Made off with all our money
A well-known wealthy entrepreneur told me last night that he'd lost about 1% of his net worth on an investment in Madoff and is setting about getting his money back from every hedge fund that he's invested in.
Nor is this chap untypical. Erstwhile superstars of the hedge-fund industry - who currently have all the glamour of the Bay City Rollers in the post Shang-a-Lang years - are braced for very substantial collateral damage from Madoff's gigantic swindle.
Many of their investors want out.
And the reason is simple. Managers of funds and of funds-of-funds, who placed their clients' money in Madoff, usually claim that they spend a great deal of time and effort looking under the hood of those to whom they entrust cash.
This excerpt from the 2007 prospectus of Bramdean Alternatives, the investment company which announced last week that 9.5% of its net assets had been placed with Madoff, is pretty typical: "in-depth due diligence will also be conducted on the fund managers' compliance procedures, risks systems and governance structure."
Hmmm.
Whatever vetting Bramdean and others carried out at Madoff plainly wasn't enough (I should point out here that its only because Bramdean's prospectus is a public document that I've singled it out: its losses, and therefore its grounds for turning flaming pink with embarrassment, are considerably smaller than those of many other money managers).
That these professionals apparently allowed Madoff to get away with it on such a scale for so long has shattered the confidence of many investors in hedge funds and funds-of-funds.
Which is why Madoff's shocking demise has massively increased the risk premium applicable to hedge funds: they'll find it more expensive and more difficult to borrow from banks and to retain the cash of their investors.
The $1.5 trillion hedge-fund industry, which generated half the earnings of the world's biggest investment banks and defined the debt-binge years, is shrinking before our eyes.
And as I've mentioned before, that has a negative impact on all of us.
As hedge funds deleverage, de-risk and reduce their debt-financed investments, there's a substantial knock-on to the ability of all banks to lend, because of the vicious interconnection of falling asset prices - caused by funds dumping their assets - and the availability of credit (see my notes, the New Capitalism and Made off with £50m).
Hobbled hedge funds mean weakened banks - which means less credit for us.
I'm 
© MMIX~RS~q~RS~~RS~z~RS~55~RS~)
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"who currently have all the glamour of the Bay City Rollers in the post Shang-a-Lang years"
Good God, Peston !! Are you truly *THAT*old ??
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The banks are already weak to the extent that they cannot provide the basic services for which they were set up - they are unable to provide finance to private individuals and businesses.
So how can this make them weaker ?
Isn't it a bit like comparing levels of being dead...this corpse over here has less life in it now.
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"Hobbled hedge funds mean weakened banks - which means less credit for us. "
...which means a return to sounder economies !!
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So it just goes to prove that you should trust no one when it comes to investing your hard earned cash.
Is there a long queue for gov savings and matresses with zip pockets?
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This comment was removed because the moderators found it broke the House Rules.
the market wasn't all that anyway.
My predictions for 2009
out of style and fashion
investment banks
car industry
shopping
showing off
back in style
blogging
talking
reasoning
exercise
listening to music + reading books (bought last year)
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I'll not weep for Harry Hedge fund but we can ill afford yet more depression in asset prices.
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stop using credit cards as well
that would scare / teach them
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Well I'm glad this parasitical 'industry' is going to shrink. Casino capitalism is a zero-sum game. If hedge funds were making money (and clearly many of them were) then other investors were losing it. Peter Mandelson's friends were only able to make obscene amount of money because other, smaller investors (you and I) were losing equal amounts of it.
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I think you are seriously underestimating the ability of high quality Hedges to recover and UK PLC. Many have already put risk adverse strategies in place for sometime now, seeking Fund Management status to help find other sources of income to offset redemptions and various other measures.
Banks are weak because blogs like this have convinced everyone they are, share prices have collapse and so has their capital ratios as a result. I hope this blog starts reflecting the real economic situation soon!
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Robert, It's all about being overwhelmed by the mystique of financial prowess. These money managers believe what they want to believe: full stop. They are sheep, followers, believers in the magic of the market and the magic of some individuals operating in the market. They lack the knowledge to do their jobs properly because of the 'cult of the manager' which has ruined and is ruining many companies in our economy. You need more than MBA in management to manage well, you need knowledge of your products people and markets. What is obvious is that many of our star money managers have none of these skills.
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There was too much debt in the system, and some of it has been lost to investing in overpriced assets like sub prime mortgages , commodities and shares and whole companies that are now reporting lower profits.
Hedge funds are linked to the same principle what can go up can also go down, and since what went up was financed on debt given out on very risky grounds in some case then it is inevitable/
GB needs to realise this, piling on national debt will do nothing but harm. He thinks he is saving the world saying he will not pass on by yet the banks are doing this with small and medium sized businesses despite his best try.
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8,
Cancelled my ONLY credit card yesterday (was always paid off at end of month), the nations largest building society was baffled. I said that if everyone paid everything off, and no one took any debt out – the banks would never require to be bailed out by the taxpayer ever again.
Crash Gordon has had a monumental impact on people’s attitude to taking debt on, if the markets crash more he (and subsequent pm’s) will have a mammoth task getting folk to take mortgages or credit out!
A good thing I may add.
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So this guy Madoff was really careless and lost $50 billion. This top class investor kept losing and losing and nobody noticed. And all the money has just disappeared.
I wonder if invested in companies like Bear Stearns and Lehmans that went bust. I wonder who ran away with all that money before they collapsed ?
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I think we may finally be getting to the bottom of the cause of this financial crisis.
I have thought for a while now that a 15% fall in property in the western world could not be the reason for the total collapse in the banking system which would have occurred if governments had not rescued them.
Financial managers have a lot to answer for.
This is still a financial crisis which governments have still probably not solved yet, nationalisation may be the only answer.
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NewsSpotz - Hedge funds are currently riding trends rather than looking at any investment in certain parts of the economy.
http://www.marketwatch.com/news/story/Credit-SuisseTremont-Hedge-Fund-Index/story.aspx?guid=%7BA7631CF3-CFEF-48C1-8F18-74F3A5750650%7D
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In the past, a rising tide lifted all boats.
Going forward, I think quality will out. Hedge funds will survive, but only the good ones
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Nichola Horlick would do better sticking to
her namesake beverage.
DUE DILIGENCE MY BACKSIDE!!!!!!!!!!
The arrogance of this woman is CRAZY.
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Simple truth is that hedge funds (and private equity companies) create nothing new so why on earth should anyone loose any sleep over their demise.
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It is shocking that the fund managers and banks who invest in these hedge funds take such little care in checking them out. RBS has lost $400m - in my experience, before RBS would lend £1m to a "normal" customer, they would carry out extensive due diligence (mostly at the borrower's expense).
The failings of fund managers does not surprise me. My wife worked for many years for a fund manager (I would add that she did not work as a fund manager but in a support role) and it was clear that the main attribute required of the individuals managing funds was not ability to manage funds but ther ability to raise funds (i.e. who they know).
What gets me is that most of the financial services system is subsidised by the tax payer; how much money would pension funds have to invest with fund managers etc if employees did not receive tax relief on their contributions? For higher rate tax payers getting 40% relief, they are probably still better off paying into a poorly performing pension fund than saving the money outside of their pension scheme.
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So, Bramdean (and no doubt all others!) say "in-depth due diligence will also be conducted on the fund managers' compliance procedures, risks systems and governance structure."
Yet another nail in the coffin of complaince auditing. Yet again being shown to be not up to the job of supporting 21st century governance and risk.
In order to protect investors - and now taxpayers - investments this approach just CANNOT be relied upon to do the job. The sooner that we start to understand and assess the BEHAVIOURS of people involved we can far better understand the TRUE RISK.
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Ive only used hedge funds a few times since
late 2007.
1: For shorting HBOS shares which was FUN
2: For Oil Trades
Both times the opposite traders lost BIG
TIME.
Their combined loss was over 120 million.
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POST 23
120 million Sterling
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Fascinating stuff. Any chance of adding a chapter to 'Who runs Britain' to expound our current woes?
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"in-depth due diligence will also be conducted on the fund managers"
The only in-depth due diligence seems to be where the swankiest bars are with their champagne !!
How wonderful these investment companies/mamagers promote themselves when all they are doing is riding the wave when the markets are going up. As soon as the storms gather they are out of their depth !!
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To reprise an old joke from a couple of weeks ago, which seems very appropriate here;
Ditch the fools with funds of folly,
Fa la la la la, la la la la.
Before they make-off with your lolly,
Fa la la la la, la la la la.
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10 NEWSPOTZ:
'Banks are weak because blogs like this have convinced everyone they are... '
What a crackpot comment. Do you read the news at all? Have you just landed from your mothership? Are you a 60s hippy just emerging from your hippy dreams? Are you Gordon Brown or Lord Mandeldome? A new Labour hack? Come on own up, who are are you?
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Re : 14. JavaMan1984
I agree with the 'keeping it real' approach to buying goods and building credit. Most people try to dress like film stars, gangsters, fund managers etc when they are not and have only watched the DVD.
reiterating a comment in the deflation or inflation mass debate
421. At 00:15am on 19 Dec 2008, kikidread wrote:
If there was no credit spending would reflect real wealth.
It would be more considered and less wasteful.
If only cash is used there would be no purchases over 100 pounds.
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Robert
The hedge fund industry is corupt from top to bottom. I say that with a family member who i really like working in one. He is one of those MIT Phd number freak types doing chaos/GARCH maths analysis. The whole industry is build on clever people with faulty models, making huge punts on whims. The faster they all unwind the better.
In good times they distort markets and fuel huge price volatility and destroy good companies and jobs to cream of profit. They are the ultimate asset strippers. It is no secret that the oil bubble was almost totally caused by hedge funds in conjuction with investment banks. Just look at the doubling of oil futures contracts in 1 year with no more than an expected 3% rise in consumption.
Hedge funds serve no purpose other than to charge 20% of the profits for their owners or 2% -5% of funds managed when they lose money.
I work in a building where 3 out of 4 tenants are hedge funds. I see their clients coming through reception and it is a 'whos who' of the rich. Recently i have noticed a surge in visitors. I suspect many are trying to get their money out.
The doorman (our building's version of the Oracle of Delphi) tells me one firm may well be in trouble.
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Hedge funds have become too big and too powerful, able to influence the outcome of whatever they are trading in.
Regulation, regulation, regulation, badly needed.
This slump will search out the weak and destroy them, whether they are companies or financial institutions.
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No doubt you'll now get blamed for causing a run on every hedge fund on the planet.
As if the millionaires who invest in this sort of stuff haven't already got wise to this days ago ...
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If investors have been given documents stating that they perform meaningful reviews of various elements of a trust funds nature, does that mean they can be sued in order for people to get their money back?
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So where are they going to move the money too.
The Bank of England for saftey, who will then lend it out to the banks, but under safer regulation.
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Hubris from the much, maligned people's resource of Wikipedia. Well worth a read.
http://en.wikipedia.org/wiki/Hubris
I note it is related to...
* Groupthink
* Narcissism
* Victory disease
* Self love
To misquote the much-missed Dave Allen, may your god go with you, because the divine money has just vanished.
Best wishes to all currently losing or, about to lose their jobs.
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Robert,
This story isn't much fun, can't you start a blog on the reluctance of the Halifax and Nationwide to predict house prices for 2009?
See: http://news.bbc.co.uk/1/hi/business/7791391.stm
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The compliance and due diligence conducted by institutional investors all sounds terribly reminiscent of the Nick Leeson/the collapse of Barings 'incident'..... nothing changes, nothing changes. When will these people learn?????????????????
Anyway, just got to get on the phone and liquidate the billions of pounds I have invested in hedge funds - thanks for the tip Robert.
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Well done Robert as the prophet of doom. However 20 years ago we were worried abot Africa. Now after all the Greed we are worried about ourselves. Take a look at [Unsuitable/Broken URL removed by Moderator] for perhaps the most appropriate Christmas Video. Also when watching Little Dorrit on the Beeb we see Mr Merdle and today's Madoff as illusiory geniuses of finance. This is not new it is just that the whole culture of the City and worship of the Hedge Funds has given us a catastrophic financial situation. I feel that the City of London and also New York are so tainted that Frankfurt will benefit. Are we to return to a more 60's style of economy. So Robert where is your Crystal Ball.
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hedge funds are high status for investment banks who often tell clients that they have one even when they don't.
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Robert,
You really don't know what you're on about here.
Hedge Funds have been suffering major redemptions for 12 months. On top of that many reputable ones have failed to "do what they said on the tin" and provide stable returns in a range of markets, including falling ones. On top of that, they've had their erstwhile lenders, such as GS and MS become banks and be forced to reduce their own leverage, with a consequenty impact on leveraged Hedge Funds. Put all these together, and you have forced sellers, which explains why markets, in particualr equities, appeared to have discounted everything short of Armageddon at end-November.
Looking over a longer time horizon, what the easy markets of the last 5 years or so have done is allow some pretty ordinary fund managers to prosper. There have been a whole load of people who moved out of large fund management houses and set up their own Hedge Fund boutiques, lured by the idea of charging 2% flat plus 20% performance fees: much higher than they could earn as a wage slave anywhere. Now they've been found out.
It appears to have escaped your notice that pre-Madoff there were already stories of 35-65% of Hedge Funds being closed over the next year. I doubt Madoff will have any real impact on this either way. There are plenty of Fund of Hedge Fund Managers who can point to their due diligence putting up red flags on Madoff, and such people will prosper. Check out Bloomberg. There are ton of stories all quoting Askia: an advisory outfit that red-flagged Madoff nearly 10 years ago. They're using this as a positive marketing story.
You're right that the Hedge Fund industry is shrinking, but it's really no different to Woolies and Jaguar: credit is being withdrawn and those with poor businesses will suffer. In the case of Hedge Funds, that means those that promised stable returns in all markets but are now 20% down on the year will fold.
Madoff is a sideshow. His fraud will only impact those firms that patently did not do adequate due diligence, of which Bramdean will be the most publicly notable one in the UK. Why is this, though? Well mainly because Horlick has been rather better at self-publicity over the years than she has been as a fund manager. Look at Bramdean's total assets under management. Hardly a major player is it? Ever wondered why? The Madoff episode helps explain it.
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Was it Woodie Allen who said:
"investment advisors invest for you until you have nothing left to invest"?
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Robert, Obviously the "the investors want out...". They have only themselves to blame for being "in" in the first place. and why were they "in" ? - greed - pure greed. The chance to make a quick buck (or trillion)out of nothing. They same greed that drove "investors" during South Sea Year in the 17th century. Just dressed up in ever more arcane gobledy-gook - which even bankers themselves, admit they don't understand.
The banks are dead or dying. Bear Stearns, Lehmans, NR, HBOS, Citi... on and on and on. The dying ghouls desperately sucking out the last juices of the dead; and now turning to governments (us and the future of our children) for more blood.
The money banks (and all financial institutions) play with is not theirs - they make it up by creating debtors and sucking in greedy mugs. This is has been known for generations (by the bankers). As J.K. Galbraith said in his book 'Money - From Whence it came etc' "...the mind is repelled when one realises the ease with wich money is created out of nothing" - he said that about 50 years ago.
The mind is now repelled by the ease with which economic journalists seem to continually avoid discussing, or even mentioning more fundamental causes of the West's financial and economic problems.
You are the BBC's business editor, yet constantly focus on the FINANCIAL disasters. FINANCE can only exist if there is some sort of ECONOMIC foundation upon which it can prey. The financial crises we are witnessing are SYMPTOMS not causes of a much deeper problem.
When are you going to discuss fundamental ECONOMIC cuases of business' problems:
Peak Oil.
The logical impossibility of constant growth.
The Exponential Curve.
The world and its rescources, which are finite (and have passed peak production) cannot possibly support demands for ever-increasing growth.
For those who missed my previous posts here are some intersting and thought-provoking links that do address these crucial issues:
How it Ends
How It Ends
'Money As Debt' on GoogleVideo
Money As Debt
The 'Crash Course' on Chris Martenson's excellent web site:
http://www.ChrisMartenson.com
www.notbornyesterday.org
Not Born Yesterday
Old Groucho
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extremesense in comment 37 is talking extreme sense!
Compliance and due diligence checking has moved nowhere since these previous failures. It is easy to check bits of paper and numbers - but even easier to make sure the bits of paper and numbers show the 'right' things.
The old model of compliance checking and due diligence needs a complete overhaul if anyone is going to have confidence in what it says in the future. And confidence is all!
The problem as I see it is that although new models are there to identify real risks, most people in positions of power don't seem to truly want to have them exposed. Surely it is the role firstly of the hedge funds and all who hold money for other people and secondly of the regulators to make sure they are made visible.
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Hurrah for the Swiss!
Or, anyway, Credit Suisse. For insisting that banker bonuses are paid in the dodgy funds that the banking industry created. Probably the only way to get the banking bosses take any notice and make things right?
Am I correct that John Major is on the Credit Suisse board or equivalent? Clearly an example of Tory superiority over Blair (JPMorgan six months after PM and loads of dosh from Goldman Sachs too...)
Hear that money is just disappearing into RBS faster than the Government can pour in. If Gordon'll do this for the Scotland vote, what won't they do for their marginals?
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Good morning from the funny farm Robert. Just logged on to get my daily fix of Peston's Picks. A much needed daily dose of sanity in the mad house. Have a good weekend. Stay safe -
there seem to be more seasonal drunks about
than usual. Look forward to reading your next
reports on the crazy financial card games being
played by the "no-hopers" who still believe that a House of Cards is a strong and unassailable construction.
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#3
You took the words right out of my mouth
#23
Darlings going soon. Wanna job?
#36
I think thats because they are Sh*****g themselves
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It's about time we had some arrests.
The entire financial system has been shown to be a figment of bankers imaginations.
Yet bankers swan around as if nothing has happened. Pathetic.
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#10 - Surely the mass communication going on in blogs is better reasoned than pub chat or worse financial professionals telling us what they want us to hear.
I am all for these blogs even if they are overblown, we are all human we all know we overestimate things (upwards and downwards).
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Quite a few commentators - expert and lay - keep seeking to persuade me that this crisis will run its course in pretty much a linear fashion following the same, basic rules of previous economic downturns and that we'll be climbing out of the dive at the end of 2009, early 2010. Oh really?
This crisis has been and, presumably, will continue to be riddled with those characteristics associated with the law of unintended consequences. Moreover, I don't believe that any previous recession (or, dare I say, depression) started from the same set of going-in circumstances that this one has.
This latest revelation is a case in point; who would have it thought it eh? I'll wager that we'll continue to see these "Oops, where the hell did that come from?" events over the coming weeks/months, each event compounding the previous ones and creating a snowball effect.
I know I'll be categorised as a doomster by the glass-half-full brigade but I live by the creed, "The pessimist complains about the wind; the optimist expects it to change; the realist adjusts the sails".
Forget all done and dusted by 2010. I'm adjusting my sails right now.
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my advice to hedge fund managers and every one else is:
- you never realise or appreciate the true value of wealth (money) until you have none.
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So Robert, are we now starting to play the blame game as those in positions directly attached to the credit crunch see a period of ACCOUNTABILITY approaching?
Will we see many exits from enterprises with whatever pay offs they can leverage?
Have these Bankers seen into the abyss?
Otherwise I'd say that your blog entry is a little lacking in detail
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post 49 moraymint
My money is on 4 to 5 years then a very
flat period for a further 6 years.
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What I find fascinating is that for every pound LOST by a speculator, investor etc, somebody else has GAINED tht pound.
Why has no one asked which parties have been the beneficiaries of the huge boom we have had.
End of the day, the monetary system is zero sum + INTEREST.
Global losses that are reported day after day are in no way equivalent to just the INTEREST (ie the inflationary component of the monetary system) therefore one mans loss is another mans gain.
I suspect city slickers creaming huge bonuses, bank shareholders receiving huge dividends and fund managers creaming hude fees have been the GAINERS for the last decade.
What beggars belief is that some of these same "winners" are labeled as "losers" now that the bubble has burst and are getting sympathetic treatment (think bank shareholders mainly)
I still believe full market forces should have been left to run their course.
The world has a major problem, and that is financial responsibility. If you entrust your wealth to someone else and invest with inherent risk, it is YOUR ultimate responsibility. Hanker after huge gains and you are gambling with your future wealth.
I would expect going forward, more and more people will be self managing their wealth, pension funds etc, to the extent that the safest investments (namely fixed term government bonds/gilts) will be the order of the day.
Either way, it seems Hyperinflation at some point in the next 3 years will kick in so Everyone's wealth will be eroded to in real terms in order to bail out those with massive debts!
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I am older than Preston, so I wont involve my musical (Hill)abilities. What many do not know, never heard or, and would not believe in this industry, is what I called 35 years ago NAME LENDING. In the case of Madoff, it was so easy for him having held one of the highest position of recognisition in the industry. He MUST BE squeeky clean, and the way he operated the scam was even more shrewd. He would decide who was good enough to enter his paradise, and not the client checking him out. It was extremely astute by him. But as said it harks back 35 years to my knowledge of NAME lending. I will NOT name the person, but a certain well known shipowning name in Greece, had got a loan of 85 mill usd. He defaulted. He was actually jailed on a Greek technicality of issuing a cheque with insufficient funds to cover it. He spent nearly 2 years behind bars. Which makes him a CRIMINAL - yes or no? Right. So, he gets out of jail and in 48 hours has no less than 3 banks knocking on his door offering him 90 usd million - enough to cover the loss of the first and get on. He got that too, and lasted about 8 years before finally falling down bankrupt. NAME thats all. It stinks. I often wonder if I changed my name to Lord Fontelroy of North West twicklesome if I would get my business loans without the hasstle I face presently, I believe yes!
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Its clear that savers should be penalised severely. Everyone must be FORCED to spend everything they have. This is now a patriotic duty. There can be no backsliding on this!
As a representative of HMG, I have to say; don't think we saved your bank deposits for YOUR BENEFIT, we saved them to confiscate as soon as we run out of readies - not long now citizens.
Christmas message from Zanu-NuLabour: get out there and spend, we are, and don't worry about the future; we don't have one so why should you.
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#46
"Hear that money is just disappearing into RBS faster than the Government can pour in. If Gordon'll do this for the Scotland vote, what won't they do for their marginals?"
Wasn't the head of Lloyds on R5 yesterday saying that noone gets any of the bailout money until January..........
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Perhaps it might be appropriate to draw comparison between Madoff management of investor funds and Brown's management of taxpayers funds.
i.e.
a) Lots of schmooz and gaily painted promises of sound economic management, when in fact the management of funds is far from sound.
b) Borrowing from future take to pay out now and thus give the false impression of soundly managed curent policy.
c) Adherance to investment processes based around similarity with Ponzi principles of when in debt, create more debt.
d) Wholesale disappearance of investor value and net worth, leaving investors and their future generations stuck with wealth destruction for years and years to come
e) Realisation that the dead-end has been reached and there is no way out, followed by final admission of failure of current practices.
The latter stage has not yet arrived for one of the parties named above but the direction comparison does make one question as to where Brown's economic management resulting in collapse of the Pound and greater future net debt will eventually lead to.
Whichever way you look at it there does seem to be some similarity in method.
Anyway, not a pretty prospect for those initially trusting investors and taxpayers who may have been scalped and duped by either of the parties
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#5
The old Game Theories are being used already.
I think the choice will be between
Iran
Venezuala
Canada
Nigeria
Saudi Arabia
Kuwait
(not in any particular order).
The problem this time is that, due to various alliances and due to the desperate times we are in, the attacks will provoke a world war.
The thing I am quite looking forward to is how the Govt and some of the media persuade us that Venezualans and Canadians are part of the axis of evil. Will they even try to invent a story this time?
The BBC tried their best to be fair last time but were white washed in the Hutton report. Poor humanity. Poor, strange race of beings that we are.
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re : 56 better watch out
banks may up their losses and get more money
that's a tax fiddle in every sense (in and out)
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10. At 11:55am on 19 Dec 2008, NewsSpotz wrote:
I think you are seriously underestimating the ability of high quality Hedges to recover and UK PLC. Many have already put risk adverse strategies in place for sometime now, seeking Fund Management status to help find other sources of income to offset redemptions and various other measures.
Banks are weak because blogs like this have convinced everyone they are, share prices have collapse and so has their capital ratios as a result. I hope this blog starts reflecting the real economic situation soon!
There is nothing REAL about your version of it. That's the whole point, though since your paradigm and jargon doesn't allow for such a position there's no point in me expanding on it.
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Re 36 & 46 - I think we'd top 400 posts if we could get a blog going on this one!
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post 46
I would do the job.
But the Media would want to destroy me
because i only deal in TRUTH.
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Now this is how to make them work better.
http://news.bbc.co.uk/1/hi/business/7790695.stm
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We really must get back to funding business with equity rather than borrowing.
Equity is permenant,equity is interest free, equity gives the provider a say in how the business is managed.
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#13 Gednorth thanks for the post.
We've had Madoff, Rubin, Ross.
As the markets fall, frauds and "oversights" are uncovered. Expect more and more to come to light.
#40 JayPee
"Madoff is a sideshow." Perhaps, but very symbolic.
This is all a re-run of the 1929 crash. For Investment Trusts then, read Hedge Funds now?
Expect a crash in the New Yew, and I'm not talking about the 35% fall that's already happened, but expect a short rally beforehand fueled by optimists like JayPee.
Why don't people bother to read their history books?
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Due digiligence, FSA controls etc etc.
Its all a myth as has perpetual growth born out of stupid borrowing.
Brown eyes has gone biblical with the AofC but fails to remember the biblical 'money is the root of all evil'. Book of Peston, Ch3 v69
Or maybe it wasn't Peston but should have been..........
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Stuck up banks do not even want pensioners or poorish people's money. MLIM tell clients they have to have a million pounds in their accounts.
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It reminds me of what all parents tell their children before crossing the road.....look left, look right, look left again and then cross, looking as you go.
Perhaps we need a sort of Green Cross Man for hedge fund managers and others who seem to have walked straight across the Great Fraud Road without looking and then got hit by a juggernaut with sign saying Bernie in the windscreen.
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I don't see how the potential collapse of the hedge funds can be such a bad thing.
If the rich folks withdraw their money from these funds, then they have to put it somewhere else
- in the banks (that would solve the banks' funding problems)
- in Government bonds (that would solve the Government's funding problem)
- in the stock market (would also help)
- in start-up high-tech industries (ha, ha, ha)
And if the Hedges funds can't pay up and go bankrupt, then it's hard to be too upset about them and the rich people who hoped to get such enormous returns out of them.
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There's something fishy about things going on - for example, [Unsuitable/Broken URL removed by Moderator] a week before they were exposed and before the merger even became considered.
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There's something fishy about things going on - for example, www.rtlinfo.be reports someone registered [Unsuitable/Broken URL removed by Moderator] a week before Fortis were exposed and before the merger even became considered.
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Incidentally, there are a couple of interesting stories about the Irish banks doing the rounds today.
The first involves Anglo Irish Bank, which has significant interests in UK property development as well as in Irelan, I think. Three Directors have resigned over the "hiding" of EUR 87 million of loans to one of them by Anglo.
http://www.rte.ie/news/2008/1219/angloirish.html
The second story is that there will be a clear out of senior management in the Irish banks as part of the deal to see them recapitalised. It would be interesting to know why smethong similar hasn't happened in the UK. I know there have been one or two symbolic resignations in the bailed out UK banks, but the Irish cull looks to be something more drastic (and necessary - bank management here is a total joke).
http://www.independent.ie/business/irish/top-executives-may-face-axe-in-836410bn-rescue-deal-1580499.html
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"As hedge funds deleverage, de-risk and reduce their debt-financed investments, there's a substantial knock-on to the ability of all banks to lend, because of the vicious interconnection of falling asset prices...
Hobbled hedge funds mean weakened banks - which means less credit for us."
Well Robert, if you say so, I believe you, because you're jolly knowledgeable about such things.
But here's a question. Did those assets actually exist in the first place? If the assets were just based on some clever financial trickery that had no roots in the real world, wasn't it inevitable that the banks would be weakened anyway? Isn't it a good thing to get the pain over with as soon as possible so that the banks can start rebuilding themselves based on assets that actually exist?
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So the sharks are swallowing up each other until they disappear into that final black hole.
It's going to be really interesting just how much money there really is left at the end of the day.
Reassuring for the small investor that it's just not them who have lost their money
Never mind we still have the British fighting spirit as Gordon said today.
Seems like he's come down to earth with a crash and realised he didn't really save the world.
Hard on those who believed him but most of us knew he was only joking.
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it is all about greed. If you have a £100 million is it really necessary to want 12% return from a hedge fund? wasnt 6% in HSBC enough to live on? They deserve to lose the money just as one loses ones stake at the bookies when the horse doesnt win....hedge funds are just bookmakers.
Regarding the present problems (and you aint seen nothing yet!) I think the rot set in when my local bank started to try to sell me "products" and started calling the staff "customer service advisers" instead of just lending deposits to well established borrowers!
where will in end....in tears, GB/AD have as much idea of how to run an economy as my dear old mother, and she is suffering from dementia!
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Rahere????????????????????
What did you say?
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Until all the messes are sorted out banks should operate under american style chapter 11 bankruptcy to consolidate their financial data.
It would mean rebranding Company logos with DIP debtor in possession for a short while.
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# 65 reportthetruth
FTSE is already 15% + above its November lows, S and P is over 20% higher. S and P also broke through its 50-day moving average earlier this week. I could add more stats about hisorically low pe ratios etc. But just making the point that many of us have read our history books as you suggest, and history tells us we're looking at a buying opportunity thats unlikely to be repeated for another 60-80 years.
Check out Buffett's comments on investing throught he 20th century. We've seen far worse conditions than we have now, and the Dow went from 60 to over 11,000 over the century, bottoming in September 1932 at 40-something.
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This is a crisis caused by Politicians. The bankers and Hedge Funds simply exploited the low interest rates created by the Politicians.
Low interest rates created the illusion of wealth and funded wars. It meant reelection for those who saw themselves as God's chosen ones.
Bush and Blair/Brown all wanted a legacy and they now have will have it:
The Second Great Depression
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well worth a read.
http://www.monbiot.com/archives/2008/12/16/pin-striped-pirates/
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42. oldgroucho
Keep up the good work. Don't expect Peston to join the debate on any of the topics you mentioned.
He knows which side his bread is buttered.
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Robert you talk of the negative aspect of the seriously rich pulling their money out of hedge funds but what will they do with it? Hedge funds are no more than middlemen for lazy investors who what someone else to make all the right decisions for them to maximize their profits, like all cons and schemes (not that I think the majority of hedge funds fall into that category) they rely on greed, someone wanting something for nothing, in this case a higher return for doing no extra work. Maybe this just means that these investors who were looking for the large returns on their funds will have to do some work themselves or accept a lower return but at the end of the day their money will still need to be put in the system somewhere. Maybe the more risky investment opportunities will suffer but that will only be until the yield offered starts to outweigh the risk
14. At 12:02pm on 19 Dec 2008, JavaMan1984 wrote:
Cancelled my ONLY credit card yesterday (was always paid off at end of month), the nations largest building society was baffled.
Javaman1984 I too would be baffled why give up a service that costs you nothing, gives you protection on purchases and is hugely convenient ? It is not credit itself that is the problem it’s the miss use and over reliance on credit by those who use it to live beyond their means that is the problem. You sound like you are prudent so unless you do not think you have the will power to continue on that road, why give up what will be for you a free service?
53. At 12:58pm on 19 Dec 2008, Nataku wrote:
What I find fascinating is that for every pound LOST by a speculator, investor etc, somebody else has GAINED tht pound.
If only it were that simple I buy a house for £100k I sell it for £150k and buy one for £200k the person who bought my house on 100% mortgage defaults and house prices have fallen and the bank can only recoup £100k a £50k loss my house is now only worth £150k I’m even the banks lost £50k you may say that the person who sold the £200k house has made £50k but that is only if he has left the market, even then they will have rent to pay which will eat into any profit and that’s without all the various fees and interest that would have been paid. Same applies to any investment rarely is it as simple as a winner and a loser and there are always costs involved in any business/financial transaction.
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"Made off with all our money" is a very fitting title also for Maxwell, Enron, Rubin, Lehmans etc. These are real financial and economic WMD which kills masses.
#15 forumdud2 wrote:
"So this guy Madoff was really careless and lost $50 billion. This top class investor kept losing and losing and nobody noticed. And all the money has just disappeared.
I wonder if invested in companies like Bear Stearns and Lehmans that went bust. I wonder who ran away with all that money before they collapsed ?"
The same question I have been asking. This is one financial WMD too far. We must find out who have ran away with all the money, down to the last $1m. It only costa few thousands to get a MP to ask questions at the Commons. Over the years and decades, these people who profited from these scams and frauds must have used the enormous amount of money power to corrupt governments, the legal systems, foreign policies, world security, the financial systems and maybe even fostered and started wars, all at our costs and to our detriments.
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#10
Blogs like this have destroyed confidence in the banks?
Lies and marketing was the only thing that built them up.
It is clear you have a personal interest in the success of FoF and the like. For that reason your post is more or less null and void. I hope you invested a lot into it.
Tell me... Which BLOG ruined the banking industry in past history?
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Since government borrowing is increasing faster than anticipated and tax revenues are decreasing significantly it would be useful to understand where you see the government borrowings are in relation to next year's predicted GDP and not last years GDP as currently reported.
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Talking about hedge funds isnt Chrysler owned by a hedge fund called Cerebus? So the US taxpayer is bailing out a hedge fund!..........President Bush has just announced $13.4 billion in emergency loans to prevent the collapse of General Motors and Chrysler, and another $4 billion available in February with the entire bailout conditioned on the companies undertaking sweeping reorganization plans to show that they can return to profitability.
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So there is no gold at the end of the rainbow because the King of the Leprachauns has magicked it away.
What a surprise!
It is the rich, the super-rich, the hedge-funds, the bankers (again), the regulators (again) and the politicians (again) who have to accept the indictment as to their gullibility and all the misery this will cause to other less powerful people. Will we see heads on pikes?
The world has been living in faerie-land for the last five to seven years or so and now the wicked witch has come to repossess the magic castle and flog the unicorn off to the genie from the happy-hour bottle.
The only person with any sense is the washerwoman and the rest of her class as they have long known that nothing is for nothing and all has to be worked for.
I note Baron Hardup of No.10 has not yet realised that in mortgaging his estate for a mess of pottage he will soon become Peasant Very Hardup of Godknowswhere.
I think we just have to appreciate that there is nothing new under the sun, most crooks are just stupid, being clever does not mean that you are intelligent and that perhaps we have made civilisation too complex for anyone to understand.
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Nobody knew bloggers had credentials. I've performed in high powered positions in my sleep for over 20 years now. This financial stuff seems like a piece of cake
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64 - I take your point but I'm not convinced that is as simple as that. For example, I'm sure that the lenders to many companies are currently having quite a major impact on how business are being managed through banking covenants etc and I'm not sure that the majority of the holders of equity in RBS, HBoS, etc other than the large institutional shareholders have much say in the management of these companies.
There is nothing wrong with sensible borrowing to fund working capital and also, to an extent, to fund acquisitions. The problem is where too much funds are borrowed to leverage up acquisitions in order to produce a greater return on investment for the equity providers.
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89
I am making a general point.
I am not suggesting that there should be no borrowing . I am suggesting that borrowing has replaced equity far too much.
The influence that the shareholders would exercise would largely be at the point where capital was raised using share issues.Where they would buy or not, and if the Co was not being prudently and profiatbly managed the share issue would fail
In my youth rights issues were legion. When cheap money came along they declined rapidly.
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42 OldGroucho - good posts. It seems that even Gordon Brown no understands the looming energy crisis/peak oil. As soon as the global economy recovers, oil prices will rocket up again which will then stall the growth.
There is still plenty oil out there but it is becoming increasingly expensive to get out . The current problem is that the oil companies are reducing the capex required to maintain the levels of supply (or slow down the rate of decrease in production) in view of the lower oil prices. The cost of getting the oil out of the ground is an indication of the amount of energy required to get the oil; the point is that the amount of "free energy" (the amount by which the energy in the oil produced exceeds the amount of energy required to produce it) in the oil to be produced in the future will diminish and this will restrain economic growth.
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#91
Bring on a combination of renewables and a massive efficiency drive so we need to generate less energy.
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It seems to be a given that Madhoff has perpetuated the biggest Ponzi scam ever at around GBP50B, but this is not so. Flash Gordon's Ponzi scam over the last ten years or so has accounted for a very much larger figure.
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Glutton Glutton Glutton
It is so sad that the Greed culture is about to wreak such world wide grief to millions of people. The Banks the financial regulators the Politicians ( all in cohorts with each other ) are those who have all of this misery on their shoulders.
It is a shame that the desire to have the biggest house in Hampstead the most expensive Car - the overseas Villa in south of France, the biggest boat moored in the harbour, the best hospitality box in twickenham and then once having been sated with material wealth to then look and become more greedy in seeing others that might just have something that they dont have.
We seem to want to reach soddom and gomorrah. At the end it all comes tumbling down.
Those who got us into this mess should lose their jobs and they should be made to give up al their assets and move in to a 3 bed terrace house in Peckham -shop in Tescos ( not waitrose ) or is that too severe?
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What we have seen is like a big poker game in the wild west where everyone has been cheating:
Some players including the sheriff and the deputies (UK/US/EU) have been slowly losing but they dont care because they are paying with IOUs.
Some players (OPEC) have been playing as a team and holding aces up their sleave.
Some players (China) have been marking cards (distorting markets to favour their exporters).
The casino (Banks) have been laughing at all the cheating and taking a cut off all the action.
Now we just discovered one of the croupiers (Madoff) has been palming chips.
For a long time everyone was happy with their own scam. But the level of cheating got larger and larger until the card counters and team players have suddenly noticed the casino will never be able to convert the IOUs into cash so all they have won is plastic chips.
The IOU passers have also woken up and noticed there are far too many aces in the deck and there are big blue crosses on the back of all the kings so they are not sure they should pay off on all the IOUs anyway.
The question is what the new sheriff is going to do to resolve matters. The UK is a deputy sheriff, it needs to respond strategically rather than lead.
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91. At 2:50pm on 19 Dec 2008, nedafo wrote:
"There is still plenty oil out there but it is becoming increasingly expensive to get out "
Where is your information to back up this statement or is it assumed that extracting the oil now is more expensive than previous years ? I read an article on Wikipedia today (I assume correct) indicating the biggest oil producer (Saudi Arabia) has some of the lowest extraction costs.-
Please explain your alarmist "increasingly expensive" or shall we stick to the facts ?
I get the impression most readers/contributors to this blog just want the facts - Strange but we never seem to get ALL of the facts from Robert Peston.
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# 52 alexandercurzon
We're going to be reeling from this for 5 - 10 years hence, maybe even longer.
The principal reason is that the end-of-cheap-energy will kick-in with a vengeance in the same timeframe. Consequently, we'll not re-establish previous levels of economic activity. Throw in the demographic effects of our ageing population and our stupendous pension liabilities, not to mention all the other cosmic levels of debt and contingent liabilities on government spending now being run up by The Brown Terror ... and it doesn't take an archbishop to work out that the austerity decade lays before us.
I really do need one of the more optimistic bloggers amongst us to describe what, when and how recovery starts later next year. What's the catalyst?
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With the advent of the big bang at the end of the 80's when the city and finacial markets around the world went global, there was always a danger that the money markets would end up in such a horrible mess, simply because the likelihood of such problems happening was grossly underestimated or were not fully understood at that time.
The rate at which information technology was advancing ensured that vast numbers of transactions could be carried out simultaneously and this information could then be transmitted around the world in as instant.
This IT explosion made it almost impossible for the senior decision makers to fully digest and properly understand what was happening and so they became increasingly dependent on the honesty and integrity of their subordinates.
By the beginning of 2000 the clever and more corrupt fund managers and traders new they could afford to take foolish and risky decisions safe in the knowledge that if things did go wrong they could make a pile of money and be gone before being found out.
Madox is just an extreme example of such behaviour
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#76
Kindly ask the moderators to repost. Rahere is landing an International Organisation's accounts at the moment and doesn't have time to play with people whose ignorance is only exceeded by their stupidity in returning mail to his cut-out mailbox fully annotated ready for use by their masters to shoot them.
The reason they killed that post is that the reputable foreign press website in question suggests this entire crash is a spectacular fit-up putting Madoff in the shadows. They probably killed it because it's in (gasp!) French, and you shall not speak foreign languages here - regardless of the f
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#76
Kindly ask the moderators to repost. Rahere is landing an International Organisation's accounts at the moment and doesn't have time to play with people whose ignorance is only exceeded by their stupidity in returning mail to his cut-out mailbox fully annotated ready for use by their masters to shoot them.
The reason they killed that post is that the reputable foreign press website in question suggests with hard evidence that this entire crash is a spectacular fit-up putting Madoff in the shadows. They probably killed it because it's in (gasp!) French, and you shall not speak foreign languages here - regardless of the fact said language is 45% of our own.
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Horlick's due diligence is clearly zero and the potential law suit is merely a red herring to cover up ineptitude.
What this mess is showing is that big is not beautiful. In fact its a nightmare whether it is call centres where no one gives their name or admin centres where they don't speak or understand english.
The savings created through economies of scale to the end consume come at a cost of cheap labour elsewhere
There can be a fair basis for all on eth condition that we all agree if all animals are equal some can not be more equal than others.
Fund managers will play the markets like anyone else and very few of the 1000's have a clue what they are doing.
Transparency is minimal but verbal bull#### comes in bulk. Too many backs are scratched to get too many Masonic Lodges defend the indefensible.
We either start to rewrite the rules which hopefully Obama will do as Brown is incapable or we continue to suffer for years at the hands of the few.
Bankers and their spin machines have yet to realise their inbred belief that they are masters of the universe is now dead and buried forever, as assumadely will be their over inflated salaries and bonuses.
The spin machines may work at warp factor 100 but Joe Public has now seen what really goes on and is not prepared to forgive and certainly never forget.
Of course consumer confidence is better its ruddy Christmas, and when journalists say lets see how it ( confidence) develops when the January sales start. Do these not realise they are all on now!
Only when we stop kidding ourselves can we move forward, and only when the banks come clean can will we know there is a chance for green shoots to sprout again.
Until then we can not nor should show any faith in a government that continues to think spinning half baked information will get us to think there is a light at the end of the tunnel.
The harsh truth is that we are assuming those who got us into this mess are able to get us out of it and that is simply not the case. They havent a clue and must be changed, until then we must let natural economics take its historic route as it always has.
The only difference between now and 1929 is that derivitive products on derivtive products never existed. But the principals of application in how to sort out the problems we face haven't changed.
We are in no more n extarordinary situation now than and we do nto need extraordinary measures to sort this out!!
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Robert...........
Can you move on now to pen something about Crash's comments today on oil.
Could you emphasise please his complete lack of understanding about the oil market and how he's managed to get right up the nose of even the moderate OPEC members because of his arrogance.
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#78 JayPee
Now, as you know, I am a great admirer of some of your posts. But...
Remind me, Warren Buffett - when was he born exactly? A year after the great crash? Experience is everything and unfortunately not even he was an investor in 1929. I buy his investment style, but this time he's talking his book.
Now tell me about these "hisorically low pe ratios". What is the stock market pe average at the moment, low teens? What was it after the 1929 crash, 6?
Sure, a pe ratio of 10 looks really cheap, but not if it drops another 40 percent plus.
It's funny, you mention the current "rally". Exactly what the market did in Jan to March 1930. And then from June for the next 2 years the market lossed how much? 75 percent.
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It's a bit like life really. If every one acted like as a spouse and kept on demanding or stealing more money or a bigger slice of the cake, there would be be nothing left even, if you helped bake the cake (fathers4justice)
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*87 said
'I think we just have to appreciate that there is nothing new under the sun, most crooks are just stupid, being clever does not mean that you are intelligent and that perhaps we have made civilisation too complex for anyone to understand.'
What a brilliant quote.
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"A well-known wealthy entrepreneur told me last night that he'd lost about 1% of his net worth"-am I the only one reading that sentence having to whack himself in the eye with a raw onion whilst thinking about orphaned kittens watching Bambi in order to provoke a tear for this person?
If I lost 1% of my current wealth I'd lose about nineteen pence.
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I have come up with this Broker rap let me know what you think.
would be good to set it to music .
These times are upon us for our excess and greed
Lets hope the bees recover to feed our need
All thought this Hummer culture would never end
Paying and praying to heaven we send
GM crops GM motors ford Chryslers’ sake
Only mother nature knows our fate
Its a northern rock hard time for the global village
The bail out money is like a massive oil spillage
Spreading its bible black ink to cover the holes
For balance sheet deficits and bankers souls
GM crops GM motors Ford Chryslers’ sake
Only mother nature knows our fate
Now don’t worry Paulson and Benneke are in town
Allegedly they followed the lead from Darling and Brown
Come on now don’t get upset just spend at the tills
Our children and their children will pay the bills
GM crops GM motors Ford Chryslers’ sake
Only Mother Nature knows our fate
The golden parachutes have had the ties cut
They were the ones selling the short put
It was all in a days work at Lehman bro
Fulds gold just had to go
GM crops GM motors Ford Chryslers’ sake
Only Mother Nature knows our fate
The capitalist ideal was all just a folly
Bernard Madoffe has made of lolly
Christmas is sober we will just get some holly.
Its free and green and grows in most places
Just embrace the smiles on loved ones faces
GM crops GM motors Ford Chryslers’ sake
Only Mother Nature knows our fate
©Dee Wilson 19 December 2008
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All the senior staff and members of boards of management of the investment banks/investment divisions/hedge funds should be paid their annual bonuses in the form of the toxic assets those institutions hold, without the right to sell them. That will motivate the individuals concerned to be more ethical and careful in their work....Just as Credit Suisse is now doing!
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#104
It's interesting how many of us bring our own agendas into this discussion (politics, environment, energy, etc) about a hedge fund but fathers4justuce is a corker!
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HA HA HA HO HO HO HAPPY CHRISTMAS
Just enjoy it 'cause you ain't going to enjoy the next few years very much.
Forget all of the so called experts - those that sell their advice, offer to manage your money for you. Why? because they are ALL out of touch with the reality that is unfolding before us. Their theories and equations and relationships belong to another age.
Robert talks about a new economy. i agree with him that what does follow this debacle will in no way look like the old spiv economy.
So if Tata want money from the UK government let us use some of the developing economic reality i.e. NO WAY!! but we will nationalise the assets at their present market value. Otherwise Mr Tata fund it yourself. But if you don't then we will nationalise it anyway at a further reduced value!!!!
Sod the finance experts lets concentrate upon building a well rounded and balanced economy.
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Re: Post 98
Madox should have read Madoff, silly me.
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Hey 54.
At 12:59pm on 19 Dec 2008, robinstp wrote
Name lending. Greek crooks.
That’s interesting; I suspect you and I may have passed as ships in the night mate.
Like you, I can give plenty of similar examples.
How about the trader caught insider dealing by a VERY major bank. Too valuable to fire.
Caught again a few years later, too valuable to fire but the SFA did not approve of him so the bank sent him to the good ole US of A.
What do you know: caught AGAIN. Fired after some angry as hornets SEC people discovered the guy’s history.
BUT he resurfaces a few years later back in London as a Very senior investment banker. No one comments, no one cares. Now FSA is the regulator so before my time guv.
There are dozens of similar stories of corruption and compliance incompetence.
Only one guarantee in this life, if you tell the bosses you get disposed of PDQ.
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#53 "What I find fascinating is that for every pound LOST by a speculator, investor etc, somebody else has GAINED tht pound.
.......
End of the day, the monetary system is zero sum + INTEREST."
Not really. Much speculation is with borrowed money - ie money created by an entry in a ledger, electronically or otherwise, backed, not by gold, but by the perceived value of those assets. If asset prices are rising, more money will be created this way, and some will spill into the general economy. Result feedback loop and boom.
If asset prices are falling, then money lost needs to be repaid. Some can't be and is effectively written off, whether through bankruptcy or some other means. Assets need to be sold off so that debt can be repaid, thus depressing the price of other assets still further. Therefore less agregate credit/debit can be backed by these assets. So money is destroyed, and/or otherwise removed from the system so it can't be spent. Result, feedback loop and recession/depression.
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Sorry the last verse previously posted was not complete
The capitalist ideal was all just a folly
Bernard Madoffe has made of with the lolly
Christmas is sober we will just get some holly.
Its free and green and grows in most places
Just embrace the smiles on loved ones faces
GM crops GM motors Ford Chryslers’ sake
Only Mother Nature knows our fate
©Dee Wilson 19 December2008
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Why are so few people, let alone economists willing to talk about the catastrophic destruction of money that has and is taking place?
All of the derivative tier of investment vehicles are basically toast. This combined with tighter regulation will dramatically reduce the whole World's money supply - this is the terrifying perfect storm. Central bankers know this and are pumping hundreds of trillions into the money supply, but it is too small too late. The fools who created the bubble seem intent on re-inflating it and doing nothing else.
The reality that they will not face and will not talk about is how we get from where we are today with the World awash with worthless money. (Money is worthless as there is no value in holding money any more since the Banks reduced interest rates to zero or effectively 5% negative.)
Further more banks are bailing out the very organisations and people who blew the lot in the first place giving the direct and unavoidable message that loans do not have to be repaid. I'll take a trillion trillion please at zero percent please - It will after all not cost me anything and I will not have to pay it back!
This insane banking situation is the direct consequence of letting the fools who gave us the bubble continue to run the show rather than sack them as we should have done!
They have left us with a most appalling financial World with a negative incentive to save and no adverse consequence of not repaying a loan which in any case does not cost anything - they have destroyed money and they must be stopped and they must be stopped NOW.
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why oh why cant GB stick to what he is good at ( whatever that is!) and stay away from things he knows nothing about, like the economy, banking, industry and oil....why on earth did he make that speech this morning, it was pathetic, just highlighted the fact that he really is a lightweight! (does anyone else find that thing he does with his jaw annoying?)
I just had a thought, when do "write downs" become "write ups"?.... when asset classes recover their value...so would ending mark to market end the credit crunch overnight?
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I'd previously commented on one of your other blogs about Mr Madoff - here is what I said then
"Robert,
Is it true that Madoff Securities' auditors were a small 3 man firm based in Rockland County New York ?
If so how could a 3 man firm properly audit a securities firm worth tens of billions of dollars ?
The short answer is they couldn't but no doubt that suited Mr Madoff's purposes.
The US Treasury and the Certified Public Accountants regulatory authorities should never have allowed such a small firm to carry out Madoff's Securities' audit without their work being examined by external regulators.
Didn't they learn anything from Enron ???"
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Robert...
Alittle bit of topic. On your blog the new capitalism you say a quarter of the worlds GDP is 9 Trillion. The amount of debt that is.
And last night you said on the BBC the uk debt was equal to 300% of GDP= 4 trillion. this you say was due to the sub prime in the usa and personal debt in the uk and the bank bailouts.
So what about the housing market here? you cannot of calulated the debt from this in with the 4 trillion as we dont know yet how much that will be. But what we do know is that we are to shrink by about 1.3 percent atleast. but that is only about 45% of that shrinkage due to the above. and 55% is or will be due to our own housing market. which is about another 5 trillion.
So the uk total debt of 9 trillion which is also the worlds total debt of 9 trillion. So therefore if this is the case the uk is responable for all the worlds debt. that just cant be right.
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Re:101 robertmarshall.
'assuming those that got us into this mess ....'
I wonder who did get us into this mess? Most posters here would probably vote for Gordon. Ok, but why not Blair, or Major or Thatcher? Tom Wolfe was writing about greed in the 1980's. Charles Dickens was blasting off in the 1820's about exactly-yes exactly-the same pyramid scheme that Maydoff allegedly perpetrated.
Greed, like the devil has the best tunes-and and history tells us that we fall for the music of greed every time.
We will crawl out of this mess bruised and battered with many casualties-and,quietly at first the music of greed will start all over again!
Not even David C. will be able to stop it happening again, unless he is able to change human nature that is!
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people are still trying to double check their calculations..
.. there is a net figure of nothing which is better then negative large numbers
don't worry
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It amazes me that the House of cards that is British Housebuilding hasn't fallen apart yet.
Nevermind if the Deflation pundits are right, continuing falling house prices will bankrupt them all.
Pension Funds again will lose out.
Oh yes, and endowment policies, (invested in a spread of Shares including Banks have shown how we all are in the same boat).
I wonder if the Accountancy professional will be brought to book ?
I still wonder if Northern Rock had been better handled (and not leaked) whether the British economy would be better off now.
I think more honesty amongst politicians is called for...............
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2 Hedge funds with their shortselling etc, have hovered like Vultures over the struggling Banks.
Little good it did them in the end.
Now most of the Hedges are going down they might wish they had done otherwise.
But then they aren't such great traders and investors as they thought they were.
If your a flea you don't kill your host.
Fleas can't live on corpses.
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95. At 3:09pm on 19 Dec 2008, tom_edinburgh wrote:
What we have seen is like a big poker game in the wild west where everyone has been cheating:
Excellent analogy, mate!
That's because the market values highly all of those
Special
Purpose
Investment
Vehicles
aka SPIVs.
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Note: today's rally for both the Pound and Dollar began simultaneously at 08:30 GMT. Exchange rates do matter it seems!
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Apologies for being off-topic, however BBC online news headline reads:
Brown promises can-do attitude
He (PM Brown) said it was "unfortunate" that the UK had been "unable to avoid being affected" by events elsewhere......
Combined with this mornings energy speech, I'm surely not alone in being affronted by this self-delusional nonsense ?
Incidentally, what is a "beacon of hope" ?
Is that anything to do with the Grail Beacon in the Monty Python film ?
Best of the Season.
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Has no one considered that maybe it is all planned to fail in order that someone can come and sort it out.
check your Bible, it is all written there, towards the end.
cheers
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I have a number of times being asked in social circumstances, what is the secret to successful investing. I usually prattle off a half dozen priciples. The first thing I always say is:
Rule no 1: Never ever ever EVER give your money to someone else to manage. You will always always ALWAYS end up regretting that.
That so many seemingly intelligent people willingly handed over large chunks of money to this buffoon, on trust, is evidence that Darwin's theory of natural selection has still a long way to run with the human race.
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97
There is an outside chance that the collapse in the value of sterling may boost Exports and Tourism.
It is an outside chance.
The UK desperately needs a manufacturing plan to rebalance the economy.
As far as I know there is only the laisez faire it'll get better when workers wages have fallen far enough plan.
You do not need too many brain cells to see that that plan won't work.
The EEC should restrict cheap external imports to protect local manufacturers and encourage manufacturing to take place within Europe.
Yes that is protectionism, but with artificially manipulated exchange rates, Britain cannot compete in manufacturing on some many products.
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#80
Many thanks for this reference. Another piece of the jigsaw in place. Glad I'm not a modern history teacher - I'd be rewriting the texts.
Great blog. Just hope some good comes of it.
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Watching Flash Gordon today I realised that he has morphed from saver of the world to insufferable world saver.
It is as though he has anointed himself to a higher level than the rest of us.
As he spoke and answered questions the awful fact hit me - he was saying that he had provided the lifeboats to save us all but if we did not get into them of our own accord then we were doomed and it would be OUR fault.
So there we have it - the Yanks caused the problem in the first place, Gordon put in the measures to cure the malaise, and the measures won't work because the rest of us let the side down.
What an arrogant, megalomaniacal p**t.
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96 - these comments are not alarmist. If you take the example of the UKCS, production costs have risen dramatically over the past few years as a result of rising supply chain costs and also because the larger reservoirs are being emptied and the oil companies are looking more and more at the "puddles" or smaller, more marginal fields. These are more expensive to produce from simply because the operators do not have the benefit of economies of scale.
I do not doubt that production costs in Saudi are cheap. However, the production of the whole of OPEC is only around 50% of world production. It is fact that most of the oil which has come out of the ground to date has come out of the more accessible, larger fields for obvious reasons. The proportion of oil and gas which is more difficult to access is getting higher and higher (take west of Shetland and the Arctic (which will be produced from at some point in the future whn the cap melts).
One other point to consider is that there is a belief (although I cannot verify this through such an undisputable source as Wikipedia) that Saudi and other OPEC members have overstated their reserves. Why? Because traditionally, the quotas awarded to individual Opec member countries has been based on the amount of reserves which they hold. Therefore, there might not be as much oil and gas which can be cheaply produced as many believe.
To bring my ramblings to an end (and the arguments are all presented much more authoritatively on the Association of Peak Oil web site), if oil companies stop investing in capex over the next 12-24 months, this will exacerbate the problems if and when demand for oil increases. It is basic supply and demand. If we stop building drilling rigs, FPSOs etc for a couple of years, there will be a shortage of these when production increases and the rates for hiring these will rise. Prodiction costs will rise. It is what happened in the past couple of years. The infrastructure issue is more significant for the North Sea. In order to produce from the more marginal fields, you need to use the existing infrastructure from the older, larger reserves. The infrastructure is aging and it is becoming increasingly more expensive to maintain. Without the existing infrastructure, new infrastructure (pipelines etc) will need to be constructed and it is uneconomic to do so given the size of the smaller fields. The result is that if the smaller fields are not produced from soon while the existing infrastructure is in place, the marginal reserves will become stranded and may never be produced. In the context of overall world production, the amounts involved are not large but they may be significant in terms of UK energy security and also represent a lost opportunity of revenue for the government.
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GB s beacon will be the bonfire of his vanities.
Unfortunately the British economy is the funeral pyre he lit
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126:
I suppose the economic disaster could be said to be of Biblical proportions.
I can't imagine any deity or deities being bothered to sort out the worlds economic mess.
I can just see the scene on Olympus:
Man: Help ! Help ! Its all gone wrong!
Zeus: Hey, I ddin't even want you guys to have fire!
Man: But some of us are starving, and I can't buy a new sports car or that big house I fancy.
Zeus: Look mate, we gave you a Brain to think with and two hands to work with. You got everything you need to sort out your own troubles.
Man: But we can't, you made us your responsible !
Zeus: Look I can hear Hera calling, and since that fling with the stewardess and the Marmoset, she's been a bit touchy.
You guys have freewill sort yourselves out!
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What about this S & P re-rating ?? Seems we are only Group 2 class.
Let's hope we can beat Iceland in the seller next year. Ahem...
If there are no Group 1's left does that mean we are all at the mercy of the speculators ??
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i saw 2 businesses today one building only social housing with a good supply of contracts and the other in house training for the nhs who have ahd their overdrafts and credit severly curtailed by the clearing banks and leasing companies.
the banks are only pretending to lend once you get to the nitty gritty they don't do it anymore !
Madoff had one thing right he was a confidence trickster !
Can Barrick Obamah with political capital in spades pull off the big one.One thing that is for sure Brown and his politcally savy but deeply flawed dark angel cannot!
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#77 kikidread
"Until all the messes are sorted out banks should operate under american style chapter 11 bankruptcy to consolidate their financial data."
Totally agree. Of course, they will argue that any mention of word 'bankrupt' will cause a run on the banks. (Just like the US auto makers saying nobody will buy their cars if they're in chapter 11)
It's a great defence, not because it's real, but because it scares politicians. Government needs to grow a pair.
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#97 Moraymint
The catalyst is divine intervention.
I'm afraid I feel you are right.
We are in for a real rough ride and a confluence of factors including a shift away from employment to technology will make matters worse for many years.
What Britain REALLY needs is to be making the education system TOP CLASS and instilling in people the need to be excellent, rather than mediocre.
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Hedge funds are supposed to 'hedge' i.e. reduce risk but seem in many cases to have increased it.
If I was investing large amounts of money (either my own or clients) due diligence would mean that I at least understood the principles behind the investment policies of those with whom I was investing the money. No one understood how Madoff made the returns he made - greed meant they didn't care - and it wasn't until the credit crunch stopped him robbing Peter (new clients) to pay Paul (old clients) that it all fell apart.
If high networth individuals (or greedy bastards as some on this blog no doubt view them) take their money out of hedge funds, they'll need to put it somewhere. Protecting their assets becomes more important then earning a high return on those assets - is this such a bad thing for the world economy?
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The government have collectively lost the plot---- it's all just beyond them.
The solution to it all is now quantative easing... or the Weimar solution, I guess.
It wasn't the solution I heard anyone propose back in October (all that time ago!) but, suddenly , now it is.
However I had better stop there because .... I am close to being guilty of thought crime...and by writing it down by 'talk crime'----- the one of 'talking us all into a recession.'
I want to make clear that having considered things and read the opinions on this blog for months (years even) now I am happy to share my conclusion with everyone.... I am now busy talking myself into, not only a total economic recovery to where I was in early 2007 but also talking to myself so hard..that I am convinced I can talk myself into net 10% annual growth on top of even that figure
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# 96 antionio59
Er, where have you been lately? May I politely suggest that you bone up on Peak Oil. Take a look at these websites for starters:
The Oil Drum
Chris Martenson (Crash Course 17a Peak Oil)
Wolf at the Door
Life After the Oil Crash
Simmons & Company (Matt Simmons)
... to name but a few
... and then Google The Olduvai Theory.
Happy reading. My guess is that your attitude to the end of mankind's era of cheap energy will change rapidly and significantly if you research this subject thoroughly.
The energy crunch will hit the politicians between the eyes just like the credit crunch did. That said, one final website gives some cause for optimism perhaps:
The All Party Parliamentary Group on Peak Oil and Gas.
Finally this post is directly relevant to everything happening now under the heading of the "credit crunch" or the "global financial crisis" or whatever you want to call it.
The point is that we're now reaching the end of our wonderful, debt-fuelled growth era which was itself largely built on the assumption that economic growth would be endless, which in turn assumed that the earth's natural resources were infinite.
Let me know when you find the evidence to show that the earth's oil supplies have decades to run at $40 per barrel. If they don't, we're in trouble.
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Just a curve ball to add to the equation.
If people have lost USD 50 billion courtesy of Mr Madoff the first thing they will do is sue their financial advisors assuming that they were talked into investing with Madoff by people like Miss Horlick, other Hedge funds, banks and financial services companies.
Don't expect these cases to come to court but to go straight to Professional Indemnity insurers who insure the banks and financial services companies.
Anyone want to guess who is the biggest player in the global PI business?
It's our old friends AIG. So expect more money requests to the US taxpayers over the next few months.
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Robert ive been saying from september on here that banks and financial institutions are rotten to the core.Just look at Sean Fitzpatrick ex chaiman of anglo irish who resigned last night for having loans of €87m yes 87million and what he done was when the auditors were coming in he borrowed this ammount from another irish bank and paid it off and when they left reinstated this loan and repaid the other bank,now hes not the only one whos been at this so first i wonder has there been an arrangment fee every time he done this? and also what sort of margin was he charged on these loans? what did he use the money for? was he competing in property against the people he was lending to? now robert this same guy before he and his other mates from irish banks crept to the irish goverment in the dead of night for a gurantee bought a load of shares then low and behold the shares jumped in value when the annoucement was made so i ask you robert is this legitmate dealings for the chairman of any institution?
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why oh why oh why do intelligent people entrust their assets to gangsters in suits to play with? if anyone reading this can show a pension plan that contains anywhere near the invested capital on an inflation adjusted basis i would be astonished, you see the suits just want to skin you , don't you get it , they want commissions and fees , they couldn't care less whether you retire comfortably or bankrupt they just want your money , similarly the stock market , the twerps flogging shares from their boiler rooms just want your commission and the shares can nosedive for all they care , that's your lookout and you can bet your bottom dollar they are never liable when anything goes horribly wrong, that's your loss and they don't give a monkeys uncle. if you invest in gilts , look out , Gordon has cranked up the printing press and your principle when returned will be a fraction of what you invested in inflation adjusted terms .... THEN THERE IS GOLD ! check out a £ sterling chart for gold over the last seven years , then also realise that there is ZERO CGT on sovereigns because it is coin of the realm, if you buy bars you are wealthy enough to do it in Zurich and Gordon can go hang , and when the monetary system collapses gold will have a value so high you cannot imagine , a former fed governor suggested last week that the central banks were considering a global devaluation against gold to beat debt deflation, if they do and you are invested in a gold ETF they will tax exceptional gains at some ridiculous rate or rob your gold , so keep it private and keep it safe and gold will keep you safe.
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I think we all realised they were crooks in 2000 after we lost money on our endowments, with profits bonds, pensions etc.....
The only people who didn't realise the financial services industry were crooks were the banks and the government.
And they were so up to their armpits in it they didn't care.
And they still don't care because they haven't lost anything have they.
We lost the money our jobs and our savings.
They got bonuses and two years to prepare their pension funds.
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So an astute investor loses 1% and decides to withdraw all his money from a particular asset class, irrespective of whether it's a good time to be exiting these sorts of investments or not?
Thank goodness for irrational over-reaction as it makes it so much easier for the rest of us to make money!
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ROBERT,
where is all the money please?
I have the impression that there are a load of yachts sitting off the turks and cacos and monaco( phil green's perhaps) whose occupants are also rather enjoying the ride ,Why buy today when the sales are in january or whenever?
or is it a marvelous gearing illusion?
please explain
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What is the fuss abou t ? ALWAYS LOOK ON THE BRIGHT SIDE OF LIFE WHEN YOU ARE CHEWINGON LIFES .......................
As i see it this Gobal mess within our system of Capitalism can simply be put right by
1 Tighter Regulation for the Financial Industry
2 Accountability and responsibility
3 Punish and remove the perpetrators ( we all know who they are )
4 Strong Government
5 Tax payers money should be given to free up credit
5 Austerity for the next few years until we turn the corner.
Simple !
Close your eyes now and wake up in 2015
You wake up to realise that Capitalism was a greed behemoth and that the human race chased money until it could not chase anymore. The Masters of the Universe and Billionaireswe entrusted our livlihoods with had created a virtual Xfactor world . ***The fundamentals to ensure Human existence was simply forgotten.***
To quote a a dutch guy on Bloomberg TV yesterday whan asked to comment about the US Economy " Its is slightly terrorfying"
i dont mean to encourage this gloom but something is seriously wrong out there- everyone is talkingabout howbad it is and how bad it will get.There is a path out of this messbut will we take the right path?
Like Greece if you **ss people off they will eventually react
Have a happy christmas and good luck to all in 2009
The HedgeMaster
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Moraymint - thank you. A much better response than my own.
For what its worth, I think that high energy prices had an important part to play in triggering the current financial crisis. I wonder how many homeowners in the US and UK have been pushed over the financial edge by rising food and fuel costs.
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we are 7 days away from a very important date - 25 December. No no not turkey and mince pies but quartely rent day! A very important date for retailers, landlords, banks and accountants. Retailers (some) will be handing their keys back, landlords will not be able to make the over-leveraged interest/capital payment, banks will have to mark to value, trigerring a write-down in the asset values and a cash call from shareholders (sorry, that's you and me).
As the saying goes "you ain't seen nothing yet"........
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Well personally, I think we should rejoice at the death of the hedge funds and their partners in crime, private equity funds.
Hopefully we'll not see the leveraged buy out of viable companies that then go to the wall having been asset stripped.
I recall a "finance expert" (just picture me doing the four fingered inverted quotes sign) explaining how helpful these buyouts were because they put the company into massive debt which meant that they really had to sharpen up their management practices.
I'll say that again, one of the benefits of a private equity buyout is the company is in massive debt.
At the time I considered setting up a management consultancy that just went to company boards and asked them to give me a huge bag of cash just so they had an incentive to sharpen up their management (I'd also charge them 2 grand a day for the privilege).
Did anybody really believe the utter sh.....cr.....rubbish that was being spouted by the finance sector, the one so beloved of Thatcher, Blair and Brown.
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Institutions with risk adverse strategies?
My daughter, who works part time and receives benefits, spoke to her bank this week about consolidating her debts.
She needed 7k and she had to talk them down from 11k!
The nonsense seems still to be continuing!
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So the world has woken up to the fact that fund managers can't do anything except lose you money. Endowments, Dot.com, fraud etc. Well property prices go up and go down but one thing a fund manager can't do is make a property disappear. Buy property when its cheap. Remember the fire insurance just in case.
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Now then Robert,
the Hedge Funds are losing money..rapidly.
They need a good bet to short and make pots of money from small shareholders.
What about shorting financial institutions in January 2009 when the controls come off?
You bet they will and they will short with a vengence!
RBS closed at 43.4p today (without any help from the outside, only our own shorters) so they have lost 32 per cent of their value since our politicians decided to invest tax-payers money at too high a strike price.
This governments arrogance and incompetance is truly breathtaking.
Madoff (pronounced "made off") was simply an amateur compared to the losses our elected goverment will saddle generations to come with.
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Further to my #100, the Belgian Government has just fallen because of insider dealing and breaches of confidence within the Judiciary concerning the negociations of the survival of Fortis Bank, formerly Société Générale. Anbd if you wipe that out, Mr Moderator, then I'll email Bob personally and ask him to fire you for gross misconduct, because this is important to the story.
In my researches at the behest of the Belgian Cour de Cassation in a different matter which, because it has not been brought to prosecution, is not a matter of sub-judice, I was obliged to brief one of the senior judges of the Cour, who will most certainly have been involved up to his eyes in the Belgian imbroglio, what the origins of this bank were. It has been privately described to me by a very senior Belgian historian as the biggest heist in banking history - albeit possibly now overtaken - whereby Ferdinand Meeus walked off with a third of Belgium during the Belgian Revolution of 1830. Similarly, this Bank was not innocent of many of the worst aspects of the King Leopold's Ghost period.
There may therefore be certain elements of current affairs here which include aspects of revenge. However, that is only part of the story.
Earlier today, RTL Television learned that a website combining the names of Paribas and Fortis was registered on 21st September. Fortis went down the pan on 25th, and the salvage operation swept them up a few days later. The collapse of Fortis therefore appears to have been managed, who by is uncertain. Given the dishonest dealing we have already seen in the Madoff collapse, the need for clean hands becomes imperative.
In many respects, there are close parallels between the Fortis case and HBOS, turning around the relative rights of a government to govern and of an investor to retain their assets. The ECHR is clear on the latter point - it has a constitutional value, and if an investor's assets are nationalised under circumstances where the blame, even in part, for an undervaluation falls to the government, then the government must reimburse the entire cost at the original, higher value. No questions of vinegar-and-Brown-paper poultices, of spun-Sugar nostrums, the damage is the Government's responsibility and it must assume it, as has the Belgian Government tonight.
It may be beyond the wit of any man to bring this under control, but the first step is to freeze the situation by stopping digging ever deeper. Complex statistically-based instruments must be made anathema, there are too many probabilistic interplays hidden in them which can trap even the wary, butterfly-cusps which trigger a sudden catastrophic change of state which just aren't accounted for in the models.
Take a cross-currency exchange option as an example. It's priced against the USD internally within the banks, so you get as good a deal hedging both against the greenback. However, in pay-back you get a better deal, because there's a chance, a brilliant chance in these days of extreme volatility, that whereas the cross-swap stays close to the strike, one leg goes strongly into the money and the other strongly out of it, leaving one covered and the other one in heavy profit, without any underlying exposure. This doesn't happen all of the time, but it does sufficiently often to cover the premia. However, such interplays aren't actively modelled. That's why this must stop. It's dying anyway, as Bob reports here, but its dying gasps are going to do some serious harm - better shoot Icarus before he crashes.
Only then can the clean-up begin, by forcibly changing banks' and companies' auditors (for myself, I'd send each bank's internal audit in to audit its worst enemy) and making them responsible for any losses not discovered. There's ten days to do it in, before this year-end which is the natural reporting date, and time's running out.
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"150. At 5:28pm on 19 Dec 2008, RolandGross wrote:
Well personally, I think we should rejoice at the death of the hedge funds and their partners in crime, private equity funds."
Hedge Funds have about as much in common with Private Equity Funds as savings acocunts have in common with mortgage accounts.
Just because they are both financial products doesn't make them synonymous, irrespective of your dislike for either of them.
Large buy-outs aren't really the mainstay of the PE world and, for the most part, PE investing is as close to a throw-back to old-school finance as you can get, something being repeatedly advocated on the board for many a day.
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Oh, and as far as that so-called broken link is concerned that you edited out, Mr Moderator, it was forced into illegibility by your own software. I tested it before pasting, and the reason you had two links is because your system chose to edit it. You just cost your readers an afternon's heads-up on a major market mover, and that ranks dismissal in most books.
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Dear all,
Is this a talking-the-economy-down thread (reveling in gloom), or, a hard-headed and largely pragmatic facing-of-the-facts (realism.) Discuss* :)
*Not mutually exclusive
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What's with you boys and your obsession with dismissal?
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Several posters (here and on RP's Jaguar blog) have raised the issue of Peak Oil. Perhaps I can contribute to the debate here?
According to advocates of imminent decline, Peak Oil (which occurs, according to Hubbert, when we have used up half of the originally-recoverable oil) is near because remaining reserves are 1100 bn b (50% of the original). Others think the remaining total is much higher - between 2500 and 3500 bn b. At the bottom of that range, we are just over 20 years from Peak.
2500 bn b may be about right, but drawing comfort from this would be a grave mistake, because the calculation involved here is faulty - it ignores the crucial fact that we consume the cheapest, most readily-accessible oil FIRST.
Conventional oil (in the strict sense of light sweet crude produced onshore) has been in decline for some years, and is steadily being displaced by costlier, harder-to-recover oil.
Critically, recoverability - production per b of reserves - thus declines over time.
For example, Canadian oil sands reserves are equivalent to about 2/3rds of remaining Saudi reserves, but oil sands output will never reach even 40% of Saudi capacity - deliverability is far lower.
So it is perfectly possible to have large oil reserves BUT be unable to push production upwards, or to sustain plateau output.
The consensus of 'the great and the good' - IGOs, govts, oil companies - is that oil consumption will/can increase by about 35% over the next 25 years. My view is that that is impossible, and that we are nearing plateau, which will be followed by a decline in capacity, gradual at first but accelerating thereafter.
Now, some draw comfort from the current decline in consumption. But the accompanying low prices, if sustained for any period, would actually accelerate the peak by starving the industry of the investment needed to bring new reserves on stream. Talk of Peak Oil has become noticeably more muted since the summer price peak, but low prices can actually ACCELERATE peak oil by reducing reinvestment.
The other worrying factor is Saudi, which admits that it is now pumping 7 mmb/d of water into the giant (but ageing) Ghawar field to sustain production. It is reasonable to suspect that output from Ghawar, historically 5 mmb/d, is either in or near decline, and that decline could be rapid once it begins. Ghawar is essentially irreplaceable.
Best date for Peak Oil? We'll only really know with hindsight, but anytime between now and about 2015 would appear to be the parameters.
If we follow the (impressive) logic of the Hirsch report, adaptation investment must precede Peak by at least 10 years, therefore needs to start NOW.
But how are we supposed to undertake adaptation investment with our financial system in the blender? The implication is that, before too long, oil prices will escalate once again as/when production capacity goes into decline. This time, the price spike will not be temporary.
Peak Oil is a fascinating subject, and one which we ignore at our peril.
Perhaps Robert could write a piece about this? It really is important.......
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143:
Hmm, interesting the scrap rate for Gold is only ten pounds a gram.
So who do Jewellers sell their scrap Gold to ?
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Nationalizing Housebuilders Next ?
Or is that in the new year ?
Lets have a demand led recovery, boosted by a twenty percent pay rise for the Public Sector !
There's going to be (has been) quite a bit of Inflation, so lets be honest and get it over and done with.
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143 Thievingbanksters:
A very informative and interesting post, for which many thanks.
I certainly agree with you about gilts! Russia, I understand, has had to push rates up to 18% to defend the currency and attract lending - what makes us any better?
I think it is highly likely that rates will have to rise in order to fill the govt's escalating borrowing needs, because why would overseas investors put money into a disintegrating currency at derisory (nominal) rates of return?
Perhaps we should look at govts the same way the wise investor looks at companies? If we did, the check list would be:
1. How strong is cash flow?
2. What does the balance sheet look like (including hidden liabilities)?
3. Does cash flow cover costs?
4. How good is the management?
I suspect that, on all 4 criteria - the last one especially - you wouldn't touch shares in UK plc, if it was a listed company, with a ten-foot pole.
Gilts could be a short-sellers' benefit match in 2009!
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I've just read that GWB has told GM and Chrysler to become viable by 31st March!
Has he any idea how long it might take to:
1. Design a modern (i.e. fuel-efficient) product range
2. Re-tool production to deliver the new vehicles
3. Work off the huge pension/welfare overhang
4. Stop incurring unaffordable future pension/welfare obligations
5. Cut a realistic deal with the unions?
I mean, I know the guy does not have a reputation as a genius, but this timescale is loopy!
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154. At 5:39pm on 19 Dec 2008, rahere
you can't say all that stuff surely, but could you clarify if there was any rat dealing by staff or if it was just the usual official business practice.
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154. At 5:39pm on 19 Dec 2008, rahere
Call them SocGen (I invented that name). I think Nichola Horlicks was involved in their formation, but I could be wrong
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Must share this one with you, it's a priceless quote from a GM car dealer on the BBC business website:
"The question now is how to excite consumers to buy cars from January to March. We're all sitting on millions of dollars of unmoving cars"
NOW we know why they can't sell GM vehicles - who would buy an "unmoving" car?
It reminds me of the story that GM tried to sell it's Nova model in Spain, not realising that 'Nova' means 'won't go' in Spanish....
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At 5:43pm on 19 Dec 2008, VinChainSaw wrote:
"Just because they are both financial products doesn't make them synonymous, irrespective of your dislike for either of them."
Well thankyou Mr Saw for pointing out a flaw in a statement I never made. Are there any other random statements I haven't made that you'd like to critically analyse :o)
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I don't think Robert is right on this one at all. It really depends on the nature of the hedge funds affected, the assets they own and the degree of leverage used to acquire those assets. But a sweeping and alarmist generalisation to support a point with relatively little analytical substance is much better copy, I suppose.
Many hedge funds are now very long on cash or cash equivalents and low on leverage. Those with the most toxic assets supported by high leverage are long gone, along with their most aggressive supporters - viz Bear Sterns and Lehman.
To the extent hedge funds do need to de-leverage as they pay off departing investors, that is cash back in the hands of banks for them to do as they please. Also, what of the many of Robert's rich mates who do take their cash back? What will they do with the money? Either place it on deposit, buy government debt if really risk averse, or perhaps even start buying shares again. (Given the paucity of returns on cash now).
The quicker the capital tied up in marginal hedge funds gets back to banks the better, in my view. That can only hasten the speed at which it gets back in the hands of ordinary individual and corporate borrowers. (Even if some asset classes suffer further in the process). The best hedge funds will survive and prosper and do what they were supposed to do in the first place.
I actually expect very few will do as this particular individual has apparently done. If their hedge funds have apparently been outperforming, they (and their advisers) will spend a lot of time trying to work out if it is for real or not and, if it is, leave well alone.
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Just to add a bit more gloom to the mix, France Telecom have just lost all three data cables to the Indian call centres again. Online retailers depend on them for their support lines, which will now be unavailable until 25th.
When it was first cut earlier this year, serious disruption resulted. Losing all three replacements simultaneously makes me begin to suspect economic warfare of sorts.
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Robert,
speaking of money diapering oops disappearing into the phantom zone; what's happening with the HBOS Lloyds-TSB soap-opera? Just when the shotgun seems to have got bride and groom to the altar, so to speak, the HBOS share price has closed at 48% of the LTSB share price - significantly below the 60% offer. Surely this indicates serious doubts as to whether the deal will be completed? Is there yet more bad news for HBOS about to be revealed?
In which case would the end result be administration after all?
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#148
I agree high oil prices sucked money out of the west this was the catalyst for the fall in consumer confidence that resulted in a fall in demand for property.
On the bright side oil fell 15% today!! to $34 dollars/barrel
The majority who are in work will become better off, the reccesion may be much shorter than many of the pessimist in the media think.
I also read that the USA may be pass peak oil consumption due to a rapid change too renewables this will only increase with the Obama presidency. If we in Europe follow then dependence on oil will be greatly reduced.
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159. Friendlycard and other Peak Oil posters:
Peak Oil has actually started in 2005 and will continue till near end of 2009. That is the world production of crude oil has reached its peak in 2005 and has remain more or less stable ever since.
Industry statistics (Petroleum Review) indicate that total world production will start to decline at the end of 2009. Given the recession induced slightly reduced consumption, the decline may be postponed by a one or two months to the start of 2010.
The effect does not depend on increasing costs. Even if extraction costs remained at $1/barrel as used to be the case in the Gulf, the peak would still occur. That is because the Peak Oil effect is caused by the accumulation of production curves from all oil wells, existing and also new wells, yet to be opened. And each one of the curves has basically the same bell shape.
Lets bear in mind that discoveries have peaked in 1962 !!, over 45 years ago. You have to discover oil before you can extract it.
The Canadian Tar Sands operate under numerous constraint, which means they will never produce more than a few mb/day, i.e contribute just a few percentage points to global production.
Have a look at:
http://www.transitionnc.org/?q=node/73
for better explanation and some ideas on how to cope with the 21st century, the century of decline.
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It will all be alright.
Father Christmas comes down the chimney next week
Bush will get Battleships (hates the fact he and his dad couldnt kill a few sailors like Margaret - culled 100's of infantry instead
Blair will get Cluedo, Mr Jew does it in the west bank or Mr Muslim does it in the lounge bar and he chooses Miss White in the Boardroom
Brown will get Scrabble, knows exactly where the treble words are, but has difficulty in spelling bust with an open word on table spelling bust ( has trouble with B's unless it ends in *hit)
Maadoff will get The price is Right from many 'freinds, who stump up the golden showpiece of 10million dollars from his ealry benefactors to allow him to have a pleasant holiday period.
Rudolph will get his P45 for failing to meet his targets of 2 billion presents delivered on time and paid for by credit card.
Father Christmas also gets the sack for telling the elf's they were investing in flying reindeer
Happy Christmas
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167. At 6:28pm on 19 Dec 2008, RolandGross wrote:
At 5:43pm on 19 Dec 2008, VinChainSaw wrote:
Well thankyou Mr Saw for pointing out a flaw in a statement I never made. Are there any other random statements I haven't made that you'd like to critically analyse :o)
150. At 5:28pm on 19 Dec 2008, RolandGross wrote:
Well personally, I think we should rejoice at the death of the hedge funds and their partners in crime, private equity funds.
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#3: Short and sweet, and right on point.
It will be very painful for a while, but it is time to return to sanity in our financial practices, from bottom to top.
Handing money to GM and Chrysler does NOT fit the definition of sanity, by the way!
They are already bankrupt, and assuming that Obama and the Dems will be setting up a cash IV line to keep the patient alive indefinitely, because the union delivers them votes.
The government is buying votes with OUR dollars, and the futures of our children.
Madoff's Ponzi scheme is reprehensible, but it's small potatoes compared the fraud perpetrated by the United States government.
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172 Paul:
Good points (and thanks for the link).
My view is that there is still some spare capacity left - for internal reasons, certain countries are producing well below capacity - but the peak, even if it hasn't already happened (which it may have done, in September 2005 if memory serves), cannot be too far away.
The key issue here is likely to be Ghawar.
Our current economic and social system is unsustainable without readily-available oil (and gas). No way, without abundant energy, could we feed the current 6.2 bn population, let alone the 8 bn predicted for 2030.
This is a huge problem, but it is getting almost no political attention. Hollywood has produced all manner of doomsday threats in disaster movies (everything from aliens to meteorites to pandemics) but no one seems to have spotted the biggest threat even though it's right undr our noses.
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At 6:50pm on 19 Dec 2008, VinChainSaw wrote:
167. At 6:28pm on 19 Dec 2008, RolandGross wrote:
At 5:43pm on 19 Dec 2008, VinChainSaw wrote:
Well thankyou Mr Saw for pointing out a flaw in a statement I never made. Are there any other random statements I haven't made that you'd like to critically analyse :o)
150. At 5:28pm on 19 Dec 2008, RolandGross wrote:
Well personally, I think we should rejoice at the death of the hedge funds and their partners in crime, private equity funds.
errrrm, that's right you don't see a 'synonymous' in there. geez, with those analytical skills i bet you're making a real killing on the markets.
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172, PeakOilPaul,
I am sure you are an expert on peak oil and it may very well be that we reached peak oil production a while ago. (Although I think evidence is not necessarily reliable either way. A lot of experts do not agree).
In many ways the more interesting point, alluded to by itsbetterupnorth, 171, is what happens to demand. A year or two of recession, more and more efficient cars and trucks (even the Americans get this now), more nucelear and renewable energy, and eventually vehicles that don't need petrol. That will all have a very real impact on demand, and, perhaps more importantly, the perception of future demand. That will influence both price and production. It will also force the oil states to carry on with renewed vigour what they had started with their wealth funds. i.e.; diversify and spread their wealth to other industries and geographies.
All of a sudden I feel more optimistic. Even at the end of a Peston blog.
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I agree with kikidread's comments (in post #)
Shopping and showing off are so out of fashion now:
http://raverantrage.blogspot.com/2008/12/rich-people-hiding-their-extravagant.html
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RolandGross,
Let me guess, you read about a few of the big bad wolves in the financial world and decided to throw in our your 2c worth of insults.
And now you're trying to cloud it with a semantics excuse.
You likened hedge funds to private equity funds by calling them partners in crime, not me. It shows a fundemental lack of understanding of how the two different products work and their effect on the market place.
Even more telling is that you chose not to address the issue but rather throw stones. Very astute and great commentary Roland...
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133, I was thinking more about Revelations, the bit where everything goes bad and then a bogus "saviour" comes and sorts it all out.
It would take somebody with a load of dosh and, even better, a famous well loved mother.
The same sort of worship happened in Egypt I believe, Isis etc. Some say that the freemasonic fraternity follow this ethos - the mysteries etc. , the same Scottish rooted brothers that founded America and it's always doomed-to-fail-because-it-was engineered-that-way economic strategy.
Scots are famed engineers, no ?
cheers though; from Scotland.
http://newspaceman.blogspot.com/
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Was stirred by the rappin' blog - to this on de hedge funds -
Put in me hedge -I had me own reasons
Now it's gone dead in the coldier seasons
Who do I blame? I'm all in a fog
Can't get no clue from readin' this blog!
Could I a been a victim of evil?
(Otherwise it might just be a weevil?)
De leaves is all black and de tendrils is crinkled
I'm out on me back and me forehead is wrinkled
I know I ain't got no talent for rhymin'
Perhaps me truble is all with me timin'
I put in me hedge same time as the others
-- Oh man, I see what I done now brothers...
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It's not all doom and gloom.
Not by design but we are in a better position to come out of this recession than pretty much any of the other leading economies, perhaps that's why Gordon has that factitious smile on his face all the time.
Do not underestimate the benefit we will get from a devalued pound. The real problem that got us into this mess was the excessive trade deficit brought about by the surplus trading nations buying up all our debt keeping our currecy strong to encourage us to buy even more of their worthless plastic toys covered in lead paint. Because commodity and oil prices have fallen off a cliff, despite the depreciation of sterling the input cost for our manufacturing companies has fallen dramatically, and so has the cost of our exports.
Looking at a hypothetical example, the cost of a new £36K Jaguar to M. Sarkosy 15 months ago would have been 53,640 Euros, today the same Jag with a 5% discount because of reduced material costs would cost him 36594 Euros, a reduction of 32%!!! Now in this new world order that kind of price reduction will make a big difference to sales. Demand will not fall to zero, but in the more competitive market place price will be everything.
We need to get out their and promote our manufactured products overseas, domestically buy British (no choice really as the depreciation works both ways), and reindustrialise in certain high value added industries.
Dog walking and sovietesque public sector was never a long term sustainable economic model, the pain had to come one day, luckily we are sharing it with the rest of the world and we are not in the position of completely depleted industrial base, a lot of key skills and industrial infrastructure still exist.
BUY British manufactured/produced goods, book up your holiday to Devon now before it gets completely fully booked and sack your dog walker and recommend they go and do something more in the national interest.
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Quite amusing when you think about it really. Because of regulation in the UK us ordinary folks have to provide the ins and outs of a gnats knacker to open a bank/savings/current/investment account for them to take our money.
However , when they splash our money around - sorry 'invest' - they don't seem to bother to check anything other than the chatter in their cosy circle.
To top it all, when it all goes pear shaped they get our money AGAIN via the government to bail them out.
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I think the problem is simpler than this.
The problem is that 2+2=2x2 and people who invest money forget that this is only true if 2 is the only number you try it with.
Ho did that other guy say it? 'Ye reap what ye sow'
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"All professions are conspiracies against the laity" - GB Shaw
Seems like Incompetence is abounding lately. Police who cannot do their jobs right, social workers, lawyers, politicians and, of course bankers.
Incredible, really, the amount of stupidity and arrogance about the place. We really aren't as clever as we think we are, are we?
What is also amazing is that even when these people are shown to have got things completely wrong, they rarely go to prison, lose their jobs, or even suffer much loss in wealth.
Perhaps society works in spite of, rather than because of, all these great professions. We have to accept that we do not live in a fair meritocratic society.
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re 133 181 126
Lets have a reality check on cosmic awareness
1. 95% of the world will be wiped out
2. A false saviour will declare himself the leader
3. The real savior will emerge one generation later
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One other thought on the economic situation. It's no wonder the Germans are getting all sour, the level of national debt(over 60%) does not allow them to increase their budget deficit (they should have put some of it off balance sheet like Gordon), they have to remain within the stability pact for the european monetary union policy to retain any credibility. Despite their perceived quality, the rest of the world are not going to buy overpriced German manufactured cars, their trade deficit needs to go in the opposite direction to the UKs, like it or not they're going to have to settle for Nissan Micras or those oversized Minis they make in blighty. And despite M. Trichet delusions about the inflationary threats, the overwhelming risk to the German economy is a sustained period of deflation. Imported goods to Germany are becoming considerably cheaper, combination of reduced commodity prices and strengthening currency. The German economy most closely resembles Japans out of all the European economies (France, Italy and Spain run trade deficits). This is the first real test for the Euro, it now quite clearly requires different macroeconomic policies to address the differing nations economic requirements. We'll get to see the real strength of the European union.
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GM did not exist until Alfred Sloan started "rationalising" the US auto industry.
#72 Agree. Time to downsize the pay packets of the heads of banks who "managed" us into this crisis. The justification for high wages was individual expertise now so apparently absent. Directors pay should be aligned with our CEO (GB) who gets £189,000 pa (plus perks of course like protection for life).
Re: Madoff Balzac once wrote "..behind every great success lies a great crime" Pick a name...Rockefeller, Carnegie, Kennedy... Endless choice. Worth reading Taylor Caldwell (Brit born) & Theodore Dreiser, US novelists using social history themes
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Robert,
Megan McArdle of the Atlantic made an alarming point two days ago - here is the link.
http://meganmcardle.theatlantic.com/archives/2008/12/the_madoff_infinite_loop.php
Is this true and how could this affect UK investors?
ps - my user id is ForPeston, because I only registered so that I could respond to your blog. Keep up the good work.
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182. At 7:50pm on 19 Dec 2008, redchristmascrackers wrote:
Was stirred by the rappin' blog - to this on de hedge funds -
+
Why asking me, G? what, what, what, what, you know me
My mouth is sugar, sweet as a honey bee, taste like a forty
Stinkin' like Old-E'!, but I drink Ol' English so I speak Ol' English
You gotta be Dirty and Stinkish, and if it's not, well I guess I'm not
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185:
But 2 is the first true prime.
cheers
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This comment was removed because the moderators found it broke the House Rules.
The unravelling of the hdege fund industry guarantees more pressure on equities.
My forecast for 2009? The Footsie easily down to around 3300, at which point I will start buying.
No promises, mind you......
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187, I don't think I stated or implied to the contrary. If I did, sorry.
cheers
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Peak Oil? -that is just a side-show, only invented to keep investors & speculators interested. By comparison the peak in production of the blessed Tunnocks caramel wafer was in 1993 (just guessin'), but we can all still buy them at 20p and the world hasn't ended.
In the next decade there will only be three things that count: food, water and population. 6 billion of us and counting! Everything is going to get (vitally) simple in a very short time.
Regards,
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185. At 7:56pm on 19 Dec 2008, Dolan wrote:
I think the problem is simpler than this.
The problem is that 2+2=2x2 and people who invest money forget that this is only true if 2 is the only number you try it with.
+
gamble on an accumulator
get 1,000,000/1 odds with 20 bets combined
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RE: 197 E.G
MULTIPLE BETS
Draw on Accrington v Rotherham (5/2)
Odds have changed from 12/5 to 5/2
Draw on Exeter v Rochdale (12/5)
Draw on Blackburn v Stoke (5/2)
Odds have changed from 9/4 to 5/2
Draw on Bolton v Portsmouth (9/4)
Draw on Arsenal v Liverpool (9/4)
Draw on Newcastle v Tottenham (12/5)
Draw on Blackpool v Swansea (12/5)
Burnley to win Bristol City v Burnley (7/4)
Wolves to win Doncaster v Wolves (5/6)
Odds have changed from 10/11 to 5/6
Draw on Sheff Utd v C.Palace (12/5)
St Johnstone to win Airdrie v St Johnstone (8/11)
Scunthorpe to win Colchester v Scunthorpe (6/4)
Odds have changed from 7/5 to 6/4
Draw on Swindon v Yeovil (12/5)
Odds have changed from 11/5 to 12/5
STAKE POTENTIAL RETURN
14) One 13-fold Accumulator £0.10 £100,000.00
Bet £0.10 £100,000.00
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I've been thinking and next year I'm going to plant an extra row or two of potatoes.
Ian Murray
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John_from_hendon your post 115 reflects my own view exactly.
STOP TURNING MONEY INTO CONFETTI!
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Re: 198
This comment has been referred to the moderators. Explain.
Boo! I was only giving an eaxmple for 197
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He only lost 1% of his substantial asset wealth - lucky bloke! He should be shrugging and counting his blessings. It doesn't help the rest of the economy if he acts as if he's on his uppers and liquidates his investments to protect them.
We're OK but not wealthy. We're having some building work done and buying a new kitchen - all locally manufactured and installed. If you've got a bit, get it spent. Keep valuable skills alive and good peoples' families solvent.
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I think Nichola Horlicks is a red herring and Father Christmas does not exist, but my 11 year old son does not believe me
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Heck - 4 years of weekly contributions to the BBC Gardening MB and I'm in pre-mod here. Streuth....
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#196 Tunnocks tea cake production is yet to peak so food shouldn't be a problem.
Thanks to moraymint, curzon, rahere and the like for their interesting comments in recent times. World war, anyone?
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Has anyone asked this question. What do banks make?
Clearly not goods.
Clearly not services for customers.
They are custodians. In old fashioned joint stock banking act terms, they look after our money. We, the depositors pay a fee to the bank to hold our money safely. They in return, use this money, with our tacit (not explicit) permission and lend it to people who need to do this.
This has been the model that is boring, not very profitable, and served the world's economies well for centuries.
Then, 15 years ago, the sales and marketing chaps in banks, with a natural tendency to gamble thought, "A-ha, we can make much more money by spread betting it. Let's convince our fellow banking friends of this wheeze. Sure, we can lend to companies in the old fashioned way, but we can create new products that then bets on the old ones. That way, we can create more money (or at least the illusion of more money) and ensure that this is treated as profit, we get a performance related bonus, spend a few years at it, and then scarper when the wheels begin to fall off. The dullard risk and credit chaps in the bank that still follow the old rules can be persuaded by us. Easy peasy. They can carry on with their ways whilst allowing us some space (and some equity) to play with".
Cut to today, and the dull old bankers are left holding the gambling chips with the wrong horses names and no money to pay.
Regulators and government. Pah! Useless, as usual.
The lunatics are running all the asylums.
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#164/5
So go check.
You'll have to read French for the link about the dates, it's on the [Unsuitable/Broken URL removed by Moderator] site. The most charitable explanation is someone was fishing for blackmail sitenames, but the registration date is so close before these events happened it's anybody's choice whether to believe that or not. Given the rest of the story leading to the fall of this government, it's not as likely as the possibility the stage had been dressed carefully.
As far as the more ancient references are concerned, the historian is very senior in the State archives (roughly the equivalent of #2 at Kew) and I've handled some of the transfer documents by which huge tracts of land were disposed of for minuscule sums. SG was set up by King William I of the Netherlands in 1822 to finance Belgium's contribution to a standing army required under the terms of the Treaty of Vienna to ensure nobody like Napoleon could ever again waltz across Europe knocking off militia armies one after the other in the way he did.
When Belgium rebelled in 1830, SG ended up in control of the ducal estates, which were around a third of the country. They therefore controlled the financing of the new country, and the civil government couldn't recover the property, which was rapidly parcelled out for far less than their real value to the directors, their friends and families - it makes the origins of the Duchy of Westminster look cheap, which it never was, by comparison.
After the land-grab, of course, the bank itself was relatively impoverished, but it was still in a position to benefit from the Industrial Revolution, which started much later on the continent than in the UK, and then from the Congo - go read the book.
It's worth knowing a bit about other countries' histories as well as your own, I find.
As far as today's activities are concerned, the tripartite agreement between Belgium, the Netherlands and Luxemburg was entered into in haste. It was then put to an on-the-nod shareholder vote, which upset sufficient of the small shareholders for them to combine in a joint legal action (Belgium doesn't allow Class Actions), which was decided at the end of last week. However, before it was announced to the shareholder plaintiffs, certain members of the Judiciary felt it would be politically wise to advise the Government first, so they could get out of the line of fire. The Prime Minister, however, refused to accept the decision, which was none the less announced, and he then tried to force the courts to back down, which was like a red rag to a bull. The equivalent of the Lord Chancellor then complained to the Speaker of the Lower House, which drought the entire pack of cards tumbling down.
As things stand, the King has PM Leterme's resignation letter on his desk, the fourth such since he was first asked to form a government, and he is wondering whether to accept it. It took the better part of a year after the last elections in June 2007 to form even the current government, which has lasted barely six months and has caused the politico-linguistic disharmony of the nation to deteriorate to such a state that forming a new government (which was so hard to do in the first place it took something like five abortive attempts over a year) may now be nigh on impossible. On a personal basis, the King, who is in his mid-70s, let it be known that he would greatly appreciate not having the impending holidays destroyed by this fracas, and as such may force everyone to calm down by not making any decision whatsoever for some time. However, he may then also soon be faced with the possible resignation of a largish chunk of the judiciary, which his country needs even less. He's an old man, forced into the job somewhat against his will at a time when he might have been thinking of retiring, and is now in something of a snake-pit.
So as it stands, the sale of Fortis may yet be voted through by the heavyweight players, were it not for the effect this fuss is having on BNP Parisbas, who are likely to head for the hills.
Now contrast this with the UK situation concerning HBOS/Lloyds and wonder what joys lie in waiting not far down the line. I offer no wisdom on that, the UK Law Lords are less jealous of their autonomy than their Belgian peers, however, and the PM is not so likely to fall into such a pit. However, it may serve as a dire warning for all.
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Nice to see Supercalmdown advocating a 20% pay rise for public sector workers!
Only one question how many private sector workers are there going to be left paying taxes to pay for this salary boost and the huge increase in the feather bedding pensions that will follow?
Everyone with any common sense knows the following.
1) The boom over the last ten years has been funded by borrowing and reckless consumption aided by a booming stock market and booming house prices.
2) People have over borrowed on the strength of paper rises on property and easy credit.
3) Easy availablility of credit via cheap personal loans and credit cards has encouraged people to borrow with little hope of paying it back.They merely rolled it over on new 0% interest deals or consolidated loans.
4) Demand for houses and their contents such as furniture and cars amongst others were been boosted to an uneconomic level. Suppliers and manufacturers tooled up to supply this excessive demand.
When the music stops in the game of pass the parcel as it has now with the World economy lots of people have been left with huge debts they can't service.
Gordon Brown and Zanulabour's idea is to try to keep the balloon inflated by pushing banks to lend more to people who cannot afford it and shoving liquidity into the market when it doesn't want it.
The other answer is that we need a controlled slow down with some companies going to the wall and demand and supply moving back to a more sustainable level not the supposed panacea of the reckless boom of 2007.
Those without debts and still in a job are worried that they might lose their jobs so they are cutting expenditure. Those who have lost jobs are also cutting expenditure as they simply don't have the money.
The froth has to be taken off the top of the economy and return things to a more sustainable level.
That probably means at least one big car manufacturer has to go to the wall; banks must contract and some will merge or disappear; at least a few more high street stores will have to go the way of Woolies and MFI and we will all have to tighten our belts.
It won't be pretty but we will have to take the medicine.
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#196
You say that the in the next decade only food and water will matter.
To a large proportion of the world, that is and has always been their main day-to-day issue.
The developed world has had too big a share of the resource pie for too long, and it can't last.
That alone is no need for total pessimism though: it will be hard work for the world's governments as living standards in the developed world fall, but we all need to work towards an equilibrium with more equal shares. Going to war over resources would make us all losers.
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#187
I'm going to add something to the prognostics dossier I fed you all a while back:
Reality check complete:
Revelations 11:19, what happens just before the biggest hit of all time. Check.
Original douments stating how it got there. Check. Bezu it was, but not as they knew it then.
Original documents stating why Phillip II of Spain built the Escorial. Check. By the way, that's not the site: the Inquisition have kept a close eye on things right from the start, this is why they forced Rome to split from science, they stopped it being moved there and they tried to bury it. Smeagol.
Vatican defending the site where you think it now is. Check, but not with a mad monk, thankfully.
When was the last time you wrote to Cardinal Arinze, calling upon him to put up or shut up? Four years ago. He put up.
Reality? See the archaeological excavation of Jericho for a sample of what one false move might cause.
The apocalypse scenario is plausible, my friends, and the amount of supernatural aid I've had in getting there argues someone up there ain't an 'appy bunny with you lot. Long-odds aren't in it, this is long-odds stacked on long-odds to the power of quite a lot. Clean it up, properly.
Except the Son of the Manse doesn't have the bottle to take out the Banks.
Camel.
Needle.
Eye.
As CEH would say, ...
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What the hell is a hedgefund anyway?
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Re: 206. At 11:30pm on 19 Dec 2008, PrisonerNumber6
put yourself in the banks shoes
1, if someone asked you to look after money wouldn't you agree?
2, if the money was over a grand wouldn't you deposit it for interest?
3, if the money was over a 100 grand wouldn't you bet 100 pound on football
for example
http://weekendfootball.co.uk/
5 Medium risk
Cardiff v Sheff Wed ?
QPR v Preston ?
Doncaster v Wolves ?
Huddersfield v Hereford ?
Airdrie v St Johnstone ?
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Many banks and hedge funds are at least negligent and may be criminally so. How else can their failure to 'look under the hood' be explained? Pouring new money into these sink-holes to prop a system that is profoundly moribund makes no sense. De-leveraging is just a smart way of passing the debt back to retail lbank customers.
Solution: Close all hedge funds and liquidate their assets and return funds on a pro rata basis. (We managed perfectly well without hedge funds for 100's of years.) AND for a period place banks under state control and pay managers and directors at civil service rates of pay. When they come to heel and start to behave in a prudent way the state can sell down the shares to the public. These solutions would reduce the greed and short term 'me first' bonus driven lunacy that has been evident for years.
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I agree with Newspotz. It's all Robert's fault. LOL
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mugger: this is a stickup! gimme all your money...
banker (throws hands in air, one fist is full of cash): hi! ah - I don't have any
mugger (gestures at fist): gimme! I can see it
banker (looks in surprise at his fist): oh! that's not my money u c
mugger: I don't care who's it is! just gimme!
banker: if I give this to you, millions of families will suffer, homes will be repossessed, loans called in, business will close, unemployment will explode and the banking system will collapse!
mugger: err..
banker: look, it's simple, I cannot be allowed to be poor, or the world ends, and that means your family, your house, your loans, your job and your bank account get toasted.
mugger: oh.
banker: this is a stickup, gimme all your money....
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Déja Vu
"Like the financial disintegration hanging over us... [the] ...one of the 1340s was the result of 30-40 years of disastrous financial practices, by which the banks built up huge fictitious ``financial bubbles,'' parasitizing production and real trade in goods. These speculative cancers destroyed the real wealth they were monopolizing, and caused these banks to be effectively bankrupt long before they finally went under."
650 Years Ago:How Venice Rigged the First, and Worst, Global Financial Crash
by Paul Gallagher
Printed in the American Almanac, September 4, 1995.
http://american_almanac.tripod.com/pbgbardi.htm
Having bumped into the article that this extract came from, I followed links from the webpage to find more about the financial world of the Merchants of Venice. As financial wealth was then a tad more tactile than most of our modern day instruments, I was left wondering what happened to the massive quantities of gold and silver bullion that the Venetians had monopolized, hoarded, and traded on spread. Who made off with it?
Anyway, whoever was able to spirit sizeable fortunes away left a legacy for their heirs and successors to parlay into incalculable hard assets over the coming centuries. The financial world became more sophisticated and, until 1974, principally on the gold standard.
Intrigued by the link offered in post #80 to this board, I then wondered where the safe financial havens of the mid-14th century were (maybe caves or deep vaults were all that was on offer). I also wondered why the likes of modern day San Marino, Andorra, Lichtenstein, Monaco and other minnows were never swallowed into the nations that formed around them in later centuries.
I have my suspicians, of course, but I also wonder where our latter day Merchants of Venice have put their wealth to keep it proof from the current financial maelstrom. They surely knew it would come one day.
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Madoff didnt make off with the money the money made off from Madoff
We should be thankful that the financial system kept hustlers like The merchant of palm beach off the streets for decades ,chissleing the chisselers and conning the con men .
The financial system works in reverse to the apearance of evolution ,it is about the ascent of monkey where the customer is ultimately paid in peanuts by simian swingers who heard no evil saw no evil and spoke no evil[so they say] .
I am sure Madoff must have sent his trojan whores to the SEC Troy boys to ensure they were never short ,now they will have to refight the battle of Thermopolae aginst the ponzi'd mob and protect their AAA's at the same time
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#216 "As financial wealth was then a tad more tactile than most of our modern day instruments, I was left wondering what happened to the massive quantities of gold and silver bullion that the Venetians had monopolized, hoarded, and traded on spread. Who made off with it?"
History cannot be read in isolation !! It has to be read in conjunction with events happening elsewhere.
One event that occurred during that time was Venice's megalomania to dominate the (Mediterranean) trading world !! So they picked a fight with Genoa and lost heavily in ships and men. Since both ships and men, and arms to prosecute that war, cost money, much of that wealth went thataway !!
For more information, look up the biography of a certain not-so-young Polo; Marco, I believe he's called !! I believe it was written in a prison where he was incarcerated after losing a sea battle !! Which only goes to show that he may have been wonderful running around on a camel but in sea battles, he's ....well....all at sea !! :-)
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#213 "AND for a period place banks under state control and pay managers and directors at civil service rates of pay. When they come to heel and start to behave in a prudent way the state can sell down the shares to the public."
This will guarantee that the banks will be run in the same inefficient way that the civil service is run and, thus, destroying the economy for years to come.
A prime example is that of New Zealand going "Commie" and so many young and capable Kiwis left home to seek a better future elsewhere !!
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#216
Although what you say is true, the events you describe were overrun by a catastrophe of nigh-on cosmic proportions, the arrival of the Black Death in 1347-8.
Now, having had a hand in reminding Stephen Ng in HongKong that the pest-hole their SARS outbreak was coming from six years back was the same that gave Alexandre Yersin the clue to cracking the plague baccillus, so the possibility of an animal-borne vector should not be ignored, which led to the cracking of the SARS transmission (even if the disease itself is still resistant) and the end of the panic, then I think I have something to add.
Boccacio's Decameron contains certain extracts which describe a haemorrhagic virus, rather than a plague baccillus - the reason it's been attributed to plague is that the haemoffhagics were unknown until very recently, and the persistence of the attribution is simply conservatism.
The economic consequences, however, were probably extremely beneficial to the population of Western Europe in the long run. As you say, the economy was on the point of implosion anyway, but although the sudden reduction of population led to an immediate localised productivity crisis (what do you do if all your bakers have died?), the consequence was that specialists became highly prized, and the shortage of essential skills meant that huge numbers of the population found that they had or could acquire sufficient knowledge to pass for the real thing - the principle being that in the country of the blind, the one-eyed man is King.
As a result of this and a concommitant death rate amongst the aristocracy, which had already been thinned out in France in particular as a result of the Battle of Crécy (1346), legal feudalism broke down and a massive redistribution of wealth occurred, if you were prepared to haul the bodies out onto the doorstep. In passing, this was generally quite a safe activity, as plague fleas only pass onto humans when their rat hosts are exterminated, and don't survive long on their new hosts themselves, particularly once dead. This is why the US, where plague is still a problem, does not exterminate the rats, as doing so would cause an immediate plague pandemic.
So, the answer to your question of what happened to the gold is that it was redistributed amongst the guilds into the newly-formed middle class, lifting them out of the poverty of serfdom.
That did not affect the Venetians interest in the stuff, however. A key player in my more esoteric thesis, well timed for Christmas if you research carefully, was Gabriele Condulmer, who became Pope in 1432, and who triggered the Renaissance through his sponsorship of people like Dufay, Fra'Bartholomeo and Fra'Angelico. I might give you all some more later.
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#218
Marco Polo was to some extent a spin merchant: he was far from the first to travel to Cathay, he was the first to have the writing skills to record his discoveries. He was at first accused of fabulation (his home is on a square named the Million Miracles) but was better accepted once a wider distribution was obtained.
Your point about the distribution of Venetian wealth chimes with the technological development of quality German steels and armour at the time: the funds went North.
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The old ladies who moderate our comments are at it again.
My post # 193, in which I explain how very, very, very sorry I am that hedge funds are having such a torrid time appears to have been removed.....
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I am just curious about the Hedges that talked oil up to $140 a barrel in the summer when it is now struggling along at $45. As a margin of stupidity the Hedgemen look pretty swampy when compared to reality. Sadly(?) the only person that talked sense at the time was that most charming of airline entrepreneurs Mr O'Learey who I remember saying wasn't going to follow the sheep into buying Oil long. At the time I thought he's nuts but he called the market spot on hence the surcharges on BA, Air Lingus etc who 'Hedged' their Oil. As for the crooks well it has always been possible to fool auditors who are usually the trainees that don't understand technical gobbledegook especially when Managers themselves are so lacking in knowledge but drowning in MBA's. If your business needs crashing Hire a graduate!!!!
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Given the speed and ease with which Barclaycard gave a Platinum Credit card [this month] to a conman pretending to be my wife [with no evidence that one can find] one is surprised that credit is so hard to come by, StephenCR
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I manage a fund-of-hedge-funds and have performed due diligence from the inside. Most funds haven't a clue about due diligence, despite their grand claims.
There's only one thing you need and it's very simple. A cast-iron guarantee of your money back on demand. But how many funds bother with this simple protection? Virtually none. It's shameful. My fund will not invest in any hedge fund unless our money is fully guaranteed.
How do you actually get a "cast-iron" guarantee? Well one quasi-state high street bank (it's safer than Barclays), guarantees many qualifying hedge funds to professional investors. But they refused to guarantee any Madoff funds and thus had virtually no exposure to his fraud. Yet they have guaranteed billions invested across hundreds of other hedge funds. When you are guaranteeing someone else's investment you damn well make sure you know what's behind it. They found no logic behind what Madoff claimed and no transparency. Therefore no guarantee. Therefore we didn't invest, despite being puzzled by Madoff's returns for years.
Our fund is up again this year, unaffected by the crisis, with our money fully guaranteed. But we cannot believe the naivety of so many other supposedly sophisticated funds-of-hedge-funds. The failed illusion of a bullet-proof portfolio of hedge funds will rightly put many of them out of business.
Most banks that lost money on Madoff were blithely lending to investors such as funds-of-funds, but not actually guaranteeing anything. So there was no meaningful due diligence. This is what Madoff exploited for years.
As Mrs Thatcher used to say "trust but verify".
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There is always someone who is trying to get your money one way or another. Beware of wolves in sheep clothing.
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Comment 225
"As Mrs Thatcher used to say "trust but verify"."
Mrs Thatcher may well have said but she certainly didn't put the legislation in place that would have forced all companies to adopt her noble values.
Neither did her heroes in the Labour Party or across the pond.
Neither did Milton Friedmann encourage people to adopt this strategy, indicating the system would otherwise fail.
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NewsSpotz wrote:
"I think you are seriously underestimating the ability of high quality Hedges to recover."
"Banks are weak because blogs like this have convinced everyone they are...."
I'm no doctor but isn't part of the reason banks are weak because hedge funds were short selling. That's not to say banks were the passive victims.
It's lazy to use this cliche but the fact is banks were greedy and money grabbing and unwise. But worse than that they thought they could get rich quick, ignoring sound business principles that have been developed over hundreds of years if not more.
I almost feel lucky I'm too broke to have invested over the past 10 years. I have a house but it's our home not an investment.
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Ironical that pompous & self righteous bankers could not spot the Mad Madoff.
And who gives a toss about hedge funds anyway?
I certainly dont!
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Read the PDF - makes sense apart from one thing:
You say that the banks are not lending because the availability of funds from eastern sources has been withdrawn, so effectively they have less to lend.
However, if this is replaced by government/taxpayer funds then it seems to me that they should be able to lend that.
And it should be possible to borrow it over the longer term too, one of the problems with the previous credit.
The problem may be that the government did not make it conditional that the money is used for lending, but then maybe they shouldn't have to if the mere existence of long-term funds should have triggered that.
But all in all it seems to me that they should have been prevented from takng the cash and sitting on it to shore up their balance sheets.
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"A well-known wealthy entrepreneur told me last night that he'd lost about 1% of his net worth"
- am I supposed to weep in sympathy at this poor starving individual who is only worth 99 million instead of 100 million?
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Post 230
The Government cash for the banks enough to stop them going bust. It is an order of magnitude smaller than the the far east funds. We have had an awesome trade deficit for years and the cash flowing out of the country has been lent back from the far east and gone round again. It was unsustainable and even if the Government had the cash to replace the cash from the far east it would still be unsustainable.
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Who remembers Cornfeld? The dopes do not learn.
A word od advice to these high finance men running our banks. Vastly overprovide your bad debts and loans, so that you can write back substantial amounts over the next two years, see profits (appear) to increase and get a pay increase. We did it at a Public Company in the 70s! Do not worry about Auditors and Regulators - they won't understand.
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This comment was removed because the moderators found it broke the House Rules.
Wow! I'm inspired by this New Capitalism of yours, Robert. Friendly, honest state ownership to rein in unfriendly, dishonest companies; ministerial advice and 'occasional' regulation dispensed by politicians of undoubted wisdom, like Lord Mandelson.
This is tremendously exciting. We must think of a suitable name for this New Capitalism. How about 'Socialism'?
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For a robust opinion on the Irish situation..
http://www.independent.ie/opinion/analysis/dont-help-the-banks--take-them-over-1582376.html
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Just goes to prove that my contention that there is no such thing as a legitimate business man is in fact true. The whole point of business is to convince you that you cannot do without something and relieve you of cash. Legitimate is what passes for taxable because crime cannot be taxed on principle. Madov is the principle exponent, a chairman of the NASDAQ no less. How have the mighty fallen and what is any buisnessman worth now?
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I feel that Mr. Cox from the SEC is also just as liable if not more than Bernie.
Bernie only did what was allowed, shame on SEC for not monitoring it.. Can you blame anyone but Bernie, Of course you can..
Cox allowed the 55 Minute meeting to deregulate rules that allowed the mortgage backed securities to be unchecked and sold world wide.
It is the Bush Administration and the SEC, and Republican congress for 6 years.
WhatKindOfFool would think otherwise?
.Com
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#196 - If you realise how important energy is to food production (pertrochemical based fertilisers) and desalinating and transporting water, you will realise that this is exactly why peak oil is not a sideshow.
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It really piss me off all these guys think they can do this and get away with it what the government need to do is get back all the money lock him up and give the money to the public so they can spend it back on the economy - throw me $200 i need a gift for myself that i saw on www.tycromedia.com
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help
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So how come no one rumbled Madoff? The FSA expect UK advisers and brokers to do their own due diligence, what chance have they got if big institutions and people with statutory powers can't spot a complete scam? Is it time for some state funded rating agencies perhaps? Might be cheaper than bail outs!
Please see if you can force some refrom Robert!
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Ref. Madoff - suggest you have a look at :-
The Madoff Double Bluff
http://www.globalresearch.ca/index.php?context=va&aid=11488
it makes an interresting read .
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Not to worry mates!
Greed will overcome.
It always has and always will.
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Re: post no 1
I saw the remaining Bay City Rollers playing live at a function my banker took me too in better times last year.
They were actually fantastic and had the whole venue jumping up and down .
They were glam with bells on it!
I think we will all see the good times again, so cheer up ,doomsters.
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Funny how Madoff went of with all this money and most of it was belonging to Jews it stinks what happened to the money that Maxwell took and his sprogs kept in Israel not long after this the fighting in Gazza took off may be I do not trust the USA or the UK but I would look in Israel? After all were is the money coming from to fund the WMD that Israel is using with the backing of the world it seems to me.
And not long before this happened the AIPAC were pouring shed loads of money in to the USA Govenment and bush will take it from anywhere after all his grand pappy took it from the Nazis to keep the camps going and Europe including stiff upper lip UK knew about it as it involved Royal Shell, very interesting story look it up.
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