World events

Thanks Cable TV

Thank a lot, Cable TV, I really wanted to see the latest ISIS beheading video.  It’s not available on other media outlets (who have this strange idea that showing these videos only gives ISIS more publicity), and no need to search for it on the old Interweb thingy.

Just exactly what I wanted to watch on my journey home from work on the MTR. 


Don’t drink the water

Dilbert – 27 October 2011

Dilbert.com

Today’s news

Japan MP Yasuhiro Sonoda drinks Fukushima water

A Japanese official has drunk water collected from the quake-hit Fukushima Daiichi nuclear plant, after reporters challenged him to prove it was safe.

Yasuhiro Sonoda appeared nervous and his hands shook as he downed a glass during a televised news conference.

The water he drank was taken from puddles under two reactor buildings. It is decontaminated before being used for tasks such as watering plants.

Journalists have repeatedly queried the safety of the procedure.

Mr Sonoda, who serves as the cabinet office's parliamentary spokesman, told the news conference: "Just drinking [decontaminated water] doesn't mean safety has been confirmed. Presenting data to the public is the best way."


Big events = bad

It amazes me that cities are still so keen to stage events such as the Olympics.  Far from increasing the number of visitors it actually drives them away.  Hotels put up their prices and most people assume that flights will be either unavailable or very expensive, so they go somewhere else.  Locally we had this nonsense for the handover – hotels started out offering rooms at ridiculous prices, then cut prices and finally found out that they couldn’t fill their rooms whatever they did. 

Here’s a warning about the likely effect on London of the Olympics in 2012. 

'Toxic' Olympics effect may hit UK visitor numbers, warns tourist body

The trade body representing tour operators has warned that expectations of a boost in tourism from the London Olympics may not be met, after unveiling research that suggested previous games had a "toxic" effect on visitor numbers. The European Tour Operators Association, which held a seminar on the subject today, released research that showed previous hosts had invariably overestimated the number of foreign visitors and the duration of their stay.

The Sydney games in 2000 anticipated 132,000 visitors and received 97,000 for the games period, while Athens hoped for 105,000 per night in 2004 and received fewer than 14,000. In 2008, Beijing anticipated more than 400,000 foreign guests and received 235,000 for the whole month of August.

The average number of hotel beds occupied in Beijing during the Olympics was 39% down on the previous year, the ETOA report showed. It said that while the Beijing Games may have been a "triumph of planning and showmanship", for the tourism industry they were a "toxic event that crushed normal demand, both business and leisure". The report said that while tourism chiefs and organisers had recognised that the Olympics would create some displacement, with visitors arriving for the games replacing those put off by the fact it was taking place, they still tended to talk in terms of a large overall boost.

Will people ever learn?


What went wrong

Interesting article from The Guardian (We all go together when we go), based on Paul Krugman's new book about the current financial crisis:

The shadow banking system is formed by financial institutions that aren't banks from a regulatory point of view but nonetheless perform banking functions. The system includes innovative financial products such as CDOs and hedge funds. Often these products offered better returns than those of the conventional banks. Investors were paid higher interest rates than they would have received on bank deposits, while borrowers paid lower interest rates than they would have done on long-term bank loans. There's no such thing as a free lunch, Milton Friedman told us, yet these deals seemed to offer just that. How did they do that?

Well, the answer seems obvious, at least in retrospect: banks are highly regulated; they are required to hold liquid reserves, maintain substantial capital and pay into the deposit insurance system. In the shadow banking system, borrowers could bypass these regulations and their expense. But that also meant they weren't protected by the banking safety net: if they ran out of funds, they couldn't turn to the US Federal Reserve to bail them out.

Worth reading.


Wrong again

Ten years ago I probably knew nothing about Thailand.  Five years later I felt I knew something. 

What did I know?  Well, that King Bhumibol Adulyadej was admired and revered by the Thai people, and Thaksin Shinawatra was an effective prime minister - it so happens that my first visit to Thailand was during the election in January 2001 when he became Prime Minister, and there seemed to be a feeling that this was a fresh start for a country that had been plagued with weak and ineffective governments. 

Well, maybe.  The king is protected by the world's strictest lèse majesté rules, so criticizing him is a risky thing to do.  Thaksin seems to have been at least as interested in getting richer as he was in running the country,  and his "war on drugs" seemed to be based on a policy of shooting first and asking questions afterwards.  

In 2006 he was forced out of office by an army coup, at least partially because Thaksin's unusually strong position as prime minister represented a challenge to the king's authority.  A new constitution was introduced - one that was designed to produce a weaker government, and the hope was that Thaksin would keep away and life would return to normal.  In fact I was cautiously optimistic that it would be for the best

Well, I was wrong about that.  Thaksin has stayed away, and now spends at least part of his time in Hong Kong (apparently it’s a good place to get divorced and watch live Premier League games), but his supporters won last year's election and he seems to have no shortage of relatives who are willing to become prime minister.

This enrages his opponents, and they have been demonstrating against the government for months, culminating in the occupation of Bangkok’s airports that ended on Tuesday, the same day that the Thai courts ruled that the Prime Minister must stand down.  This enabled the demonstrators to claim that they had achieved what they wanted - though surely the court would not have been influenced by the protest. 

Which brings us back to the king.  This is the second time that a Thaksin-backed prime minister has been forced to resign by the courts, and it's hard to avoid the conclusion that they are doing what they believe the king wants.    

The expectation was that Thaksin's allies would form another government, but now it seems possible that the opposition Democrat Party might be able to form a coalition. Well, yes, but those pesky peasants are likely to vote for a Thaksin party again once at the next election, and so this is only going to be a temporary solution. 

If the king and his advisers really want a long-term solution, they will need to persuade the Democrats and their allies to govern for the country and not just the elite in Bangkok.


Brown nosing

Watching Cable TV news tonight is franky a bizarre experience.  Gordon Brown seems to be the hero of the day, and thus we get to see the highlights of his political life, including the time his best mate Tony Blair bought him an ice cream (I guess you had to be there...).

Just a few weeks ago the very same Gordon Brown was the most unpopular prime minister in the history of prime ministers (well, at least since Tony Blair, or maybe John Major), so this is rather an unexpected development.  I'm sure he can find plenty of ways to make himself unpopular again before the next election, so I hope he enjoys it whilst it lasts.

The British plan will result in the government owning about 60% of RBS and 40% of the merged Lloyds TSB and HBOS:

BBC business editor Robert Peston said the announcement would "count as perhaps the most extraordinary day in British banking history" and was "an absolute humiliation" for the banks.

Management shake-up

As part of the banks' announcements:

  • Lloyds and HBOS said they had renegotiated their merger, reducing the number of Lloyds TSB shares that HBOS shareholders will receive.
  • RBS said chief executive Fred Goodwin was quitting with immediate effect - without a severance pay-off. He will be replaced by British Land boss Stephen Hester. RBS chairman Tom McKillop is to retire.
  • HBOS chief executive Andy Hornby and chairman Lord Dennis Stevenson said they would stand down from their posts.
  • RBS and Lloyds TSB/HBOS will return mortgage and small-business lending to 2007 levels, which is much more than they are currently lending.

Ho hum.  The curse of ABN Amro strikes again - Fortis had to be rescued last week, and now it's RBS.  How sad it is to see bankers humiliated...


Key culprits

Today's SCMP has a lengthy Bloomberg story about the credit-rating weasels - Bringing Down Wall Street as Ratings Let Loose Subprime Scourge by Elliot Blair Smith:

"I view the ratings agencies as one of the key culprits,'' says Joseph Stiglitz, 65, the Nobel laureate economist at Columbia University in New York. "They were the party that performed that alchemy that converted the securities from F-rated to A-rated. The banks could not have done what they did without the complicity of the ratings agencies.''

Driven by competition for fees and market share, the New York-based companies stamped out top ratings on debt pools that included $3.2 trillion of loans to homebuyers with bad credit and undocumented incomes between 2002 and 2007. As subprime borrowers defaulted, the companies have downgraded more than three-quarters of the structured investment pools known as collateralized debt obligations issued in the last two years and rated AAA.

Without those AAA ratings, the gold standard for debt, banks, insurance companies and pension funds wouldn't have bought the products. Bank writedowns and losses on the investments totaling $523.3 billion led to the collapse or disappearance of Bear Stearns, Lehman Brothers and Merrill Lynch and compelled the Bush administration to propose buying $700 billion of bad debt from distressed financial institutions.

Honestly, what is the point of having credit-rating agencies if they do this kind of stuff?

The second part of the Bloomberg story is here:

The world's two largest bond-analysis providers repeatedly eased their standards as they pursued profits from structured investment pools sold by their clients, according to company documents, e-mails and interviews with more than 50 Wall Street professionals. It amounted to a "market-share war where criteria were relaxed,'' says former S&P Managing Director Richard Gugliada.

"I knew it was wrong at the time,'' says Gugliada, 46, who retired from the McGraw-Hill Cos. subsidiary in 2006 and was interviewed in May near his home in Staten Island, New York. "It was either that or skip the business. That wasn't my mandate. My mandate was to find a way. Find the way.''


AAA-rated pigs

It now appears that AIG is going to avoid Chapter 11 bankruptcy, but it's striking how much power the credit rating agencies have in determining whether it fails or not.

By threatening to lower AIG's credit rating, the agencies precipitated a crisis.  This in turn sent AIG's share price down, which was enough to persuade those very same credit rating agencies to carry out their threat.  This in turn caused the share price to fall again.

Let's not forget that these are the very same credit rating agencies who were earlier very happy to give AAA ratings to the exotic financial instruments that caused the downfall of Lehman Brothers, forced Merrill Lynch to sell itself to Bank of America and pushed AIG to the brink.

You might think that the whole point of having credit rating agencies would be to stop clever bankers sticking some lipstick on a pig and pretending that it's something altogether more alluring.  Instead the credit rating agencies admired their handiwork and handed out the AAA ratings that they needed.  Then other clever bankers were happy to buy because that was how they got their bonuses, and if it had an AAA rating then that had to be OK, didn't it?

Having been so negligent earlier, the credit rating agencies seem happy to force AIG into bankruptcy, despite knowing that if it was given time it could sell off assets and recover.

One more interesting statistic, from The Guardian: "Figures out today showed hedge funds and other investors that had been shorting Lehman's stock since March had made $29bn from the firm's demise."