 April, 2009 10:13pm on 16 Apr 2009 There has been much criticism of the regulators around the world. Indeed, there has been much to criticise, and in the UK the FSA was justified in admitting its own failings.

Now the IMF, which has been in the lead of the critics of national agencies, is being set up by the G20 to regulate the regulators. If, as I fully expect, in tonight's interviewDominique Strauss-Kahn continues to preen himself - in the light of his new emminence - I would be interested in one answer: where was he, and the IMF, when the global financial system fell apart.

As set up at Bretton Woods, major remit of the IMF was to regulate the global financial systems so that the 1930s never happened again. So where was everyone when precisely this did happen?
1213GMT - The shape of the deal emergeth 5:22pm on 02 Apr 2009 Despite the cynics downgrading the importance of the resolutions, the big surprise is that almost everything we wanted was agreed; and agreed, if not in numeric terms, in hard and fast principle. The result is more radical than we could ever have hoped for. Even the introduction, that 'the Washington economic consensus has ended', clearly signalled not just the move from Reagan/Thatcher Monetarism to Keynes but also that the wider (multi-polar) world now was what mattered; G20 and no longer G7/8.

But some of the unnoticed details were equally significant. The IMF clearly has been put at the centre of the international financial system. But it is to be monitored and supervised by a new G20 body; a crucial role where the IMF has signally failed in its duty to monitor the situaltion over previous decades.

The promise of another G20 in a few months has been seen as a sign of weakness. In fact it is a source of considerable strength. It means the G20 is taking responsibility for action as well as talk!

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