Finance crisis / Finanzkrise / crise financière / crisi finanziaria: Swiss parliamentary initiatives 

There aint no financial perpetual motion machines either,
only disguised rip-off, churning & Ponzi schemes - Iconoclast
Markets are all about inflicting the maximum pain
on the maximum number of suckers at any given point in time.
Matein Khalid, in The Coming Currency Collapse, Khaleej Times (UEA)
To the brink and back
observations, analysis & comments on developments linked to market abuses
and to failures to act on the level & to competently exercise sovereign rights

courtesy by: Anton Keller. Secretary, Swiss Investors Protection Association - url:
 with contributions from: Hans Geiger, Patrick Martin, Patrick Masters, Erich Reyhl, Andreas Schweizer, Rolf Späth, Gian Trepp, ao
.../capitalism.html ¦ .../wealth.htm ¦ .../QI.htm ¦ .../1929.htm ¦ .../barbarians.htm ¦ .../buccaneers.htm ¦ .../bubbles.htm ¦ .../caisses.htm
.../ponzi.htm ¦ ../hedge.htm ¦ ..../goldies.htm ¦ .../swissbanks.htm ¦ .../costbenefit.htm ¦ .../oecdmandate.htm ¦ .../crime.htm ¦ .../glasnost.htm
tks 4 notification of errors, comments & suggestions: +4122-7400362 ¦ - copyright

"I can calculate the movement of the stars, but not the madness of man."
Sir Isaac Newton, 1643-1727, commenting on the South Sea bubble of 1720

"I believe that banking institutions are more dangerous to our liberties than standing armies."
Thomas Jefferson, US President; 1743 - 1826, as quoted by Tanya Cariina Hsu

“These capitalists generally act harmoniously and in concert to fleece the people,
and now that they have got into a quarrel with themselves,
we are called upon to appropriate the people’s money to settle the quarrel.”
Abraham Lincoln, speech to Illinois legislature, January 1837, as quoted by Ellen Brown

Nothing new under the sun: Rudyard Kipling's poem, The Gods of the Market, 1918

Charles Lindbergh Sr. called the Federal Reserve Act “the worst legislative crime of the ages.”
Ellen Brown quotes him as warning prophetically:
“[The Federal Reserve Board] can cause the pendulum of a rising and falling market
to swing gently back and forth by slight changes in the discount rate,
or cause violent fluctuations by greater rate variation,
and in either case it will possess inside information
as to financial conditions and advance knowledge of the coming change, either up or down.
This is the strangest, most dangerous advantage ever placed in the hands
of a special privilege class by any Government that ever existed. . . .
The financial system has been turned over to . . . a purely profiteering group.
The system is private, conducted for the sole purpose of obtaining the greatest possible profits
from the use of other people’s money.

And in 1934, in the throes of the Great Depression,
Representative Louis McFadden would go further, stating on the Congressional record:
“Some people think that the Federal Reserve Banks are United States Government institutions.
They are private monopolies which prey upon the people of these United States for the benefit of themselves
and their foreign customers; foreign and domestic speculators and swindlers; and rich and predatory money lenders.
In that dark crew of financial pirates
there are those who would cut a man’s throat to get a dollar out of his pocket;
there are those who send money into states to buy votes to control our legislatures;
there are those who maintain international propaganda for the purpose of deceiving us
into granting of new concessions which will permit them to cover up their past misdeeds
and set again in motion their gigantic train of crime.
These twelve private credit monopolies [Federal Reserve Bank branches]
were deceitfully and disloyally foisted upon this Country by the bankers who came here from Europe
and repaid us our hospitality by undermining our American institutions.”

useful links:,,,,,

Bundesrat Kaspar Villigers Laudatio auf das Genossenschaftsmodell für Schweizer Banken (inkl. UBS?)
Swiss-American Agreement re UBS | IRS outrages: Swiss private banks react, boycott US securities
Credit Crisis: NYT's selection of essentials ¦
U.S. Federal Reserve Bank: Modern Money Mechanics ¦ Debt-based money, video (E, F, D), comments
U.S. FED: the biggest Ponzi scheme ever - On the imperative to return to constitutional money, video
Global Systemic Crisis - Crise Systémique Globale; the financial perpetuum mobile doesn't work either ¦ M3 fog
How bankers mutated from client confidants to fee-hunting IRS agents in storage, moving & deconstruction business
& let the Swiss Bankers Association nilly-willy torpedo not-invented-here regulations against systemic risks
pork bellies ¦ Subprime crisis ¦ Private equity: Locusts & asset strippers or saviours of clapped-out companies?
1929 crash mechanism spinning again? ¦ TV's Big Brother Ponzi scam ¦ Gold matters ¦ The €1000 Generation
Current players ¦ Past negative headline makers: after a bout with the law, where are they now? ¦ Richistan
Le capitalisme est en train de s'autodétruire ¦ Le nouvel âge du capitalisme: Bulles, krachs et rebonds
Muhammad Yunus' Microcredit: reanimating the sovereign citizen in the post-socialism/capitalism era
Theologen über Geld, Zins & Boden: Carl Amery | Karl Barth | Christoph Blumhardt | Eugen Drewermann |
Ulrich Duchrow | Wilhelm Haller | Hans Kessler | Christoph Körner | Pinchas Lapide | Jürgen Moltmann |
Friedrich Naumann | Leonhard Ragaz | Thomas Ruster | Kurt Scharf | Johannes Ude | barbarians all over
The interest of gold: confidence ¦ Der Zinsertrag von Gold: Vertrauen ¦ L'intérêt de l'or: confiance
Switzerland. tax eldorado for failed golden boys, greed gurus, hedge fund managers & other apprentice-sourcerers?
Is Swiss Government well-advised, blackmailed or otherwise led astray by disoriented vested interests?
Causes of the Financial Crisis

for an extended index - evolving ever since the FED, in March 2006, stopped publishing M3 figures -

25 Aug 12    No Crime, No Punishment, NYT, editorial
1 Jan 10   Global super-rich no longer look so benign, FT, Chrystia Freeland
26 Dec 09   Robert Morgenthau, whipping master of Credit Suisse, steps down, WSJ, James Freeman, comments
24 nov 09   Des rumeurs de bulle agitent le marché de l’aluminium, Le Temps, Pierre-Alexandre Sallier
23 nov 09   Sécurité alimentaire: Marchés agricoles, le grand brouillage, Le Temps, Pierre-Alexandre Sallier
22.Nov 09   Viele UBS-Konten haben einen Holocaust-Bezug, NZZ am Sonntag, Andreas Mink
18 Nov 09   SocGen tells clients how to prepare for potential 'global collapse', Telegraph, Ambrose Evans-Pritchard, Comments
11 Nov 09   Virtuous or Vicious Bankers?, NYT, MAUREEN DOWD
8 Nov 09   Inside the Global Gold Frenzy, NYT, NELSON D. SCHWARTZ
7 Nov 09   Mises: The Man Who Predicted the Depression, The Daily Capitalist, Jeff Harding
6 Nov 09   The Man Who Predicted the Depression, WSJ, MARK SPITZNAGEL
2 Nov 09   Could America go broke?, WP, Robert J. Samuelson
20-26 Oct 09  George Soros: The Way Forward, Central European University lectures, Budapest, FT
20.Okt 09   Liaquat Ahamed: Der Goldstandard verschärfte die Krise 1929, Die Welt online, D. Eckert et al.
19 Oct 09   Countdown to the next crisis is already under way, FT, Wolfgang Münchau
19 Oct 09   Mideast investment cuts hit private equity, FT, Robin Wigglesworth et al.
25 Sep 09   A Crisis of Politics, Not Economics, WSJ, JEFFREY FRIEDMAN, comments
22 Sep 09   Richard W. Rahn: The Growing Debt Bomb, Washington Times
15.Sep 09   Hans Geiger: Mit der Verstaatlichung drohen, Tages-Anzeiger
14 Sep 09   Same Old Hope: This Bubble Is Different, NYT, CATHERINE RAMPELL
11.Sep 09   Wenn die Bankengrösse zum Problem für das ganze Land wird, Ch.Blocher, N.Hayek, Ch.Levrat
26 Aug 09   Does the World Still Need the Swiss?, WSJ, HOLMAN W. JENKINS, JR, opinion
24 Aug 09   US securities: "Its time to say goodbye", Wegelin & Co., Konrad Hummler
25 Aug 09   Charles Schwab Takes on Cuomo, WSJ, LIZ RAPPAPORT
22 Aug 09   If Switzerland Can ..., NYT, editorial
19 Aug 09   Warren E. Buffet: The Greenback Effect, NYT, Op-Ed Contributor
19 Aug 09   Brokers Aren't Responsible for Bad Bets, WSJ, CHARLES R. SCHWAB, opinion
11 Aug 09   Unfair at Any Speed - Why success itself is the true target, Traders Magazine, Dan Mathisson, Commentary
6 Aug 09   Despite Bailouts, Business as Usual at Goldman, NYT, JENNY ANDERSON
31 Jul 09   Big Banks Paid Billions in Bonuses Amid Wall St. Crisis, NYT, LOUISE STORY et al.
27 Jul 09   Of Banks and Bonuses, NYT, editorial
19 Jul 09   Free commercial speech: an S & P rating merely an editorial or weather forecast?, NYT, David Segal
5 Jul 09   Ponzi-US: Bernie Madoff Is No John Dillinger, NYT, FRANK RICH
1 Jul 09   Debt is capitalism’s dirty little secret, FT, Ben Funnell
1 Jul 09   In China, New Limits on Virtual Currency, NYT, DAVID BARBOZA
July 2009   Joseph E. Stiglitz: Wall Street’s Toxic Message, Vanity Fair
30.Jun 09   Die Schmiergeldkultur der Banken, Tagesanzeiger, Rudolf Strahm
29 Jun 09   China bars use of virtual money for trading in real goods, Xinhua, PRC, Ministry of Commerce
26 juin 09   OCDE et discrédit durable,, editorial
23.Jun 09   Wenn der Markt ausgeschaltet wird, Tages-Anzeiger, Hans Geiger, Kolumne
21 Jun 09   "Treasury's Got Bill Gross on Speed Dial", NYT, Devin Leonard
19.Jun 09   Hans Geiger: Warum nicht den Privatsphärenschutz in der Verfassung auf das Eigentum ausdehnen?, Schweizer Bank
18 Jun 09   Geneva Probes Santander Madoff Links as Investor Alleges Scam, Bloomberg, Warren Giles
17 Jun 09   BRIC Dollar Bonds Beat Ruble Debt as Medvedev Frets, Bloomberg, Laura Cochrane et al.
17 Jun 09   Suitcase With $134 Billion Puts Dollar on Edge, Bloomberg, William Pesek, Commentary
12 Jun 09   The Great Unwinding, NYT, DAVID BROOKS
11 Jun 09   Get Ready for Inflation and Higher Interest Rates, WSJ, ARTHUR B. LAFFER
10 Jun 09   America’s Sea of Red Ink Was Years in the Making, NYT, DAVID LEONHARDT
8 juin 09    La Russie rejoint la Chine, remet en cause la suprématie du dollar, Le Temps, Ram Etwareea
8 Jun 09   The Coming Currency Collapse, Khaleej Times (UEA), Matein Khalid
7 Jun 09   The storm is not over, not by a long shot!, NYT, SANDY B. LEWIS et al.
6 Jun 09   Poking Holes in the Efficient Market Hypothesis, NYT, JOE NOCERA
29 May 09   The Big Inflation Scare, NYT, PAUL KRUGMAN, comments
29 May 09   Schumpeter's Moment - Capitalism provides economic growth and freedom, WSJE, Carl Schramm
27 May 09   Exploding debt threatens not only America, FT, John Taylor
25 mai 09   Werner Rutsch: Arrêtez de céder aux pressions internationales!, Le Temps, Emmanuel Garessus
25.Mai 09   Bankdatendieb & Staats-Hehler: Opfer staatlichen Uebereifers, Vaterland, Wolfgang Frey
23 mai 09   Marc Faber: «La Suisse s’incline beaucoup trop vis-à-vis de l’étranger», Le Temps, Daniel Eskenazi
18 May 09   The End Game Draws Nigh -The Future Evolution of the Debt-to-GDP Ratio, Safehaven, John Mauldin
14 May 09   The Almighty Renminbi?, NYT, NOURIEL ROUBINI
14 May 09   China’s Heart of Gold, NYT, VICTOR ZHIKAI GAO
13.Mai 09   Riskante Auslandreisen für Banquiers & andere Treuhänder, ASDI/SIPA
11 May 09   Monsters, Inc. - How banks got big, The New Yorker, James Surowiecki
9 mai 09    No prisoners! Keine Feuerpause gegen OECD's schleichende Steuerharmonisierung!, ASDI/SIPA
7 May 09   Swiss National Bank is biggest looser in Europe's ill-advised gold sales: $19bn, FT, Javier Blas
30 Apr 09   Lex Helvetica, Motion 09.3452
12.Apr 09   Schweiz prüft Sanktionen gegen OECD, NZZ am Sonntag, Markus Häfliger
12 Apr 09   Perpetual motion in finance is illusory: 20th century iconoclast Soddy showed, NYT, Eric Zencey
11.Apr 09   Die trostlose Modellschreinerei, alias Wirtschaftswissenschaft, NZZ, Gerhard Schwarz, Kommentar
5 Apr 09   G20 assault on tax avoidance diverts attention from real problems,, Nick Mathiason
5 Apr 09   Swiss slide into deflation signals next chapter of global crisis, telegraph, Ambrose Evans-Pritchard
4.Apr 09   Franz Blankart: Interview zum G20-Entscheid, SDA, Stefan Trachsel
4 avr 09   Quand la SdN s’attaquait au secret bancaire, Le Temps, Joëlle Kuntz
3.Apr 09   Keine vertrauensbildende Medizin der G-20, NZZ, Gerhard Schwarz
1 Apr 09    Lawmaker circular, SIPA/ASDI, Anton Keller
31 Mar 09   Bank secrecy: Will Swiss voters alone fight back with constitutional amendment? (d, f, i)
30 Mar 09    OECD misguided: Against tax competition, sovereignty & privacy, CF&P, Andrew Quinlan
30 Mar 09    Strategic Memorandum: Prospects for Tax Competition in 2009, CF&P, Daniel J. Mitchell
30 Mar 09   Madoff of economies:America turns out to have been a fraud all along, NYT, Paul Krugman
27 Mar 09   Failure of a self-serving overgrown banking model which did more harm than good, NYT, Paul Krugman
26 Mar 09   Geithner to Outline Major Overhaul of Finance Rules, NYT, Edmund L. Andrews et al.
23 Mar 09   Reform the International Monetary System, People's Bank of China, Zhou Xiaochuan
20 Mar 09   Wahrung der Schweizer Souveränität, Würde und Interessen, Postulat Freysinger 09.3296
20 Mar 09   In defence of Swiss sovereignty, dignity and interests, Postulat Freysinger 09.3296
20 Mar 09   Swiss seek abolition of anti-tax avoidance OECD mandate: ao by suspending payments to OECD
20.Mär 09  Streichung aller nicht-obligatorischen Beiträge an die OECD, Interpellation Briner 09.3350
20 Mar 09   Geneva Banks Face ‘Creative Destruction’ in Losing Secrecy, Bloomberg, Dylan Griffiths
20 Mar 09   U.S. regulator probing "Ponzimonium", IHT, Reuters, Jason Szep
20 Mar 09   After Madoff, CTFC discovers 'Rampant Ponzimonium', Dow Jones, John Kell
19 Mar 09   Hyperinflation, war &/or monetary reform: Fed creates $1 Trillion out of thin air, NYT, E.L. Andrews
19.Mär 09    Genossenschaft Mondragón: Demokratisch in die Krise, WOZ, Tonio Martin
18.Mär 09  Modellschreiner & Gier: Eine falsch angewendete Formel und ihre Folgen, NZZ
18 Mar 09   Clausula rebus sic stantibus: A.I.G.’s Bonus Blackmail, NYT, LAWRENCE A. CUNNINGHAM
18 Mar 09   Friends in need, friends indeed: In Defense of Real & Made-Believe Tax Havens, WSJ, Richard Rahn
17.Mär 09  OECD under attack (z.B. Votum Staehelin, Interpellation Briner 09.3350, Postulat Freysinger 09.3296)
16 Mar 09   AIG bailout & bonuses: Bracing for a Bailout Backlash, NZT, ADAM NAGOURNEY
16 Mar 09   Nation urges more say in global finance, China Daily, Bernice Chan
15 Mar 09    Infuriating lawmakers: Huge AIG Bonuses After $170 Billion Bailout, NYT, Edmund L. Andrews et al.
9 Mar 09   On the Origin of Bankers’ Giant Bonuses, NYT, EDUARDO PORTER
8 Mar 09   If you liked the US subprimes, you'll love the EU's break-up, NYT, LIAQUAT AHAMED
8 Mar 09   2008, the year when ‘The Great Disruption’ began, NYT, THOMAS L. FRIEDMAN
8 Mar 09   When Austria's bankers danced on their Titanic, NYT, FREDERIC MORTON
5.Mär 09  Weiter denken, nicht weiterwursteln - Memo zuhanden der Taskforce Bankgeheimnis, WOZ, Gian Trepp
3 Mar 09   Friends in need are friends indeed: Switzerland Should Stiff-Arm the IRS, CFP, Dan Mitchell
2 Mar 09   Friends in need are friends indeed: Swiss-Bashing is neither fair nor helpful, FT, Faith Whittlesey
2 Mar 09   Global policy shortcomings will cost us dear, FT, Wolfgang Münchau
26 Feb 09   Are Executives Paid Too Much?, WSJ, JUDITH F. SAMUELSON et al.
25 Feb 09   Bailout money used for entertainment splashes & golf junkets, NYT, MAUREEN DOWD
20 Feb 09   Most Davos Men are in denial, refuse co-responsibility for crisis, Foreign Policy, Federico Fubini
12 Feb 09   Gold Standard: Capitalism Needs a Sound-Money Foundation, WSJ, JUDY SHELTON
6 Feb 09   On the Edge, NYT, Paul Krugman
4 Feb 09   Wall Street Bonuses Are an Outrage, WSJ, THOMAS FRANK
4 Feb 09   Mating Season Is Over for Alpha Males of Banking, Bloomberg, Matthew Lynn, commentary
4 Feb 09   SEC’s Madoff Miss Fits Pattern Set With Pequot, Bloomberg, Gary J. Aguirre, commentary
2 Feb 09   Prison for Dummies’ Is a Ponzi Guy’s Must-Read, Bloomberg, Susan Antilla, commentary
2.Feb 09   Majestix und Miraculix auf den Finanzmärkten, DER STANDARD, Johannes M. Lehner
1 Feb 09   Disgorge, Wall Street Fat Cats, NYT, MAUREEN DOWD
30 Jan 09   Obama Calls Wall Street Bonuses ‘Shameful’, NYT, SHERYL GAY STOLBERG et al.
30 Jan 09   'Think Long' to Solve the Crisis, WSJ, GEORGE P. SHULTZ
30 Jan 09   What future for the global financial system?, WEF, Mark Adams
29 Jan 09   What Red Ink? Wall Street Paid Hefty Bonuses, NYT, BEN WHITE
29 Jan 09   The humbling of Davos Man, FT, John Gapper
29 Jan 09   Survive the credit crisis the Alpine way, FT, Peter Marsh
28 Jan 09   Financial models are no excuse for resting your brain, FT, John Kay
28 Jan 09   Troubled Times Bring Mini-Madoffs to Light, NYT, LESLIE WAYNE
27 Jan 09   MERRILL LYNCH lost $27 billion last year, still managed to pay $4 billion bonuses, NYT, Dave Krasne
27 Jan 09   Bonus culture: Money for Nothing, NYT, DAVE KRASNE
26 Jan 09   To save the banks we must stand up to the bankers, FT, Peter Boone et al.
25 Jan 09   Time to herald the Age of Responsibility, FT, Robert Zoellick
23 Jan 09   Giga bubble-in-the-making: The World Won't Buy Unlimited U.S. Debt, WSJ, PETER SCHIFF
23 Jan 09   Investors Want Clarity Before They Take Risks, WSJ, MICHAEL BOSKIN
22 Jan 09   The right and wrong way to bail out the banking sector, FT, George Soros
20 Jan 09   Niall Ferguson: America Needs to Cancel Its Debt, Vanity Fair, Michael Hogan
7 Jan 09   Mad Men, WSJ, Holman W. Jenkins, Jr.
6 Jan 09   Goebbel's dictum: the bigger the repeated lie ... Fraud's Perfect Cloak, WP, Allan Sloan
5 Jan 09   With all these trillions, how can we keep hold of the meaning of money?, Guardian, Max Hastings
5 Jan 09   Fighting Off the Great Depression II, NYT, Paul Krugman
4 Jan 09   The End of the Financial World as We Know It, NYT, Michael Lewis et al.
4 Jan 09   How to Repair a Broken Financial World, NYT, Michael Lewis et al.
4 Jan 09   Plea for a New World Economic Order, Shalom P. Hamou
3 Jan 09   The U.S., a Disintegrating Ponzi Scheme? Critics Come Unglued, WP, Joel Garreau
1 Jan 09   annus horribilis 2008: world's stockmarkets lost $14 trillion, Guardian, Julia Kollewe
Jan 2009   Joseph E. Stiglitz: Capitalist Fools, Vanity Fair
Jan 2009   Ist das ganze Weltfinanzsystem ein riesiger Madoff-Schwindel?, Neue Solidarität, Helga Zepp-LaRouche
jan 2009   La BNS soutient-elle le dollar?, PME, Mohammad Farrokh
31 Dec 08   Madoff Hits Feeder Funds, Auditors,, Jane Bryant Quinn
30.Dez 08   Madoff: Der Milliardendieb war auch Kassenwart, Die Weltwoche, Roger Köppel
30 Dec 08   UBP Scrambles to Explain Madoff Ties, WSJ, Cassell Bryan-Low et al.
29 Dec 08    Igor Panarin:The pyramid scheme America will disintegrate in 2010, WSJ, Andrew Osborn
27 Dec 08   Fellow-Americans, co-racketeers & co-profiteers: Stop Being Stupid, NYT, Bob Herbert
27 Dec 08   Ponzi Schemes: The Haul Gets Bigger, but the Fraud Never Changes, NYT, Eduardo Porter
24 Dec 08   Madoff dealings tarnish a private Swiss bank, IHT, Nelson D. Schwartz
20 Dec 08   Madoff Scheme Kept Rippling Outward, Across Borders, NYT, Diana B. Henriques
20 Dec 08   One Name, Charles Ponzi, Stands Alone in The Grand Scheme of It All, WP, David Montgomery
19 Dec 08   The Madoff Economy, NYT, Paul Krugman
18 Dec 08   On Wall Street, Bonuses, Not Profits, Were Real, NYT, Louise Story
16 Dec 08   Put Madoff In Charge of Social Security, WSJ, Holman W. Jenkins, Jr.
16 Dec 08   Pyramid Schemes Are as American as Apple Pie, WSJ, John Steele Gordon
13 Dec 08   Madoff Affaire: Now Accused of Fraud, Wall St. Wizard Had His Skeptics, NYT, Alex Berenson et al.
8 Dec 08   Stop those discredited academic financial wizzards & Pipers of Hamelin, FT, Nassim Nicholas Taleb et al.
1 Dec 08   Ben Bernanke and the financial crisis: Anatomy of a Meltdown, The New Yorker, John Cassidy
Dec 2008   The End of Wall Street’s Boom,, Michael Lewis
Dec 2008   Niall Ferguson: OnPlanet Finance, mathematical models ignored history & human nature, & value had no meaning, Vanity Fair
27.Nov 08    Marc Zuyox: UBS soll "McKinsey & Company striktes Hausverbot für mindestens zehn Jahre" erteilen, NZZ
27.Nov 08   Was tun zur Bändigung der gemeinschädlichen Spekulation? Macht die UBS zur Migros!, WOZ, Gian Trepp
26 Nov 08   The Fed: Solution or problem?, Washington Times, Richard Rahn
25 Nov 08   Totally disgusting: Unmoored professionals on a greed stampede, NYT, Thomas L. Friedman
25 nov 08   Guy de Picciotto: «Nous courons le risque d’être relégués à une place de seconde zone», LT, Frédéric Lelièvre
22 Nov 08   Citigroup Pays for a Rush to Risk, NYT, Eric Dash et al.
21 nov 08   Et si la SBS refaisait surface - p.ex. en coopérative?, La Liberté, CHRISTIAN CAMPICHE
20.Nov 08   Juristische Seiltricks vs Sicherheit durch zeitigen Abzug von Kundengeldern, NZZ, Myriam A.Gehri
20. Nov 08   Das amerikanische Qualified-Intermediary-System als Gefahr für Schweizer Grundwerte, NZZ, Marco Duss
20.Nov 08   Juristen streiten um US-Amtshilfe im Fall UBS, NZZ, Zoé Baches et al.
20 Nov 08   Discarding some self-gratifying myths about what a big bonus really buys, NYT, DAN ARIELY
19 Oct 08   What's good for GM [& UBS?] is good for America [& CH]!: a managed bankruptcy, NYT, Mitt Romney
18.Nov 08   Bundesrat als eilfertiger Wegmacher von Pensionskassen-Abzockern, Tages-Anzeiger, Rudolf Strahm, Kommentare
17 Nov 08   No regulation can match a gold peg's disciplinary effects on central & other banks, WSJ, G.O'Driscoll
17 Nov 08   At the pillory: Deregulator & UBS lobbyist Phil Gramm Looks Back, Unswayed, NYT, Eric Lipton et al.
17 Oct 08    Hedge Fund Guru A.Lahde's farewell letter: "people stupid enough to take the other side of my trades."
16.Nov 08   2008 UBS- und 1933 Volksbank-Rettung - verblüffende Parallelen, NZZ am Sonntag, Beat Kappeler
16.Nov 08   Empörte US-Kunden gehen gegen gewohnt eilfertige UBS & ESTV vor, NZZ am Sonntag, Zoé Baches et al.
15 Nov 08   Did steam-rolled Swiss lawmakers unleash the financial tsunami?, WSJ, Iconoclast
15 Nov 08   Growing Sense Of Outrage Over Executive Pay, WP, Heather Landy, pay ratio graphics
15 nov 08   X.Oberson:Les banques du monde entier sont devenues des agents du fisc américain, LT, Myret Zaki
14 Nov 08   Gold Standard: Stable, Real-Value Money Is the Key to Recovery, WSJ, Judy Shelton, comments
13 Nov 08   It's Time to Rethink Our Retirement Plans, WSJ, Roger W. Ferguson Jr., comment
13 Nov 08   UBS' QI ties with IRS are bad for Top Banker & Banking Secrecy, WSJ, Evan Perez et al.
12.Nov 08   Farblose Bundesrats-Unterschrift auf SNB-vorgezeichneter punktierter Linie:kein Erfolgsrezept
12 Nov 08   Replacing the cancerous fiat (un-backed) currency system, The Big Picture, Lee Quaintance et al.
12 nov 08   Crise: la malédiction des maths, Les «matheux» bernés par des «traders fous», LT, Sylvain Besson
10 Nov 08   Where are the enlightened modern Pharaos of salvation? The New Yorker, John Lanchester
8.Nov 08   Auch der Staat hat versagt, NZZ, Wernhard Möschel
8.Nov 08   Fehlverhalten der Privaten ist nicht gleich Marktversagen, NZZ, Wernhard Möschel
5 Nov 08   Salve Obama!, Washington Post, Iconoclast
5 Nov 08   In Collusion with One-Eyed Financial Engineers, Model Carpenters & Apprentice-Sorcerers, NYT, Steve Lohr
5 Nov 08   CDS Data Show Scope of Wagers on Nations, WSJ, SERENA NG et al.
5.Nov 08   Botschaft zu einem Massnahmenpaket zur Stärkung des schweizerischen Finanzsystems, EFD
5 nov 08   Message concernant un train de mesures destinées à renforcer le système financier suisse, DFF
4 Nov 08   Long live activism, FT
4 Nov 08   Darwinian rules threaten hedge funds, FT, Kate Burgess
4 Nov 08   Five Myths About the Great Depression, WSJ, ANDREW B. WILSON
4 Nov 08   Seven principles to guide reform, here and abroad, WSJ, Stephen Schwarzman
4 Nov 08   Private Equity Draws the Cold Shoulder, WSJ, PETER LATTMAN et al.
4 Nov 08   Convertible Bonds Cause Hedge Funds Serious Pain, WSJ, GREGORY ZUCKERMAN
3 Nov 08   When Hedge Funds Grease Instead of Slow the Slide, The New Yorker, James Surowiecki
3 Nov 08   G-20 Washington meeting: Beware of monopolists for good ideas!, WP, Iconoclast, comment
2 Nov 08   Hedge fund problems reach far wider, FT, Lawrence Cohen
2.Nov 08   Sternstunde: "Der Schwarze Herbst", SF1, Hansjörg Siegenthaler im Gespräch mit Roger de Weck
2 Nov 08   Discord on Economies In a World Of Trouble, WP, Steven Mufson et al.,comment
Nov 2008   Actions for G20 leaders to stabilise economy & fix financial system,, Barry Eichengreen et al.
31 Oct 08   DTCC opens up registry servicing global credit default swap market valued at US$40 trillion
31 Oct 08   Behind AIG's Fall: One-Eyed Model Carpenters, WSJ, Carrick Mollenkamp et al.
31 Oct 08   Hank Paulson's $125 Billion Mistake, WP, Steven Pearlstein
31 Oct 08   Greenspan Slept as Off-Books Debt Escaped Scrutiny,, Alan Katz et al.
31 Oct 08   Banks Owe Billions to Executives, WSJ, ELLEN E. SCHULTZ
31 Oct 08   A $50 Billion Bailout in Russia Favors the Rich and Connected, NYT, ANDREW E. KRAMER
30 Oct 08   Credit `Tsunami' Swamps Trade as Banks Curtail Loans,, Michael Janofsky et al.
30 Oct 08   U.S. Treasury Program Shuns Banks That Need Cash Most, Bloomberg, David Mildenberg et al.
30 Oct 08   World According to TARP No Laughing Matter for U.S.,, Abigail Moses et al.
30 Oct 08   Mizuho $7 Billion Loss Turned on Toxic Aardvark Made in America,, Finbarr Flynn
30 Oct 08   UK Bank insider David Blanchflower urges deep rate cut,
30 Oct 08   Securities-Lending Sector Feels Credit-Crisis Squeeze, WSJ, By CRAIG KARMIN et al.
30 Oct 08   Layoffs Sweep From Wall St. Across New York Area, NYT, PATRICK McGEEHAN
30 Oct 08   NY AG Cuomo: Disproportional pay may violate NY law - banks investigated, NYT, Ben White et al.
30 Oct 08   A Question for A.I.G.: Where Did the Cash Go?, NYT, MARY WILLIAMS WALSH
29 Oct 08   Loans? Did We Say We’d Do Loans?, NYT, editorial
29 Oct 08   Reserve Fund’s Investors Still Await Their Cash, NYT, DIANA B. HENRIQUES
28 Oct 08   Chicken coming back to roost in Mr. Ponzi's Wall Street henhouse,, Mark Pittman
27.Okt 08   Wir brauchen ein Bretton Woods III,, Henrik Müller, Kommentar
27 Oct 08   G-20 meeting: Wall Street's Trojan Horse, Global Research, Michel Chossudovsky
27.Okt 08   Protest gegen Finanzmärkte: Attac-Aktivisten stürmen Frankfurter Börse, Spiegel, cvk/dpa/Reuters/ddp
27 Oct 08   Morgan Stanley Propped Up Money-Market Funds With $23 Billion,, Miles Weiss
25 Oct 08   The not-so-invisible hand: How the Plunge Protection Team killed the free market,, Ellen Brown
24 Oct 08   Ruble's Fall Puts Russia on Defense Amid Crisis,, ALAN CULLISON et al.
24.Okt 08   Völlig orientierungslos,, Jörg Eigendorf, Kommentar
24.Okt 08   Was muss sich am globalen Finanzsystem ändern?, Spiegel online forum, onemanshow
23.Okt 08   FundamentalistInnen am Werk, WOZ, Andreas Missbach, Standpunkt
23.Okt 08   Drohende Pleiten: Schwellenländer schlittern tief in die Krise,, Frank Stocker
23.Okt 08   Fortsetzung der Plünderung: Der Transkapitalismus, WOZ, Oliver Fahrni
23 Oct 08   NYU's Roubini: 'Worst is Ahead'Some Predict Hedge Fund Failures, Panic, Bloomberg, Tom Cahill et al.
23 Oct 08   The rogue trader is back: A rogue system with lax limits on risk-taking,, John Gapper
23 Oct 08   Is America self-destructing & bringing down the rest of the world?, Global Research, Tanya Cariina Hsu
23 Oct 08   Hedge Funds’ Steep Fall Sends Investors Fleeing, NYT, LOUISE STORY
23 Oct 08   Bubble & Crash: Engineered by Government, FED & Wall Street?, Global Research, Richard C. Cook
22 Oct 08   A Matter of Life and Debt, NYT, MARGARET ATWOOD
22.Okt 08   Jetzt droht ein weltweites Währungsbeben,, Daniel Eckert
22.Okt 08   Die soziale Marktwirtschaft ist lebendig!,, Wolfgang Schüssel
21 Oct 08   The Dangers of a Diminished America, WSJ, AARON FRIEDBERG et al.
21 Oct 08   Get Ready for the New New Deal, WSJ, PAUL H. RUBIN
21 Oct 08   The Iceland Syndrome, WP, Anne Applebaum
21 Oct 08   Die Zeit für fette Boni ist vorbei, Spiegel online, Michael Kröger
21 Oct 08   USA: 1607-2008: Aufstieg und Krise einer Weltmacht, Spiegel Spezialausgabe
21 Okt 08   Bild-Illustration: Wie es zur Finanzkrise 2008 kam, Spiegel online
21.Okt 08   Die Zocker von der Wall Street, Spiegel online, Christiane Oppermann
20 Oct 08   The price of mathematical, often outsourced & self-serving risk analysis, New Yorker, James Surowiecki
19 Oct 08   The Bubble Keeps On Deflating, NYT, editorial
17 Oct 08   Wall Street Ponzi [pyramid] scheme reached its mathematical limits, Global Research, Ellen Brown
17 Oct 08   THE GLOBAL CRASH: Saving What Can Still Be Saved, Spiegel
16.Okt 08   SNB finanziert $60 Milliarden Entlastung der UBS, SNB
16 oct 08   BNS finance pour $60 milliards le transfert d’actifs illiquides d’UBS, BNS
15.Okt 08   Soziologe Ulrich Beck: "Die Finanzkrise hat aus Schurken Helden gemacht", Spiegel, Hannes Koch
13.Okt 08   Die Wiedergeburt des Eigentums, Wegelin Anlage-Kommentar 259, Konrad Hummler
13 Oct 08   Back to ownership, Wegelin Investment Commentary 259, Konrad Hummler
13 oct 08   Renaissance de la propriété, Wegelin Commentaire d’investissement 259, Konrad Hummler
13 ott 08   La rinascita della proprietà, Wegelin Bollettino finanziario 259, Konrad Hummler
12 Oct 08   Liaquat Ahamed's Lessons of the Great Depression, The New Yorker, Steve Coll
11 Oct 08   Who is Behind the Financial Meltdown? Global Research, Michel Chossudovsky
10.Okt 08   Staat oder Markt? Hochkonjunktur für Ideologen, Das Magazin, Daniel Binswanger
10 oct 08   La stratégie suisse toche à ses limites, Le Temps, Roger de Weck
9 Oct 08   Behind the Panic: Financial Warfare & the Future of Global Bank Power, Global Research, F. William Engdahl
8 oct 08   Bonus et sailaires: Des dysfonctionnements à tous les étages, Bilan, interview avec Katia Rost
7 Oct 08   The FED now owns the world's largest insurance company- It's time to buy the FED,, Ellen Brown
3.Okt 08   Die Schweiz nach dem Crash: neue Ideen sind gefragt, Das Magazin, Roger de Weck
3 Oct 08   Bretton Woods Successor Conference & Currency Self-Protection, Swiss Lawmaker Motion 08.3718
30 Sep 08   THE END OF ARROGANCE: America Loses Its Dominant Economic Role, Spiegel
30 Sep 08   Prelude to War? Bernanke Knows What We Have to Fear, WP, Richard Cohen
28 Sep 08   Thanks but no thanks: what Lincoln would have said to Paulson's $700 billion ransom,, Ellen Brown
19.Sep 08   Änderung der BR-Verordnung über die berufliche Vorsorge (BVV 2; BSV-Mitteilungen 108)
19 sep 08   Modification de l'ordonnance du CF sur la prévoyance professionnelle (OPP 2; OFAS Bulletin 108)
18 Sep 08   It’s the derivatives, stupid! Why Fannie, Freddy & AIG all had to be bailed out,, Ellen Brown
11 Sep 08   L'argent dette (Money as Debt FR), Paul Grignon, video, English original 19 Dec 07, video
Sep 2008   Swiss Banking – wie weiter? Aufstieg & Wandel der Schweizer Finanzbranche, NZZ libro, Claude Baumann et al.
Sep 2008   Banking on Basel, The Future of International Financial Regulation, Peterson, Daniel K. Tarullo
26 Jul 08   Putting the “Federal” back in the Federal Reserve,, Ellen Brown
18 juin 08    Est-ce prudent d'attirer des hedge funds à Genève?, Bilan
13 May 08   The secret bailout of JPMorgan: Insider trading looted Bear Stearns & the US taxpayer,, Ellen Brown
9.Mai 081   Kreditkrise, Hungerkrise, Sinnkrise: zum nachdenken, Das Magazin, Philipp Loepfe
1 May 08   Moles on the board: Why German companies should not appoint bankers to the board, The Economist
Apr 2008   Bad Money: Reckless Finance, Failed Politics & the Global Crisis of American Capitalism, Kevin Phillips
28 Apr 08   The Subprime Solution: How Today's Global Financial Crisis Happened & What to Do about It, R. Shiller
30 Mar 08   If only the FED were April fools: When the fox is charged guarding the banking henhouse,, Ellen Brown
29.Feb 08   John Maynard Keynes: Der Mann, der Hitler kommen sah,, Arne Gottschalck
20 Feb 08   America’s economy risks mother of all meltdowns, FT, Martin Wolf
25.Jan 08   Wirtschaftswunder: Lenins Comeback, Das Magazin, Alain Zucker
19 Dec 07   Money as debt,, Paul Grignon, video
3 Jul 07   The US's dollar deception: how banks secretly create money,, Ellen Brown
Oct  2006  Niall Ferguson: Lessons Unlearned: Rome 331 and America and Europe 2006, Vanity Fair
Jun 2006   Private, national & common wealth in the post-socialism/capitalism era, Iconoclast
5 Jan 06   Thun bank collapse is finally settled,, Swissinfo
4.Jan 06   SLT-Bankenpleite: 223 mio Verluste, NZZ, Urs Holderegger, AP
20 Aug 01   Gold Standard: The Anniversary of a Crime,, Burton S. Blumert
2001    Le socialisme de demain reste encore à inventer, Congrès Marx International III, Dominique Levy
4 Dec 00   Pyrrhic Victory: IRS turns foreign banks into tax agents, Barrons, Thomas G. Donlan, Editorial
17.Jun 00   Bundesrat Kaspar Villigers Laudatio auf das Genossenschaftsmodell für Schweizer Banken (inkl. UBS?)
9 mars 98   Titanic hélvétique - home made, ASDI, Anton Keller
Jun 92   Federal Reserve Bank of Chicago: Modern Money Mechanics, D.M.Nichols, rev. A.M.L.Gonczy
1990    Krisengefahren in der Weltwirtschaft, Fredmund Malik et al., Schäffer, Stuttgart
1950    Le super-mécanisme concentrationnaire, in Demain, C'est l'An 2000!, éd. Jacques Petit, Jean-Gaston Bardet
1912    The Theory of Money and Credit, Ludwig von Mises

Private, national & common wealth in the post-socialism/capitalism era

Bewildered by what's been happening, both nationally and globally, in the wake of the fall of the Berlin Wall?
I.e. where the unwittingly weakened nation-state - formerly a bulwark against plain-levelling & globalization -
no longer tempers the social, economic & other pitfalls foreseen by Marx, Gramsci, Minsky, McCulley,etc.
Where - as the Laffer & Rider Curves illustrate in the tax & the social fields - excessive poor/rich gradients
upset the social fabric, wash away fertility factors with uncontrolled erosive powers & contribute to famine.
Where indeed, as Patrick Martin pointed out, monopolistic capitalism and the associated reckless greed
are no longer kept in check by Adam Smith' invisible hand, i.e. by the balance of contradictory interests.
And where the capacity for self-correction is increasingly inhibited by loss of freedom, mooring & orientation
which led to market frenzies & false alpha birds feeding on hype & bubbles, reminiscent of the Roaring 20s.
IMF & FATF estimate black funds (drugs, tax evasion etc) to be 2-5% of world's GDP (2006: $960-2400bn).
An IMF Report indicates these funds to be increasingly chased under anti-terrorism & ever flimsier pretexts.
Courtesy by the IV Reich's Secret Service, the world has indeed been made hostage of ill-considered rules
which impede more legitimate business than crime. For big time money laundering, the US Treasury set the
standard in 2001 with its 31% confiscatory backup withholding tax on unidentified investors in US securities,
turning foreign bankers from trustees of clients into IRS agents (qualified intermediaries) subject to US laws.
Private equity & hedge funds thus found a government-sponsored access to black funds, while the latters'
entry into subprime markets was also eased by the Internet. Results: predatory lending & systemic risks.
Society's organization needs re-thinking with Plato, G.Duttweiler, M,Yunus, J.M.Arizmendiarrieta etc.
For man's evolution may only be stressed by technological leaps but not accelerated beyond natural limits.
Return on investment rates above productivity gains/organic growth are not sustainable, predatory & usuric.
If driven by managers, lawyers & funds on the back of other stakeholders, M&As are thus Ponzi schemes
where shareholder value adepts can maraud with stacked Monopoly cards, helped by micro-economic laws.
Like compulsory social insurance systems whose doom is delayed or obscured only by inflation, war, etc.
And where the cunniest operators are state-supported by myopic magistrates hood-winked into fiscal deals.
Gary J. Aguirre's US Senate testimony details fraud & market mechanics which were at work before 1929,
e.g. Ponzi structures, unregulated pools of money, siphoningfrom unsuspecting mutual fund investors, and
abuse-prone market dominance: hedge funds' $1.5 trillion drive half of the $28 trillion NYSE's daily trading.
Tongue-in-cheek, Warren Buffet famously opined: "derivatives are financial weapons of mass destruction";
yet, under increasing performance & compliance pressures, some bankers still see a future in fee hunting.
Society wised up against churning of accounts by undelicate trustees, but not yet against macro-parasitism
which feasts on ignorance, sucks & devours a firm's life-preserving substance, & weakens society's pillars.
Which turns economic rat races into societal tailspins with early burn-outs & senior citizens being wasted,
& instills values causing youth to be educated out of sync, resulting in drug, violence & €1000 generations.
With profit-driven quarterly thinking & cost-cuttings also eroding due infrastructuremaintenance & renewal,
& democracy's promises ridiculed by Fatf, EU & UN bureaucratic lawmaking as if Berlin Wall fell eastwards.
So why not thinking things over & Revisiting Das Kapital while some dance on the Titanic”?   Iconoclast

NZZ Online    4. Januar 2006

Gläubiger müssen 223 Millionen ans Bein streichen
SLT-Liquidation abgeschlossen

Die Liquidation der Spar- und Leihkasse Thun (SLT) ist bald 15 Jahre nach der Pleite der Bank abgeschlossen. Insgesamt wurde den Gläubigern 899 Millionen Franken zurückbezahlt. Schulden von 223 Millionen Franken konnten dagegen nicht bedient werden, wie die Liquidatorin am Mittwoch in Thun mitteilte
      (ap) Seit der Schalterschliessung im Oktober 1991 wurden 467 Mio. Fr. an pfandgesicherte und privilegierte Gläubiger, 86 Mio. Fr. an Kleingläubiger und 346 Mio. Fr. an 5. Klass-Gläubiger überwiesen. Der Verlust der 5. Klass-Gläubiger hätte nach Angaben der Liquidatorin 258 Mio. Fr.  betragen, konnte aber auf 223 Mio. Fr. reduziert werden.
    Grund dafür ist, dass einerseits diejenigen Banken, welche an den betroffenen Anleihen der Emissionszentrale schweizerischer Regionalbanken beteiligt waren, die Haftung für die nachrangigen Anleihen im Umfang von 15,5 Mio.  Fr. übernahmen. Andererseits bevorschussten die Banken im Rahmen der Einlegerschutzkonvention der Schweizerischen Bankiervereinigung den Ausfall auf Spareinlagen und weiteren Kontoarten bis 30'000 Fr. mit einer Summe von 19,4 Mio. Franken. SLT-Hauptgläubiger sind die Emissionszentrale schweizerischer Regionalbanken und die Schweizerische Bankiervereinigung.
    Von der Pleite betroffen waren rund 5.000 Kleingläubiger. Die 5. Klass-Schulden der SLT betrugen per Verfahrensende 240,79 Mio. Franken. Zur Deckung dieses Betrages standen Nettoaktiven von 17,3 Mio. Fr. zu Verfügung. In Anrechnung bereits früher ausbezahlter Beträge beläuft sich die Gesamtdeckung damit auf 60,7 Prozent. Die Schlusszahlungen an die 5. Klass-Gläubiger waren bereits Mitte Dezember erfolgt.
    Einzelne Gläubiger blieben für die Auszahlung der Dividenden unerreichbar, wie die Liquidatorin weiter mitteilte. Die von diesen Gläubigern nicht erhobenen Beträge - nach Ablauf des zehnjährigen Depositionsverfahrens dürfte es sich um 100'000 bis 300'000 Franken handeln - sollen der Stadt Thun sowie den Gemeinden Spiez und Saanen überwiesen werden. Diese hatten nach dem Zusammenbruch der SLT verschiedene soziale Härtefälle zu tragen.
    Über die ganze Liquidationsdauer gesehen überstieg der ordentliche Betrag den Betriebsaufwand, woraus ein positives Betriebsergebnis von 2,467 Millionen Franken resultiert. Die während der Liquidation angefallenen Kosten von knapp 20 Millionen Franken sind damit gedeckt. Zusammen mit ausserordentlichen Erträgen ergibt sich ein Gesamtsaldo von 43,7 Mio. Franken, diesem stehen notleidende Kredite von 441,8 Mio. Fr. gegenüber. Das negative Ergebnis beträgt somit 498,97 Mio. Franken.

NZZ Online    4. Januar 2006

Schlussstrich unter Bankenpleite
Liquidation der Spar- und Leihkasse Thun abgeschlossen

Der Zusammenbruch der Spar-und Leihkasse Thun vor 15 Jahren führte der Schweiz drastisch die Krise der Regionalbanken vor Augen. Nach einem langwierigen Verfahren liegt heute endlich der Schlussbericht zur Liquidation vor.
Von  Urs Holderegger

    Der 3. Oktober 1991 war für die Schweizer Bankenwelt im Kleinen, was zehn Jahre später das Swissair-Grounding für das ganze Land im Grossen war. Die Bilder mit verzweifelten Sparern, die vor den geschlossenen Schaltern der Spar- und Leihkasse Thun (SLT) um ihre Einlagen bangten, gingen um die ganze Welt, der Imageschaden war beträchtlich.

Kollaps nach 125-Jahr-Feier
    Nur wenige Monate vor dem Kollaps hatten die SLT-Verantwortlichen noch stolz ihr 125-Jahr-Jubiläum gefeiert und betont, dass man als zweitgrösste Bank des Berner Oberlandes auf Qualität setze und dank einer guten Abschreibungspolitik über einen sauberen Tisch verfüge. Keine fünf Monate später musste die Eidgenössische Bankenkommission (EBK) das Institut schliessen.
    Unbegreiflich aus heutiger Sicht ist, dass keine der angefragten Grossbanken die nur 70 Personen beschäftigende SLT übernehmen wollte. Die Bank sei zu sehr heruntergewirtschaftet, liessen die Grossbanken nach kurzer Prüfung verlauten. Der Imageschaden, der der ganzen Schweizer Bankenwelt aus dem Zusammenbruch der kleinen Regionalbank erwuchs, stand in keinem Verhältnis zu den finanziellen Mitteln, die bei einer Übernahme des maroden Instituts hätten eingesetzt werden müssen.

Immobilienkrise führte zum Bankencrash
    Der Kollaps der SLT muss im Zusammenhang mit der damaligen Immobilienkrise gesehen werden. Auch die SLT war bei der Belehnung von Immobilien ein allzu grosses Risiko eingegangen. Die Folge: für die hohen Wertberichtigungen reichten die Reserven nicht mehr aus. Zudem zeigten sich bei einer ersten Untersuchung erschreckende Organisationsmängel.
    Am 18. Oktober 1991 setzte die EBK eine Liquidatorin ein und verfügte den endgültigen Bewilligungsentzug. Die zumeist aus der Region Thun stammenden Spar- und Lohnkontogläubiger mussten sich noch bis Januar 1993 gedulden. Die letzte Auszahlung an die rund 6300 Gläubiger der 5. Klasse erfolgte erst im Dezember 2005. Diese erhielten insgesamt  60,7% ihrer ursprünglichen Guthaben bei der Bank zurück. Insgesamt wurde allen Gläubigern 899 Mio. Fr. zurückbezahlt. Schulden von 223 Mio. Fr. konnten dagegen nicht bedient werden.

    Das Fiasko von Thun sorgte trotz weiteren dramatischen Vorkommnissen bei Regional- und Kantonalbanken auf mehreren Ebenen für einen Gesundungsprozess in der Branche. So wurden im Interesse des Gläubigerschutzes die Vorschriften zur Rechnungslegung ausgebaut, die Eigenmittelvorschriften verschärft sowie die Einflussmöglichkeiten der EBK auf die Revisionsstellen verbessert.
    Auch der Markt reagierte rasch auf die Regionalbankenkrise. Innert zehn Jahren reduzierte sich die Zahl der Regionalbanken von 204 auf 103 Institute im Jahr 2000. 53 der heute noch 83 existierenden Regionalbanken sind unter dem Dach der im September 1994 gegründeten RBA-Holding zusammengeschlossen.

Copyright © Neue Zürcher Zeitung AG

  Schweiz: Mehr Schutz bei Bankenpleiten
  Banken: Lektion gelernt
  SLT-Pleite: Dornenvolle Verantwortlichkeitsprozesse     5. January 2006

A Thun regional bank has been liquidated 14 years after it went bust,
depriving over 6,000 depositors of more than a third of their savings.
  Thun bank collapse is finally settled
   Swissinfo with agencies

    The Savings and Loan Bank in Thun (SLT) was forced to close down in 1991 to the consternation of the
Swiss banking world. Its closure led to major changes in the financial landscape. Nearly SFr900 million ($685 million) has been returned to creditors but a further SFr233 million will not be paid out, said the liquidators.
     The bankruptcy affected some 5,000 small creditors. Large creditors included the Swiss Bankers Association. The liquidators said that a number of those owed money could not be reached to receive a settlement. They added that unclaimed money would eventually be transferred to the town of Thun as well as to the local authorities in Spiez and Saanen, which were left to deal with a number of hardship cases caused by the bank's collapse.

Sea change
    The Swiss Federal Banking Commission's decision to close SLT branches and cash machines on October 3, 1991 sent a shudder through the banking sector. It led to a new law on bank insolvency and increased depositor protection. The move also speeded up restructuring of regional banking.
    The sector's umbrella organisation put together a new concept with the motto "autonomous in the front, cooperation in the back office". It founded a new association called RBA-Holding, which was to oversee the restructuring efforts of member
banks. "The regional banks could remedy their structural weakness with the help of the umbrella organisation,"
Professor Beat Bernet of St Gallen University said.
     According to analysts, thanks to this new way of doing business, the banks were able to weather the storm. Hans Geiger, a professor at Zurich University, called the concept a "good achievement". "The banks did their homework," he added.

Less drama
    Bernet stressed that one could never rule out the collapse of a bank. However, should such an event take place today, "the consequences for the customers would be less dramatic".
     One change in the law after the collapse of the Thun bank was that deposits up to SFr5,000 would be paid out immediately in the event of a bank's liquidation. Also the culture of risk management had developed since the 1990s.
     The Banking Commission has increased its supervisory role, according to Bernet. "Today the Commission without a doubt employs a much stricter regime with the small banks," he said.

Vanity Fair    October 2006

Lessons Unlearned
Empire Falls

They called it “the American Century,” but the past hundred years actually saw a shift away from Western dominance. Through the long lens of Edward Gibbon’s history, The Decline and Fall of the Roman Empire, Rome 331 and America and Europe 2006 appear to have more than a few problems in common.
by Niall Ferguson
The decline of Rome was the natural and inevitable effect of immoderate greatness.
Prosperity ripened the principle of decay; the causes of destruction multiplied with the extent of conquest.
Edward Gibbon, The Decline and Fall of the Roman Empire,
“General Observations on the Fall of the Roman Empire in the West.”
I. It was 230 years ago that Edward Gibbon published the first volume of The Decline and Fall of the Roman Empire, a work conceived, as he put it, “amidst the ruins of the Capitol” in Rome. It was among the shining and still-intact buildings of another capital that I began (presumptuously, no doubt) to imagine a sequel that might be written: the history of the decline of the West, meaning that distinctive complex of beliefs and institutions which originated with the Greeks, was planted across Europe by the Romans, embraced Christianity under the Emperor Constantine, and crossed to the New World with Columbus.

The idea of Western decline is hardly a new one. In the aftermath of the First World War, a prematurely retired German schoolteacher named Oswald Spengler published the first volume of one of the most influential books of the 20th century, Der Untergang des Abendlandes, usually translated as The Decline of the West. These days, however, few people bother with Spengler; his prose is too turgid, his debt to the philosopher Friedrich Nietzsche too large, his influence on the Nazis (for whom he voted but against whom he later turned) too obvious. And no one takes seriously his idiosyncratic theory that civilizations, like the weather, pass through seasons. In any case, events since 1945 have tended to discredit Spengler’s central idea of a Western downfall. It has seemed much more convincing—and perhaps also more gratifying—to portray the history of the 20th century as part of a protracted Occidental ascendancy. “Much of the last three centuries,” wrote the late British historian J. M. Roberts in his book Triumph of the West, published in 1985, “is the story of a triumph of the outright power of the West.” But not only a triumph of Western power, he argued—above all, the triumph of Western civilization.

Just four years later, the 20th century appeared to culminate in a comprehensive Western victory, with the breakup of the Soviet empire in Eastern Europe and the collapse of the Soviet Union itself. Famously, on the very eve of those events, Francis Fukuyama, professor at Johns Hopkins University, was moved to proclaim “the end of history” and the victory of the Western model of liberal and democratic capitalism. Far from suffering its downfall in the 20th century, as Spengler had anticipated, the West appeared to attain its historic zenith. Neoconservatives in the United States, intoxicated by their country’s unrivaled status as a “hyperpower” and its achievement of “full-spectrum dominance” in warfare, wondered only how American primacy could be perpetuated for another “American century.”

Yet in many ways this inversion of Spengler is a fundamental misreading of the trajectory of the last hundred years. Far from being a time of Western ascendancy, the past century has in reality witnessed something more like a re-orientation of the world—albeit only a partial re-orientation—and the relative decline of the West.

In 1900 the West really did rule the world. From the Bosporus to the Bering Strait, from Siberia to Ceylon, nearly all of what was then known as the Orient was under some form of Western imperial rule. The British had long ruled India, the Dutch the East Indies, and the French Indochina; the Americans had just seized the Philippines; the Russians aspired to control Manchuria. All the imperial powers had established parasitical outposts in China. The East, in short, had been subjugated, even if that process involved far more complex negotiations and compromises between rulers and ruled than used to be acknowledged.

Western hegemony was one of the great asymmetries of world history. Taken together, the metropoles of all the Western empires—the American, Belgian, British, Dutch, French, German, Italian, Portuguese, and Spanish—accounted for 7 percent of the world’s land surface and just 18 percent of its population. Their possessions, however, amounted to 37 percent of global territory and 28 percent of mankind. And if we regard the Russian empire as effectively another European empire extending into Asia, the total share of these Western empires rises to more than half the world’s area and population. This was a political globalization unseen before or since.

What enabled the minority in the West to rule the majority in the East in 1900 was not so much scientific knowledge in its own right as its systematic application to both production and destruction. By contrast, the empires of the East, from the Ottoman to the Qing, failed disastrously to modernize themselves. Their economies remained trapped in subsistence agriculture while the West forged ahead, colonizing and industrializing, devouring sugar and burning coal. Their tax systems were inefficient, forcing Oriental rulers to borrow from Western capital bankers. Eastern armies remained long on pageantry and short on firepower, while the West could deploy well-drilled troops equipped with machine guns and heavy artillery. Eastern navies stood no chance against the Western combination of steam and steel.

Nothing symbolized better the humiliation of the East than the Western military intervention to suppress the Boxer Rebellion, in China, in 1900. The rebels, who had menaced Western diplomats and missionaries, relied on martial arts and magic. Having wiped them out, the Western expeditionary force staged a “grand march” through Beijing’s Forbidden City and then undertook punitive raids deep into Shanxi Province, Inner Mongolia, and Manchuria.

Just a few years later, however, the East began to re-assert itself. Japan’s defeat of Russia on land and at sea in 1904–5 marked a turning point in world history. From that point on, the balance of geopolitical power began to turn, slowly and painfully, back toward the more populous part of the world. It is only when the extent of Western dominance in 1900 is appreciated that the true narrative arc of the 20th century reveals itself. This was not “the triumph of the West,” but rather the crisis of the European empires, the ultimate result of which was the revival of the East—beginning in Japan—and the relative decline of the West.

This has not been a decline in the sense that Spengler envisaged: a kind of corrosive metropolitan ennui. Rather, it has been an unexpected but inexorable military decline. It has been a scarcely perceptible economic decline. It has been a subtle but unmistakable cultural decline. Above all, it has been a creeping demographic decline. In short, it has been a decline in precisely the sense that Gibbon understood the decline of Rome’s empire.

According to Gibbon, Rome fell through a combination of external overreach, internal corruption, religious transformation, and barbarian invasion. That the United States—and, perhaps even more, the European Union—might have something to learn from his account is too seldom acknowledged, perhaps because Americans and Europeans like to pretend that their polities today are something more exalted than empires. But suppose for a moment (as the Georgetown University historian Charles Kupchan has suggested in The End of the American Era) that Washington really is the Rome of our time, while Brussels, the headquarters of the European Union, is Byzantium, the city transformed in the fourth century into the second imperial capital, Constantinople. Like the later Roman Empire, the West today has its Western and Eastern halves, though they are separated by the Atlantic rather than the Adriatic. And that is not the only thing we have in common with our Roman predecessors of a millennium and a half ago.

II. The Romans … had acquired the virtues of war and government; by the vigorous exertion of those virtues … they had obtained, in the course of the three succeeding centuries, an absolute empire over many countries.… The limits of the Roman empire still extended from the Western Ocean to the Tigris … but the animating health and vigour were fled.… The barbarians … soon discovered the decline of the Roman empire. —Gibbon, Chapter VII.

There is a well-established American tradition, perhaps best expressed by Gore Vidal in The Decline and Fall of the American Empire, of worrying that the United States might go the way of Rome. But the perennial liberal fear is of the early Roman predicament more than the late one. It is the fear that the republican institutions of the United States—above all, its hallowed Constitution, based on the careful separation of powers—could be corrupted by the ambitions of an imperial presidency. Every time a commander in chief attempts to increase the power of the executive branch, pleading wartime exigency, there is a predictable chorus of “The Republic is in danger.” We have heard that chorus most recently with respect to the status of prisoners detained without trial at Guantánamo Bay and the use of torture in the interrogation of suspected insurgents in Iraq.

Gibbon could scarcely ignore the question of the Roman republic’s decay. Indeed, there is an important passage in The Decline and Fall that specifically deals with the revival of torture as a tool of tyranny. Few generations of Englishmen were more sensitive than Gibbon’s to the charge that their own ideals of liberty were being subverted by the temptations of empire. The year when his first volume appeared was also the year the American colonies used precisely that charge to justify their own bid for independence.

Yet Gibbon’s real interest lay elsewhere, with the period of Roman decline long after republican virtue had yielded to imperial vice. The Decline and Fall is not concerned with the fall of the republic. It is a story that properly begins with the first signs of imperial overstretch. Until the time of the Emperor Julian (A.D. 331–63), Rome could still confidently send its legions as far as the river Tigris. Yet Julian’s invasion of Mesopotamia (present-day Iraq, but then under Persian rule) proved to be his undoing. According to Gibbon, he had resolved, “by the final conquest of Persia, to chastise the haughty nation which had so long resisted and insulted the majesty of Rome.” Although initially victorious at Ctesiphon (approximately 20 miles southeast of modern Baghdad), Julian was forced by his enemy’s scorched-earth policy to retreat back to Roman territory. “As soon as the flames had subsided which interrupted [his] march,” Gibbon relates, “he beheld the melancholy face of a smoking and naked desert.” The Persians harried his famished legions as they withdrew. In one skirmish, Julian himself was fatally wounded.

What had gone wrong? The answer sheds revealing light on some of the problems the United States currently faces in the same troubled region. A recurrent theme of Gibbon’s work is that the Romans gradually lost “the animating health and vigour” which had made them militarily invincible in the glory days of Julian’s predecessor Trajan. They had lost their discipline. They started complaining about the weight of their armor. In a word, they had gone soft. At the same time, like most armies, their fighting effectiveness diminished the farther they were from home.

Most of us take it for granted that the United States Army is the best in the world. It might be more accurate to say that it is the best equipped and the best fed. More doubtful is how well it is configured to win a protracted low-intensity conflict in a country such as Iraq. One sign of the times that might have amused Gibbon has been the recent relaxation of conditions for recruits undergoing basic training. (A friend of mine who was in the army snorted with derision on hearing that trainees are now allowed eight and a half hours of sleep a night.) Another symptom of military malaise has been the heavy reliance of the Defense Department on National Guard and reserve troops, who have at times accounted for about half of the U.S. contingent deployed in Iraq.

The real problem, however, is a simple matter of numbers. To put it bluntly, the United States has a chronic manpower deficit, which means it cannot put enough boots on the ground to maintain law and order in conquered territory. This is not because it lacks young men; it has at least seven times as many as Iraq. It is that it chooses, for a variety of reasons, to employ only a tiny proportion of its population (half of 1 percent) in its armed forces, and to deploy only a fraction of these in overseas conflict zones.

In 1920, to illustrate the difficulty, when British forces quelled a major insurgency in Iraq, they numbered around 135,000. Coincidentally, that is very close to the number of American military personnel currently in that country. The trouble is that the population of Iraq was just over 3 million in 1920, whereas today it is around 26 million. Thus the ratio of Iraqis to foreign forces in 1920 was, at most, 23 to 1. Today it is around 210 to 1. To arrive at a ratio of 23 to 1, roughly one million American troops would be needed. Reinforcements on that scale are, needless to say, inconceivable.

This is the reality of what Michael Ignatieff, the Canadian Liberal politician and scholar, has called “empire lite” in his book of that name. In theory, the American military is a lean and mean fighting machine. In practice, however, downsizing has left it with too few combat soldiers to make a success of imperial policing—a labor-intensive task that renders redundant much of its high-tech hardware.

III. The tranquil and prosperous state of the empire was warmly felt, and honestly confessed, by the provincials as well as Romans.… It was scarcely possible that the eyes of contemporaries should discover in the public felicity the latent causes of decay and corruption. —Gibbon, Chapter II.

You are still not convinced. So, you say, the war in Iraq is not going well. But what about the bigger picture? How can the West possibly be regarded as being in decline when it is so economically dominant in the world? Today the combined output of the six biggest Western economies—Canada, France, Germany, Italy, the United Kingdom, and the United States—exceeds half of total global output. Gross domestic product (G.D.P.) per capita in the United States is more than 30 times higher than it is in the economies of East Asia and the Pacific.

Yet the difference between the West and the Rest is much narrower than it once was. As recently as 1968, American G.D.P. per capita was 127 times higher than that of East Asia. By this measure alone, the gap between West and East has narrowed dramatically in our time. And it will continue to narrow. The International Monetary Fund estimates that the Chinese economy is growing at a rate roughly three times that of the United States. According to Goldman Sachs, China’s G.D.P. will overtake Britain’s this year. By 2041 it is likely to be the biggest economy in the world.

At the same time, the Western economies have vulnerabilities that have been largely obscured by the debt-financed boom of the past five years. America’s gross federal debt now exceeds $8.5 trillion, and if the Congressional Budget Office’s outlook turns out to be correct, we are just a decade away from a $12.8 trillion debt—more than double what President Bush inherited from his predecessor. Moreover, the officially stated borrowings of the federal government are only a small part of the U.S. debt problem. Ordinary American households, too, have gone on a borrowing spree of unprecedented magnitude. U.S. household credit-market debt has risen from just above 45 percent of G.D.P. in the early 1980s to more than 70 percent in recent years. The remarkable resilience of American consumer spending in the past 15 years has been based partly on a collapse in the personal savings rate from around 7.5 percent of income to below zero.

For demographic reasons, Americans need to be saving much more than this. According to the United Nations’ intermediate projections, male life expectancy in the United States will rise from 75 to 80 between now and 2050. The share of the American population that is aged 65 or over will rise from 12 percent to nearly 21 percent. By 2050 the elderly-dependency ratio (the ratio of the population aged 65 years or over to the population aged 15–64) could double. Only a minority of Americans have made adequate private provision for their retirement. That implies that most new retirees in the years ahead will depend to some extent on Social Security, Medicare, and Medicaid. Today, the average retiree receives benefits totaling $21,000 a year from these programs. Multiply that by 37 million (the current number of elderly Americans) and you can see why these programs already consume 42 percent of federal outlays.

All this implies that the federal government has much larger unfunded liabilities than official data imply. If you compare the current value of all projected future government expenditures—including debt-service payments—with the current value of all projected future government receipts, the gap is about $66 trillion, according to calculations by economists Jagadeesh Gokhale, of the Cato Institute, and Kent Smetters, professor at the Wharton School.

Americans, however, are not just borrowing from one another and, in effect, from the next generation. They are also, to a vast extent, borrowing from foreigners. In all but two years since 1992, the gap between the amount of goods and services the United States exports and the amount it imports has grown wider. This year, the current account deficit—which is largely a trade deficit—could rise as high as 7 percent of G.D.P., or nearly double its peak in the mid-1980s. The result is a remarkable accumulation of foreign debt. Estimates of the net international investment position of the United States—the difference between the overseas assets owned by Americans and the American assets owned by foreigners—have declined from a modest positive balance of 8 percent of G.D.P. in the mid-1980s to a huge net liability of minus 22 percent today. In other words, foreigners are accumulating large claims on the future output of the United States. Around 20 percent of corporate bonds are now in foreign hands, and nearly 10 percent of the U.S. stock market.

These are largely hidden weaknesses at present. Yet it cannot be a sign of Western strength that the annual bill for Social Security in the United States ($554 billion) is now larger than the bill for national security ($512 billion). And it cannot be a sign of imperial vigor that the United States needs to rely so heavily on foreign investors—including Asian central banks and Middle Eastern treasuries—to help finance a foreign policy that currently has minimal international support.

IV. The minds of men were gradually reduced to the same level, the fire of genius was extinguished.… The name of Poet was almost forgotten; that of Orator was usurped by the sophists. A cloud of critics, of compilers, of commentators, darkened the face of learning, and the decline of genius was soon followed by the corruption of taste.… This diminutive stature of mankind … was daily sinking below the old standard. —Gibbon, Chapter II.

Perhaps our most perplexing vulnerability, however, is cultural. Gibbon was acute in identifying literary decline as one symptom of a more profound Roman malaise. And if his barbed allusion to the “darkened … face of learning” does not immediately strike a chord, then some of the other symptoms may. While “the corrupt and opulent nobles of Rome gratified every vice that could be collected from the mighty conflux of nations and manners,” Gibbon wrote, “the most lively and splendid amusement of the idle multitude depended on the frequent exhibition of public games and spectacles.” Orgies and circuses are not precisely the favorite pastimes of Western society today. But if you substitute pornography and NASCAR, the parallel is not so far-fetched.

Outwardly, it is true, the institutions that exist to preserve and propagate our culture are in good shape. Never has the percentage of young people attending college been higher. Never have American universities dominated higher education and academic research as they do today. Our museums and concert halls offer more exhibitions and recitals than the enthusiast can possibly hope to attend. And to enter any branch of Barnes & Noble is to be overwhelmed by the sheer number of books being published.

Yet beneath this upper crust of high culture there simmers a less appetizing stew. Few children read for pleasure. Most boys would rather fritter away their time on brutalizing video games such as Grand Theft Auto. Girls no longer play with dolls; they are themselves the dolls, dressed according to the dictates of the fashion industry. Endlessly gaming, chatting, and chilling with their iPods, the next generation already has a more tenuous connection to “Western civilization” than most parents appreciate.

Gibbon’s argument against Roman “luxury” was in part that it sapped the empire’s martial strength. Here, too, there is a striking analogy. For our culture’s sedentary character—our strong preference for watching over doing, for virtual over real action—seems closely correlated to our changing physical shape. Gibbon’s Romans became metaphorical pygmies. We, by contrast, are being transformed into actual giants. We are certainly taller on average than past generations, a consequence of improvements in nutrition. But we are also wider, since we now consume significantly more fats and carbohydrates than we actually need. According to the standard measure of obesity, the body-mass index, the percentage of Americans classified as obese nearly doubled, from 12 percent to 21 percent, between 1991 and 2001. Nearly two-thirds of all American men are officially considered overweight, and nearly three-quarters of those between 45 and 64. Only Western Samoans and Kuwaitis are fatter.

V. The natives of Europe … no longer possessed that public courage which is nourished by the love of independence, the sense of national honor, the presence of danger, and the habit of command.… They … trusted for their defence to a mercenary army. The posterity of their boldest leaders was contented with the rank of citizens. —Gibbon, Chapter II.

Often fat and sometimes fatheaded, the new Romans of the United States are nevertheless less decadent than their counterparts in that part of the new West across the Atlantic, governed from the new Constantinople, Brussels. The United States remains a vigorously Christian country, thanks in part to the invigorating competition there has always been among its multiple denominations and sects. Americans also remain capable of a robust patriotism (though this seems to require regular foreign attacks on U.S. soil to be sustained). And—unlike the Romans—they still have a resilient work ethic.

Things are different in Europe. The Europeans have all but renounced warfare as a tool of policy. Their armies are puny, their weapons inferior. In some areas, standards of physical fitness are even lower than in Middle America. Take Scotland, the land of my birth. Male life expectancy in some parts of Glasgow is now as low as 54. There has been a 350 percent rise in alcohol-related deaths in the last two decades. About 13,000 people die from smoking-related diseases every year. More than a third of Scotland’s 12-year-olds are overweight or clinically obese.

While Americans work, young Europeans are to a remarkable extent idle. In Britain as a whole, more than 5 million adults of working age—nearly 15 percent of the workforce—are now dependent on benefits. Nearly half of those have been living on welfare for more than five years. The reason these people do not show up in the official unemployment statistics is that many of them are counted as unfit for work rather than jobless. Every day, 23 more teenagers in Britain sign up for “incapacity benefit.” This reflects a crisis of public education as much as of public health. As the Organization for Economic Cooperation and Development recently pointed out, an exceptionally large share of British pupils leave school without any qualifications at all. One in six British adults lacks the literacy skills of an 11-year-old. It may be technically correct that the incapacitated are not unemployed. The reality is that they are unemployable.

Most striking of all, Europe has become the world’s first post-Christian society. There was a time when Europe could justly refer to itself as “Christendom”; indeed, this was the most enduring legacy of both Rome and Byzantium. Europeans built the continent’s great cathedrals to accommodate their acts of worship. As pilgrims, missionaries, and conquistadores, they sailed to the four corners of the earth, intent on converting the heathens to the true faith. Now, however, it is they who are the heathens. According to the Gallup International Millennium Survey of religious attitudes, barely 20 percent of Western Europeans attend church services at least once a week, while 47 percent of North Americans and 82 percent of West Africans do. And fully 15 percent of Western Europeans deny that there is any kind of “spirit, God, or life force”—more than 7 times the American figure and 15 times the West African.

The exceptionally low level of British religiousness was perhaps the most striking revelation of a recent ICM Research poll. One in five Britons claims to “attend an organized religious service regularly,” less than half the American figure. And only 19 percent would be willing to die for his or her beliefs, while 71 percent of Americans say they would.

The de-Christianization of Britain is a relatively recent phenomenon, as British religious and cultural historian Callum Brown has shown. For most of the first half of the 20th century, Anglican Easter Day communicants accounted for between 5 and 6 percent of the population of England; it was only after 1960 that the proportion slumped to 2 percent. Figures for the Church of Scotland show a similar trend: steady until 1960, then falling by roughly half. As those figures suggest, British Protestants were not especially observant (compared, for example, with Irish Catholics), but until the late 1950s established-church membership, if not attendance, was relatively high and steady.

Prior to 1960, most marriages in England and Wales were solemnized in a church; then the slide began, down to around 40 percent in the late 1990s. Especially striking is the decline in confirmations of baptized children. Fewer than a fifth of those baptized are now confirmed, roughly half the figure for the period from 1900 to 1960.

Contrary to popular belief, it was not the British Catholic writer G. K. Chesterton who said, “When men stop believing in God, they don’t believe in nothing. They believe in anything.” But he could have said it. Chesterton viewed atheism with the utmost suspicion. Those who disbelieve in God on supposedly rational grounds, he argued, merely become prey to pseudo-religions and superstitions. His neatest formulation was in The Miracle of Moon Crescent, where he wrote, “You all swore you were hard-shelled materialists; and as a matter of fact you were all balanced on the very edge of belief—of belief in almost anything.” Evidence to support his point is now abundantly available in post-Christian Europe, where all kinds of New Age cults and irrational beliefs flourish. Otherwise intelligent people choose apartments on the basis of feng shui. They delude themselves into thinking that attendance at a concert will reduce poverty in Africa. They are simultaneously against poverty and against global warming, when it is precisely the reduction of poverty in Asia that is increasing emissions of carbon dioxide. Drawn to conspiracy theories as the ancients were to superstitions, some Europeans blame the U.S. government for rising sea levels (not to mention the 9/11 terrorist attacks).

With the decline of Christianity, Europe is also experiencing a rise in what politicians euphemistically call “antisocial behavior.” The restrained civility that was once a hallmark of English life has all but vanished, to be replaced by a startling rudeness. Profanity in the street and on television has become the norm. Once, a lifetime ago, an English writer warned of a future in which the state would keep the population under permanent surveillance. Today, George Orwell’s imaginary Big Brother is the name of a television series in which individuals volunteer for surveillance by the rest of the population. Far from being inhibited by their loss of privacy, they glory in mutual degradation. Shame has gone; so has civility. On Friday and Saturday nights, most English city centers become no-go zones where drunken, knife-wielding youths brawl with one another and the police. Another striking symptom of this new primitivism is the extraordinary surge in the popularity of tattoos, once associated with the unruly Picts of the Far North. In this modern decline and fall, it seems, at least some of the barbarians come from within the empire.

VI. A perpetual stream of strangers and provincials flowed into the capacious bosom of Rome. Whatever was strange or odious, whoever was guilty or suspected, might hope, in the obscurity of that immense capital, to elude the vigilance of the law.… It was the just complaint of the ingenuous natives that the capital had attracted the vices of the universe and the manners of the most opposite nations. —Gibbon, Chapters XV and XXXI.

Nothing changed Rome more than immigration. The same is true of the West today. But whereas a large proportion of immigrants to the United States come from countries that were colonized by Roman Catholics and quickly find jobs in America’s dynamic labor market, the situation in Europe is altogether different.

The demographic transformation of the West has its roots in feminism. Legislation against sex discrimination opened all kinds of careers to women that had previously been dominated by men. At the same time, the ready availability of contraception and abortion gave women an unprecedented control over their own fertility. Beginning in the late 1970s, the average Western European couple had fewer than two children. Today the figure is around 1.4, whereas it needs to be slightly higher than 2 for a population to remain constant. Europeans, quite simply, have ceased to reproduce themselves. The United Nations Population Division forecasts that, if Spanish fertility persists at such low levels, within 50 years the country’s population will decline by more than 4 million. The population of Italy will fall by a fifth. The overall reduction in native-born European numbers could be as much as 14 million. Not even two World Wars inflicted such an absolute decline in population.

Meanwhile, however, the combination of relative poverty and religious revival had a very different effect on Europe’s southern and eastern neighbors. Since the 1950s, according to U.N. figures, the crude birthrate in seven of the Muslim countries to the south and east of the Mediterranean—Morocco, Algeria, Tunisia, Libya, Egypt, Jordan, and Syria—has been two or three times the European average. The gap between Pakistan and Britain has been even wider. The total number of children per woman in Britain today is around 1.7. The latest figure for Pakistan, one of the principal sources of immigrants to Britain, is 4.3.

The first wave of immigration to Europe after World War II was a post-imperial phenomenon; people from former colonies migrated in response to apparent labor shortages. Many family members later followed. Now, as European societies age, they are attracting immigrants from rather closer to home—from Eastern Europe especially—but the flow from the Muslim periphery continues, much of it illegal. The trouble is that many of the newcomers are moving to residential ghettos with miserable economic prospects. In France, the Western European country with the largest Muslim population, the unemployment rate among foreign-born residents is more than twice the national average, which, at 9 percent, is already high enough.

Today, around 20 million Muslims make their home in the European Union, and that number is certain to rise, even if Middle East expert Bernard Lewis’s recent prophecy—that Muslims would be a majority in Europe by the end of the 21st century—surely goes too far. Fouad Ajami, director of the Middle East Studies Program at Johns Hopkins University, is more realistic when he anticipates that Muslim “colonization” will continue to be concentrated in certain regions of Europe, just as it was when the Moors ruled southern Spain (which they did from the 8th to the 15th century), or when the Ottomans ruled the Balkans (from the 14th to the 19th).

Those historic parallels are a reminder that Islam played a crucial role in Gibbon’s explanation of the decline and fall of the Roman Empire. For it was Islam that struck a heavy blow to what remained of the Roman Empire in the West when the Moors advanced into France as far as Poitiers, where they were finally halted, in 732. And it was again Islam which finally decapitated what remained of the empire in the East when the Turks sacked Constantinople in 1453.

Gibbon’s account of monotheism is certainly the most controversial part of his great work. It was the spread of Christianity within the Roman world, he argues in the notorious 15th chapter of The Decline and Fall, that tended to dilute the martial values of the Romans. Venerating the Virgin Mary was very different from venerating Mars, the god of war. Yet the monotheism of Muhammad had a very different character from that of Christianity. Islam, in Gibbon’s account, was always a belligerent religion. “The intrepid souls of the Arabs were fired with enthusiasm” by it, he notes. “The death which they had always despised became an object of hope and desire.”

That passage resonates in our own time, when suicide bombers stalk our transport systems, dreaming of heavenly trysts with multiple virgins. The problem, as Europeans have come to understand, is that it takes only a few would-be martyrs within a single Muslim community to produce a calamity.

VII. Gibbon called the decline and fall of the Roman Empire “the greatest, perhaps, and most awful scene in the history of mankind.” Could a still more awful scene be unfolding in the form of the West’s decline and fall? For Gibbon, Rome’s decline was the result of military overstretch, inner decadence, religious conversion, and barbarian invasion. To my mind, all of these are operating today to undermine what remains of Western dominance in the world. If the United States suffers mainly from the first and second, the European Union seems even more afflicted by the third and fourth.

A hundred years ago, as we have seen, the West could justly claim to rule the world. After a century during which one Western empire after another has declined and fallen, that can no longer credibly be claimed. Empires, of course, take time to decline and fall. Gibbon begins his narrative in A.D. 96; he ends it in 1430, more than a millennium later. Yet there can be no question that the pace of imperial descent has quickened in modern times. The longest-lived empire after the Romans was the Ottoman Empire, which endured for 469 years. The East European empires of the Habsburgs and the Romanovs each existed for more than three centuries. The Moguls ruled a substantial part of what is now India for 235 years. Of an almost identical duration was the realm of the Safavids in Persia. The Spanish, Dutch, French, and British empires can all be said to have endured about 300 years. The lifespan of the Portuguese empire was closer to 500.

The empires created in the 20th century, on the other hand, were all of comparatively short duration. The Bolsheviks’ Soviet Union (1922–91) lasted less than 70 years, a meager record indeed, though one not yet equaled by the People’s Republic of China, established in 1949. Japan’s colonial empire, which can be dated from the conquest of Taiwan in 1895, lasted barely 50. Most ephemeral of all modern empires was the so-called Third Reich of Adolf Hitler, which did not extend beyond its predecessor’s borders before 1938 and had retreated within them by the end of 1944. The remaining empires of the West are young by Roman standards. But by the standards of modern times, the United States—at 230 years—is quite long in the tooth. The day when the Capitol in Washington, D.C., will be reduced to a picturesque ruin may seem to us infinitely remote. History—including the greatest historian of them all, Edward Gibbon—suggests that it may come sooner than we think.

Niall Ferguson is Laurence A. Tisch Professor of History at Harvard University and a Senior Fellow of the Hoover Institution at Stanford, and the author of The War of the World: Twentieth-Century Conflict and the Descent of the West.    29.02.2008

John Maynard Keynes: Der Mann, der Hitler kommen sah
Von Arne Gottschalck

Nur wenige Denker prägten die Wirtschaft so wie John Maynard Keynes. Noch heute, 62 Jahre nach seinem Tod, polarisiert er. Denn soll der Staat tatsächlich eingreifen, um die Wirtschaft in Schwung zu bringen?

Hamburg - Sogar im Videonetzwerk Youtube ist er zu finden. Er, das ist John Maynard Keynes. Und er dürfte sogar in jenen Kreisen bekannt sein, die an Wirtschaft kein Interesse haben. Denn Keynes gilt als Begründer jener Schule wirtschaftlicher Denker, die dem Staat mehr als nur eine bloße Nachtwächterrolle zumisst.

Der Vordenker: John Maynard Keynes wurde 1883 in Cambridge geboren - übrigens als Sohn eines Ökonomieprofessors. Er studierte Philosophie, Geschichte, Mathematik und Ökonomie in Cambridge. Er war unter anderem auch Herausgeber des "Economic Journals" und Mitglied der Commission on Indian Finance and Currency. 1946 verstarb Keynes. (© Getty Images)

Der Staat solle nicht bloß die Aufsicht führen, sondern gegebenenfalls eingreifen. Denn die gesamtwirtschaftliche Nachfrage steuere die Wirtschaft. Und dazu gehört auch der Staat.

Das mit den Gräben, das war auch Keynes. Der Brite plädierte dafür, der Staat solle notfalls selbst zum Kunden werden. Es sei also besser, die Menschen Gräben ausheben und dann wieder zuschütten zu lassen als die Menschen in der Arbeitslosigkeit zu belassen. Denn so werde immerhin die Nachfrage angekurbelt.

Für diese Fokussierung auf die Nachfrage dürften ihm Gewerkschaftler weltweit noch immer ein Lichtlein am 21. April, dem Todestag des Briten, entzünden. Immerhin verleiht er damit ihren steten Forderungen nach höheren Löhnen wissenschaftliches Fundament. Keynes selbst sprach von der inhärenten Unsicherheit der Wirtschaft. Anders als die bis dato herrschende Meinung darlegte, komme es also nicht automatisch zu einem Gleichgewicht am Arbeitsmarkt. Um das zu erreichen, sei neben dem privaten Konsumenten auch der Staat in der Pflicht. Im Abschwung, so Keynes, solle der Staat die Wirtschaft durch Aufträge stützen - zum Beispiel mit den genannten Bauaufträgen. "Deficit spending" ist das Schlagwort, das seitdem die Runde macht - angeblich nicht von Keynes selbst geprägt. Im Aufschwung könne sich der Staat dann wieder finanzieren, zum Beispiel über höhere Mehrwertsteuern.

Das gleiche Bild auf Unternehmensebene - auch sie trügen eine Verantwortung gegenüber der Gesamtwirtschaft. Daher sollen Unternehmen ihren Angestellten auch in Krisenzeiten nicht die Löhne kürzen, so seine Empfehlung.

traduction française (Le Temps, 10.10.08)
Das Magazin    #40, 3.Oktober 2008

Die Globalisierung hat unser Land anfällig für Finanzkrisen gemacht. Neue Ideen sind gefragt.
Die Schweiz nach dem Crash
von Roger de Weck

Falls das Kapital irgendwo eine Heimat hat, dann ist es die Schweiz. Die Vermögensverwalter betreuen im Auftrag ihrer reichen Kunden 4000 Milliarden Franken. So hat das Debakel auf den Finanzmärkten die Grundfesten der Eidgenossenschaft erschüttert. Angeschlagen sind die UBS, das Selbstbewusstsein und das Schweizer Modell.

Keine andere Volkswirtschaft in Europa hat sich so stark und zielstrebig globalisiert. Das hat sich gelohnt, aber jetzt erweist sich, dass das Land gleichzeitig sehr anfällig geworden ist – die Kehrseite der Globalisierung. Der Krise verdanken wir eine ungemütliche Erkenntnis: Die Grossbanken UBS und Credit Suisse sind zu gross für die Schweiz. Die UBS hat an die 50 Milliarden Franken verloren – zehn Prozent des Schweizer Volkseinkommens. Ihr Bankrott würde ein blühendes Land ruinieren. Zwangsläufig müsste der Staat die Riesenbank auffangen. Müssen müsste er, aber könnte er einen solchen Kraftakt stemmen?

Die Bilanz der UBS beträgt 2000 Milliarden Franken, die der Credit Suisse 1200 Milliarden, macht zusammen 3200 Milliarden. Hätte die Eidgenossenschaft im Ernstfall auch nur zehn Prozent dieser Unsumme zu schultern, wäre sie überfordert: Die 320 Milliarden wären knapp zwei Drittel des Volkseinkommens; der Bund würde seine Schulden mehr als verdreifachen.

Daran dachte vor der Krise niemand, doch jetzt wird klar: Das von den zwei Grossbanken ausgehende «Systemrisiko» erweist sich für die Schweiz als untragbar. «Die UBS wird einen schönen Teil ihres Geschäfts aufgeben müssen», befindet Hans Geiger, Professor für das Bankwesen: «Vereinfacht gesagt, muss sie ihre Bilanzsumme halbieren.»

Kann man schadlos nationale Institutionen hälften? Der Kleinstaat Schweiz sieht sich vor allem als Wirtschaftsnation. UBS und Credit Suisse haben über viele Jahre Identität gestiftet, Identifikation geboten. Obendrein halten sie einen Anteil von achtzig Prozent am heimischen Markt. Gerät die UBS ins Schlingern, droht eine nationale Katastrophe.

Kein Wunder, dass Bundesrat und Aufsichtsbehörden beklommen sind. Unter ihrem Druck werden die beiden Grossbanken künftig mit mehr Eigenkapital weniger Geschäfte machen dürfen. Das verringert ihren Gewinn und verbilligt ihre Aktien – was eine Übernahme durch ausländische Institute wie die voll globalisierte HSBC (Hongkong and Shanghai Banking Corporation) erleichtert. Der Staatsfonds von Singapur kaufte bereits neun Prozent der UBS, als die Krise ausbrach – Rettung in höchster Not.

Das Swissair-Grounding 2001 entsetzte die Nation, aber für die Volkswirtschaft waren die Folgen unerheblich. Allerdings zeigte sich damals, dass die Bankenchefs und andere Schweizer Mitglieder der «globalen Klasse» (Lord Dahrendorf) nicht mehr willens waren, nationale Heiligtümer zu erhalten. Doch 2008 geht es um die Substanz: Sollte die UBS als eine Säule unserer Volkswirtschaft demnächst einer ausländischen Bank gehören, geriete das helvetische Wirtschaftsmodell in Schieflage. Unser globalisiertes Land verlöre allmählich die Kontrolle über seine weitere Globalisierung. Die Schweiz, seit jeher ohne Geltung in der Weltpolitik, hätte bald auch keine mehr in der Weltwirtschaft.

Das Dilemma des globalisierten Kleinstaats: Seine Machtelite wir immer multinationaler und hat je länger, desto weniger Sinn für die Schweiz. In der heterogenen Eidgenossenschaft bildeten die alteingesessenen Konzerne einst eine Klammer der Nation. Die eigelbe Post oder die orange Migros erfüllen bis heute die staatspolitische Aufgabe, Nähe und helvetische Gemeinsamkeit zu schaffen – damit stets von Neuem zusammenwächst, was nur bedingt zusammengehört. Doch Nestlé und Novartis, Roche oder Swiss Re, diese Riesen würden zwar nie ihren Sitz ins Ausland verlegen, aber innerlich entwachsen sie der Schweiz.

In Europa haben nur England, Deutschland und Frankreich mehr Weltkonzerne als die Eidgenossenschaft. Uns schmeichelt das. Aber das Mitspielen mit den Global Players bringt nicht nur hohen Ertrag, sondern auch gewaltige Risiken. Die UBS wollte mithalten und hat sich übernommen. Nach dem traumatischen Untergang der nationalen Fluggesellschaft wird abermals Undenkbares denkbar, Unfassbares rückt greifbar nah: Überlebt die UBS? Allein die Frage ist ein zweiter Schock. Die Schweiz hat in Frankfurt vorgefühlt, ob die Europäische Zentralbank (EZB) helfen würde, wenn es für eine Rettungsaktion aus eigener Kraft nicht reicht; die Rede ist von einem Geheimabkommen.

Falsche Standortpatrioten

Bundesräte und Wirtschaftsführer hüten sich, solche Abhängigkeiten zu thematisieren und das Zweischneidige an der Globalisierung zu erörtern. Die Stimmung im Lande ist unreell. Das Volk des Alleingangs ist sich nicht bewusst, dass es im Ernstfall auf EZB und EU angewiesen wäre. Die SVP zelebriert unverdrossen die nationale Souveränität, obwohl die Finanzkrise und ihre Kettenreaktionen die globale Interdependenz verdeutlichen. Schweizer und Schweizerinnen sind stolz auf «ihre» Konzerne, die sich der Heimat entfremden, zumal wenn der enge Heimmarkt bloss ein, zwei Prozent des Weltmarkts ausmacht.

Viele Manager stammen aus dem Ausland – das Gesetz der grösseren Zahl. Jedoch betrachten auch manche schweizerische Wirtschaftsführer ihr Vaterland gleichsam von aussen als einen «Standort». Und Standortpatrioten à la Tito Tettamanti sind so lange patriotisch, als der Standort stimmt. Um die Schweiz besser aufzustellen, neigen viele zur sogenannten City-State-Nischenstrategie: Vorbild ist der Stadtstaat und neue UBS-Hauptaktionär Singapur. Wenn es nach ihnen geht, soll auch die Eidgenossenschaft «offshore» sein, in Europa mittendrin und doch aussen vor, total global und bergbauernschlau neutral in ihrer kleinen Ecke.

Jetzt hat ein globaler Orkan ausgerechnet diese Ecke mit aller Wucht heimgesucht. Der Finanzplatz, der gut zehn Prozent des Volkseinkommens erbringt, schrumpft bereits und wird es weiter tun. Behauptet sich die Schweiz als Insel der Stabilität? Sie lebt zum Teil vom Lohn des Vertrauens: von den Milliarden, die ins Land strömen. Schwindet das Vertrauen, schmilzt das Geld wie Alpenbutter an der Sonne. Die ungestüme Globalisierung des Finanzplatzes hat die legendäre Stabilität – den grössten Standortvorteil – untergraben.

Der glänzende Wirtschaftshistoriker Hansjörg Siegenthaler vergleicht die Zeitenwende, die wir erleben, mit der Zäsur von 1875 in der britischen Geschichte. Jahrhundertelang hatte nicht die Krone, sondern hatten private Handelsgesellschaften wie die Britische Ostindien-Kompanie die Schlüsselrolle gespielt in der Kolonisierung der Welt. Doch Wirtschaftskrisen und die Rivalität mit aufstrebenden Kolonialmächten erforderten schliesslich das Eingreifen des Staats. Wie einst die Kolonisierung, tritt heute die Globalisierung in ihre zweite Phase: Nachdem Weltkonzerne diese Grundbewegung trugen, beschleunigten und ausarten liessen, ist es unausweichlich, dass die Staatengemeinschaft das Heft in die Hand nimmt und Regeln setzt, um einer neuerlichen Weltfinanzkrise zuvorzukommen.

Das ändert das Spiel auch für die Schweiz: In der zweiten Epoche der Globalisierung dürfte es für sie schwieriger werden, ihre Interessen zu verfechten. Wenn künftig weniger die Marktmacht globaler Unternehmen als vielmehr die politische Macht grosser Staaten und weltregionaler Staatenbünde zählt, verliert die Eidgenossenschaft der Konzerne weiter an Stellenwert.

Immerhin birgt die Krise auch Chancen. Schweizer Bankiers, die blosse Dienstleister hätten bleiben sollen, hatten sich zu «Masters of the Universe» aufgeplustert. Jetzt kommt die Industrie wieder zur Geltung. Während der Finanzplatz umzubauen bleibt, gedeiht der solide Werkplatz. Hier geht die Schweizer Globalisierungsstrategie nach wie vor auf. Es sei denn, die Finanzkrise schlägt in eine Weltwirtschaftskrise um. Sie träfe die Schweiz, die jeden zweiten Franken auswärts verdient, härter als andere. Und in der Wirtschaftsnation gilt erst recht: leidet die Wirtschaft, leidet die Nation.


Martin Cesna
    Wahrscheinlich ist es so wie in der Erziehung: Der Erziehende muss viel grösser sein, als der zu Erziehende. Daher denke ich, dass in einem kleinen Land wie der Schweiz alles, was wirtschaftlich wesentlich grösser ist als ein Kiosk, das Land einfach überfordert. Sonst könnte es nämlich sein, analog in der Erziehung (oder ist es etwa so?), dass der Grössere dem Kleineren sagt, wie er jetzt zu singen hat.

Heinrich WAGNER
    Diese pertinente Analyse bestätigt einmal mehr: “Die Welt ist meine Vorstellung.” Absolute Wahrheit gibt es nicht, ist nur Wahrnehmung. Jedes Lebewesen sieht, hört, riecht und fühlt entsprechend seinen Sinnesorganen. Daraus folgt “Quot capita, tot sensus”. Könnte es sein, dass “Schielende” der Wahrheit näher kommen?
    Von allen Artikeln die die aktuel weltweite Finanzkrise und die daraus resultierenden Debakel analysieren schwebt dieser oben aus. Die GRUNDFESTEN sind “erdweit”(bleiben wir bescheiden) erschüttert. Bravo Herr Robert de WECK. Sie sprechen Klartext…
PS Auch die “welsche” Presse fand es nützlich Ihren Artikel übersetzen zu lassen und zu veröffentlichen. (Siehe Le Temps du 10.10.2008)

deutscher Originaltext
Le Temps    10 octobre 2008

La stratégie suisse toche à ses limites
Roger de Weck - traduction: Fabienne Bogadi

 Roger de Weck, journaliste et éditorialiste, montre que si la mondialisation a enrichi notre pays, elle l'a aussi rendu vulnérable. On voit maintenant, notamment avec les difficultés que rencontrent les grandes banques, que l'isolationnisme peut se retourner contre lui.
Si le capital avait une patrie, ce serait la Suisse. Nos gérants de fortune administrent 4000 milliards de francs. Et de fait, la débâcle des marchés financiers n'est pas loin d'ébranler les fondements de la Confédération. Les trois victimes sont la confiance, le «y-en- a-point comme nous» et le modèle suisse des dernières décennies.

En Europe continentale, aucune autre économie ne s'est mondialisée aussi résolument que la nôtre. Cette stratégie a été profitable - mais la Suisse est devenue vulnérable. C'est le revers de la mondialisation. La crise nous invite à dresser un constat déplaisant: UBS et Credit Suisse, les deux grandes banques, sont trop grandes pour notre petit pays. UBS a perdu pas loin de 50 milliards de francs: 10% du produit national. Sa faillite ruinerait une économie florissante; par la force des choses, l'Etat devrait lui porter secours. Il devrait. Mais en aurait-il les moyens?

Le bilan d'UBS se monte à 2000 milliards de francs, celui de Credit Suisse à 1200 milliards, au total 3200 milliards. Si la Confédération devait éponger ne serait-ce que 10% de ce montant, elle se retrouverait elle-même en déroute. Une ardoise de 320milliards de francs? Ce seraient les deux tiers du produit national; au bas mot, la Confédération triplerait ses dettes.

Personne n'y songeait avant la crise. Or soudain le «risque systémique» qui émane des deux grandes banques s'avère ingérable pour la Suisse. «UBS devra abandonner une bonne partie de ses activités, estime Hans Geiger, professeur de gestion bancaire à l'Université de Zurich. En un mot, elle devra diviser son bilan par deux.»

Peut-on réduire de moitié des institutions nationales? La Suisse, toute petite, est fière de ses grandes entreprises et de leur puissance. Longtemps, UBS et Credit Suisse ont conforté l'identité d'une nation qui, pour bonne part, se définit par le succès de son économie. De surcroît, les deux banques contrôlent quelque 80% du marché intérieur. Si l'UBS devait s'effondrer, ce serait une catastrophe nationale. Nous l'avons frôlée.

On saisit l'anxiété du Conseil fédéral et des autorités de surveillance. Il y va de l'intérêt national que les deux grandes banques diminuent leur activité et augmentent leur capital propre. Mais cela réduira leurs bénéfices et pèsera sur le cours de leurs actions, ce qui peut susciter une offre publique d'achat par des établissements comme la HSBC (la Hongkong and Shanghai Banking Corporation). D'ores et déjà, le fonds souverain de Singapour a acheté une part de 9% d'UBS lorsque la crise a éclaté: un sauvetage de dernière minute.

Le grounding de Swissair en octobre 2001 a bouleversé la nation, mais son impact sur l'économie a été insignifiant. Toutefois, les dirigeants des grandes banques et les principaux membres suisses de la «classe globale» (Lord Dahrendorf) ont montré à cette occasion qu'ils ne s'efforceraient plus de sauvegarder les sanctuaires nationaux.

Mais en octobre 2008, la situation est autrement plus sérieuse car une partie de notre substance économique est en péril: UBS est un noyau de l'économie. Sa reprise par une banque étrangère mettrait en question le modèle helvétique des trois décennies passées: lentement mais sûrement, notre pays ultra-mondialisé perdrait le contrôle de sa mondialisation. La Suisse, qui n'a aucun poids en politique internationale, n'en aurait plus dans l'économie mondiale.

Le dilemme d'un petit Etat globalisé: ses élites multinationales perdent au fur et à mesure leurs attaches avec le pays. Dans cette Confédération si hétérogène, les grandes entreprises étaient naguère un ciment de la nation. Les géants jaune et orange, La Poste et Migros, restent en mesure de «rassembler» à leur façon les Suisses, d'éveiller un sentiment de proximité et d'appartenance à un ensemble, bref de contribuer à notre unité précaire. Tandis que les géants transnationaux, Nestlé et Novartis, Roche ou Swiss Re, s'éloignent en leur for intérieur de la Suisse, même s'ils ne songent pas sérieusement à délocaliser leur siège.

En Europe, seules l'Angleterre, l'Allemagne et la France ont plus de grands groupes transnationaux que la Confédération. Cela nous flatte. Or, il est à la fois avantageux et hasardeux de jouer le jeu des «global players». UBS, qui voulait être à la pointe du mouvement, a présumé de ses forces. Sept ans après l'effondrement de la compagnie aérienne nationale, l'impensable est à nouveau pensable, l'inimaginable tangible: «UBS va-t-elle survivre?» Le seul fait que les Suisses aient à se poser la question est un nouveau traumatisme. La Banque nationale a pressenti la Banque centrale européenne (BCE) à Francfort pour qu'elle vienne à la rescousse au cas où la Suisse ne serait pas en mesure de mener par ses propres forces une action de sauvetage; un accord secret aurait été conclu.

Or, le Conseil fédéral et les dirigeants d'entreprise se gardent bien de mettre en évidence de telles dépendances et de relever - outre ses grands avantages - les effets pervers de la mondialisation. L'ambiance est irréelle. Le peuple de l'«Alleingang» n'est pas conscient du fait qu'en cas de crise grave, il dépendrait de la BCE et de l'UE. UDC exalte la souveraineté nationale au moment même où la crise financière et ses réactions en chaîne illustrent l'interdépendance globale. Les Suisses sont fiers de «leurs» multinationales qui s'éloignent d'un pays qui ne représente que 1 à 2% du marché mondial.

Beaucoup de chefs d'entreprise, et parfois les plus capables, viennent de l'étranger, c'est la loi des grands nombres. Or certains patrons suisses regardent aussi la Suisse comme «de l'extérieur». Les patriotes «offshore» à la Tito Tettamanti n'aiment la patrie - qu'ils confondent avec une société anonyme - que quand elle leur est profitable. Afin de mieux positionner la Suisse SA, ils plaident pour une stratégie de «City-State» à la Singapour; l'actionnaire d'UBS donne l'exemple. Ils préconisent une Confédération «offshore», à la fois au milieu et en marge de l'Europe, cosmopolite et chauvine, mondialisée mais neutre dans son coin.

Or, l'ouragan mondial a frappé de plein fouet notre coin du monde. La place financière, à laquelle nous devons 10% du revenu national, est sur la défensive. La Suisse restera-t-elle l'îlot de stabilité qu'elle était? Elle vit en partie du salaire de la confiance, à savoir des milliards d'euros et de dollars qui affluent. Si la confiance décline, l'argent fondra comme neige au soleil. La mondialisation forcenée d'UBS a mis à mal le principal atout de notre pays, sa stabilité.

Le grand historien Hansjörg Siegenthaler compare le tournant que nous vivons avec le virage de 1875 dans l'histoire de la Grande-Bretagne. Des siècles durant, la Compagnie anglaise des Indes orientales et d'autres entreprises privées jouèrent le rôle clef dans la colonisation du monde. Cependant, une crise économique et la montée de nouvelles puissances coloniales exigèrent finalement l'intervention de l'Etat.

A l'image de la colonisation d'antan, la mondialisation entre aujourd'hui dans sa deuxième phase: les grands groupes internationaux ont porté ce mouvement avant qu'il ne s'emballe et dégénère. Dès lors, il est inévitable que la communauté des Etats prenne les rênes et détermine les règles qui préviendront une nouvelle crise financière mondiale.

Or, cela modifie profondément les règles du jeu pour la Suisse. Durant la seconde période de la mondialisation, notre pays peinera à défendre ses intérêts. Si le pouvoir politique de l'UE et des grandes nations prévaut sur celui des grands groupes transnationaux, le poids spécifique de la Confédération diminuera. Son isolationnisme se retournera contre elle.

Quelques banquiers, qui auraient dû rester, fiers et humbles, de simples prestataires de services, s'étaient autoproclamés «Masters of the Universe». Mais jusqu'à nouvel avis, l'industrie prime à nouveau sur la finance. Alors que la place financière, essentielle pour notre pays, doit se rénover en profondeur, la place industrielle prospère et impressionne. Ici, la stratégie de mondialisation de la Suisse reste un formidable succès - pour autant que la crise financière ne tourne pas en crise économique mondiale. Celle-ci frapperait violemment la Suisse qui gagne un franc sur deux hors des frontières. Dans notre «Wirtschaftsnation», notre «nation de l'économie», portée bien plus que d'autres par la réussite de ses entreprises, une règle prévaut: quand l'économie souffre, la nation souffre.

Publié le samedi 4 octobre dans Das Magazin

SPIEGEL ONLINE    15. Oktober 2008, 11:31 Uhr

"Die Finanzkrise hat aus Schurken Helden gemacht"
Das Interview führte Hannes Koch

Milliardenhilfen für die Banken? Das darf nicht die einzige Folge der Finanzkrise sein, sagt der Soziologe Ulrich Beck im SPIEGEL-ONLINE-Interview. Er fordert: Der Staat muss die Chance nutzen, die Wirtschaft endlich wieder sozial und demokratischer zu machen.
SPIEGEL ONLINE: Herr Beck, was ist die wichtigste Folge der Finanzkrise?

Beck: Die Krise gefährdet unser gesamtes ökonomisches Weltbild - oder zerschlägt es sogar vollständig.

SPIEGEL ONLINE: Wie meinen Sie das?

Beck: Der Westen fühlt sich überlegen. Seine freie Marktwirtschaft hält er für besser als zum Beispiel die sozialistischen Staatswirtschaften der Vergangenheit. Aber auch über China mit seiner durchaus erfolgreichen Mischung aus Privat- und Staatsökonomie rümpfte man hier allzu oft die Nase. Dieses Überlegenheitsgefühl dürfte deutlich angeschlagen sein.

SPIEGEL ONLINE: Welche Folgen hat die Krise für das Vertrauen der Menschen in die Eliten?

Beck: In den zurückliegenden Wochen und Monaten ist dieses Vertrauen schwer erschüttert worden. Bundeskanzlerin Angela Merkel und Finanzminister Peer Steinbrück glaubten bis vor wenigen Tagen, dass sie die Krise national lösen könnten. Sie erklärten, der große Sturm würde an unserem Land vorbeiziehen. Viele deutsche Politiker blicken auf die Welt mit diesem merkwürdig uninformierten und selbstgenügsamen Blick. Man hat das Gefühl, dass sie den Grad der internationalen Abhängigkeiten und die Logik der Globalisierung einfach nicht verstehen.

SPIEGEL ONLINE: Ist die politische Klasse in Deutschland gescheitert?

Beck: Ja, aber nicht nur sie. Auch in anderen Ländern hat man die Ideologie vom selbstverständlichen Funktionieren des ungeregelten Marktes widerspruchslos und kreativlos übernommen und nachgebetet. Selbst ein kritisch denkender Politiker wie Joschka Fischer hat vor Jahren behauptet, gegen die Gesetze des Marktes könne die Politik nichts ausrichten. Diese Phantasielosigkeit und Deformation rächt sich jetzt, wo das Finanzrisiko den globalen politischen Raum für Regierungsalternativen öffnet.

SPIEGEL ONLINE: Angesichts der Krise räumen manche Politiker und, seltener, Manager Fehler ein. Mit gigantischen Summen versuchen die Regierungen, das Vertrauen zu erneuern. Ergibt das Sinn?

Beck: Am Beispiel des britischen Premierministers Gordon Brown kann man tatsächlich beobachten, dass sich ein dramatischer Sinneswandel vom Marktfetischismus zum Staatsoptimismus vollzieht. Mit ähnlicher Vehemenz, wie Brown früher für den freien Markt kämpfte, propagiert er nun seinen neuen Plan zur Rettung der Welt, dem sich alle anderen anschließen sollen. Ich frage mich: Wie glaubwürdig ist das?

SPIEGEL ONLINE: Und Ihre Antwort lautet?

Beck: Das bleibt abzuwarten. Niemand weiß, was ist und was die im Nullenrausch verordnete Therapie bewirkt. Wir alle sind Teil eines ökonomischen Großexperiments mit offenem Ausgang. Interessant ist allerdings, wie schnell aus Schurken Helden werden: Haben Gordon Brown, Angela Merkel und Peer Steinbrück nicht vor kurzer Zeit noch den ungeregelten Kapitalismus hochleben lassen? Ihre wundersame Bekehrung ist für mich kabarettreifes Konvertitentum.

SPIEGEL ONLINE: Sie trauen diesen Politikern nicht?

Beck: Nein, wie auch? Wer über Nacht einen Meinungs- und Fahnenwechsel zu einer Art Staatssozialismus für Reiche vollzieht, ist unglaubwürdig. Je tiefer die Krise wird, desto stärker scheint allerdings der Zwang zuzunehmen, denen zu glauben, die die Misere mit ihrem sogenannten Sachverstand verursacht haben. Dieser Prozess verhindert, dass die Eliten ausgetauscht werden, was in der Demokratie aber üblich sein sollte. Das führt zur Personalunion von Verbrecher und Polizei.

SPIEGEL ONLINE: Wer sollte denn Ihrer Meinung nach an die Stelle von Merkel und Steinbrück treten?

Beck: Das ist das Problem: Die gesamte politische Elite hat sich bislang zur Alternativlosigkeit der Marktwirtschaft bekannt. Wobei Linken-Chef Oskar Lafontaine immerhin die politische Stärkung der Europäischen Union und ein europäisches Wirtschaftsministerium fordert.

SPIEGEL ONLINE: Wollen Sie damit sagen, dass die Linken einen Weg aus der Krise wissen?

Beck: Nein. Wir haben es im Kern mit einer restaurierten Linken zu tun. Diese Partei will zurück zum Nationalstaat. Wir brauchen aber eine neue transnationale Politik zur Regulierung der Finanzmärkte. Bürgerbewegungen wie die Globalisierungskritiker von Attac haben diese Notwendigkeit erkannt, sind aber zu schwach, um ihre Ansätze offensiv zu verwirklichen.

SPIEGEL ONLINE: Dafür zeigt der Staat mit seinen Garantien für Banken und Spareinlagen Stärke. Schafft die Krise deshalb nicht eher neues Vertrauen in den Staat?

Beck: Niemand weiß, ob wir den Boden des Abgrunds schon erreicht haben. Im globalen Risikobewusstsein, in der Antizipation der Katastrophe, die es in jedem Fall zu verhindern gilt, tut sich ein neues machtpolitisches Feld auf. Man könnte jetzt langfristig durchsetzen, dass nicht die Wirtschaft die Demokratie, sondern die Demokratie die Wirtschaft dominiert. Diese kurzfristige, goldene Gelegenheit dürfen wir nicht verstreichen lassen. Dabei geht es nicht nur um die Kontrolle des Bankensektors, sondern auch um gerechte Steuerpolitik und soziale Sicherheit im transnationalen Rahmen.

SPIEGEL ONLINE: Sie fordern für die Finanzmärkte eine Abkehr vom Laisser-faire und die Hinwendung zum Vorsorgeprinzip. Müsste das beispielsweise heißen, dass die Banken neue Finanzprodukte nur verkaufen dürften, nachdem sie auf ihre Unschädlichkeit getestet wurden?

Beck: Das Problem ist, dass die traditionelle Ökonomie Risiko nur als positive Größe sieht. Wie sich aber gerade zeigt, ist diese Sorglosigkeit grundfalsch.

SPIEGEL ONLINE: Unterstützen Sie die Forderung von Globalisierungskritikern, so etwas wie einen Finanzmarkt-TÜV einzuführen?

Beck: Sicher, diese Möglichkeit muss in die bestehenden Institutionen eingebaut werden.

SPIEGEL ONLINE: Sorgt die soziale Marktwirtschaft denn nicht von sich aus für eine bessere Regulierung als das angelsächsische Kapitalismusmodell?

Beck: Keineswegs. Auch das Modell der sozialen Marktwirtschaft ist im nationalstaatlichen Denken befangen. Auch in Deutschland triumphierte der Glaube an den Markt über alle anderen Ansätze.

SPIEGEL ONLINE: Eine Umfrage der Bertelsmann-Stiftung hat aber unlängst ergeben, dass nur noch 31 Prozent der Deutschen eine gute Meinung über die soziale Marktwirtschaft haben.

Beck: Politiker und Manager gelten nicht länger als Risikomanager, sondern auch als Quellen des Risikos. Auch die Hartz-Reformen haben das Vertrauen in die soziale Sicherheit, die der Staat bietet, geschmälert. Die Politik verschiebt die Lebensrisiken einseitig auf das Individuum und entledigt sich ihrer Verpflichtung für die soziale Sicherheit und Wohlfahrt.

SPIEGEL ONLINE: Wird die alte Idee der Gleichheit künftig wieder eine größere Bedeutung erhalten?

Beck: Eine größere relative Gleichheit auf jeden Fall. Anstatt die Verluste zu vergesellschaften und die Gewinne zu individualisieren, sollten auch die Bankmanager und -vorstände haftbar gemacht werden für ihre Fehler und Verluste. Und auch international wird Gleichheit eine wichtigere Rolle spielen: Die aufstrebenden Schwellenländer wie Brasilien, Indien und China verlangen und erhalten mehr Mitsprache.

Global Research    October 17, 2008

Financial Meltdown: The Greatest Transfer of Wealth in History
How to Reverse the Tide and Democratize the US Monetary System
(originally published on Oct 16, 2008, under the title: "THE COLLAPSE OF A 300 YEAR PONZI SCHEME:
by Ellen Brown

 "Admit it, mes amis, the rugged individualism and cutthroat capitalism that made America the land of unlimited opportunity has been shrink-wrapped by half a dozen short sellers in Greenwich, Conn., and FedExed to Washington, D.C., to be spoon-fed back to life by Fed Chairman Ben Bernanke and Treasury Secretary Hank Paulson. We’re now no different from any of those Western European semi-socialist welfare states that we love to deride."– Bill Saporito, "How We Became the United States of France," Time (September 21, 2008)

On October 15, the Presidential candidates had their last debate before the election. They talked of the baleful state of the economy and the stock market; but omitted from the discussion was what actually caused the credit freeze, and whether the banks should be nationalized as Treasury Secretary Hank Paulson is now proceeding to do. The omission was probably excusable, since the financial landscape has been changing so fast that it is hard to keep up. A year ago, the Dow Jones Industrial Average broke through 14,000 to make a new all-time high. Anyone predicting then that a year later the Dow would drop nearly by half and the Treasury would move to nationalize the banks would have been regarded with amused disbelief. But that is where we are today.(1)

Congress hastily voted to approve Treasury Secretary Hank Paulson’s $700 billion bank bailout plan on October 3, 2008, after a tumultuous week in which the Dow fell dangerously near the critical 10,000 level. The market, however, was not assuaged. The Dow proceeded to break through not only 10,000 but then 9,000 and 8,000, closing at 8,451 on Friday, October 10. The week was called the worst in U.S. stock market history.

On Monday, October 13, the market staged a comeback the likes of which had not been seen since 1933, rising a full 11% in one day. This happened after the government announced a plan to buy equity interests in key banks, partially nationalizing them; and the Federal Reserve led a push to flood the global financial system with dollars.

The reversal was dramatic but short-lived. On October 15, the day of the Presidential debate, the Dow dropped 733 points, crash landing at 8,578. The reversal is looking more like a massive pump and dump scheme – artificially inflating the market so insiders can get out – than a true economic rescue. The real problem is not in the much-discussed subprime market but is in the credit market, which has dried up. The banking scheme itself has failed. As was learned by painful experience during the Great Depression, the economy cannot be rescued by simply propping up failed banks. The banking system itself needs to be overhauled.

A Litany of Failed Rescue Plans

Credit has dried up because many banks cannot meet the 8% capital requirement that limits their ability to lend. A bank’s capital – the money it gets from the sale of stock or from profits – can be fanned into more than 10 times its value in loans; but this leverage also works the other way. While $80 in capital can produce $1,000 in loans, an $80 loss from default wipes out $80 in capital, reducing the sum that can be lent by $1,000. Since the banks have been experiencing widespread loan defaults, their capital base has shrunk proportionately.

The bank bailout plan announced on October 3 involved using taxpayer money to buy up mortgage-related securities from troubled banks. This was supposed to reduce the need for new capital by reducing the amount of risky assets on the banks’ books. But the banks’ risky assets include derivatives – speculative bets on market changes – and derivative exposure for U.S. banks is now estimated at a breathtaking $180 trillion.(2) The sum represents an impossible-to-fill black hole that is three times the gross domestic product of all the countries in the world combined. As one critic said of Paulson’s roundabout bailout plan, "this seems designed to help Hank’s friends offload trash, more than to clear a market blockage."(3)

By Thursday, October 9, Paulson himself evidently had doubts about his ability to sell the plan. He wasn’t abandoning his old cronies, but he soft-pedaled that plan in favor of another option buried in the voluminous rescue package – using a portion of the $700 billion to buy stock in the banks directly. Plan B represented a controversial move toward nationalization, but it was an improvement over Plan A, which would have reduced capital requirements only by the value of the bad debts shifted onto the government’s books. In Plan B, the money would be spent on bank stock, increasing the banks’ capital base, which could then be leveraged into ten times that sum in loans. The plan was an improvement but the market was evidently not convinced, since the Dow proceeded to drop another thousand points from Thursday’s opening to Friday’s close.

One problem with Plan B was that it did not really mean nationalization (public ownership and control of the participating banks). Rather, it came closer to what has been called "crony capitalism" or "corporate welfare." The bank stock being bought would be non-voting preferred stock, meaning the government would have no say in how the bank was run. The Treasury would just be feeding the bank money to do with as it would. Management could continue to collect enormous salaries while investing in wildly speculative ventures with the taxpayers’ money. The banks could not be forced to use the money to make much-needed loans but could just use it to clean up their derivative-infested balance sheets. In the end, the banks were still liable to go bankrupt, wiping out the taxpayers’ investment altogether. Even if $700 billion were fanned into $7 trillion, the sum would not come close to removing the $180 trillion in derivative liabilities from the banks’ books. Shifting those liabilities onto the public purse would just empty the purse without filling the derivative black hole.

Plan C, the plan du jour, does impose some limits on management compensation. But the more significant feature of this week’s plan is the Fed’s new "Commercial Paper Funding Facility," which is slated to be operational on October 27, 2008. The facility would open the Fed’s lending window for short-term commercial paper, the money corporations need to fund their day-to-day business operations. On October 14, the Federal Reserve Bank of New York justified this extraordinary expansion of its lending powers by stating:

"The CPFF is authorized under Section 13(3) of the Federal Reserve Act, which permits the Board, in unusual and exigent circumstances, to authorize Reserve Banks to extend credit to individuals, partnerships, and corporations that are unable to obtain adequate credit accommodations. . . .

"The U.S. Treasury believes this facility is necessary to prevent substantial disruptions to the financial markets and the economy and will make a special deposit at the New York Fed in support of this facility."(4)

That means the government and the Fed are now committing even more public money and taking on even more public risk. The taxpayers are already tapped out, so the Treasury’s "special deposit" will no doubt come from U.S. bonds, meaning more debt on which the taxpayers have to pay interest. The federal debt could wind up running so high that the government loses its own triple-A rating. The U.S. could be reduced to Third World status, with "austerity measures" being imposed as a condition for further loans, and hyperinflation running the dollar into oblivion. Rather than solving the problem, these "rescue" plans seem destined to make it worse.

The Collapse of a 300 Year Ponzi Scheme

All the king’s men cannot put the private banking system together again, for the simple reason that it is a Ponzi scheme that has reached its mathematical limits. A Ponzi scheme is a form of pyramid scheme in which new investors must continually be sucked in at the bottom to support the investors at the top. In this case, new borrowers must continually be sucked in to support the creditors at the top. The Wall Street Ponzi scheme is built on "fractional reserve" lending, which allows banks to create "credit" (or "debt") with accounting entries. Banks are now allowed to lend from 10 to 30 times their "reserves," essentially counterfeiting the money they lend. Over 97 percent of the U.S. money supply (M3) has been created by banks in this way.(5) The problem is that banks create only the principal and not the interest necessary to pay back their loans. Since bank lending is essentially the only source of new money in the system, someone somewhere must continually be taking out new loans just to create enough "money" (or "credit") to service the old loans composing the money supply. This spiraling interest problem and the need to find new debtors has gone on for over 300 years -- ever since the founding of the Bank of England in 1694 – until the whole world has now become mired in debt to the bankers’ private money monopoly. As British financial analyst Chris Cook observes:

"Exponential economic growth required by the mathematics of compound interest on a money supply based on money as debt must always run up eventually against the finite nature of Earth’s resources."(6)

The parasite has finally run out of its food source. But the crisis is not in the economy itself, which is fundamentally sound – or would be with a proper credit system to oil the wheels of production. The crisis is in the banking system, which can no longer cover up the shell game it has played for three centuries with other people’s money. Fortunately, we don’t need the credit of private banks. A sovereign government can create its own.

The New Deal Revisited

Today’s credit crisis is very similar to that facing Franklin Roosevelt in the 1930s. In 1932, President Hoover set up the Reconstruction Finance Corporation (RFC) as a federally-owned bank that would bail out commercial banks by extending loans to them, much as the privately-owned Federal Reserve is doing today. But like today, Hoover’s plan failed. The banks did not need more loans; they were already drowning in debt. They needed customers with money to spend and to invest. President Roosevelt used Hoover’s new government-owned lending facility to extend loans where they were needed most – for housing, agriculture and industry. Many new federal agencies were set up and funded by the RFC, including the HOLC (Home Owners Loan Corporation) and Fannie Mae (the Federal National Mortgage Association, which was then a government-owned agency). In the 1940s, the RFC went into overdrive funding the infrastructure necessary for the U.S. to participate in World War II, setting the country up with the infrastructure it needed to become the world’s industrial leader after the war.

The RFC was a government-owned bank that sidestepped the privately-owned Federal Reserve; but unlike the private banks with which it was competing, the RFC had to have the money in hand before lending it. The RFC was funded by issuing government bonds (I.O.U.s or debt) and relending the proceeds. The result was to put the taxpayers further into debt. This problem could be avoided, however, by updating the RFC model. A system of public banks might be set up that had the power to create credit themselves, just as private banks do now. A public bank operating on the private bank model could fan $700 billion in capital reserves into $7 trillion in public credit that was derivative-free, liability-free, and readily available to fund all those things we think we don’t have the money for now, including the loans necessary to meet payrolls, fund mortgages, and underwrite public infrastructure.

Credit as a Public Utility

"Credit" can and should be a national utility, a public service provided by the government to the people it serves. Many people are opposed to getting the government involved in the banking system, but the fact is that the government is already involved. A modern-day RFC would actually mean less government involvement and a more efficient use of the already-earmarked $700 billion than policymakers are talking about now. The government would not need to interfere with the private banking system, which could carry on as before. The Treasury would not need to bail out the banks, which could be left to those same free market forces that have served them so well up to now. If banks went bankrupt, they could be put into FDIC receivership and nationalized. The government would then own a string of banks, which could be used to service the depository and credit needs of the community. There would be no need to change the personnel or procedures of these newly-nationalized banks. They could engage in "fractional reserve" lending just as they do now. The only difference would be that the interest on loans would return to the government, helping to defray the tax burden on the populace; and the banks would start out with a clean set of books, so their $700 billion in startup capital could be fanned into $7 trillion in new loans. This was the sort of banking scheme used in Benjamin Franklin’s colony of Pennsylvania, where it worked brilliantly well. The spiraling-interest problem was avoided by printing some extra money and spending it into the economy for public purposes. During the decades the provincial bank operated, the Pennsylvania colonists paid no taxes, there was no government debt, and inflation did not result.(7)

Like the Pennsylvania bank, a modern-day federal banking system would not actually need "reserves" at all. It is the sovereign right of a government to issue the currency of the realm. What backs our money today is simply "the full faith and credit of the United States," something the United States should be able to issue directly without having to draw on "reserves" of its own credit. But if Congress is not prepared to go that far, a more efficient use of the earmarked $700 billion than bailing out failing banks would be to designate the funds as the "reserves" for a newly-reconstituted RFC.

Rather than creating a separate public banking corporation called the RFC, the nation’s financial apparatus could be streamlined by simply nationalizing the privately-owned Federal Reserve; but again, Congress may not be prepared to go that far. Since there is already successful precedent for establishing an RFC in times like these, that model could serve as a non-controversial starting point for a new public credit facility. The G-7 nations’ financial planners, who met in Washington D.C. this past weekend, appear intent on supporting the banking system with enough government-debt-backed "liquidity" to produce what Jim Rogers calls "an inflationary holocaust." As the U.S. private banking system self-destructs, we need to ensure that a public credit system is in place and ready to serve the people’s needs in its stead.

1     Michael Hiltzik, Ken Bensinger, “Bank Rescue Plan to Test Capitalism,” Los Angeles Times(October 12, 2008).
2     See Ellen Brown, “It’s the Derivatives, Stupid! Why Fannie, Freddie and AIG All Had to Be Bailed Out,” (September 18, 2008).
3     Ian Welsh, “Paulson to Use Fannie and Freddie as Conduit to Bail Out His Friends,” (October 11, 2008).
4     “Commercial Paper Funding Facility: Frequently Asked Questions,” (October 14,2007).
5     See Ellen Brown, “Dollar Deception: How Banks Secretly Create Money,” (July 3, 2008).
6     Chris Cook, “A New Dawn for Iran,” Asia Times (October 9, 2008).
7    See Ellen Brown, “Credit Default Swaps: Derivative Disaster Du Jour,” (April 10,2008).

Ellen Brown, J.D., developed her research skills as an attorney practicing civil litigation in Los Angeles. In Web of Debt, her latest book, she turns those skills to an analysis of the Federal Reserve and "the money trust." She shows how this private cartel has usurped the power to create money from the people themselves, and how we the people can get it back. Her eleven books include the bestselling Nature’s Pharmacy, co-authored with Dr. Lynne Walker, and Forbidden Medicine. Her websites are and


October 19, 2008

The Bubble Keeps On Deflating

By now everyone knows that reckless and even predatory mortgage lending provoked the financial meltdown. But bad lending did not stop there. The easy money also fed a corporate buyout binge, with private equity firms borrowing huge sums to buy up public companies and pay themselves big dividends.

The process was much like a homeowner who borrowed big for a house and then refinanced to pull out cash. In corporate buyouts, however, the newly private company was left with the fat loan, while the private equity partners got the cash.

In keeping with the mania of the era, banks lowered their lending standards as they competed fiercely to make buyout loans. Lenders also did not worry much about being repaid, because they made money by slicing and dicing the buyout loans and selling them off in pieces to investors.

All of this means that the country needs to brace for yet another round of trouble: a potentially sharp increase in corporate bankruptcies. This time, government officials and Congress must not be taken by surprise.

So far relatively few companies have gone bust. But that is not necessarily a hopeful sign. Instead, loose lending has very likely allowed many troubled companies to postpone a day of reckoning — but not forever.

Under the lax terms of many buyout loans (deemed “covenant lite”), borrowers could delay payments, say, by issuing i.o.u.’s in lieu of payment or adding the interest to the loan balance rather than paying it. But when the loans come due and need to be repaid or refinanced, terms will no longer be so easy. The likely result will be defaults and bankruptcies.

A rash of corporate bankruptcies would obviously be very bad news for employees and lenders, and for stockholders at troubled public companies, like the carmakers. It could also rock the financial system anew.

As with mortgages, huge side bets have been placed on the performance of corporate debt via derivative securities, like credit default swaps. Derivatives are unregulated, so no one can be sure how widely a big or unexpected default would reverberate through the system.

Various measures indicate elevated default risk at a range of businesses, including retailers, media companies, restaurants and manufacturers. A survey released this month by the Federal Reserve and other regulators is especially sobering.

It looked at $2.8 trillion in large syndicated corporate loans held by American banks at the end of June. Compared with a year earlier, the share of loans rated as problematic had risen from 5 percent to 13.4 percent.

Regulators must continue to monitor possible bankruptcies. Even if they cannot prevent a failure, they can soften its impact by ensuring that it does not come as a shock, further spooking investors.

Congress must prepare to deal with higher unemployment from corporate failures. In the coming lame duck session, lawmakers must extend jobless benefits for people who have exhausted their previous allotment. The next Congress and the next president need to upgrade the nation’s outmoded system of unemployment compensation to cover more Americans.

Congress must also be prepared to investigate large or particularly disruptive bankruptcies to identify both possible unlawful activity and regulatory lapses.

So far, inquiries into the collapses of Bear Stearns, Lehman Brothers and American International Group have been little more than public hazings of corporate executives. What is needed is a serious effort to determine accountability and figure out what reforms are needed to make sure these disasters don’t happen again.

The New Yorker    October 20, 2008

J. P. Morgan: “A man I do not trust could not get money from me on all the bonds in Christendom.”
The Trust Crunch
by James Surowiecki

In December, 1912, J. P. Morgan testified before Congress in the so-called Money Trust hearings. Asked to explain how he decided whether to make a loan or investment, he replied, “The first thing is character.” His questioner skeptically suggested that factors like collateral might be more important, but Morgan replied, “A man I do not trust could not get money from me on all the bonds in Christendom.” Morgan’s point was simple but essential: systems of credit depend on trust. When trust is present, money flows smoothly from lenders to borrowers, allowing new enterprises to start, existing ones to expand, and daily business to move along without a hitch. When it’s absent, we find ourselves in a world where lenders hoard capital, borrowers are left empty-handed, and the economy’s gears grind to a halt—a world, in other words, like the one we’re now living in.

A few years ago, banks and other lenders seemed indifferent to risk, as they doled out loans to people with dubious incomes and poor credit records. Today, they are positively paranoid, distrusting even the best borrowers and forcing companies to pay far more interest on money borrowed. The interest rate on the most highly rated two-year corporate bonds has risen by fifty per cent in the past month, even as the interest rate on government bonds has fallen.

Shocking as the current stock-market drops have been, the freezing up of the flow of credit is far more damaging to the health of the U.S. economy. So, during the past few weeks, the Treasury Department and the Federal Reserve have been desperately trying to fight that freeze. Scarcely a day goes by without some dramatic new initiative, even as market chaos makes each new idea soon seem like ancient history. (It’s been just over a week since the Treasury’s plan to buy seven hundred billion dollars’ worth of “toxic assets” became law, but already it feels like a year.) Last week, in a potentially crucial move, the Fed announced that it would start buying billions of dollars in commercial paper—which means that it will be issuing short-term unsecured loans to corporations. The Fed has historically been the lender of last resort to banks. Now it’s becoming the lender of last resort to everyone.

Commercial paper is the name for short-term promissory notes that companies sell to raise money for daily operations, to meet payroll, and to bridge the gap between when they spend and when they get paid, while keeping their own cash in higher-yield investments. Commercial paper is not a new innovation—Goldman Sachs actually started as a commercial-paper firm, in the late nineteenth century—but it has become essential in day-to-day business in the U.S. Since 1980, annual commercial-paper issuance has gone from $124 billion to $1.6 trillion. Most of these loans are unsecured—companies don’t put up collateral but simply promise to pay the loans back out of cash flow—so only well-established, financially solid companies can tap the commercial-paper market.

Because commercial-paper loans are short-term and are made only to companies with sterling credit ratings, they’ve always been assumed to be practically riskless, and lenders (most notably money-market funds) have been willing to lend at low interest rates. But the past year has called into question the very idea of a low-risk loan. Lehman Brothers, after all, still had an A2 credit rating when it went under, taking down with it billions in commercial paper. Since its failure, lenders have adopted a gimlet-eyed approach to everyone, making it hard for key companies to perform basic transactions, and thereby exacerbating the market panic. A company like A. T. & T. is hardly likely to go bankrupt in the foreseeable future, but, after Lehman’s collapse, lenders were so skittish that A. T. & T. couldn’t get commercial-paper loans that lasted longer than overnight.

The fear that has overpowered lenders is not just about the current market chaos. It also reflects their lack of faith in the models and systems that they rely on to evaluate risk. For Morgan, that process of evaluation was all about relationships. In the modern financial system, by contrast, risk evaluation involves two things: impersonality and outsourcing. Personal judgments about the reliability of a borrower—the sort of judgment that Morgan, or a small-town banker, would make before issuing a loan—have been replaced by mathematical models. And lenders have delegated much of the responsibility for evaluating borrowers to other players, such as credit-rating agencies. In many cases, an AA rating was all a company needed to get a loan.

There’s no doubt that this system has had huge benefits. It has made it easier for money to connect lenders and borrowers. It has removed the kinds of personal bias that kept capital in the hands of people whom men like J. P. Morgan approved of. And it has vastly expanded the amount of lending as well. But all those benefits have come at an exorbitant price. The problem with an impersonal system is that when the models fail, and when companies’ ratings become suspect, everything is called into question. Lenders can’t fall back on their own judgments of a specific company or individual, because such judgments aren’t part of their typical decision-making process. Instead, they’ve adopted a deep-seated distrust of all borrowers, even financially secure ones. If the Fed is now taking corporate I.O.U.s, it’s because everyone else is acting according to that old motto: In God we trust - all others pay cash.

Spiegel online    21. Oktober 2008, 00:00 Uhr

Die Zocker von der Wall Street
Von Christiane Oppermann

In der Geschichte des US-Finanzmarkts haben Spekulanten und Betrüger immer wieder für gefährliche Turbulenzen gesorgt, die Anleger in den Ruin trieben.

In seinen besten Tagen genoss Richard (Dick) Fuld Heldenstatus. Als im September 2001 die Türme des World Trade Center einstürzten und die Wall Street mit Schutt und Asche überzogen, blieb der Chef der damals viertgrößten US-Investmentbank Lehman Brothers ganz cool.

Einen Tag nach dem Desaster, als in der Lobby des schwerbeschädigten Lehman-Bürohauses noch die Leichen aufgebahrt wurden, versammelte Fuld seine traumatisierten Mitarbeiter in der Bankdependance in Jersey City. Wie ein General gab er den Tagesbefehl aus, die Büros so herzurichten, dass möglichst viele Mitarbeiter einen Arbeitsplatz finden. Die wenigen Telefonleitungen teilte er den Bankern zu, die den meisten Profit heranschaffen würden. Zwei Tage später wurde ein Hotel in Midtown angemietet und in Büros umgestaltet. Als die New Yorker Börse am 17. September 2001 wieder eröffnet wurde, war Lehman Brothers bereit.

Im größten Chaos setzte Fuld auf Ordnung und Disziplin. Selbst die Kleiderordnung wurde revidiert. Dunkle Anzüge und weiße oder hellblaue Hemden für die Männer, dezente Businesskostüme für die Frauen waren Pflicht, auch an den Freitagen, an denen sonst eher Freizeit-Look angesagt war. "Wer sich nachlässig anzieht, arbeitet auch schlampig", lautete Fulds Credo.

Diese Pedanterie stand in scharfem Kontrast zu seiner Mentalität und seinem Temperament. Er galt als der wildeste, aber auch der härteste Chef der Wall-Street-Firmen. Kein Risiko war ihm zu hoch, kein Deal zu mühsam. Gorilla haben sie ihn genannt, wegen seiner überlangen Arme und weil er auf Kritik mit Grunzen und Fluchen reagierte und so lange wütete, bis er seinen Widersacher besiegt hatte. Er war der Meister eines Universums, das sich durch bedingungslose Loyalität und Teamgeist seiner 28.000 Söldner auszeichnete.

Und er war auch der Erste, wenn es an die Verteilung der Jahresbezüge ging. 2007 waren das mehr als 34 Millionen Dollar, der größte Teil wurde in Aktienoptionen beglichen. Seit seiner Berufung an die Spitze der Investmentbank 1993 hat Fuld fast 500 Millionen Dollar kassiert. Das reichte, um sich den in Wall-Street-Kreisen angemessenen Lebensstil leisten zu können: ein weitläufiges Anwesen im Nobelvorort Greenwich in Connecticut, Limousinen und eine umfangreiche Sammlung zeitgenössischer Kunst, für deren Auswahl Fuld-Gattin Kathy verantwortlich ist. Mrs. Fuld kennt sich als Kuratorin des renommierten Museum of Modern Art in diesem Bereich bestens aus.

Auf das behagliche Leben an der Schlossallee ist jetzt ein dunkler Schatten gefallen. Seit 15. September ist Lehman Brothers pleite, viele Mitarbeiter stehen vor dem Nichts, ihre Aktienoptionen sind wertlos geworden, und die Frau des Chefs verkauft einen Teil der Bildersammlung zu einem Garantiepreis zwischen 15 und 20 Millionen Dollar. Diesen Betrag hat das Auktionshaus "Christie's", das die Werke von Willem de Kooning und Agnes Martin unter den Hammer bringt, zugesagt - unabhängig vom Verlauf der Auktion. Härter hat es Fulds zweiten Mann, Joe Gregory, getroffen. Der einst designierte Kronprinz hatte sein Luxusleben standesgemäß auf Pump finanziert, nun hat er offenbar Zahlungsprobleme. Sein Anwesen in den New Yorker Hamptons wird für gut 32 Millionen Dollar zum Verkauf angeboten.

Auch um Fulds Ruf und den seiner Kollegen ist es nicht mehr gut bestellt: Sie stehen am Pranger. Durch den schwunghaften Handel mit faulen Immobilienkrediten haben die Investmentbanker eine der größten Finanzkrisen in der jüngsten Geschichte ausgelöst. Millionen Hausbesitzer und Kleinanleger werden um ihre Existenz oder ihre Ersparnisse gebracht. Bankpleiten drohen und eine tiefe Rezession mit steigenden Arbeitslosenzahlen und weiteren Konkursen. Das große Monopoly, in dem selbst mickrige Hütten zu Höchstpreisen auf Pump versilbert werden konnten, ist vorbei. Die Immobilienblase, deren weltweite Dimension nur noch in Billionen beziffert wird, ist geplatzt.

Den feinen Herren von der New Yorker Wall Street, die den Immobilienkreditschrott für sich vergolden und die enormen Risiken an weniger gewandte Investoren durchreichen wollten, wird der Abschied zwar noch gut honoriert. Aber ganz ungeschoren kommen auch sie nicht davon. So räumte James Cayne, Chef der Investmentbank Bear Stearns, dessen Institut als Erstes in den Sog der Subprime-Krise geraten war, bereits Anfang 2008 sein Büro. Der Bankboss, der als leidenschaftlicher Spieler selbst auf dem Höhepunkt der Krise bisweilen seine Zeit lieber am Bridgetisch verbrachte als im Büro, verzichtete auf seinen Jahresbonus für das Krisenjahr 2007. Dafür verkaufte er noch schnell sein arg zusammengeschrumpftes Bear-Stearns-Aktienpaket für gut 60 Millionen Dollar. Sein Nachfolger Alan Schwartz verschleuderte die Investmentbank an den Konkurrenten JP Morgan und bekam, als er ging, 35 Millionen Dollar.

Den größten Reibach aber machte der Chef von Merrill Lynch, als er Anfang dieses Jahres seine Bürosuite bei dem Investmenthaus räumte. Er erhielt ein Abschiedspaket aus Aktien, Optionen und Pensionsverpflichtungen in Höhe von 160 Millionen Dollar und die Bezüge für 2007 von rund 46 Millionen Dollar. Auch bei den anderen Pleitekandidaten, die in letzter Minute vor dem Exitus gerettet werden konnten, kassierten die Chefs ordentlich beim Abschied.

2007 liefen die Geschäfte nicht mehr rund

Auf 2007 dürften Wall-Street-Trader und Investment-Broker noch lange wehmütig zurückblicken. Dabei war es noch nicht einmal das beste Jahr: Im Vergleich zu 2006 waren die durchschnittlichen Sonderzahlungen bereits um knapp fünf Prozent gekürzt worden.

Die Geschäfte liefen nicht mehr rund. Dennoch erreichten die Boni und Prämien an die Mitarbeiter der sieben größten Wall-Street-Banken die bisher einmalige Quote von 60 Prozent der Gewinne.

Im Schnitt erhielt jeder Mitarbeiter dieser New Yorker Geldbranche eine Einmalzahlung von rund 180.000 Dollar. Lloyd Blankfein, Chef des Branchenprimus Goldman Sachs, bekam allein 70 Millionen Dollar aus dem 20-Milliarden-Dollar-Topf, der die Zahlungen für alle Goldman-Sachs-Mitarbeiter enthielt. Bei Lehman wurden 2007 rund 9,5 Milliarden für die Kompensation der Belegschaft bereitgestellt.

Nicht erst im Licht der schweren Krise, der dramatischen Kursverluste und des drohenden Kollapses der westlichen Kapitalmärkte empfinden viele Amerikaner diese Summen, auch wenn sie größtenteils in Aktienoptionen bereitgestellt wurden, als astronomisch, maßlos, obszön.

Wall Street steht für Gier und Verschwendung, und solche Exzesse sind systemimmanent. Immer wieder sorgten Abenteurer, Zocker und Betrüger für Turbulenzen an den Kapitalmärkten. Mit Kreativität und krimineller Energie haben sie neue Modelle, Anlageformen und Finanzierungen gefunden, die schnelles Geld versprachen. Mal waren es neue Produkte, technologische Errungenschaften, die einen Boom auslösten, mal komplizierte Finanzwetten und dubiose Wertpapiere, die die Phantasie der Spekulanten und Anleger beflügelten.

Im Jahr 1907 wurde ein Börsencrash in New York durch Spekulationsgeschäfte ausgelöst. Der Präsident des renommierten Bankhauses Knickerbocker Trust, Charles Tracy Barney, war in den Versuch verwickelt, den Preis der United-Copper-Aktien zu steigern, indem seine Mitstreiter mit geliehenem Geld deren Anteile aufkauften. Doch das Spekulationsgeschäft scheiterte. Im Oktober 1907 verweigerte die National Bank of Commerce in New York die Annahme von Knickerbocker-Trust-Schecks und löste eine Panik unter den Kunden aus, Barneys Bank ging pleite. Barney beging - wie einige seiner Kunden, die er ruiniert hatte - Selbstmord.

Die Pleite des Trusts führte zu schweren Kursstürzen an der New Yorker Börse. Der wenige Jahre zuvor eingeführte Dow-Jones-Index verlor zwischen Januar 1906 und November 1907 fast die Hälfte seines Werts.

Dem Niedergang folgte eine langsame Erholung und in der Mitte der zwanziger Jahre eine bis dahin beispiellose Hausse. Angetrieben wurde der Börsenboom diesmal durch technische Innovationen wie Eisenbahnen, Autos und Flugzeuge. Die Aktien der Gesellschaften, deren Produkte die amerikanische Gesellschaft mobil machten, stiegen auf immer neue Höchststände. Zunächst waren es bürgerliche Kreise, die ihr Geld in diese Wertpapiere investierten, doch gegen Ende der zwanziger Jahre drängten auch weniger betuchte Anleger wie Ladenbesitzer, Handwerker, Arbeiter und Angestellte in den Markt.

Für die Börsenmakler war die neue unbedarfte Klientel eine wahre Goldgrube. Sie gewährten großzügig Kredite, damit die unerfahrenen Investoren mehr Aktien kaufen konnten. Die Banken refinanzierten die Makler und hielten so die florierende Geldmaschine in Schwung. Im August 1929 konnten sich klamme Anleger mehr als zwei Drittel des Nennwertes der Wertpapiere pumpen. Das gesamte US-Kreditvolumen hatte 8,5 Milliarden Dollar erreicht und lag damit über der sich im Umlauf befindlichen Geldmenge. Der Dow-Jones-Index erreichte Anfang September 1929 den Höchststand von mehr als 380 Punkten. Viele Profis begannen sich aus dem Markt zurückzuziehen.

Am 24. Oktober kam es dann zum ersten Einbruch an den Börsen. Bei Rekordumsätzen von 12,9 Millionen Aktien begannen die Kurse auf breiter Front zu fallen. Die Banken forderten die Kredite zurück, um selbst zahlungsfähig zu bleiben, und trieben damit Börsenmakler und Kleinanleger gleichermaßen in die Pleite. Es war der Anfang der Großen Depression, jener Weltwirtschaftskrise, die auch in Europa für Arbeitslosigkeit und Armut sorgte.

Rund 50 Jahre später brachen dann erneut goldene Zeiten für Hasardeure und Spekulanten an der Wall Street an. Die politischen und gesellschaftlichen Rahmenbedingungen konnten besser nicht sein. Die Republikaner hatten die Regierung übernommen, und mit Ronald Reagan saß ein überzeugter Kapitalist und Anhänger des wirtschaftspolitischen Laisser-faire im Weißen Haus. Selbst in die Redaktionen der überregionalen Tageszeitungen und Wirtschaftsmedien waren junge Betriebswirtschaftler, Volkswirte und Finanzmarktexperten eingezogen. Sie berichteten lieber über das Geschehen an den Kapitalmärkten, über die tollkühnen Zocker und die vielfältigen Chancen, schnell reich zu werden, als über die Fabriken der Mainstreet.

"Gierig sein und sich gut fühlen"

Investmentbanker und Spekulanten wie Michael Milken, Ivan Boesky oder Dennis Levine wurden die neuen Stars der Branche. Bereits während seines Studiums an der Berkeley University und an der renommierten Wharton-School hatte Milken sich mit hochverzinsten und riskanten Anleihen beschäftigt. Diese Bonds wurden von den Anlegern bisher trotz der hohen Zinsen als Junkbonds, also Schrottanleihen, verschmäht, weil sie in den sechziger Jahren vor allem von Pleiteunternehmen ausgegeben wurden.

Doch Milken konnte nachweisen, dass diese Papiere überdurchschnittlich gute Renditen brachten. Er wurde der Spezialist für die Junkbonds bei der Investmentbank Drexel Burnham Lambert und erzielte Kapitalrenditen von bis zu 100 Prozent.

Sein Einsatz zahlte sich aus: Milken verdiente 1976 fünf Millionen Dollar. Zehn Jahre später war sein Jahreseinkommen auf rund 500 Millionen Dollar gestiegen. Er hatte die Anlagemodelle weiterentwickelt und bot diese Bonds zur Finanzierung von Unternehmensübernahmen an. Merger & Acquisition, also Fusion und Kauf, hieß die Parole, die Milliarden Dollar Anlegerkapital an die Börsen brachte.

Die Kosten für die sogenannten Leveraged Buyouts - auf Pump und mit Schrottanleihen finanzierte Aufkäufe von Firmen - trug in der Regel das Übernahmeopfer, das - um den Schuldendienst leisten zu können - reorganisiert, umstrukturiert und filetiert werden musste. Die Zeche zahlten die Mitarbeiter, von denen viele ihren Job verloren. Dennoch wurde dieses Finanzierungsmodell schnell sehr populär. Drexel Burnham Lambert stieg zum zeitweise profitabelsten Investmentkonzern an der Wall Street auf.

Der bekannteste Spekulant jener Jahre war Ivan Boesky. Der Sohn eines russischen Emigranten und Restaurantbesitzers aus Detroit drehte bald das ganz große Rad an der Wall Street. Seine Karriere hatte er als Buchhalter in einer Rechtsanwaltskanzlei begonnen. Durch die Ehe mit der Tochter eines großen Immobilienunternehmers in New York erhielt er Zugang zu Kapital und Know-how. Boesky begann, Aktien von Unternehmen zu kaufen, die als Übernahmekandidaten gehandelt wurden. Er stieg zu niedrigen Kursen ein und verkaufte, sobald die Kurse nach einem Übernahmeangebot kräftig gestiegen waren. Die Differenz war sein Gewinn.

Sein Modell zur persönlichen Vermögensbildung war nicht besonders originell, er setzte wie die meisten der Börsenspekulanten auf steigende Kurse. Doch er war rücksichtsloser als alle anderen, er baute sich ein engmaschiges Netz von Informanten auf, die ihm rechtzeitig steckten, welche Deals anstanden, so dass er vor allen anderen einsteigen und besonders hohe Gewinne realisieren konnte. Dieser Insiderhandel war schon damals illegal und wurde streng geahndet. Doch Ivan der Schreckliche, wie Boesky an der Wall Street genannt wurde, scherte sich nicht um die Gesetze.

Sein wichtigster Zuträger war der Investmentbanker Dennis Levine, der für die Investmentbank Drexel Burnham Lambert diese lukrativen Deals vorbereitete und im Auftrag von Kunden geeignete Übernahmekandidaten suchte. Levine erhielt für seine Informationen, die er seinem Auftraggeber telefonisch übermittelte, stattliche Provisionen.

Den Löwenanteil behielt Boesky. Er war auch nicht zimperlich, seinen neugewonnenen Reichtum zur Schau zu stellen. Zu seinem Lebensstil gehörten protzige Limousinen, Hubschrauber, Häuser und Bürofluchten in den teuersten Lagen der Stadt. Boesky wurde zum Vorbild vieler Wirtschaftsstudenten, denen er bei Ansprachen und Vorlesungen dringend empfahl, gierig zu sein. Denn "Habgier", so lautete seine Maxime, "ist gut." Man könne "gierig sein und sich gut fühlen".

Sein Luxusleben und seine kriminellen Machenschaften lieferten die Vorlage für die Hollywood-Produktion "Wall Street" von Oliver Stone. Als der Film in die Kinos kam, war Boeskys Geldmaschine allerdings bereits abgestellt. Der New Yorker Staatsanwalt Rudolph Giuliani ermittelte gegen die Spekulanten. Levine geriet als Erster ins Visier der Justiz. Boesky gelang es, einen Deal mit den Gesetzeshütern zu schließen. Er wurde zum Kronzeugen, der den Behörden half, den größten Insiderskandal der amerikanischen Börsengeschichte aufzudecken.

Boesky gestattete den Ermittlern, seine Telefone abzuhören und Gespräche, die er mit seinen Informanten führte, mitzuschneiden. Dafür durfte er seine Geschäfte weiterführen. Boesky konnte sogar noch Wertpapiere im Wert von 400 Millionen Dollar verkaufen. 100 Millionen Dollar musste er zwar als Geldstrafe abgeben, doch insgesamt kam er gut weg. Von der Haftstrafe von dreieinhalb Jahren musste er zwei Jahre absitzen.

Im Zuge der Ermittlungen gegen Levine und mit Boeskys Hilfe kamen die Ermittler 1989 auch Milken, dem Superstar des Junkbond-Markts, auf die Schliche. Er wurde wegen Insiderhandels und Beteiligung an einer kriminellen Vereinigung zu hohen Geldstrafen und einer Haftstrafe von zehn Jahren verurteilt, musste allerdings nur rund zwei Jahre absitzen. Wie Boesky und Levine erhielt auch Milken ein lebenslanges Berufsverbot, er darf nicht wieder im Wertpapierhandel arbeiten. Sein Rat als Investmentbanker ist dennoch weiter gefragt. Sein Vermögen wird noch immer auf 2,5 Milliarden Dollar geschätzt.

"Wall Street wird nicht mehr das sein, was es einmal war"

Nach dem Abgang des Börsenstars ging dem Fusionshype die Luft aus. Im Oktober 1987 sorgte der größte Kurssturz an der New Yorker Börse für zusätzliche Ernüchterung. Um fast 23 Prozent sackte der Dow-Jones-Index an einem einzigen Tag ab. Anleger, Notenbanker und Politiker in den westlichen Industriestaaten hielten die Luft an. Parallelen zum Crash von 1929 wurden gezogen: War es wieder so weit? Doch die Regierungen reagierten schnell. Die Zentralbanken überschwemmten die Märkte mit frischem Geld, der amerikanische Zentralbankchef Alan Greenspan senkte die Zinsen. An der Wall Street wurde noch einige Monate gespart, Investmentbanker verloren ihre Jobs, der eine oder andere Porsche und Ferrari wurde verkauft. Dann ging die Party weiter.

An der Wall Street waren nun Gründung und Börseneinführung neuer Unternehmen lukrative Betätigungsfelder. Das Internet heizte die Phantasien der Hasardeure und Spekulanten an. Bis zum Ende der Neunziger-Dekade hatte die neue Börseneuphorie Millionen von Menschen infiziert. Banken und Broker verdienten sich eine goldene Nase.

Die wirklich Großen der Freibeuter-Branche legten sich sogar mit Regierungen an. Der Finanzier George Soros zwang 1992 mit seiner Spekulation gegen das britische Pfund sogar die Notenbank des Königreichs in die Knie. Großbritannien musste seine Währung abwerten und aus dem europäischen Währungsverbund ausscheiden. Soros verdiente über eine Milliarde Dollar.

Andere Spekulanten stürzten mit gezielten Attacken auf den thailändischen Baht die Wirtschaft des Schwellenlandes in eine schwere Rezession und lösten die asiatische Krise aus. Dass auch Staaten wie Südkorea, Malaysia und Vietnam in den Abwertungsstrudel gezogen wurden, erhöhte in diesen Kreisen eher die Spannung und den Profit. Die wachsende Not der Menschen in den asiatischen Ländern schlug sich in den goldgeränderten Bilanzen der Fondsgesellschaften nicht nieder, sie spielte auch keine Rolle bei der Berechnung der Boni und Prämien für die Manager. Und es gab auch kaum Appelle der westlichen Regierungen an Investmentbanker, diese gefährlichen Spiele zu unterlassen.

Erst als 1998 bekannt wurde, dass die amerikanische Fondsgesellschaft LTCM Milliarden Dollar an den internationalen Anleihemärkten verspekuliert hatte, griffen US-Regierung und Notenbank ein. Sie organisierten in einer Nacht-und-Nebel-Aktion ein Rettungspaket privater Banken, das Topmanagement wurde entlassen.

An den Aktienmärkten ging indes das Milliarden-Monopoly weiter. Bis zum Jahr 2000, als die Kurse zu bröckeln begannen. Es gab diesmal keinen Schwarzen Freitag oder Montag oder Dienstag, sondern einen Absturz auf Raten. Weltweit wurden Milliarden an Börsenwert vernichtet, darunter auch die Ersparnisse von Millionen von Rentnern und Arbeitern, die sich auf die Verheißungen von Banken und Brokern verlassen hatten. Vielen Profis blieb dagegen Zeit für den geordneten Rückzug.

Erst Anfang 2003, Monate nach den Terrorangriffen auf New York und Washington, begannen sich die Börsen wieder zu erholen. Doch da hatten gewiefte Investmentbanker schon ein neues Eldorado entdeckt: den Handel mit ungesicherten Immobilienkrediten, den sogenannten Subprime-Loans. Eine fabelhafte Geldmaschine: Die Hypothekenbanken schrieben die Kreditverträge, zahlten das Geld und refinanzierten sich durch den Verkauf der Forderungen an Investmentbanken; die wiederum packten einen Schwung dieser Hypotheken zusammen, zerlegten sie in kleinere Tranchen und verkauften sie als ungesicherte Anleihen an Großinvestoren und Kleinanleger.

Als die Immobilienblase platzte, blieben Anleger, aber auch die Investmentbanker und die professionellen Investoren wie etwa die IKB oder andere Banken auf ihrer verdorbenen Ware sitzen. Jetzt greift die amerikanische Regierung durch: Die Freibeuter im amerikanischen Geldgewerbe, die Investmentbanken, die das Gemetzel überlebten, müssen sich künftig den gleichen Kontrollen und Regeln unterwerfen wie die Geschäftsbanken.

"Wall Street wird nicht mehr das sein, was es einmal war", klagt ein Betroffener.

Doch gemach: Der Turbokapitalismus lebt weiter. Längst gibt es neue Spekulanten im Zocker-Paradies, die von der gegenwärtigen Krise profitieren. Der New Yorker Spekulant John Paulson etwa verdiente 2007 astronomische 3,7 Milliarden Dollar. Er hatte seit 2005 auf den Zusammenbruch des Subprime-Marktes gesetzt.


Panik ergriff die New Yorker Wall-Street-Broker im Oktober 1929 (o.) - zwei Monate, nachdem der Dow Jones den damaligen Höchststand von 380 Punkten erreicht hatte. Die Profis hatten sich danach aus dem überhitzten Kreditmarkt zurückgezogen.

Spiegel online    21. Oktober 2008, 00:00 Uhr


Laxere Richtlinien bei der Kreditvergabe und die Niedrigzins-Politik der US-Notenbank Federal Reserve sorgen für ein Überangebot an billigem Geld. Die Banken können selbst Kleinstverdienern plötzlich den Traum vom Eigenheim erfüllen, die sich ein eigenes Haus sonst nie leisten könnten. Die zu erwartenden Wertsteigerungen der Häuser lassen das Risiko zunächst denkbar gering erscheinen. Auch ein anderes Problem lassen die Verantwortlichen vollkommen außer Acht: Die Zinsen sind - anders als in Deutschland üblich - nur für kurze Zeit festgeschrieben. Für den Fall, dass die Zinsen wieder steigen, droht die Gefahr, dass die Schuldner die Raten nicht mehr bezahlen können.

Die Banken ersinnen eine scheinbar geniale Methode, ihr Risiko aus den Immobilienkrediten zu reduzieren. Sie bündeln sie zu Fonds und verkaufen die Anteile daran. Schützenhilfe dabei leisten Rating-Agenturen, die den Derivaten ein sehr gutes Zeugnis ausstellen. Dank der hohen Rendite findet das Angebot reißenden Absatz, auch bei Banken, Versicherungen und Investmentfonds in Europa, die die Papiere dann an Privatkunden weiterreichen. Die Gefährlichkeit dieser Derivate lässt sich auch für Skeptiker kaum erahnen - sie müssten jeden einzelnen Kreditnehmer überprüfen und eine Gesamtbewertung aufstellen. Angesichts der Vielzahl der gebündelten Kredite wäre das ein aussichtsloses Unterfangen.

Die US-Notenbank macht sich zunehmend Sorgen wegen der hohen Inflationsrate und erhöht ab Juni 2004 kontinuierlich die Leitzinsen. Damit aber setzt sie eine Kettenreaktion in Gang: Wegen der variablen Zinssätze steigen die Hypothekenzinsen unmittelbar mit. Viele Hausbesitzer sind quasi über Nacht mit einer Zinsbelastung konfrontiert, die sie nicht bezahlen können. Selbst Gutverdiener sind betroffen, die in Zeiten des Booms den vermeintlichen Wertgewinn ihrer Häuser für neue Kredite verpfändet haben. Der dramatische Anstieg der Zwangsversteigerungen kommt überdies zur Unzeit: Der Immobilienmarkt befindet sich im Abschwung und bricht infolge des Überangebots nun vollständig in sich zusammen.

Die Zahl der notleidenden Kredite steigt rasant an, Banken, Versicherungen und Investmentfonds sind gezwungen, hohe Beträge abzuschreiben. Dutzende Baufinanzierer gehen Pleite. Mit dem Zusammenbruch der britischen Großbank Northern Rock schwappt die Welle nach Europa. In Deutschland gerät die Mittelstandsbank IKB in Schieflage. Binnen weniger Monate schließlich erwischt es dann eine ganze Reihe schwerer Kaliber: Bear Stearns, Lehman Brothers und die Hypothekenbanken Fanny Mae und Freddie Mac. Plötzlich wird allen Beteiligten bewusst, wie heiß die Papiere sind, auf denen sie sitzen. Die Folge: Keine Bank traut mehr der anderen, selbst Tageskredite werden plötzlich verweigert. Die Notenbanken versuchen mit Milliardensummen, den Geldkreislauf in Gang zu halten.

Frühjahr 2008
Spektakuläre Aufkäufe der notleidenden Banken beruhigen die Finanzwelt nur für kurze Zeit. JP Morgan übernimmt Bear Stearns und Teile der Washington Mutual für einen symbolischen Preis. Die Bank of America kassiert Merrill Lynch. In Deutschland fällt die Sachsen LB an die LBBW. Die Regierungen müssen in jedem Fall für viele Milliarden bürgen, damit das Geschäft zustande kommt. Doch alle Beteiligte wissen: Das unkalkulierbare Risiko in den Büchern ist damit keineswegs ausgeräumt. Niemand weiß, was noch kommt.

Herbst 2008
Die Angst vor den unkalkulierbaren Risiken erfasst die Finanzbranche weltweit. Ein Banken-Crash reiht sich an den anderen. Vor allem der Fall des US-Investmenthauses Lehman Brothers erschüttert die Märkte. Der massive Wertverlust an den Börsen bringt auch bis dahin gesund erscheinende Banken in akute Finanznot. Nach heftigen Diskussionen bringt die US-Regierung ein Rettungspaket über 700 Milliarden Dollar auf den Weg. Das Geld soll bereitstehen, um faule Kredite aufzukaufen und die lähmende Angst zu vertreiben. Die Europäer ziehen mit eigenen Initiativen nach. Berlin lanciert ein Rettungspaket, London beginnt Banken zu verstaatlichen. Island steht derweil kurz vor dem Staatsbankrott. Zusehends trifft die Finanzkrise auch die Realwirtschaft. Die Börsen erleben weltweit finstere Wochen mit Kursstürzen. Unternehmen melden Gewinneinbrüche. Die Kreditklemme bedroht den Mittelstand.

Spiegel online    21. Oktober 2008

USA: 1607-2008: Aufstieg und Krise einer Weltmacht


 6    Amerika im wahljahr: LAND DER EXTREME
Amerika fasziniert, Amerika stößt ab. Kalt lässt die Weltmacht kaum jemanden. Die Frage, wer am 4. November zum 44. Präsidenten gewählt wird, beschäftigt die Menschen rund um die Erde. Denn für die meisten Probleme der Welt sind die USA verantwortlich - im Guten wie im Schlechten. Von Gerhard Spörl

 15    Amerika im wahljahr: "DIE STIMMUNG WAR NOCH NIE SO SCHLECHT"
SPIEGEL-Gespräch mit dem amerikanischen Historiker Eric Foner über Amerikas beschädigtes Selbstvertrauen, die Verquickung von Religion und Politik und die Frage, wie präsent die Sklaverei im kollektiven amerikanischen Gedächtnis ist

 20    Chronik 1492 - 2008: EINE WELTMACHT ENTSTEHT

 23    Usa - aufstieg und krise einer weltmacht: 1 DIE GRÜNDER- ZEIT
Das Amerika der ersten hundert Jahre war ein Land blutiger Konflikte. Die Siedler aus Europa verdrängten die Indianer und bekämpften den Einfluss der britischen Krone. Am schwersten jedoch belastete die junge Nation die Sklaverei. Im amerikanischen Bürgerkrieg starben Hunderttausende.

 24    Die gründerzeit: KAMPF DER KULTUREN
Anfangs zögerten viele, aus Europa in den neuentdeckten fernen Kontinent aufzubrechen, den sie Amerika nannten. Als die Kolonisten dann kamen, brachten sie den Ureinwohnern Tod und Verderben. Die Gründung der USA ist eine Geschichte der grausamen Verfolgungen, verpassten Chancen und großartigen Aufbauleistungen. Von Wilfried Mausbach

 30    Dokument: "STREBEN NACH GLÜCK"
Auszug aus der Unabhängigkeitserklärung vom 4. Juli 1776

 37    Die gründerzeit: "WIR WATETEN IN BLUT"
Er war der erste totale Krieg der Moderne: Rund 620 000 Soldaten starben im amerikanischen Bürgerkrieg - mehr als die USA später in den beiden Weltkriegen verlieren sollten. Mit dem Sieg des Nordens über den Süden ging die Sklaverei zu Ende, doch die Afroamerikaner waren bald schon neuen Diskriminierungen ausgesetzt.

Im Bürgerkrieg wurden Maschinengewehr und U-Boot erstmals erfolgreich eingesetzt.

 48    Die gründerzeit: WESTWÄRTS, HO!
Wo liegt der Wilde Westen? Sicher ist: Wenn Ureinwohner und Einwanderer aufeinandertrafen, gab es irgendwann Tote. Sogar Hollywoods populärste Western-Kulisse, Monument Valley, war einst Schauplatz blutiger Konflikte.

 55    Usa - aufstieg und krise einer weltmacht: 2 AMERIKA ALS SUPERMACHT
Seit dem Zweiten Weltkrieg sind die USA die führende Macht der westlichen Welt. Europa hat davon profitiert, anderswo ist der amerikanische Einfluss eher verhasst. Mit US-Unterstützung wurden auch frei gewählte Regierungen gestürzt, und die Wall Street führt die Ökonomie weltweit an den Abgrund.

 56    Amerika als supermacht: GLANZ UND ELEND
Die Leitlinien der US-Außenpolitik folgten meist den Wirtschaftsinteressen des Landes. Nun zwingen die Krise an der Wall Street, der Aufstieg Asiens und die neue Macht der Ölstaaten Washington zu neuer Bescheidenheit. Von Gabor Steingart

 65    Amerika als supermacht: DIE ZOCKER VON DER WALL STREET
In der Geschichte des US-Finanzmarkts haben Spekulanten und Betrüger immer wieder für gefährliche Turbulenzen gesorgt, die Anleger in den Ruin trieben. Von Christiane Oppermann

 70    Amerika als supermacht: DIE PATRIOTISMUSFALLE
Wie kein anderer Ort steht My Lai für das Grauen des Vietnam-Kriegs. Das Massaker, verübt von jungen GIs, sei ein Verbrechen im "Stil der Nazis", schrieb 1969 der Journalist Seymour Hersh. Das amerikanische Selbstbild, stets nur für das Gute zu kämpfen, blieb dennoch unversehrt.

 74    Amerika als supermacht: PUTSCH DER KÖNIGSKINDER
Zwei Jahrzehnte lang stellten die Bushs und Clintons abwechselnd den Präsidenten. Dann meldeten sich die Kennedys zurück und störten die Machtbalance.

 80    Amerika als supermacht: REVOLUTION DER JURISTEN
Die Furcht vor Tyrannei ist der alles bestimmende Gedanke der amerikanischen Verfassung, und der wirkt bis heute, auch wenn es um die Gefangenen von Guantanamo geht.

 85    Usa - aufstieg und krise einer weltmacht: 3 DIE AMERIKANISCHE GESELLSCHAFT
Rätsel Amerika: Ein Schwarzer ist Präsidentschaftskandidat, aber nicht alle Veteranen der Bürgerrechtsbewegung sehen das als ihren Erfolg. Die Wirtschaft kriselt, aber linke Parteien hatten noch nie eine Chance. Und Religion ist im Alltag so wichtig wie in keinem anderen westlichen Land.

 86    Die amerikanische gesellschaft: OBAMAS TRAUM
Vor 45 Jahren kämpfte Martin Luther King gegen die Diskriminierung der Schwarzen. Heute könnte ein Afroamerikaner Präsident werden, aber zwischen den alten Kämpen der Bürgerrechtsbewegung und dem jungen Barack Obama liegen manchmal Welten. Von Gregor Peter Schmitz

 91    Dokument: "ICH HABE EINEN TRAUM"
Auszug aus Martin Luther Kings Rede auf dem "Marsch nach Washington" am 28. August 1963

 96    Ortstermin: DER PARK DER HOFFNUNG
Wer am Wochenende der Metropole Washington entfliehen will, fährt gern in den Shenandoah Nationalpark. Angelegt wurde er vor allem von Arbeitslosen zu Zeiten der Großen Depression.

 98    Die amerikanische gesellschaft: ROASTBEEF UND APPLE PIE
In den USA gab es nie eine linke Volkspartei. Einer der Gründe: Die amerikanische Gesellschaft kannte, abgesehen von der Sklaverei, keine Klassenunterschiede. Arbeitskräftemangel half schon bei Beginn der Industrialisierung, höhere Löhne durchzusetzen. Der Lebensstandard amerikanischer Arbeiter lag deutlich über dem ihrer europäischen Kollegen.

 101    Die amerikanische gesellschaft: GOTT IN DER NEUEN WELT
Die Evangelikalen sind die größte religiöse Gruppe in den USA. Sie leben eine uramerikanische Form des Protestantismus: marktwirtschaftlich, alltagstauglich, politisch. Vizepräsidentschaftskandidatin Sarah Palin begeistert die religiöse Rechte, aber viele Evangelikale wenden sich politisch der Mitte zu.

 106    Die amerikanische gesellschaft: "MÄNNLICHE ANGST VOR WEIBLICHER MACHT"
Die US-Autorin Katha Pollitt über die republikanische Kandidatin Sarah Palin, die US-Frauenbewegung und ihre Unterstützung für Barack Obama

 110    Die amerikanische gesellschaft: ON THE ROAD AGAIN
Die Gründungsväter zog es von der Alten in die Neue Welt. Den Hang zum Wandern scheinen sich auch ihre Nachfahren bewahrt zu haben. Wohl nirgendwo sonst auf der Welt ziehen die Menschen so viel um wie in Amerika.

 112    Die amerikanische gesellschaft: DER ENTZAUBERTE HIMMEL
Die vielleicht erfolgreichsten Erfindungen, die meisten Veröffentlichungen, die besten Universitäten - in den USA gelten Innovationen als Volkssport, und das nicht erst seit Mondlandung, Microsoft und Monsanto. Wie lässt sich dieser Zukunftshunger erklären? Eine Spurensuche im Labor von Benjamin Franklin.

 116    Die amerikanische gesellschaft: "EINE UNSICHERE LIEBE"
Der ehemalige amerikanische Botschafter John Kornblum über seine deutschen Großeltern, den Einfluss der deutschen Einwanderer in den USA und deutsch-amerikanische Missverständnisse

 119    Usa - aufstieg und krise einer weltmacht: 4 DIE AMERIKANISCHE KULTUR
Nach dem Zweiten Weltkrieg begannen sich die Deutschen für Elvis Presley und Humphrey Bogart, für Jeans und Hamburger zu begeistern. Hollywood ist bis heute ein Seismograf für US-Befindlichkeiten, und mit den großen Erzählern kann man das Land erkunden, ohne jemals dort gewesen zu sein.

 120    Die amerikanische kultur: ENTENSCHWANZ UND NIETENHOSE
Der amerikanische Einfluss auf deutsche Kultur und Lebensart

 124    Seitenblick: DER GLOBALISIERTE KLOPS
Wie der "Hamburger" in die Welt kam

 130    Die amerikanische kultur: HOLLYWOOD IN DER REVOLTE
So politisch engagiert wie zurzeit waren US-Filme lange nicht - Regisseure wie Steven Spielberg oder Ang Lee, Stars wie George Clooney oder Robert Redford besinnen sich zurück auf die rebellische Zeit der Traumfabrik: die sechziger und siebziger Jahre.

 134    Die amerikanische kultur: AMERIKA ERZÄHLT
Von Hawthorne bis DeLillo, von Melville bis Roth - ein Streifzug durch die US-Literatur

 138    Die amerikanische kultur: KITSCH AUS STOCKBRIDGE
Norman Rockwell ist der Maler des ländlichen Amerika. Wer mehr über die Seele des Landes erfahren will, der kommt an Rockwell und dessen winzigem Heimatort nicht vorbei.

Warum sind die Vereinigten Staaten vielen Menschen so suspekt?

 144    Schauplätze

Spiegel online    21.10.2008

ZUKUNFT DER BANKEN: Ex-UBS-Vorstände sollen Boni zurückzahlen
Die Zeit für fette Boni ist vorbei
Von Michael Kröger

Deutsche-Bank-Chef Josef Ackermann hat Bonuszahlungen gestrichen - und mit dem Zugeständnis heftige Kritik provoziert. Doch die Empörung zeigt nur: Üppige Prämien ohne entsprechende Leistung haben in Zukunft kaum mehr eine Chance.

Berlin - Zunächst versuchte es Marcel Rohner in aller Stille. In vertraulichen Gesprächen bat der Vorstandschef der schweizerischen Großbank UBS  ehemalige Top-Manager darum, zumindest einen Teil ihrer Boni zurückzugeben.

Dass er damit nicht gerade offene Türen einrennen würde, war Rohner wohl von Anfang an klar, doch schließlich schien ihm der Widerstand denn doch zu zäh. Am Wochenende ging er deshalb gemeinsam mit UBS-Oberaufseher Peter Kurer in die Offensive. In mehreren Interviews mit Zeitungen und Radiosendern appellierten die beiden öffentlich an die Angesprochenen, in sich zu gehen. "Ich wäre froh, wenn wir das einfach, schnell und schmerzlos erledigen könnten, statt Prozesse zu führen", sagte Kurer im DRS.

Auch Deutsche-Bank-Chef Josef Ackermann hatte am vergangenen Freitag publikumswirksam mit dem Verzicht auf Boni zugunsten seiner Mitarbeiter zu punkten versucht - seine Geste wurde allerdings vor dem Hintergrund des gerade beschlossenen, 480 Milliarden schweren Rettungspakets zu Lasten der Steuerzahler als besonders zynisch empfunden.

Lässt man die Fragen nach persönlichem Stil oder rechtlichen Ansprüchen einmal beiseite, dann lassen die Beispiele zumindest zwei Schlussfolgerungen zu. Erstens: In der Bankenbranche setzt sich zumindest eine Ahnung davon durch, dass die Bezahlung des Top-Personals und der üppigen Bonuszahlungen unabhängig von der tatsächlichen Leistung ein Problem darstellt. Erst am heutigen Dienstag wieder wurden öffentlich Forderungen nach einer Abschaffung der Boni laut. So rief zum Beispiel Bundeswirtschaftsminister Michael Glos die Investmentbanker angeschlagener Institute dazu auf, auf ihre Jahresboni zu verzichten.

Und zweitens: Es wird noch einiges an Mühe kosten, die Beteiligten davon zu überzeugen, dass für alle die Zeit der uferlosen Gehaltssteigerungen vorbei ist.

Risiko blieb unbeachtet

So jedenfalls sieht es der Münchener Bankenexperte Wolfgang Gerke: "Natürlich denkt man darüber nach, wie die Bedingungen für die variablen Gehaltsbestandteile künftig neu formuliert werden könnten", erklärt er. Dem Druck der Öffentlichkeit folge die Branche jedoch eher zähneknirschend.

Anders als viele Politiker sieht Gerke in Bonuszahlungen im Prinzip eine gute Möglichkeit, Leistungsanreize zu schaffen. Gleichwohl hält er eine grundlegende Reform der bestehenden Systeme für unumgänglich: "Bisher verdiente seinen Bonus, wer seine Zielvorgaben erreichte. Das Risiko, das er dafür einging, blieb in der Regel unbeachtet." Derartigen Regelungen hätten zu dem skandalösen Zustand geführt, dass Banker noch 2007 und 2008 Prämien kassiert hätten, obwohl bereits klargeworden sei, dass ihre Geschäfte zu Verlusten in Milliardenhöhe geführt hätten.

Einziger Trost: Den Schätzungen nach wird es nicht so viel werden wie in den USA. Wie die britische Tageszeitung "The Guardian" recherchiert hat, verteilen dort allein die Geldhäuser an der Wall Street rund 70 Milliarden Dollar an ihr Spitzenpersonal, das meiste davon in diskreten zusätzlichen Bonuszahlungen. Die Manager belohnten sich damit für ein Geschäftsjahr, schreibt der "Guardian", in dem sie das globale Finanzsystem in die schlimmste Krise seit dem Börsencrash von 1929 führten.

Das derzeit übliche Vergütungssystem hält auch Managementberater und Kienbaum-Geschäftsführer Alexander von Preen für ein gravierendes Problem. Ein Punkt sei zum Beispiel, dass die Ergebnisse der Branche als Maßstab für die Bewertung der Leistung herangezogen werde. Das führe dazu, dass in den vergangenen Jahren trotzdem Boni gezahlt worden seien, obwohl die Börsenkurse überall in den Keller gingen.

Dabei galten die sogenannten variablen Gehaltsbestandteile seit den neunziger Jahren als Patentlösung um Leistungsträger adäquat zu belohnen. Bis hin zum mittleren Management wurden die Grundgehälter deutlich zurückgestutzt und im Gegenzug Prämien für die Erfüllung der persönlichen Zielvorgaben zugesichert. Eine Zeitlang schwiegen sogar die Gewerkschaften - schließlich konnte man davon ausgehen, dass leistungshungrige Manager auch dafür sorgen würden, dass Arbeitsplätze gesichert würden.

Zielvorgaben müssen transparent sein

Den Pferdefuß der Regelungen erkannten Personalexperten jedoch sehr bald. Denn die Managerverträge koppelten Prämienzahlungen zwar an die Erfüllung von Zielvorgaben. Doch die Bedingungen waren oft so formuliert, dass sogar erkennbare Fehlleistungen immer noch einen Bonus rechtfertigten. Noch schlimmer allerdings seien die Langzeitwirkungen für das Unternehmen: "Fast ausschließlich wurde bisher der kurzfristige Erfolg belohnt. Strategische Ziele, die einen langen Atem erfordern, gerieten so nicht selten aus dem Blick", erklärt Gerke.

Wie die Bedingungen für Prämienzahlungen formuliert sein müssten, damit sie auch der gedeihlichen Entwicklung des Unternehmens dienen, wissen die Experten genau. "Die Zielvorgaben müssten eher an mittelfristigen Zielen ausgerichtet sein", erklärt Gerke. Von Preen fordert darüber hinaus mehr Transparenz in den Verträgen: Modelle, die Über- wie Unterperformance in der kurz- und langfristigen Vergütung abbildeten, seien gefordert.

Die an sich selbstverständlich klingenden Forderungen würden speziell für die Bankenbranche allerdings eine mittelschwere Revolution bedeuten. Denn verschleierte Kasinowetten, deren Risiko inzwischen selbst Eingeweihte nicht mehr abzuschätzen wagen, würden danach in Zukunft womöglich als Malus in die Rechnung eingehen. Auf jeden Fall aber dürften sie erst bewertet werden, wenn das Geschäft tatsächlich abgewickelt wäre.

Top-Manager müssen auch Verluste ausgleichen

Für die Topebene stellen sich Gerke, ebenso wie von Preen sogar noch eine wesentlich stärkere Orientierung am Unternehmertum vor. Soll heißen: Wenn der Vorstand in guten Zeiten einen Teil der Gewinne bekommt, dann muss er in schlechten Zeiten auch einen Teil der Verluste tragen. Die Risiken, die sie ihren Kunden zumuten, müssten sie in Zukunft also mittragen.

Kein Wunder also, dass sich Banker nur ungern mit neuen Gehaltsmodellen befassen wollen. Einige malen schon den Untergang des Bankensektors an die Wand, weil mit derart strengen Regeln kaum erstklassiges Personal zu finden sei. Einem Einwand, dem Gerke allerdings mit Gelassenheit begegnet: "Der Markt reißt sich zurzeit nicht gerade um Investmentbanker. Die Beteiligten haben überall in der Welt allen Grund, kompromissbereit zu sein".

Das müsse ebenso für die bestehenden Verträge gelten, fügt Gerke hinzu. Anders sei der Vertrauensverlust der Branche nicht wettzumachen. Von Preen ist da allerdings vorsichtiger: "Die Branche ist in Schockzustand, es wird intensiv über Verantwortung diskutiert", sagt er nur.


Gründung einer "bad bank" Wörtlich übersetzt ist eine "bad bank" eine "schlechte Bank". Gemeint ist damit, dass eine Bank systematisch faule Kredite übernimmt, womit dann andere Banken entlastet wären. Laut BayernLB könnten die Staaten einen Fonds auflegen, der riskante Kredite und Wertpapiere der inländischen Banken ersteigert. Um am Kapitalmarkt glaubwürdig zu sein, sei dafür in Deutschland ein mittlerer zweistelliger Milliarden-Euro-Betrag notwendig, schätzt die BayernLB. Letztlich müsste vermutlich nur ein geringer Teil des Bruttovolumens vom Steuerzahler getragen werden.
Notenbanken garantieren Liquidität
 Macht sich die Krise in Europa vor allem als Liquiditätsproblem bemerkbar - dafür sprechen die Schwierigkeiten der Hypo Real Estate -, könnten die Notenbanken den Banken unbegrenzt Liquidität zur Verfügung stellen. Allerdings müssten die Sicherheiten dafür ausgeweitet werden.
Garantie für Bankverbindlichkeiten
 Das hat die irische Regierung in dieser Woche bereits getan. Eine solche Garantie würde den Banken sowohl am Interbanken-Geldmarkt als auch am Kapitalmarkt wieder eine akzeptable Refinanzierung ermöglichen, meint die BayernLB. Der Staatshaushalt werde erst belastet, wenn eine Bank in die Insolvenz ginge. Doch könnte es Probleme mit dem EU-Wettbewerbsrecht geben.
 Die britische Regierung hat bereits zwei Banken verstaatlicht. Diese Lösung könnte die Kreditwürdigkeit der Institute am Geldmarkt nachhaltig wiederherstellen, sagen die Fachleute der bayerischen Landesbank. In Deutschland könnte es rechtliche Probleme geben, wie der Fall IKB gezeigt habe. Zudem dürfte es für den Steuerzahler tendenziell teurer werden als die Garantielösung.

    October 21, 2008

The Iceland Syndrome
By Anne Applebaum

Imagine this scenario: In a medium-size European country -- call it Country X -- the bank regulators hold an ordinary meeting. These being extraordinary times, the regulators discuss the health of various banks, including the country's largest -- call it Bank Y -- which is owned by an even larger Italian financial group. Last spring, Bank Y, which is perfectly healthy, transferred a large sum to its now somewhat-less-healthy Italian parent; since this is nothing unusual, the regulators drop the subject and move on.

The following day, the matter is reported in a marginal, far-right newspaper in somewhat different terms: "A billion dollars transferred to Italy! Country X's hard-earned money going abroad!" Within hours, as if on cue, everyone starts selling shares in Bank Y, whose stock price plunges. So does the rest of Country X's smallish stock market. So does Country X's currency. Within a few more hours, Country X is calling for an international bailout, the IMF is on the phone and the government is wobbling.

Except for that final sentence -- there was no international bailout or call to the International Monetary Fund, and the government is fine -- that is a brief description of something that happened last week to one of Poland's largest banks. A real meeting, followed by an unsubstantiated rumor in a dodgy newspaper, and a bunch of nervous investors started selling. Shares in the bank collapsed by the largest margin in its history; for one ugly day, they dragged down the rest of the Polish stock market and currency as well.

As I say, the story ended there. But it could have gone further, and, indeed, in several other countries it has. A month ago, in the first round of this crisis, panicky rumors brought down banks. Now, with trillions of nervous dollars sloshing around the international markets, panicky rumors are bringing down countries.

The case of Iceland, which in recent weeks has nationalized its three major banks, shut its stock exchange and halted trading in its currency, is by now well known. Less well known is the speed with which the Icelandic disease is spreading. Consider Hungary, once the destination of choice for investors who wanted an Eastern European head office with a 19th-century facade and a pastry shop next door: The currency is in free fall and so is the stock market, flummoxing those previously well-fed investors. (One of them told a Hungarian financial Web site: "I haven't got a clue as to when and how this would end, I'm just staring into empty space.") Or Ukraine, whose central bank governor declared his banking system "normal and reliable" on Monday of last week. By Tuesday of last week, Ukraine had desperately requested " systemic support" from the IMF.

So far, most of these crises have been explained away: The banks of Iceland had debts larger than Iceland's gross domestic product, Hungary's finances were long mismanaged, and Ukraine, whose president just called for the third election in as many years, is badly governed. But the speed with which some of these defaults are happening, coupled with the paranoia inherent in the political culture of small countries, has led many to suspect political manipulation as well.

To put it another way: If you wanted to destabilize a country, wouldn't this be an excellent time to do it? If Country X's stock market can crash after the publication of a single article in an obscure newspaper, think what might happen if someone conducted a systematic campaign against Country X. And if you can imagine this, so can others.

All governments have enemies, internal and external, or at least are faced with elements that do not wish them well: the political opposition, the country next door, the former imperial power. For someone, there will always be the temptation to bring down the government, destabilize the country and thus create political chaos.

Even when there hasn't been political meddling, someone else will suspect that it has occurred, anyway. Here, then, is a prediction: Political instability will follow economic instability like night follows day. Iceland is not alone. Serbia, the Baltic states, Kazakhstan, Indonesia, South Korea and Argentina are all in financial trouble; so, too, are Russia and Brazil.

And here's a final, unpleasant thought: Pakistan. This is a country with 25 percent inflation and a currency in free fall; a country with a jihadist insurgency on its border with Afghanistan, permanent hostility on its border with India, nuclear weapons and a tradition of street demonstrations in response to suspect newspaper articles. Dozens of people, with all kinds of agendas, have an interest in using financial markets to destabilize Pakistan, and Afghanistan along with it. Eventually, one of them will.

October 21, 2008

The Dangers of a Diminished America
In the 1930s, isolationism and protectionism spurred the rise of fascism.

With the global financial system in serious trouble, is America's geostrategic dominance likely to diminish? If so, what would that mean?

One immediate implication of the crisis that began on Wall Street and spread across the world is that the primary instruments of U.S. foreign policy will be crimped. The next president will face an entirely new and adverse fiscal position. Estimates of this year's federal budget deficit already show that it has jumped $237 billion from last year, to $407 billion. With families and businesses hurting, there will be calls for various and expensive domestic relief programs.

In the face of this onrushing river of red ink, both Barack Obama and John McCain have been reluctant to lay out what portions of their programmatic wish list they might defer or delete. Only Joe Biden has suggested a possible reduction -- foreign aid. This would be one of the few popular cuts, but in budgetary terms it is a mere grain of sand. Still, Sen. Biden's comment hints at where we may be headed: toward a major reduction in America's world role, and perhaps even a new era of financially-induced isolationism.

Pressures to cut defense spending, and to dodge the cost of waging two wars, already intense before this crisis, are likely to mount. Despite the success of the surge, the war in Iraq remains deeply unpopular. Precipitous withdrawal -- attractive to a sizable swath of the electorate before the financial implosion -- might well become even more popular with annual war bills running in the hundreds of billions.

Protectionist sentiments are sure to grow stronger as jobs disappear in the coming slowdown. Even before our current woes, calls to save jobs by restricting imports had begun to gather support among many Democrats and some Republicans. In a prolonged recession, gale-force winds of protectionism will blow.

Then there are the dolorous consequences of a potential collapse of the world's financial architecture. For decades now, Americans have enjoyed the advantages of being at the center of that system. The worldwide use of the dollar, and the stability of our economy, among other things, made it easier for us to run huge budget deficits, as we counted on foreigners to pick up the tab by buying dollar-denominated assets as a safe haven. Will this be possible in the future?

Meanwhile, traditional foreign-policy challenges are multiplying. The threat from al Qaeda and Islamic terrorist affiliates has not been extinguished. Iran and North Korea are continuing on their bellicose paths, while Pakistan and Afghanistan are progressing smartly down the road to chaos. Russia's new militancy and China's seemingly relentless rise also give cause for concern.

If America now tries to pull back from the world stage, it will leave a dangerous power vacuum. The stabilizing effects of our presence in Asia, our continuing commitment to Europe, and our position as defender of last resort for Middle East energy sources and supply lines could all be placed at risk.

In such a scenario there are shades of the 1930s, when global trade and finance ground nearly to a halt, the peaceful democracies failed to cooperate, and aggressive powers led by the remorseless fanatics who rose up on the crest of economic disaster exploited their divisions. Today we run the risk that rogue states may choose to become ever more reckless with their nuclear toys, just at our moment of maximum vulnerability.

The aftershocks of the financial crisis will almost certainly rock our principal strategic competitors even harder than they will rock us. The dramatic free fall of the Russian stock market has demonstrated the fragility of a state whose economic performance hinges on high oil prices, now driven down by the global slowdown. China is perhaps even more fragile, its economic growth depending heavily on foreign investment and access to foreign markets. Both will now be constricted, inflicting economic pain and perhaps even sparking unrest in a country where political legitimacy rests on progress in the long march to prosperity.

None of this is good news if the authoritarian leaders of these countries seek to divert attention from internal travails with external adventures.

As for our democratic friends, the present crisis comes when many European nations are struggling to deal with decades of anemic growth, sclerotic governance and an impending demographic crisis. Despite its past dynamism, Japan faces similar challenges. India is still in the early stages of its emergence as a world economic and geopolitical power.

What does this all mean? There is no substitute for America on the world stage. The choice we have before us is between the potentially disastrous effects of disengagement and the stiff price tag of continued American leadership.

Are we up for the task? The American economy has historically demonstrated remarkable resilience. Our market-oriented ideology, entrepreneurial culture, flexible institutions and favorable demographic profile should serve us well in whatever trials lie ahead.

The American people, too, have shown reserves of resolve when properly led. But experience after the Cold War era -- poorly articulated and executed policies, divisive domestic debates and rising anti-Americanism in at least some parts of the world -- appear to have left these reserves diminished.

A recent survey by the Chicago Council on World Affairs found that 36% of respondents agreed that the U.S. should "stay out of world affairs," the highest number recorded since this question was first asked in 1947. The economic crisis could be the straw that breaks the camel's back.

In the past, the American political process has managed to yield up remarkable leaders when they were most needed. As voters go to the polls in the shadow of an impending world crisis, they need to ask themselves which candidate -- based upon intellect, courage, past experience and personal testing -- is most likely to rise to an occasion as grave as the one we now face.

Mr. Friedberg is a professor of politics and international relations at Princeton University's Woodrow Wilson School. Mr. Schoenfeld, senior editor of Commentary, is a visiting scholar at the Witherspoon Institute in Princeton, N.J.

OCTOBER 21, 2008

Get Ready for the New New Deal
Obama is much more dangerous to economic freedom than FDR.

In 1932, Democrat Franklin Delano Roosevelt was elected president as the nation was heading into a severe recession. The stock market had crashed in 1929, the world's economy was slowing down, and all economic indicators in the U.S. showed signs of trouble.
The new president's response was to restructure the economy with the New Deal -- an expansion of the role of government once unimaginable in America. We now know that FDR's policies likely prolonged the Great Depression because the economy never fully recovered in the 1930s, and actually got worse in the latter half of the decade. And we know that FDR got away with it (winning election four times) by blaming his predecessor, Herbert Hoover, for crashing the economy in the first place.
Today, the U.S. is in better shape than in 1932. But it faces similar circumstances. The stock market has been in a tail spin, credit markets have locked up, and a surging Democratic presidential candidate is running on expanding the role of government, laying the blame for the economic turmoil on the current occupant of the White House and his party's economic policies.
Barack Obama is one of the most liberal members of the Senate. His reaction to the financial crisis is to blame deregulation. He even leverages fear of deregulation onto other issues. For example, Sen. John McCain wants to allow consumers to buy health insurance across state lines. Mr. Obama likens this to the financial deregulation that he alleges got us into the current mess.
But a President Obama would also enjoy large Democratic majorities in Congress. His party might even win a 60-seat, filibuster-proof majority in the Senate, giving him more power than any president has had in decades to push a liberal agenda. And given the opportunity, Mr. Obama will likely radically increase government interference in the economy.
Until now, this election has been fought on the margins, over marginal issues. But it is important to understand how much a presidential candidate wants to move the needle on taxes, trade and other issues. Usually there isn't a chance for wholesale change. Now, however, it appears that this election will make more than a marginal difference. It might fundamentally change America.
Unlike FDR, Mr. Obama will not have to create the mechanisms government uses to interfere with the economy before imposing his policies. FDR had to get the Supreme Court to overturn a century's worth of precedents limiting the power of government before he could use the Constitution's commerce clause, among other things, to increase government control of the economy. Mr. Obama will have no such problem.
FDR also had to create agencies to implement regulations. Today, the Securities and Exchange Commission and the National Labor Relations Board (both created in the 1930s) as well as the Environmental Protection Agency and others created later are in place. Increasing their power will be easier than creating them from scratch.
Even before the current crisis, there was a great demand for increased government regulation to limit global warming. That gives the next president a ready-made box in which to place more regulation, and a legion of supports eager for it.
But if the coming wave of new regulation from an Obama administration is harmful to the economy, Mr. Obama will take a page from FDR's playbook. He'll blame Republicans for having caused the market crash in the first place, and so escape blame for the consequences of his policies. It worked for FDR and, so far in this campaign, blaming Republicans and George W. Bush has worked for Mr. Obama.
Democrats draw their political power from trial lawyers, unions, government bureaucrats, environmentalists, and, perhaps, my liberal colleagues in academia. All of these voting blocs seem to favor a larger, more intrusive government. If things proceed as they now appear likely to, we can expect major changes in policies that benefit these groups.
If those of us who favor free markets for the freedom and prosperity they bring are right, the political system may soon put our economy on track for a catastrophe.

Mr. Rubin is a professor of economics and law at Emory University. He held several senior economic positions in the Reagan administration, and is an unpaid adviser to the McCain campaign.    22. Oktober 2008

Die soziale Marktwirtschaft ist lebendig!
Ihr Etatisten, Protektionisten und Planwirtschaftler der Welt:
Die soziale Marktwirtschaft ist noch lange nicht am Ende.
von Wolfgang Schüssel

Das europäische Lebensmodell beruht auf drei Grundvoraussetzungen: Die parlamentarische Demokratie ist nach dem Schrecken der Diktaturen Basis des vereinigten Europa. Statt der gescheiterten Planwirtschaft sorgt die soziale Marktwirtschaft für Freiheit, Wettbewerb und breiten Wohlstand. Die europäische Integration überwindet den Nationalismus der Völker, der im Zweiten Weltkrieg eine gesamteuropäische Katastrophe herbeiführte. Dieser Konsens steht heute auf dem Prüfstand. In der EU allein werden 2000 Mrd. Euro für Haftungen, Garantien und Kapitalzufuhren bereitgestellt. Mit Amerika, Russland und Asien werden es wohl über drei Billionen Mrd. Euro sein. In den USA, Großbritannien und vielen anderen westlichen Ländern wurden Banken verstaatlicht, in Managerverträge eingegriffen, Notverordnungen und parlamentarische Schnellverfahren in Anspruch genommen. Etatisten, Protektionisten und Planwirtschaftler reiben sich bereits die Hände. Die deutsche Linke um Oskar Lafontaine spricht vom Ende der freien Marktwirtschaft, Sozialdemokraten bejubeln das Ende des „neoliberalen Zeitalters“, das autoritäre China brüstet sich, die optimale Balance zwischen einem starken Staat und dem Markt bereits gefunden zu haben.

Der freie Welthandel als Motor des letzten wirtschaftlichen Jahrzehnts

Ich warne vor voreiligen Schlüssen. Der freiere Welthandel der letzten Jahre war der eigentliche Motor für das letzte – im Rückblick goldene – wirtschaftliche Jahrzehnt. Die daraus resultierende Globalisierung hat Hunderte Millionen Menschen aus bitterer Armut herausgeführt. Natürlich muss der Finanzsektor international neu geordnet werden. Dabei sollte man allerdings nicht in die Fehler der 30er-Jahre verfallen, als Protektionismus und nationale Abschottung direkt zur Weltdepression führten. Selbstverständlich braucht die soziale Marktwirtschaft klare, transparente und vernünftige Spielregeln und Kontrollen. Die soziale Marktwirtschaft ist aber noch lange nicht am Ende. Mag sich der Berliner Karl-Dietz-Verlag auch über die Verdreifachung der Nachfrage nach dem „Kapital“ von Karl Marx freuen, ein taugliches Zukunftskonzept liegt damit nicht vor. Gerade Österreich kann im Modellversuch die Überlegenheit der sozialen Marktwirtschaft gegenüber planwirtschaftlichen Methoden beweisen. Bei gleicher Ausgangslage war das in Deutschland und Österreich praktizierte Modell innerhalb von vier Jahrzehnten mehr als doppelt so erfolgreich gegenüber dem planwirtschaftlichen unserer östlichen Nachbarn.

Vielleicht bietet uns gerade diese Krise eine einmalige Chance, dass das europäische Lebensmodell die Überlegenheit gegenüber anderen Systemen beweisen kann: Wenn diese Notverordnungen klug und mit Augenmaß gehandhabt werden, werden unsere Steuerzahler davonkommen, ohne zur Kasse gebeten zu werden (vielleicht schaut am Ende sogar ein kleiner Gewinn heraus). Wenn Europa sich international auf die Hinterfüße stellt, dann erleben wir wirklich noch weltweite Regeln im Finanzsektor, die auch in Steuerparadiesen oder Offshore-Zentren Geltung haben.

Der Beitritt in die Euro-Zone

Die europäischen Institutionen haben Handlungsfähigkeit bewiesen: Die französische Ratspräsidentschaft unter Sarkozy hat ausgezeichnet gearbeitet, die Euro-Zone war Segen und Schutzschirm für unsere Länder; die EZB ist gerade im Vergleich mit der amerikanischen FED glänzend aufgestellt; Schweden, Dänemark und Island überlegen laut den Beitritt zur Euro-Zone, und der Lissabon-Vertrag sollte gerade im Licht der heutigen Herausforderungen von den Iren noch einmal überdacht werden.

Aber die Verteidiger der sozialen Marktwirtschaft müssen sich mehr als bisher einem öffentlichen Diskurs stellen, mit guten Argumenten und mit dem sicheren Bewusstsein, nicht ein Auslaufmodell, sondern ein wirkungsvolles Zukunftskonzept zu besitzen: möglichst viel Freiheit für die Bürger, ein notwendiges Maß an Regeln und Kontrollen, eine starke Verbundenheit mit Mitarbeitern, Aktionären und der Gesellschaft und die unerlässliche Meßlatte von Ethik und Moral für eine Welt, in der wir gerne leben wollen.    22. Oktober 2008, 18:37 Uhr

Euro-Absturz, Japanische Währung hat stark zugelegt, sehr zum Ärger der heimischen Industrie
Jetzt droht ein weltweites Währungsbeben
Von Daniel Eckert

Die Finanzkrise erreicht eine neue Dimension: Nach den Aktien- spielen nun auch die Devisenmärkte verrückt. In den vergangenen Wochen hat es eine panikartige Flucht in Dollar und Yen gegeben, Schwellenländer sind die großen Verlierer. Die Situation erinnert an die Asienkrise von 1997.

Allen Rettungsprogrammen und Staatsinterventionen zum Trotz frisst sich die Finanzkrise weiters durchs System. Jetzt hat sie auf die weltweiten Devisenmärkte übergegriffen. Der Euro und andere Währungen verloren die vergangenen Tage stark an Wert.

Bei einigen Schwellenland-Devisen wie dem ungarischen Forint oder dem koreanischen Won haben die Verluste bereits ähnliche Dimensionen erreicht wie zu Beginn der Asien-Krise vor elf Jahren. „Ein Hauch von 1997 weht über den Globus“, sagt Philipp Nimmermann, Analyst bei der BHF-Bank. In den späten Neunzigerjahren waren die Währungen der fernöstlichen Tigerstaaten Korea, Thailand, Malaysia und Indonesien dermaßen eingebrochen, dass die vorherigen Boomökonomien nur mit Hilfe des Internationalen Währungsfonds (IWF) vom Kollaps bewahrt werden konnten. „Der Unterschied ist, dass die jetzigen Verwerfungen nicht regional begrenzt sind.“

Der Euro rutschte am Mittwoch einmal mehr ab und fiel gegenüber dem Dollar auf den tiefsten Stand seit zwei Jahren. Am frühen Abend notierte die Gemeinschaftswährung bei rund 1,28 Dollar – mehr als 30 US-Cents tiefer als noch im Juli.

Der drastische Wertverfall des Euro kommt für viele überraschend. Schließlich gestaltet sich die volkswirtschaftliche Situation in Euroland keineswegs schlechter als in den Vereinigten Staaten, die weiter stark unter den Folgen der geplatzten Kreditblase leiden. „Das sind fast schon panikartige Reaktionen“, sagt Folker Hellmeyer, Stratege bei der Bremer Landesbank, „tausende Hedgefonds und andere Investoren lösen ihre Fremdwährungspositionen auf und transferieren ihr Geld zurück in den Heimatmarkt“, erklärt er. Da spielten Fakten wie die explodierende US-Staatsverschuldung, die den Dollar im Grunde belasten müssten, keine Rolle mehr. „Internationale Investoren fliehen in die liquideste Devise, die es gibt, die der Wirtschaftsmacht Nummer eins. Kleinere Währungen geraten da unter die Räder“, stellt Nimmermann fest.

Mehr Videos Doch nicht nur der Dollar profitiert von dem Status als Fluchtwährung. Auch der japanische Yen wird durch fliehendes Kapital auf der Suche nach Sicherheit nach oben getrieben. Hier ist der Effekt sogar noch ausgeprägter. Über Jahre war zu niedrigen Zinsen geliehenes Geld aus Japan herausgeflossen, das in Schwellenländern und anderen spekulativen Märkten angelegt wurde. „Diese sogenannten Carry-Trades werden jetzt abgewickelt, und das katapultiert den Yen nach oben“, erklärt Hellmeyer.

Ganze 28 Prozent hat sich die japanische Devise seit Anfang des Jahres verteuert. Für Nippons Exporteure kommt diese Verteuerung zur Unzeit. In einem konjunkturellen Umfeld, in der die Nachfrage nach Konsumartikeln ohnehin schwächelt, verlieren Unternehmen wie Toyota, Nintendo oder Sony preislich an Wettbewerbsfähigkeit. Der Aktienindex Nikkei brach am Dienstag nicht zuletzt wegen des haussierenden Yen um fast sieben Prozent ein.

Die umgekehrte Wirkung hat die Schwäche des Euro für hiesige Exportfirmen. In normalen Zeiten wären hier international tätige Konzerne wie Daimler und Siemens, aber auch EADS oder Heidelberger Druck die Nutznießer. Allerdings ist ein etwas schwächerer Euro in einer weltweiten Rezession nur ein schwacher Trost.

Außerdem könnte der Verfall vieler Emerging-Markets-Währungen auf die exportabhängige deutsche Wirtschaft noch zurückschlagen. Sollte sich ein ähnlicher Absturz wie 1997 in Asien oder auch 1998 in Russland wiederholen, würden hiesigen Konzernen womöglich auf Jahre wichtige Absatzmärkte wegbrechen.

Wie ernst die Lage bereits ist, zeigen die Risikoaufschläge (Spreads) bei Schwellenländer-Anleihen. Sie messen das Mehr an Zinsen, das ein solcher Staat gegenüber erstklassischen Papieren industrialisierter Länder bieten muss. Bei Russland beträgt der Aufschlag inzwischen 673 Basispunkte (6,73 Prozentpunkte) gegenüber US-Staatsanleihen. Allein am Mittwoch schoss der Spread um mehr als 100 Punkte nach oben.

Ähnlich sieht die Situation in Ungarn aus. Der Verfall des ungarischen Forint hat inzwischen solche Ausmaße erreicht, dass bereits über einen Staatsbankrott des Landes spekuliert wird. Die Notenbank in Budapest versuchte gestern gegenzusteuern, indem sie den Leitzins um 300 Punkte auf 11,5 Prozent anhob. Außerdem sprang ihr die EZB mit fünf Mrd. Euro Soforthilfe zur Seite. Neben Ungarn werden die baltischen Staaten, Rumänien, die Türkei und Argentinien als gefährdet angesehen. „Die Hoffnung ist, dass wir eine koordinierte internationale Hilfsaktion sehen, die einen ähnlichen Kollaps wie 1997 verhindert“, sagt Hellmeyer.

October 22, 2008

A Matter of Life and Debt

THIS week, credit has begun to loosen, stock markets have been encouraged enough to reclaim lost ground (at least for now) and there is a collective sigh of hope that lenders will begin to trust in the financial system again.

But we’re deluding ourselves if we assume that we can recover from the crisis of 2008 so quickly and easily simply by watching the Dow creep upward. The wounds go deeper than that. To heal them, we must repair the broken moral balance that let this chaos loose.

Debt — who owes what to whom, or to what, and how that debt gets paid — is a subject much larger than money. It has to do with our basic sense of fairness, a sense that is embedded in all of our exchanges with our fellow human beings.

But at some point we stopped seeing debt as a simple personal relationship. The human factor became diminished. Maybe it had something to do with the sheer volume of transactions that computers have enabled. But what we seem to have forgotten is that the debtor is only one twin in a joined-at-the-hip pair, the other twin being the creditor. The whole edifice rests on a few fundamental principles that are inherent in us.

We are social creatures who must interact for mutual benefit, and — the negative version — who harbor grudges when we feel we’ve been treated unfairly. Without a sense of fairness and also a level of trust, without a system of reciprocal altruism and tit-for-tat — one good turn deserves another, and so does one bad turn — no one would ever lend anything, as there would be no expectation of being paid back. And people would lie, cheat and steal with abandon, as there would be no punishments for such behavior.

Children begin saying, “That’s not fair!” long before they start figuring out money; they exchange favors, toys and punches early in life, setting their own exchange rates. Almost every human interaction involves debts incurred — debts that are either paid, in which case balance is restored, or else not, in which case people feel angry. A simple example: You’re in your car, and you let someone else go ahead of you, and the driver doesn’t nod, wave or honk. How do you feel?

Once you start looking at life through these spectacles, debtor-creditor relationships play out in fascinating ways. In many religions, for instance. The version of the Lord’s Prayer I memorized as a child included the line, “Forgive us our debts as we forgive our debtors.” In Aramaic, the language that Jesus himself spoke, the word for “debt” and the word for “sin” are the same. And although many people assume that “debts” in these contexts refer to spiritual debts or trespasses, debts are also considered sins. If you don’t pay back what’s owed, you cause harm to others.

The fairness essential to debt and redemption is reflected in the afterlives of many religions, in which crimes unpunished in this world get their comeuppance in the next. For instance, hell, in Dante’s “Divine Comedy,” is the place where absolutely everything is remembered by those in torment, whereas in heaven you forget your personal self and who still owes you five bucks and instead turn to the contemplation of selfless Being.

Debtor-creditor bonds are also central to the plots of many novels — especially those from the 19th century, when the boom-and-bust cycles of manufacturing and no-holds-barred capitalism were new and frightening phenomena, and ruined many. Such stories tell what happens when you don’t pay, won’t pay or can’t pay, and when official punishments ranged from debtors’ prisons to debt slavery.

In “Uncle Tom’s Cabin,” for example, human beings are sold to pay off the rashly contracted debts. In “Madame Bovary,” a provincial wife takes not only to love and extramarital sex as an escape from boredom, but also — more dangerously — to overspending. She poisons herself when her unpaid creditor threatens to expose her double life. Had Emma Bovary but learned double-entry bookkeeping and drawn up a budget, she could easily have gone on with her hobby of adultery.

For her part, Lily Bart in “The House of Mirth” fails to see that if a man lends you money and charges no interest, he’s going to want payment of some other kind.

As for what will happen to us next, I have no safe answers. If fair regulations are established and credibility is restored, people will stop walking around in a daze, roll up their sleeves and start picking up the pieces. Things unconnected with money will be valued more — friends, family, a walk in the woods. “I” will be spoken less, “we” will return, as people recognize that there is such a thing as the common good.

On the other hand, if fair regulations are not established and rebuilding seems impossible, we could have social unrest on a scale we haven’t seen for years.

Is there any bright side to this? Perhaps we’ll have some breathing room — a chance to re-evaluate our goals and to take stock of our relationship to the living planet from which we derive all our nourishment, and without which debt finally won’t matter.

Margaret Atwood is the author of “The Handmaid’s Tale” and, most recently, “Payback: Debt and the Shadow Side of Wealth.”

Global Research, October 23, 2008

They Did It On Purpose: The Housing Bubble & Its Crash were Engineered
by the US Government, the Fed & Wall Street
by Richard C. Cook

During the Clinton administration, the government required the financial industry to start expanding the frequency of mortgage loans to consumers who might not have qualified in the past.

When George W. Bush was named president by the Supreme Court in December 2000, the stock market had begun to decline with the bursting of the bubble.

In 2001 the frequency of White House visits by Alan Greenspan increased.

Greenspan endorsed President Bush’s March 2001 tax cuts for the rich. More such cuts took place in May 2003.

Signs of recession had begun to show in early 2001. The stock market crashed after 9/11. The U.S. invaded Afghanistan in October 2001 and Iraq in March 2003.

The Federal Reserve began cutting interest rates, and by 2002 a home-buying frenzy was underway. Fannie Mae and Freddie Mac went along by guaranteeing the increasing number of mortgage loans.

According to a mortgage broker this writer interviewed, word began to come down through the mortgage banks to begin falsifying mortgage applications to show more borrower income than borrowers actually possessed

Banks that wrote mortgages began to offload them when Wall Street packaged them into mortgage-backed securities that were sold around the world as bonds to investors.

Risk-analysts at the leading credit-rating agencies, such as Standard and Poor’s, Moody’s, and Fitch, gave their highest ratings to mortgage-backed securities whose risks were later acknowledged to be grossly underestimated.

Mortgage companies, with Alan Greenspan’s endorsement, began to offer more Adjustable Rate Mortgages (ARMs), loans that would reset at much higher rates in future years.

Mortgage brokers fed the growing bubble by telling people they should buy now because housing prices would keep going up and they could resell at a profit before their ARMs escalated.

Huge amounts of money began to flow into the economy from mortgages and home equity loans and from capital gains on resale of inflating property.

Meanwhile, in the world of investment securities, the Securities and Exchange Commission greatly reduced the amount of their own capital investors were required to bring to the table, resulting in a huge increase in bank leveraging of speculative trading.

George W. Bush was reelected in 2004 at the height of the housing and investment bubbles. By 2005 the housing bubble was accounting for half of all U.S. economic growth and yielding huge tax revenues to all levels of government.

Despite the tax revenues from the bubbles the Bush administration was running huge budget deficits from expenditures on the wars in Afghanistan and Iraq .

ABC News reports that during this time risk analysts at Washington Mutual, one of the nation’s largest banks, were told to ignore high risk loans because lending had to be maximized. Those who objected were disciplined or fired.

State attorneys-general moved to investigate mortgage fraud but were blocked from doing so by orders of the Treasury Department’s Comptroller of the Currency. There was no federal agency that was charged with regulating mortgage fraud.

In February 2006, Ben Bernanke replaced Alan Greenspan as Federal Reserve Chairman and held interest rates steady. Homeowners began to default as ARMs reset.

The housing bubble began to collapse in 2006-2007, with the economy showing early signs of a recession and the stock market starting to decline by August 2007. Home prices began to plummet in most markets, with millions of homeowners owing more on their homes than their new appraisals.

Homeowners began to default, with over four million homes going to foreclosure from 2006-2008. In many cases, homeowners simply walked away, dropping off the keys to their houses at the bank.

The U.S. economy shed 60,000 jobs in August 2008. In a year, Wall Street had cut 200,000 jobs. State and local governments began to cut budgets and jobs.

The “toxic debt” from the collapse of the housing bubble brought about a full-scale crash of the U.S. financial system by September 2008. The stock market immediately fell, with 40 percent of its value—$8 trillion—now having been lost in a year. $2 trillion of the losses were in retirement savings.

The crash of the U.S. economy began to reverberate around the world with bankers and the IMF warning of an onrushing global recession.

Massive bailouts by the U.S. Treasury Department and the Federal Reserve failed to stem the tide of the crashing markets. By late October 2008 the recession has begun to hit in force.

As the situation worsened, big banks like J.P. Morgan Chase received government capitalization even as they were buying up banks that were failing. J.P. Morgan Chase paid $1.9 billion for Washington Mutual with assets of over $300 billion.

The U.S. government joined with the nations of Europe in planning a series of economic summits to explore global financial solutions. President Bush will host the first summit in Washington , D.C. , on November 15, after the U.S. presidential election.

The U.S. military shifted combat troops from Iraq to the U.S. to contain possible civil unrest.

Most major retail chains began to close stores and lay off employees even as the Christmas season approached.

The Washington Post reported on October 23, 2008: “Employers are moving to aggressively cut jobs and reduce costs in the fact of the nation’s economic crisis, preparing for what many fear will be a long and painful recession.”

Richard C. Cook is a former U.S. federal government analyst, whose career included service with the U.S. Civil Service Commission, the Food and Drug Administration, the Carter White House, NASA, and the U.S. Treasury Department. His articles on economics, politics, and space policy have appeared in numerous websites and print magazines. His book on monetary reform, entitled We Hold These Truths: The Hope of Monetary Reform, will soon be published by Tendril Press. He is the author of Challenger Revealed: An Insider’s Account of How the Reagan Administration Caused the Greatest Tragedy of the Space Age, called by one reviewer, “the most important spaceflight book of the last twenty years.” His website is Comments or requests to be added to his mailing list may be sent to Also see a series of his speeches on YouTube at Richard C. Cook is a frequent contributor to Global Research.

October 23, 2008

Hedge Funds’ Steep Fall Sends Investors Fleeing

The gilded age of hedge funds is losing its luster. The funds, pools of fast money that defined the era of Wall Street hyper-wealth, are in the throes of an unprecedented shakeout. Even some industry stars are falling back to earth.

This unregulated, at times volatile corner of finance — which is supposed to make money in bull and bear markets — lost $180 billion during the last three months. Investors, particularly wealthy individuals, are heading for the exits.

As the stock market plunged again on Wednesday, with the Dow Jones industrial average sinking 514 points, or 5.7 percent, the travails of the $1.7 trillion hedge fund industry loomed large. Some funds dumped stocks in September as their investors fled, and other funds could follow suit, contributing to the market plummet.

No one knows how much more hedge funds might have to sell to meet a rush of redemptions. But as the industry’s woes deepen, money managers fear hundreds or even thousands of funds could be driven out of business.

The implications stretch far beyond Manhattan and Greenwich, Conn., those moneyed redoubts of hedge-fund lords. That is because hedge funds are not just for the rich anymore. In recent years, public pension funds, foundations and endowments poured billions of dollars into these private partnerships. Now, in the midst of one of the deepest bear markets in generations, many of those investments are souring.

Granted, hedge funds are not going to disappear. In fact, some are still thriving. Even many of the ones that have stumbled this year are doing better than the mutual fund industry, which has also been hit with withdrawals that have forced their managers to sell.

But the reversal for the hedge fund industry represents a sea change for Wall Street and its money culture. Since hedge funds burst onto the scene in the 1990s, they have recast not only the rules of finance but also notions of wealth and status. Hedge-fund riches helped inflate the price of everything from modern art to Manhattan real estate. Top managers raked in billions of dollars a year, and managing a fund became the running dream on Wall Street.

Now, for lesser lights, at least, that dream is fading.

“For the past five or six years, it seemed anybody could go to their computer and print up a business card and say they were in the hedge fund business, and raise a pot of money,” said Richard H. Moore, the treasurer of North Carolina, which invests workers’ pension money in hedge funds. “That’s going to be gone forever.”

As are some hedge funds. For the first time, the industry is shrinking. Worldwide, the number of these funds dropped by 217 during the last three months, to 10,016, according to Hedge Fund Research.

Even some of the industry’s most well-regarded managers are starting to retrench. Richard Perry, who until now had not had a down year for his flagship fund in more than a decade, has laid off some employees. Mr. Perry, who began his career at Goldman Sachs, is moving away from stock-picking to focus on the troubled credit markets.

Three other hedge fund highfliers — Kenneth C. Griffin, Daniel S. Loeb and Philip Falcone — have suffered double-digit losses through the end of September.

Steven A. Cohen, the secretive chief of a fund called SAC Capital, has put much of the money in his funds into cash, reducing trading by some of his workers.

Many hedge fund investors, particularly the wealthy individuals, are flabbergasted by their losses this year. The average fund was down 17.6 percent through Tuesday, according to Hedge Fund Research.

“You’re seeing a lot of shock, a lot of inaction, a lot of reassessment of where their allocations are and what to do going forward,” said Patrick Welton, chief executive of the Welton Investment Corporation, whose fund is up double-digits this year.

Many investors, Mr. Welton said, had hoped hedge funds would protect them from a steep decline in the broader market. But in many cases, that has not happened.

Now Wall Street is buzzing about how much money could be pulled out of hedge funds — and which funds might bear the brunt of the redemptions.

Funds have set aside billions of dollars in cash to prepare for withdrawals, and many prominent funds require their investors to leave their money in the funds for years. That could help relieve some of the pressure.

But because hedge funds are largely unregulated, they do not publicly disclose the identity of their investors or whether they have received requests for withdrawals. While it might make sense to pull money out of poorly performing funds, investors might also exit funds that are doing well to offset losses elsewhere.

Institutions — pension funds, endowments and the like — pushed into hedge funds after the Nasdaq stock market bust at the turn of the century. Many hedge funds had prospered as technology stocks crashed, leading these investors to believe they would in the future.

In Massachusetts, for instance, Norfolk County broached the issue with the state’s pension oversight commission, said Robert A. Dennis, the investment director of the commission. Mr. Dennis was impressed that hedge funds had fared so much better than the broader stock market.

Though Mr. Dennis says he recognizes the risks that come with selecting hedge funds, he thinks they remain a good investment. Next week, the state commission will vote on whether to allow some towns with pension funds below $250 million to invest in hedge funds, a move Mr. Dennis supports.

“Hedge funds are having a bad year, absolutely, but they’re still holding up better than stocks,” Mr. Dennis said. “Losing less money than another investment is, while not great, it’s still something to be at least satisfied with.”

But now that the days of easy money are over, some fund managers are throwing in the towel.

One manager, Andrew Lahde, was blunt about his decision.

“I was in this game for the money,” Mr. Lahde wrote to his investors recently. He made a fortune betting against the mortgage markets, calling those on the other side of his trades “idiots.”

“I have enough of my own wealth to manage,” Mr. Lahde wrote. He did not return telephone calls seeking comment.

And what wealth there has been. More than anything else, hedge funds are vehicles for their managers to take a big cut of profits. The lucrative economics of the industry is known as “two and 20.” Managers typically collect annual management fees equal to 2 percent of the assets in their funds, and, on top of that, take a 20 percent cut of any profits. Last year, one manager, John Paulson, reportedly took home $3 billion.

But with the industry under pressure, those fat fees are being questioned. Mr. Moore and other investors are starting to ask whether hedge funds deserve all that money. Mr. Griffin, who runs Citadel Investment Group in Chicago, plans to offer funds with lower fees.

More changes could be coming, including increased regulation. The House Committee on Oversight and Government Reform is scheduled to hold a hearing about regulation next month with five hedge fund managers who reportedly made more than $1 billion last year: Mr. Griffin, Mr. Falcone and Mr. Paulson, as well as George Soros and James Simons.    October 23, 2008   19:29

The rogue trader is back
A rogue system with lax limits on risk-taking
By John Gapper

Markets are volatile, with oil plunging, currencies see-sawing and the Dow Jones Industrial Average bouncing up and down like a yo-yo. They are perfect conditions to expose a rogue trader in the mould of Nick Leeson of Barings.

True to form, the Caisse d’Epargne, one of France’s biggest savings banks, on Sunday announced the resignations of its chairman, chief executive and finance director after four equity derivatives traders allegedly ignored their trading limits and ran up a loss of €600m ($770m, £477m). I say “allegedly”  because rogue traders – that evocative phrase first used by Eddie George, the former governor of the Bank of England – usually insist afterwards that they did nothing wrong. They say that they were, tacitly or explicitly, encouraged by bosses to take a chance.

Often that is just an excuse, but the rogue trader is not the biggest culprit at the moment. In this crisis – whatever turns out to have occurred at Caisse d’Epargne – companies and banks bear responsibility.

Take the case of Leslie Chang, the finance director of the Chinese financial group, Citic Pacific, who was fired this week over a currency hedge that went badly wrong and could cost Citic $1.9bn. Larry Yung, Citic’s chairman, treated Mr Chang like a rogue trader, saying Mr Chang had not been given  approval to buy currency derivatives to hedge Citic’s investment in an iron ore mine in Western Australia.

I sympathise with Mr Chang because, although we do not yet know the full details of what happened, it was clearly part of his job to hedge currency risk. Many other companies have also been caught out recently by the sudden rise of the US dollar and the fall in commodity prices.

Southwest Airlines sustained a loss of $247m on fuel price hedges in the third quarter of this year, dragging it into loss for the first time in its history. The Wall Street Journal this week reported on an array of Latin American companies that have made bad currency bets.

Does that mean their finance directors should be dismissed for behaving badly? No, of course not. Most companies with big international operations have offset their balance sheets with derivatives in an effort to lower their market exposure.

Some chief executives will defer to the chief financial officer to oversee the details of hedging policies. But if the CFO’s job means being treated as a rogue trader if markets go awry, that means bearing the risk while the CEO takes the reward.

Then there are banks. The Caisse d’Epargne fiasco follows a €4.9bn loss at Société Générale in January, allegedly because of unauthorised trading by Jérôme Kerviel. A few months earlier, Calyon, the investment banking arm of Crédit Agricole, had fired a trader over a €250m loss.

Each of these banks was a relative newcomer to the investment banking party. SocGen built up its derivatives arm from the mid-1990s and Crédit Agricole and Caisse d’Epargne were originally rural savings banks.

Now they look like country cousins who got taken for a ride in the big city. The Caisse d’Epargne fiasco reminds me of Abbey National, the UK building society that became a bank then used its balance sheet to buy high-yield bonds and frittered away £256m in 2001.

These banks were, like Mr Leeson, breaching their natural trading limits on an epic scale. Having watched as investment banks profited from trading, they decided to have a go themselves. In doing so, they joined many institutions, from Wall Street banks such as Citigroup and Morgan Stanley, to Asian  institutions such as Citic Pacific, to industrial companies that hedged currencies, which failed to understand the risks.

There are varying degrees of blame. I put companies that were exposed to currency movements and tried to control earnings volatility on the low end of the scale and savings banks that fancied a punt at the other.

These were, however, decisions taken by the institutions themselves, not by one or two rogue traders or finance directors. Some limits may have have been broken but the essential problem is that the limits were lax. It did not take a rogue to cause trouble.    October 23, 2008

Nouriel Roubini: 'Worst is Ahead'
GLG's Roman, NYU's Roubini Predict Hedge Fund Failures, Panic
By Tom Cahill and Alexis Xydias

Oct. 23 (Bloomberg) -- Hedge funds closures will eliminate about 30 percent of the industry, and policy makers may need to shut markets for a week or more to stem panic, according to presentations at an investor conference today in London.

``In a fairly Darwinian manner, many hedge funds will simply disappear,'' Emmanuel Roman, co-chief executive officer at GLG Partners Inc., told the Hedge 2008 conference in London. U.S. regulators will ``find a way to force regulation,'' said Roman, 45, who runs New York-based GLG with Noam  Gottesman, 47. The firm was founded 13 years ago as a unit of Lehman Brothers Holdings Inc. and now manages about $24 billion in assets.

Nouriel Roubini, the New York University Professor who spoke at the same conference, said hundreds of hedge funds will fail as the crisis forces investors to dump assets. ``We've reached a situation of sheer panic,'' said Roubini, who predicted the financial crisis in 2006. ``Don't be surprised if policy  makers need to close down markets for a week or two in coming days.''

Many hedge funds have resisted oversight by the U.S. Securities and Exchange Commission, even as policy makers coordinated global interest-rate cuts and bailed out banks this month to try and stem the crisis. The hedge fund industry is stumbling through its worst year in two decades and posted its  biggest monthly drop for a decade in September.

``There needs to be some scapegoats, and they are going to go hunt people,'' said Roman, who didn't indicate when new U.S. regulation may take effect. Regulation is ``long overdue,'' he said. In the U.S., ``someone can graduate from college on a Friday and start a hedge fund on a Monday.''

More Difficult

Increased regulation and higher borrowing costs will make the hedge-fund business more difficult, Roman said. Still, financial markets have ``overshot,'' he said.

In some areas of financial markets, including loans, there are ``once-in-a-lifetime opportunities,'' he said. ``At some point, people will say this isn't 1929 to the power of 10.''

Roubini, a former senior adviser to the U.S. Treasury Department, forecast this Feburary a `catastrophic' financial meltdown that central bankers would fail to prevent and that would lead to the bankruptcy of large banks exposed to mortgages and a ``sharp drop'' in equities.

The comments preceded the collapse of Bear Stearns & Cos. and Lehman Brothers Holdings Inc. as well as the government seizure of Freddie Mac and Fannie Mae. The Dow Jones Industrial Average, a benchmark for American equities, has lost 37 percent this year, including its biggest daily drop in  more than twenty years on Oct. 15.

He predicted earlier this month that the world's biggest economy will suffer its worst recession in 40 years.

`Worst is Ahead'

``This is the worst financial crisis in the U.S., Europe and now emerging markets that we've seen in a long time,'' Roubini said. ``Things will get much worse before they get better. I fear the worst is ahead of us.''

Developing nations' borrowing costs jumped to the highest in six years today as Belarus joined Hungary, Ukraine and Pakistan in seeking a bailout from the International Monetary Fund to help weather frozen money markets and a slump in commodities. Argentina risks defaulting for the second time this  decade.

``There are about a dozen emerging markets that are now in severe financial trouble,'' Roubini said. ``Even a small country can have a systemic effect on the global economy,'' he added. ``There is not going to be enough IMF money to support them.''

Italian Prime Minister Silvio Berlusconi roiled international markets on Oct. 10, first saying world leaders were discussing shutting down global financial exchanges, and then saying he didn't mean it.

Hedge funds are mostly private pools of capital whose managers participate substantially in the profits from their speculation on whether the price of assets will rise or fall.

To contact the reporter on this story: Tom Cahill in London at; Ben Livesey in London    23. Oktober 2008, 17:52 Uhr

Drohende Pleiten
Schwellenländer schlittern tief in die Krise
Von Frank Stocker

 Für die Finanzkrise sind sie nicht verantwortlich, doch die Folgen verspüren sie besonders heftig: Die Aktienmärkte der Schwellenländer brechen derzeit auf breiter Front ein, die Währungen geraten unter Druck, Staatspleiten drohen. Das verwundert – denn viele Länder stehen eigentlich besser da als die Industriestaaten.
 Wie ein Steppenbrand frisst sich die Finanzkrise durch die Welt und reißt immer mehr Schwellenländer in den Abgrund. Gestern musste Weißrussland beim Internationalen Währungsfonds um einen Notkredit nachsuchen, genau wie zuvor schon Ungarn, die Ukraine und Pakistan. Argentiniens Präsidentin Cristina Fernandez de Kirchner wiederum will offenbar mit dem Geld aus dem privaten Rentensystem den Staatsbankrott verhindern – es wäre der zweite innerhalb eines Jahrzehnts.

  Diese Länder kommen unter Druck, weil sie in ihrem Staatshaushalt und ihrer Leistungsbilanz hohe Defizite aufweisen. Sie sind dadurch stark von ausländischem Kapital abhängig, das jedoch nun aufgrund der Finanzkrise abgezogen wird. Dadurch kommt die Währung unter Druck, was den Abzug des Kapitals noch beschleunigt – ein Teufelskreis kommt in Gang.

Doch die Investoren ziehen ihr Kapital nicht nur aus den schwächeren Ländern ab. Vielmehr flüchten sie derzeit geradezu panisch aus allen Schwellenländern, selbst aus jenen Ländern wie China, die hohe Devisenreserven und riesige Handelsbilanzüberschüsse vorweisen können. „Was gerade passiert, ist vollkommen irrational“, sagt Wojciech Stanislawski, Manager des Magellan-Fonds, eines der größten Fonds, die in Schwellenländer investieren (WKN: 577954). Fundamental stünden viele dieser Länder wesentlich besser da als Europa und die USA: Die Staatshaushalte sind in Ordnung, die Banken haben kaum faule Kredite, die Konsumenten sind nicht überschuldet.

 Doch all dies spielt derzeit offenbar keine Rolle. Die Kurse an den Börsen in Shanghai, Rio de Janeiro, Moskau oder Bombay brechen dennoch Tag für Tag auf breiter Front ein, und zwar noch weitaus stärker als in den Industriestaaten. Insgesamt haben Aktien in den Schwellenländern in diesem Jahr schon 59 Prozent verloren, gegenüber „nur“ 43 Prozent in den Industriestaaten. „Es sind vor allem große institutionelle Investoren, die verkaufen“, sagt Stanislawski. Hedgefonds, die auf Kredit spekuliert haben, müssen nun alles abstoßen, um ihre Kredite zurückzahlen zu können. Dass es die Schwellenländer bei diesem Ausverkauf stärker trifft als die entwickelten Länder, hat einen einfachen Grund: „In den vergangenen Jahren haben sich diese Börsen besonders gut entwickelt und so war es dort besonders vielversprechend Aktien auf Kredit zu kaufen.“

 Einige Länder wie Russland haben aber auch selbst dazu beigetragen, dass ausländische Investoren die Flucht ergriffen. Als Ministerpräsident Putin im Juli den Bergbaukonzern Mechel beschuldigte, Steuern hinterzogen zu haben, fürchteten viele, dass eine Zerschlagung wie beim Ölkonzern Yukos droht. Durch den Konflikt mit Georgien im August beschleunigte sich die Kapitalflucht. Und da Russland weiterhin stark von Ölexporten abhängig ist, wirkte auch der Ölpreisverfall negativ. Nun rächt sich, dass das Land in den vergangenen Jahren versäumte, seine Wirtschaft zu diversifizieren.

 China dagegen leidet vor allem unter dem einbrechenden Export. Dies führte dazu, dass die Wachstumsrate im dritten Quartal auf neun Prozent zurückgegangen ist. Damit lag sie zum ersten Mal seit drei Jahren unter zehn Prozent. Experten warnen aber, dies überzubewerten. „Es liegt auf der Hand, dass Wachstumsraten über zwölf Prozent nicht nahhaltig sein können“, sagt Christian Hoffmann, der von Peking aus den FIVV Aktien China Fonds (WKN: A0JELL) berät.

Er, wie auch viele andere Schwellenländerexperten, glauben, dass China noch am ehesten die Kraft hat, sich gegen die weltweite Rezession zu stemmen. Es verfügt über einen ausgeglichenen Haushalt und Devisenreserven von zwei Billionen Dollar. Einige Maßnahmen hat die Volksrepublik auch bereits ergriffen. „Um die Exportaktivität der Unternehmen zu unterstützen, reagiert die Regierung vor allem mit Vergünstigungen bei der Mehrwertsteuerrückerstattung“, sagt Hoffman. Darüber hinaus gibt es Programme zur Stützung des Immobilienmarktes und zur Stärkung des inländischen Konsums.

Ähnlich positiv sehen viele auch die Aussichten für Brasilien und teilweise auch für Indien. Allerdings spielen solche Fakten derzeit offenbar keine Rolle. Vielmehr fallen die Anleger in alte Denkmuster zurück, wonach Schwellenländer risikobehafteter seien als Industriestaaten. „Wir dachten, Schwellenländer würden von den Investoren inzwischen als genau so resistent angesehen wie die entwickelten Staaten“, sagt Stanislawski. Tatsächlich hatten sich die Risikoprämien für Aktien oder Staatsanleihen dieser Staaten in den vergangenen Jahren weitgehend jenen der entwickelten Staaten angepasst. Nun wird die Zeit jedoch offenbar zurückgedreht. Ob zu Recht, steht dabei auf einem anderen Blatt.

Wochen-Zeitung WOZ    23.Oktober 2008

Fortsetzung der Plünderung: Der Transkapitalismus
Von Oliver Fahrni

So schaffen wir den Ausstieg aus dem Kasinokapitalismus - über Verstaatlichung, Finanzkonversion, Nachhaltigkeitsfonds, ökologischen Umbau, sicheren  Kredit, Kapitalverkehrssteuer?...

Da wird vor aller Augen ein Land verbankt. Bisher kannten wir die neoliberale Privatisierung staatlicher Dienste. Nun aber organisiert die Bankenlobby um  UBS, Bankenkommission und Nationalbank den direkten Raubzug auf das öffentliche Gut.

Eigentlich nicht erstaunlich: Der Finanzkapitalismus Version 2.0 nährt sich aus der systematischen Plünderung der in Generationen erwirtschafteten  Substanz. Er ist Enteignungsökonomie - seit wenigen Jahren verschärfte Enteignungsökonomie, weil sich die Finanzkonzerne mit den Derivaten faktisch das  Recht herausnehmen, Geld zu schöpfen. Und zwar grenzenlos: eine Million Milliarden in den letzten fünf Jahren. Damit sollte jede künftig geschaffene  Substanz schon im Voraus konfisziert werden.

Freilich bricht nun die Kreditkette an manchen Stellen. Folgerichtig wird in die Reserve gegriffen: die Staatskasse. Selt-sam nur: In schöner Einmütigkeit wird  das als Rückkehr des Staates in die Wirtschaft, gar als «Sozialismus» gefeiert.

Immerhin tun sich gerade ein paar Fenster auf. Weil die heftig agierenden Finanzer und Regiererinnen rund um den Globus nicht einmal die Beschleunigung  der Krise stoppen können, weil diese Krise also jeden Tag ein bisschen mehr wie ein historischer Bruch aussieht und weil staatliche und politische  Institutionen auch ein Eigenleben haben, tut sich unvermittelt die Chance einer grossen Debatte auf - und vielleicht sogar die Möglichkeit einer neuen Praxis.

Linke Politik muss sich in dieser Situation dreifach messen: Zum einen daran, dass sie die ärgsten Folgen der Krise für die Arbeitenden, für RentnerInnen,  sozial Schwache abwendet. Zum anderen muss sie eine kritische, produktive Finanzplatzpolitik entwickeln, welche die Bankenmacht bricht und die Risiken  bannt, die von diesem hypertrophen Finanzplatz ausgehen. Vor allem aber ist dies ein einzigartiger Moment, um ein Projekt auf die Tagesordnung zu setzen,  das Wirtschaft und Gesellschaft um die Arbeit (nicht nur um die Lohnarbeit) und die reale Produktion neu fundiert. Ich nenne es hier einmal  Transkapitalismus. Konkret:

-     Sofortige Kaufkraftsicherung durch Lohnerhöhungen und Bundesbeschlüsse, welche Preissteigerungen beim Strom, bei den Krankenkassen und so  weiter, begrenzen, schliesslich durch ein Impulsprogramm. Gleichzeitig sollte die Linke schnell einen gesetzlichen Mindestlohn anstreben in allen Branchen,  in denen kein GAV besteht.

-     Schutz der Renten: Die Pensionskassen haben in der Krise bisher mindestens 70 Milliarden verloren - und es könnten noch deutlich mehr werden.  Wahrscheinlich lagern bis zu 150 Milliarden an Trash-«Wertpapieren» in den PK. Die Sanierung dieser Posten muss in ein umfassendes Bundesprogramm  einfliessen, das die Entkoppelung der Sozialversicherung vom Finanzkapitalismus anstrebt. Das braucht neue Investitionsvorschriften. Sofort handeln können  die Gewerkschaften, die in den Stiftungsräten mitverwalten: Sie sollten einen Kriterienraster für die Investitionen aufstellen und durchsetzen. Und über einen  eigenen Nachhaltigkeitsfonds nachdenken. Zugleich ist die AHV erst zu stärken, dann zur Volkspension auszubauen. Die zweite Säule muss in die AHV  überführt werden, die Volkspensionskasse kann einen Teil ihrer Gelder in nachhaltigen Fonds anlegen (Mischform).

-     Grossbanken zerschlagen. Die öffentliche Hand muss eine dominierende Beteiligung an UBS und, bei erster Gelegenheit, auch am Credit Suisse  übernehmen. Notfalls Verstaatlichung durch Parlamentsbeschluss. Dann muss die Finanzkonversion, also die Zerschlagung der beiden Grossbanken,  angegangen werden. Sorgfältig: Verkauf von Teilen der Banken (zum Beispiel Investmentbanking), Auslagerung des Devisenhandels (über die UBS laufen  rund zehn Prozent des globalen Währungshandels) und, entscheidend: der Transfer der Geschäftskonten, Kredite und so weiter von rund 180?000 Klein- und  mittelständischen Unternehmen (KMU) an die Kantonalbanken.

-     Sicherer Kredit: Die BürgerInnen, die KMU, der ökologische Umbau brauchen einen Finanzplatz, der den Kredit für die Realwirtschaft sicherstellt. Die  Kantonalbanken könnten der Kern die-ses neuen Finanzplatzes sein. Voraus-setzungen: Sie werden wieder voll verstaatlicht und einem eidgenössischen  Kantonalbankengesetz unterstellt, das die heute gängigen hochspekulativen Praktiken mancher Kantonalbanken beendet. Gleichzeitig werden alle Kleinban- kenformen neu geregelt und privilegiert. Der kooperative Kredit wird gefördert.

-     Kapitalverkehrssteuer und Nachhaltigkeitsfonds: Um den ökologischen Umbau und die Neufundierung der Wirtschaft anzutreiben, sollten wir einen  grossen Nachhaltigkeitsfonds oder Konversionsfonds ins Spiel bringen. Der Fonds müsste aus einer Kapitalverkehrssteuer gespeist werden (Tobin-Steuer  oder andere Formen). 0,2 Prozent würden schon Milliarden bringen, ohne das Kapital zu kratzen. Die Banken, welche die Konversionscharta mittragen,  könn-ten aus diesem Fonds Mittel beziehen. Wer aber würde über die Vergabe der Fondskredite und Kapitalien entscheiden? Zum Beispiel ein neu zu  gründender Wirtschafts- und Sozialrat.

-     Kurze Leine fürs Finanzkapital: Keine Frage: Das Finanzkapital muss scharf reguliert werden. Teilweise kann das nur international geschehen. Aber das  ist auch eine wohlfeile politische Ausrede. Tatsächlich gibt es grosse Spielräume für nationale Verordnungen. Konkret: Sofortige Novelle des  Kollektivanlagengesetzes, völliger Umbau der Finanzmarktaufsicht (Finma), die ab dem 1. Januar 2009 im Amt ist, Unterstellung der Finma und, zentral, der  Nationalbank unter den Wirtschafts- und Sozialrat. Weiter: Bei der Diskussion etwa eines Hedgefondsverbots (notwendig) oder von Transparenzvorschriften  (ebenso notwendig) wird gerne eine wirksame Methode vergessen: die Verknappung und die Verteuerung frischen Geldes für das Finanzkapital. Dies kann  sehr leicht erreicht werden, wenn die Pensionskassen neu aufgestellt und die Nationalbank politischer Kontrolle unterstellt sind.

Diesen Vorhaben ist gemein, dass sie keinen fundamentalen Systembruch suchen - und doch die kapitalistische Profitwirtschaft ritzen. Mehrheiten gibt es  dafür nur, wenn wir sie als untergeordnete Bestandteile eines umfassenden Projekts für eine bessere Wirtschaft und bessere Arbeit in einer besseren  Gesellschaft zum Vorschlag bringen. Heute unterliegt die Gesellschaft einer zwar brechenden, aber noch starken neo-liberalen Hegemonie. Die Vision einer  anderen Gesellschaft ist erst wirksam, wenn sie anziehungsfähig ist, also Gemein- wie Eigensinn entfesselt. Das vergessen wir gerne (gerade in dieser  Unterlassung liegt ein Stück Hegemonie).

Misslingt uns aber in der gegenwärtigen Krise die glaubhafte Darstellung von Wegen aus der Krise, erledigt sich die Linke selbst. Die vierte Rechte und ihr  autoritäres Projekt gewännen. Also:

-     Ökologischer Umbau. Bessere Arbeit. Soziale Innovation. Öffentliche Güter: Die ökologische Wende hat schon ohne uns begonnen. Der Kapitalismus  wird gerade reindustrialisiert. Es ist unsere Aufgabe, diesen Umbau zur Grundlage eines anderen gesellschaftlichen Projekts zu machen. Das bedeutet erst  einmal pragmatische Dinge wie ein Nationales Industrieprogramm für den ökologischen Umbau und eine Bildungsoffensive. Erneuerbare und dezentrale  Energien, Schiene und öffentlicher Verkehr, Energieeffizienz, «green nano» - das ganze Programm. Statt Milliarden in Finanzkonzernen zu verbraten, könnte  ein Kompetenzzentrum diese Entwicklungen anstossen. Jede öffentliche Hilfe müsste an soziale Innovation und bessere Arbeit, Ausbildung und  Weiterbildung, Wirtschaftsdemokratie und Open-Source-Öffnung des Unternehmens gebunden sein. Der Beitrag des Unternehmens zur Mehrung öffentlicher  Güter wäre die Messgrösse für das Zinsniveau seines Kredits. Dezentralität, kooperative Formen, Care-Arbeit, internationale Zusammenarbeit würden  belohnt. Hier deutet sich schon der transkapitalistische Übergang an: Nicht mehr der Profit des Kapitals stünde im Vordergrund, sondern die reale  Wertschöpfung, ihre andere Verteilung und die Zentralität der Arbeit. Dann wäre es nur noch ein Schritt zu einem neuen Arbeitsbegriff, der sich von der  Lohnarbeit ab- und der gesellschaftlichen Arbeit zuwendet.

Dieser Beitrag ist die aktualisierte und erweiterte Fassung eines Beitrages zur Sommeruni 2008 von Attac.

Wochen-Zeitung WOZ    23.Oktober 2008

FundamentalistInnen am Werk
Von Andreas Missbach

Die Skandalbank UBS darf ihre Medizin selber wählen.

Die handstreichartige Rettung der UBS nahm den ursprünglichen Plan des US-Finanzministers Henry Paulson zum Vorbild. Der Verkauf von  Ramschpapieren wäre das bevorzugte Lösungsmodell der US-Bankenlobby gewesen. Doch dieser Plan wird in den USA nicht umgesetzt; das Parlament  fügte einen Passus ein, der die direkte Kapitalisierung der Banken, also den Kauf von Aktien, ermöglicht. Zunächst sollen 250 Milliarden Dollar dazu  verwendet werden, die Banken direkt zu kapitalisieren.

Damit folgen die USA wie europäische Staaten dem Vorbild Britanniens. Überall werden die staatlichen Mittel dazu verwendet, das Eigenkapital der Banken  zu stärken, so dass sie die Abschreiber auf den «giftigen» Derivaten überstehen. Die Staaten können als Aktionäre direkt Einfluss auf die Geschäftsführung  nehmen und profitieren, falls sich die Banken erholen. Als Vorbild für diese Art der Bankenrettung dient Schweden. Durch eine temporäre Verstaatlichung der  Banken hat das Land seine hausgemachte Bankenkrise Anfang der neunziger Jahre ohne Kosten für das Staatsbudget gelöst (vgl. Seite 10).

Wert nicht bestimmbar

Dass der Skandalbank UBS mit staatlichen Mitteln aus der Patsche geholfen wird, ist nicht das Problem. Die Bedeutung der UBS im Interbankenmarkt, auf  dem Arbeitsmarkt und als Kreditgeberin hätten einen Kollaps zu gefährlich gemacht. Die Art der Rettung ist hingegen eine Katastrophe. Die Nationalbank gibt  einen Kredit von 54 Milliarden Dollar an eine Zweckgesellschaft in der Steueroase Cayman Islands, die der UBS die faulen Derivate abnimmt.

Alle namhaften US-Ökonomen kritisierten am Paulson-Plan, dass der Wert der problematischen «Wertpapiere» gegenwärtig nicht bestimmbar ist. Da es  keine Käufer gibt, gibt es auch keine Preise. Mit der Schweizer Lösung werden die Papiere zu jenem Wert übernommen, zu dem sie die UBS in ihrer Bilanz  stehen hat. Wenig Vertrauen weckt in diesem Zusammenhang der Bericht der Eidgenössischen Bankenkommission (EBK) zur Subprime-Krise, der am Tag  der Rettung publiziert wurde. Darin wird «ein zu unkritisches Vertrauen in die bestehenden Mechanismen zur Risikoerfassung» als «schwerwiegendes  Versäumnis der Bank» kritisiert.

Den Rettungsplan hat eine Taskforce bestehend aus Eugen Haltiner (EBK), Philipp Hildebrand (Nationalbank) und Peter Siegenthaler (Finanzverwaltung)  ausgeheckt. Haltiner hat bis zu seinem Wechsel ins Direktorium der Eidgenössischen Bankenkommission 2005 während mehr als dreissig Jahren für die  UBS gearbeitet, und Hildebrand war Hedgefondsmanager, bevor er zur Nationalbank stiess.

Laut dem Mediencommuniqué der UBS (nicht aber laut jenen des Finanzdepartements und der Nationalbank) soll die Nationalbank bei Verlusten maximal  hundert Millionen UBS-Aktien erhalten. Das entspricht gegenwärtig zwei Milliarden Franken. Alle Verluste darüber hinaus trägt die Nationalbank. Sie hat  explizit keine Rückgriffsmöglichkeit auf allfällige Gewinne der UBS. Wie Peter Siegenthaler zu behaupten, dass sich die UBS-Rettung «letztlich selbst  finanziert», ist entweder sträflich optimistisch oder schlicht gelogen.

Der grösste Teil des UBS-Giftmülls, den die Nationalbank übernimmt, sind Derivate, die sich auf private und geschäftliche US-Hypotheken beziehen. Ihre  Verkäuflichkeit und ihr Wert hängt von der weiteren Preisentwicklung auf dem US-Immobilienmarkt ab. Die US-Immobilienpreise sind vor der Krise um 85  Prozent angestiegen. Inzwischen sind sie aber erst um 20 Prozent gefallen. Es braucht also wenig Fantasie für die Voraussage, dass sie in der sich  abzeichnenden schweren Rezession noch weiter fallen werden. Damit bleiben die UBS-Papiere unverkäuflich, oder sie können nur mit weiteren  Preisabschlägen verkauft werden. Trotz der Gefahr, völlig danebenzuliegen, sei die Schätzung gewagt: Die Nationalbank wird in diesem Deal mindestens  zwanzig Milliarden Franken verlieren.

Nur keine Staatsbeteiligung

Der Plan des Bundesrates und der Nationalbank hat noch einen zweiten Teil. Die UBS kann ihren Anteil an der Zweckgesellschaft in der Höhe von sechs  Milliarden Dollar nicht selbst aufbringen. Deshalb stärkt der Bund das Eigenkapital der UBS mit sechs Milliarden Franken. Aber nicht durch den Kauf von  Aktien, sondern mit einer Pflichtwandelanleihe. Damit wird der Bund erst in zweieinhalb Jahren zum Aktionär der UBS.

Der Bundesrat verzichtet darauf, Einfluss auf die UBS zu nehmen. Andernfalls könnte eine politische Debatte darüber entstehen, wie die UBS in Zukunft  aussehen soll. Wäre es nicht längst überfällig, das Investmentbanking abzustossen? Ebenso müsste der Verkauf des Private Bankings  (Vermögensverwaltung für sehr reiche Kundschaft) geprüft werden. Es gibt keinen vernünftigen Grund dafür, warum die grösste Vermögensverwaltungsbank  der Welt eine Schweizer Bank sein muss.

Durch einen Verkauf könnte der Bund nicht nur seine Kosten decken, es entstünde auch eine sehr viel kleinere regionalisierte UBS, bei der das Schweizer  Kreditgeschäft eine wichtigere Rolle spielen würde. Damit wäre endlich auch das Klumpenrisiko von zwei Grossbanken in der Schweiz entschärft.

Die UBS könnte weiter für die Her-ausforderungen der Zukunft fit gemacht werden. Für eine Halbierung der CO2-Emissionen bis 2050 sind weltweit  Investitionen von über 50 Billionen Franken nötig. Statt Schuldenkarussel-le zu finanzieren, könnte die UBS zur Um-stellung auf einen energie- und roh- stoffeffizienten, klimaschonenden Produktions- und Lebensstil beitragen. Die Chance, das Heft in die Hand zu nehmen, hat der Bundesrat letzte Woche  vertan.

Andreas Missbach arbeitet bei der entwicklungspolitischen Organisation Erklärung von Bern zum Thema Banken und Finanzplatz Schweiz.

Kommentar   24. Oktober 2008, 17:09 Uhr

Völlig orientierungslos
Von Jörg Eigendorf

Man mag die Märkte als verrückt bezeichnen, wenn die globalen Börsenbarometer im Gleichklang an einem Tag zehn Prozent verlieren und Öl wie Euro mit in den Keller rauschen. In normalen Zeiten – oder besser gesagt in Zeiten, die bis vor kurzem noch als normal galten – würde man angesichts der Ausverkaufsstimmung langfristig ausgerichteten Anlegern empfehlen, wieder einzusteigen.
Doch es sind keine normalen Zeiten mehr. Was sich derzeit an den Börsen abspielt, ist mehr als Panik und Zockerei. Es ist Ausdruck vollständiger Orientierungslosigkeit. Die Investoren haben jedes Gefühl dafür verloren, was Banken, Unternehmen und Rohstoffe wirklich wert sind. Denn niemand weiß, wie die Zeit nach den großen staatlichen Rettungspaketen, mit denen die Kernschmelze im Finanzsektor abgewendet werden sollte, aussehen wird. Fest steht nur: Die Gewinnerwartungen an Unternehmen, allen voran an Banken, müssen bescheidener ausfallen. Und deshalb kann derzeit auch niemand sagen, ob die Aktiengesellschaften rund um den Globus zu billig, genau richtig bewertet oder doch noch zu teuer sind.

So wichtig die entschiedene Intervention der Politik war, um dem Versagen des Marktes in der Bankenwelt ein Ende zu setzen, so verschlimmern Politiker nun mit ihrem Verhalten die Krise. Im Gefühl, endlich beweisen zu können, dass man doch handlungsfähig ist, schießen die Regierenden in vielen Ländern weit übers Ziel hinaus. Beängstigend ist das Tempo, in dem der französische Präsident Nicolas Sarkozy seine absurde Idee eines Staatsfonds in die Realität umgesetzt hat. Der teilweise naive Glauben der Politik, nicht nur die Rolle des Schiedsrichters, sondern auch die eines starken Spielers ausfüllen zu müssen, droht nun zur größten Wachstumsbremse zu werden.

Das verunsichert Manager wie Kapitaleigner, die über Investitionen entscheiden. Denn je enger das Korsett ist, das den Märkten nun verpasst wird, desto geringer wird auf Dauer der Wohlstand ausfallen. Die größte Gefahr für die Weltwirtschaft sind nicht mehr wild gewordene Börsen, sondern allzu straffe Zügel der Politik, die der Globalisierung ein Ende setzen könnte.

Dabei sind die Chancen der Weltwirtschaft, dieser Rezession zu entkommen, eigentlich besser als sie es je zuvor waren. Mehr Volkswirtschaften und mehr Menschen nehmen am globalen Markt teil. Der Aufholbedarf im einstigen Ostblock und in Asien ist gigantisch. Davon können auch die westlichen Länder profitieren. Das aber scheinen die meisten Politiker ganz und gar vergessen zu haben.  OCTOBER 24, 2008

Ruble's Fall Puts Russia on Defense Amid Crisis

MOSCOW -- Russia's currency fell to a new two-year low despite billions being spent by Moscow to prop it up, and the country's fast-shrinking mountains of reserves and oil revenues threatened to reduce its credit rating, a key marker of its recent resurgence.

The new wave of problems -- coming on top of a stock market fall of 70% from its May peak -- highlights how quickly the global financial crisis has reversed Russia's fortunes. Worried about the turmoil, Russians have hurriedly taken to converting their ruble savings into dollars and euros, driving street  exchange rates even lower than the official one.

Russia's surging economic growth had fueled the Kremlin's increasingly assertive stance -- against what it called an overly expansive U.S -- in global politics, energy policy and even its military move into neighboring Georgia.

But in a matter of weeks, the financial turmoil has altered the architecture of Russia's economy. It has forced some of the country's mightiest industrial companies and tycoons to sell off assets and seek bailouts, and thrown a shadow over the finances of the government itself.

Russia's gold and foreign exchange reserves fell by $15 billion last week alone, its central bank said Thursday, to $515.7 billion from a total that had neared $600 billion in early August. This week's rate of decline would drain it by an additional $150 billion if not slowed by the end of the year, and an official  from one major Western bank predicted the central bank will spend even more this week. Another $70 billion is promised from the reserves to a bailout for Russia's financial sector.

With the reserves falling, the cost of insuring Russia's sovereign debt against default has hit records, with credit-default swaps now trading at distressed levels -- above 1,000 basis points, meaning it can cost at least half the amount of the debt to insure it for five years, which is four times what it cost a  month ago.

Some Western bankers say their Russian counterparts are cutting back cross-border lending in rubles to stem the outward flow of capital. Top central bank officials called in several heads of Western banks in Moscow last weekend to complain that they were sending rubles injected by the central bank  out of the country, according to the Western bank official, who was briefed on the session. A central bank spokesman declined to comment.

A deeper fall in the ruble would be a serious blow to the reputation of Vladimir Putin, who counts a stable currency as one of his crowning achievements since he came to power eight years ago. Millions of Russians saw their savings wiped out by a collapse of the currency with the fall of the Soviet Union,  and former President Boris Yeltsin's popularity was all but wiped out when the ruble collapsed again in the Russian financial crisis of 1998 after Mr. Yeltsin promised no devaluation. With past collapses still vivid in the minds of many, analysts say the main pressure on the ruble now is coming from nervous  Russians looking for an exit.

On Thursday, the central bank said it would raise interest rates on deposits. The central bank also has taken a series of steps in recent days to make it harder for investors to speculate against the ruble. The Kremlin this week also began buying shares to support the stock market, traders and officials said.

But the slides have continued. The market ended down more than 4% Thursday, while the ruble -- down 2.2% against the dollar this week and 14% since its mid-July peak -- on Thursday slipped again to its lowest in two years, down 0.3% in New York trading.

"They're going to have to do something because nothing is working," said the Western banker. Vladimir Gamza, first vice president at the Association of Regional Banks, said "panicked demand for dollars" was continuing to hurt the ruble.

The drain on Kremlin cash could constrain the government in various ways. Moscow has previously quelled public unrest with government spending, such as in 2005 when it sparked protests trying to curtail social benefits -- and ended up raising pensions and wages, ballooning the federal budget. Russia gets roughly half its budget revenue from oil, so spending will likely have to come down for the first time in years.

Meanwhile, the long rise in world oil and gas prices funneled enormous revenues into the hands of a few business behemoths that Moscow has gradually asserted more control over, bringing more wealth into state hands. Now some of the big energy companies particularly could be strapped for funds.  And among the hardest hit in the credit crunch have been Russian tycoons, some closely connected to the government, who borrowed heavily from Western banks on expansion drives and now are seeing their financial empires buckle. One of those, metals magnate Oleg Deripaska, earlier this month  dumped his stakes in German construction giant Hochtief, and the Canadian auto parts maker, Magna. Other oligarchs are expected to announce similar sales as they are squeezed by creditors.

When ratings agencies awarded Russia investment-grade status four years ago, Vladimir Putin hailed the move. On Thursday Standard & Poor's Corp. warned it may send Russia back down again, to barely investment-grade status, partly because the rising cost of the Kremlin's financial-sector bailout  could strain its once-bulletproof finances. The government has gradually upped its bailout pledges to more than $200 billion, including the $70 billion from the reserves. S&P said Thursday it feared the package could wind up costing much more.

In contrast, Moody's Investors Service Thursday reaffirmed its positive outlooks on Russia's key debt and foreign-currency-deposit ratings, saying a combination of "ample financial buffers and determined policy measures" are enough to overcome the credit crunch. Fitch Ratings reaffirmed its stable  outlook on Russia's ratings on Wednesday, but said the crisis has exposed its financial vulnerability. Some analysts say the selling will subside along with the panic in international markets, and that Russia's reserves are ample to weather the storm.

President Dmitry Medvedev devoted his video-blog entry on the Kremlin's Web site Thursday to the financial crisis, saying Russia could avoid the economic damage other countries have suffered from the crisis. "I will tell you honestly, Russia has not yet been caught in this whirlpool and has the opportunity  to escape it," Mr. Medvedev said, adding that he plans to accelerate economic reforms so Russia emerges stronger.

With its rainy-day fund of more than half a trillion dollars saved up from its oil and gas revenues in recent years, the Kremlin has repeatedly sought to portray Russia as better protected than most countries from the global storm.

When the credit crunch hit emerging markets in late summer, the Kremlin first predicted that the government's sound finances would make it a safe haven for investors. But Russia's private sector turned out to be highly leveraged -- with its banks even more leveraged than many European banks -- and the  stock market was hit by forced selling as banks and tycoons scrambled to raise cash to meet margin calls.

Officials have tried to stem the market rout by repeatedly closing Moscow's two stock exchanges, but selling has continued. Meanwhile, the sharp drop in oil prices in the past few weeks, reaching levels where Russia's budget and trade balance could fall into deficits, has raised fears about how long the  huge cash reserve will last.

Russia has in the past few days been awash in rumors of a devaluation of the ruble. Worried the selling could turn to a stampede, government officials have issued a flurry of denials, while some commercial banks have begun to limit the amount of foreign currency they sell at exchange points.

If the selling pressure continues, Russia will have to choose between imposing exchange controls or letting the currency drop, analysts say. The central bank may be more likely to re-impose exchange controls: Letting the ruble drop sharply would be politically difficult because the Kremlin has so far  categorically refused to consider it. Moscow in previous years touted the ruble's rise against the dollar as a sign of Russian resurgence and U.S. decline.

"They made the mistake of confusing high oil prices with the genius of their economic management," said Rory MacFarquhar, managing director with Goldman Sachs in Moscow.

Kremlin officials and state-run media have stressed that the U.S. is the epicenter of the financial crisis, and Russia's financial system is fundamentally sound. Some Russians say they believe the crisis was manufactured to undermine Russia's greatness in the same way the West undermined the Soviet  Union.

Economists also are warning of a sharp economic slowdown in Russia, which has enjoyed growth as high as 8% in recent years. Next year, that figure could be below 4%, according to some economists, and could fall to zero if oil prices fall to $50 or below and remain there.
—Daria Solovieva, Lidia Kelly and Clare Connaghan contributed to this article.

Write to Alan Cullison at and Gregory L. White at

SPIEGEL ONLINE  Forum > Diskussion > Wirtschaft
24.Oktober 2008, 20:12    #581
"I believe that banking institutions are more dangerous to our liberties than standing armies."
(Thomas Jefferson, US President; 1743 - 1826), as quoted by Tanya Cariina Hsu
 aus: Globale Krise, weltweite Folgen - Was muss sich am globalen Finanzsystem ändern?

Zitat von sysop
Werksschließungen in China, Zahlungsnöte in Ungarn, Probleme sogar in Indien: Die Finanzkrise trifft jetzt auch Schwellen- und Entwicklungsländer - obwohl sie keinerlei Schuld tragen. Was muss sich für mehr Gerechtigkeit am globalen Finanzsystem ändern?

Erst mal muessten die Akteure, Motive und Mittel benannt werden:
"Wall Street's 'Disaster Capitalism for Dummies' - 14 reasons Main Street loses big while Wall Street sabotages democracy"
Sobald eine gewisse Anzahl unserer Zeitgenossen ("kritische Masse") durch den orwellschen Schleier sieht, geht der Rest fast von alleine - Wird aber ein ziemlicher Ritt ueber den Bodensee ...

Hinweis vom 25.10.08 auf Beitrag von Tanya Cariina Hsu:
"It all began in the early part of the 20th century. In 1907 J.P. Morgan, a private New York banker, published a rumour that a competing unnamed large bank was about to fail. It was a false charge but customers nonetheless raced to their banks to withdraw their money, in case it was their bank. As they pulled out their funds the banks lost their cash deposits and were forced to call in their loans. People now therefore had to pay back their mortgages to fill the banks with income, going bankrupt in the process. The 1907 panic resulted in a crash that prompted the creation of the Federal Reserve, a private banking cartel with the veneer of an independent government organisation. Effectively, it was a coup by elite bankers in order to control the industry.

When signed into law in 1913, the Federal Reserve would loan and supply the nation's money, but with interest. The more money it was able to print, the more 'income' for itself it generated. By its very nature the Federal Reserve would forever keep producing debt to stay alive. It was able to print America's monetary supply at will, regulating its value. To control valuation however, inflation had to be kept in check.

The Federal Reserve then doubled America's money supply within five years, and in 1920 it called in a mass percentage of loans. Over five thousand banks collapsed overnight. One year later the Federal Reserve again increased the money supply by 62%, but in 1929 it again called the loans back in, en masse. This time, the crash of 1929 caused over sixteen thousand banks to fail and an 89% plunge on the stock market. The private and well-protected banks within the Federal Reserve system were able to snap up the failed banks at pennies on the dollar...

... In 2008, housing prices began to slide precipitously downwards and mortgages were suddenly losing value. Manufacturing orders were down 4.5% by September, inventories began to pile up, unemployment was soaring and average house foreclosures had increased by 121% and up to 200% in California.

The financial giants had to stop trading these mortgage-backed securities, as now their losses would have to be visibly accounted for. Investors began withdrawing their funds. Bear Stearns, heavily specialised in home loan portfolios, was the first to go in March.

Just as they had done in the 20th century, JP Morgan swooped in and picked up Bear Stearns for a pittance. One year prior Bear Stearns shares traded at $159 but JP Morgan was able to buy in and take over at $2 a share. In September, Washington Mutual collapsed, the largest bank failure in history. JP Morgan again came in and paid $1.9 billion for assets valued at $176 billion. It was a fire sale"    October 27, 2008

Morgan Stanley Propped Up Money-Market Funds With $23 Billion
By Miles Weiss

Oct. 27 (Bloomberg) -- Morgan Stanley clients withdrew almost one- third of their cash from money-market accounts last month, forcing the firm to buy $23  billion of securities held by the funds to keep them afloat.

Redemptions were $46 billion in September, mostly from funds that invest in corporate debt, Morgan Stanley said in an Oct. 9 regulatory filing. The New  York-based company made sure the money-market funds had enough cash to repay investors by acquiring some of their assets with financing from ``various  available stabilization facilities.''

Morgan Stanley may have relied on one or more programs set up by the Federal Reserve in the past month to prop up the $3.54 trillion money- market fund  industry, analysts said. The Fed has taken steps to restore investor confidence shattered by losses last month at the Reserve Primary Fund, the oldest U.S.  money-market fund.

``The outflows in money-market funds were unprecedented, savage'' said Peter Crane, president of Crane Data LLC, a Westborough, Massachusetts, firm  that tracks the industry. ``Broker-dealers in particular got hard hit because of concerns about their parent companies.''

Morgan Stanley bought the fund assets to ``ensure that redemption obligations were met amidst illiquid trading markets,'' Erica Platt, a spokeswoman for the  firm, said in an e-mailed statement. Fed spokeswoman Susan Stawick declined to comment on whether Morgan Stanley had used central bank financing to  aid its money-market funds.

Run on Funds

Individuals and institutions use money-market funds to earn a yield until the cash is needed. They are considered the safest investments after bank deposits  and U.S. Treasuries, in part because they buy only highly rated fixed-income securities with an average maturity of 90 days or less. That reputation was  undermined by the Sept. 15 bankruptcy filing of Lehman Brothers Holdings Inc.

The following day, the $62.5 billion Reserve Primary Fund said it wrote down to zero the value of $785 million of debt issued by the investment bank. That  caused its asset value to fall below the $1-a-share purchase price, the first money-market fund in 14 years to break the buck. New York-based Reserve  Management Corp. froze the fund.

The news triggered a run on prime money-market funds, which buy both corporate and government debt. Shareholders yanked $488 billion during the  month from prime funds, according to data compiled by Westborough-based iMoneyNet.

Morgan Stanley shares fell as much as 69 percent during the week of Lehman's bankruptcy filing to a low of $11.70. The company's money funds have  remained at $1 a share ``during the unprecedented market turmoil,'' Platt said in the e-mail.

Two Solutions

BlackRock Inc., the biggest publicly traded U.S. asset manager, said last week that investors pulled $53.8 billion from its prime money-market and securities- lending funds during the last two weeks of September. The funds, which have regained $13.8 billion since Sept. 30, met the redemptions with cash on hand  and securities sales, according to spokesman Brian Beades.

Morgan Stanley injected cash into its money-market funds by purchasing their investments in municipal debt, certificates of deposit and commercial paper,  which had become difficult to sell on the open market, according to its 10-Q filing with the U.S. Securities and Exchange Commission. The move permitted  Morgan Stanley's funds to repay shareholders without having to sell the securities at a loss.

Morgan Stanley, which had $134 billion of money-market assets as of Aug. 31, didn't specify in the filing which funds had outflows. According to monthly  notices sent to investors, its Prime Portfolio dropped to $10.4 billion from $36 billion during September and its Money Market Portfolio fell to $5.8 billion from  $14.7 billion.

Fed Role

Both Morgan Stanley funds had more than 55 percent of assets in commercial paper at the end of August, according to the investor notices. On average,  prime money-market funds had about 45 percent of assets in the corporate IOUs at the end of August, according to iMoneyNet.

Platt declined to describe the ``stabilization facilities'' that primarily funded Morgan Stanley's securities purchases from the money- market funds. The most  likely source was the Fed, which has set up at least five funding facilities to help ease the credit crunch, including one unveiled Sept. 19 to provide banks and  some brokerages with loans to buy asset-backed debt from money-market funds.

`Only Choice'

In addition, the Fed two days later approved applications by Morgan Stanley and Goldman Sachs Group Inc. to become bank holding companies -- ending  the era of stand-alone investment banks -- and increased the availability of loans to the two firms. The Fed announced a Money Market Investor Funding  Facility last week that will provide up to $540 billion in loans to buy assets, including commercial paper and certificates of deposit from funds hit with  redemptions.

``Morgan Stanley faced the same problem as every other firm: the markets were very illiquid,'' said Brad Hintz, a securities-industry analyst at Sanford C.  Bernstein & Co. in New York. ``Its only choice for financing was to go to the Fed.''

To contact the reporters on this story: Miles Weiss in Washington at

Spiegel online    27.Oktober 2008

Attac-Aktivisten stürmen Frankfurter Börse

Sie tarnten sich als Besucher - und nutzten den Handelssaal der Frankfurter Börse als Bühne für ihren Protest: Attac-Aktivisten demonstrierten mit einem Transparent für die Neuordnung des Finanzmarkts. Doch nach wenigen Minuten war die Aktion schon wieder beendet.

Frankfurt am Main - Mehrere Attac-Aktivisten tarnten sich als Besucher und machten eine Führung durch die Frankfurter Börse. Mittendrin sprangen die Globalisierungskritiker dann plötzlich über die Brüstung der Besuchertribüne auf das Börsenparkett. Dort entrollten sie vor der Dax-Anzeigetafel ein Transparent: "Finanzmärkte entwaffnen! Mensch und Umwelt vor Shareholder Value!"

DPA, Attac-Protest: "Gegen die Dominanz der Finanzmärkte"

Der Handel wurde von der Aktion nicht beeinträchtigt. Nach Polizeiangaben handelte es sich um zehn bis zwölf Aktivisten, Attac selbst spricht von 25 Personen. Die Aktion dauerte nur wenige Minuten, dann brachten Sicherheitskräfte der Börse die Gruppe aus dem Gebäude, teilte die Polizei mit. Danach seien die Aktivisten aber verschwunden, so dass die herbeigerufenen Beamten keine Personalien feststellen konnten. Es werde nun wegen Hausfriedensbruchs und Sachbeschädigung ermittelt. Dazu nahm die Polizei sogar die Fingerabdrücke der Demonstranten von der Anzeigetafel.

Mit der Aktion habe Attac ein Zeichen "gegen die Dominanz der Finanzmärkte" setzen wollen, sagte Stephan Schilling vom Attac-Koordinierungskreis. Das Netzwerk kritisiert, dass Aktivitäten der Bundesregierung allein darauf abzielen, "die Finanzmärkte mit gigantischen Mitteln aus der Staatskasse" zu beruhigen.

Mit dem Protest habe Attac der Wut der Menschen über das "Versagen von Banken und Politikern" Ausdruck verleihen wollen. Die aktuelle Bankenkrise sei das Symptom eines Wirtschaftssystems, das alle gesellschaftlichen Ziele dem Profit der Aktienbesitzer unterordne. "Das Casino gehört geschlossen", forderten die Globalisierungskritiker.

Kommentar 27. Oktober 2008, 08:34 Uhr

1944 beschlossen Politiker aus 44 Staaten das Weltwirtschaftssystem der Nachkriegszeit
Wir brauchen ein Bretton Woods III
Von Henrik Müller

Die Regierungen der westlichen Länder überbieten sich gegenwärtig darin, Forderungen nach einer neuen Weltordnung zu formulieren. Einige sehnen das Bretton-Woods-System der Nachkriegszeit herbei. Unfug. Was kann man realistischer von der internationalen Kooperation erwarten? Diskutieren Sie mit!

Dies sind Zeiten für ganz große Pläne. Wenn die Finanzkrise erst eingedämmt ist – und das wird hoffentlich in ein paar Wochen der Fall sein –, werden sich die Regierungen der Welt daran machen, eine neue Weltordnung zu kreieren.

Ende November soll es einen großen Weltfinanzgipfel geben. Dann soll die Welt neu zugeschnitten werden, wie man hört. Von Gordon Brown über Angela Merkel bis zu Nicolas Sarkozy – die Europäer sind dafür. Die Amerikaner wollen mitmachen. Es soll ein historisches Treffen werden, so wie damals in Bretton Woods, jenem Skiort in den Bergen New Hamshires, wo 1944 das Weltwirtschaftssystem der Nachkriegszeit verabschiedet wurde. Ein "Bretton Woods II".


Das klingt zwar alles einleuchtend, denn schließlich durchleben und –leiden wir eine epochale ökonomische Krise. Aber die Frage bleibt offen: Was soll das? Wieviel und welche Zusammenarbeit kann man realistischer Weise für die Zukunft erwarten?

Ich will hier drei Punkte machen:

Bretton Woods I ist ein schlechtes Vorbild. Es taugt nicht im Ansatz zur Lösung der heutigen Probleme.
Bretton Woods II gibt es bereits faktisch, wenn auch nicht formal. Es ist eine der Ursachen der derzeitigen Krise.
Wenn überhaupt, dann brauchen wir ein Bretton Woods III.

Aber eins nach dem anderen.

Das ursprüngliche System von Bretton Woods war der sogenannte Gold-Dollar-Standard. Der US-Dollar war ans Gold gebunden, die übrigen westlichen Währungen mit festen, aber anpassungsfähigen Kursen an den Dollar.

Klingt alles ziemlich geordnet. Die Wechselkurse wären fest und verlässlich. Es gab eine internationale Instanz, den Internationalen Währungsfonds (IWF), der das System überwachte und steuerte.

Allerdings: Das System funktionierte nur unter einer Reihe von Bedingungen, die heute nicht mehr gelten.

Es gab keine offenen Finanzmärkte, sondern Kapitalverkehrskontrollen an den Grenzen. Man konnte nicht einfach sein Geld in anderen Ländern anlegen oder dort Kredite aufnehmen. Finanzen waren weitgehend national.

Es gab nur begrenzte Handelsströme – der Protektionismus der Zwischenkriegszeit war noch weitgehend in Kraft –, so dass auch die mit dem Warenaustausch verbundenen Finanzströme begrenzt waren.

Und es gab ein einziges ökonomisches Zentrum, die USA, das solide und nichtinflationär wuchs. Es war der natürliche Bezugspunkt für den Rest der freien Welt.

All diese Bedingungen sind heute nicht mehr erfüllt. Sie waren schon in den 70er Jahren nicht mehr erfüllt, weshalb das System von Bretton Woods letztlich zerbrach.

Ließe sich heute ein solches System installieren? Auf die dritte Bedingung könnte man verzichten und eine synthetische Bezugsgröße einführen.

Die anderen Bedingungen wären nur unter immensen Kosten zu schaffen: Abschottung der Güter- und Finanzmärkte. Denn bei offenen Grenzen sind die Finanzströme so groß, dass die Notenbanken sie nicht mehr so einfach unter Kontrolle bringen. Die Renationalisierung der Volkswirtschaften würde aber geradewegs ins Desaster führen – wie in den 30er Jahren.

Also: Bretton Woods I taugt nicht für die Zukunft. Es wäre eine restriktive Wirtschaftswelt. Die volkswirtschaftlichen Kosten des Protektionismus und des Verlusts an geldpolitischer Autonomie wären gigantisch.

Eine Art "Bretton Woods II" gibt es bereits, auch wenn es kein offzielles Arrangement ist, sondern ein inoffizielles. China, andere asiatische Länder und die Rohstoffexporteure haben ihre Währungen an den US-Dollar gebunden. Gegen die Aufwertung ihrer Währungen haben sie Dollars aufgekauft, so dass sie heute über Währungsreserven verfügen in Dimensionen, die es noch nie in der Weltgeschichte gegeben hat.

Das System war eine Zeitlang durchaus erfolgreich: Dank unterbewerteter Währungen exportierten die Länder in die USA, die diese Waren auf Pump kauften. Und zwar von Geld, das ihnen wiederum die Chinesen und andere liehen. So bauten sich die gigantischen Ungleichgewichte auf – Defizite in den USA, Überschüsse in China und anderswo –, die die Größenordnung der derzeitigen Krise erst möglich machten.

Anders gewendet: Hätten die Amerikaner keinen Zugang zu billigen Krediten aus Asien und Arabien gehabt, wäre eine derart große Hauspreisblase nicht entstanden, hätte es keine Subprimekrise gegeben, wäre der Geldmarkt nicht komplett zusammengebrochen.

Wahr ist: Ohne Bretton Woods II wäre der globale Boom der vergangenen Jahre nicht möglich gewesen.

Wahr ist auch: Ohne Bretton Woods II hätte es keine Krise des derzeitigen Ausmaßes gegeben.

Bretton Woods II funktionierte, solange diese Volkswirtschaften relativ klein waren. Inzwischen sind sie aber zu solcher Größe heran gewachsen, dass sie die Welt mit Liquidität fluten und zu extremen Preisverzerrungen beitragen.

Also, brauchen wir ein Bretton Woods III? Und wenn ja: Wie könnte das aussehen?

Zunächst mal sprechen all die Lehren aus dem aktuellen Desaster, die ich kürzlich an dieser Stelle aufgelistet habe (...mehr), dafür, verantwortungsvolle und starke nationalstaatliche Institutionen mit der Bankenaufsicht zu betrauen. Die nationalen Notenbanken und Finanzmarktregulierer wissen am besten, was bei den heimischen Instituten los ist. International agierende Institute müssen eng kooperierende Teams aus Regulierern verschiedener Nationalität prüfen.

Auch die Geldpolitik müssen die nationalen, beziehungsweise im europäischen Fall, supranationalen Notenbanken gemäß der jeweiligen Erfordernisse betreiben.

Was die Eigenkapitalanforderungen und Bilanzierungsrichtlinien angeht, braucht man internationale Standards. Die gibt es bereits: "Basel II". Dieses Regelwerk kann und muss man neu kalibrieren, also strikter auslegen. Man kann es auch um eine antizyklische Komponente erweitern, die von den Notenbanken eingestellt wird.

Also: Gebraucht wird eine intensivere Kooperation der Aufsichtsbehörden und Notenbanken. Auch eine Art internationale Aufsicht der nationalen Aufseher, um Risiken zu erkennen und Wettbewerbsverzerrungen auszuschließen, wäre wünschenswert.

Vor allem bedarf es einer Aufsicht der Wechselkurspolitiken. Fixkurs-Strategien, wie sie China betreibt, wirken langfristig destabilisierend. Ein solcher Kurs sollte international geahndet werden; falls die beteiligten Staaten mit Argumenten nicht zu überzeugen sind, sollten auch Sanktionen möglich sein.

Beides sind Aufgaben – Aufseher der Aufseher und Wechselkurs-Aufsicht –, für die der Internationale Währungsfonds prädestiniert ist.

Und wenn die Weltgemeinschaft dann noch etwas Gutes tun will, sollte sie die WTO reformieren. Das Einstimmigkeitsprinzip, das die Institution lähmt, muss weg – sonst wird die offene Welthandelsordnung nicht aufrecht zu erhalten sein.

 Henrik Müller, geschäftsführender Redakteur bei manager magazin, schreibt über wirtschaftspolitische Themen

Global Research    October 27, 2008

Wall Street's Trojan Horse
By Michel Chossudovsky

Russia's foreign minister Sergei Lavrov has announced that Brazil, Russia, India and China will "coordinate efforts in overcoming the financial crisis". The statement suggests that the four countries will confront the dominant US-UK-EU alliance, which personifies Western banking interests, at the forthcoming Summit in Washington.

“We are going to coordinate our moves with the leading emerging economies. We are in direct contact with India, China and Brazil; we are interacting in the BRIC and RIC [Russia-India-China] formats,” he added.

Prime Minister Vladimir Putin said earlier this month the crisis had shown the BRIC nations would be “the locomotive of the world economy in coming years.” (The Hindu, October 26, 2008)

The Finance Ministers and Central Bank Governors of G-20 countries will meet in Sao Paulo in November ahead of the Summit meetings in Washington.

The crucial question: Is there a policy alternative to that proposed by Wall Street and the US Treasury, which might emanate from the BRIC and/or G-20 Summit discussions.

Does the BRIC (Brazil, Russia, India and China) constitute a "Strategic Triangle" as suggested by Moscow's official press dispatch?

It is highly unlikely that an alternative might emerge from the BRIC meetings or the G-20.

While China and Russia retain some degree of economic and financial sovereignty, monetary policy in most developing countries including India and Brazil is under the direct surveillance of Washington and Wall Street.

The Prime Minister of India, Manmohan Singh is a former World Bank official. As Finance Minister in the early 1990s, he carried out the macro-economic reforms imposed on India by the IMF, in close coordination with the Bretton Woods institutions.

The current governor of the Reserve Bank of India Dr. Duvvuri Subbarao is also a World Bank official. He was appointed at a very critical moment on September 5, 2008 at the very outset of the financial meltdown. Duvvuri Subbarao spent ten years at the World Bank in Washington.(1994-2004). Barely two weeks into his mandate as RBI Governor, the Indian stock market collapsed. Dr. Duvvuri Subbarao's inactions as head of the RBI at the height of the crisis, largely contributed to exacerbating capital flight.

The Proposed BRIC meetings

"Russia will coordinate its steps for overcoming the financial crisis with India and China" said Russia's Foreign Minister Sergei Lavrov. The BRIC meetings will be held in Sao Paulo prior to the G-20 meetings:

"Lavrov reiterated that a meeting of G-20 finance ministers would be held in Sao Paulo, Brazil, in the first half of November, during which he also planned to meet with the Chinese finance minister. Despite the fact that new centers of economic growth, financial power, and political influence have emerged, Lavrov pointed out, different countries must join efforts to seek ways of overcoming the crisis and preventing it from repeating itself in the future. He also stated that a relevant conference would be held in Washington on November 15. The conference will be extremely important, Lavrov maintained, as all the main players are expected to be there. He stressed, however, that it was vital that they didn't merely gather together, but, more importantly, that they also cooperated with each other." (RBC News, October 26, 2008)

Who will be attending these meetings? What is the relationship between these senior government officials (Central Bank Governors and Ministers of Finance) and the interests of Wall Street?

The president of Brazil's Central bank, Hector Meirelles will play a key role in the Sao Paulo BRIC and G-20 meetings as well as in the November 15th meetings in Washington.

Trojan Horse

Henrique de Campos Meirelles, appointed head of Brazil's Central Bank in 2003 by "socialist" president Luis (Lula) Ignacio da Silva, happens to be among Wall Streets' most powerful financial figures. Prior to becoming Governor of the Central Bank of Brazil, he was president of global banking and CEO of FleetBoston, the 7th largest bank in the US, which subsequently merged with Bank of America to form the World's largest financial institution.

Hector Meirelles is a Trojan Horse.

Appointing the  former CEO of a Wall Street bank to head the nation's Central Bank is tantamount to "putting the fox in charge of the chicken coop".

During Henrique Meirelles' earlier mandate as CEO of BankBoston (which later merged to form FleetBoston), BankBoston was one among several Wall Street banks which speculated against the Brazilian Real in 1998-99, leading to the spectacular meltdown of the Sao Paulo stock exchange on "Black Wednesday" 13 January 1999. BankBoston  is estimated to have made a 4.5 billion dollars windfall in Brazil in the course of the Real Plan, starting with an initial investment of $100 million. (Latin Finance, 6 August 1998).

In the ongoing financial meltdown, the loss of Brazil's forex reserves has been dramatic. Hector Meirelles has, in this regard, served the interests of Wall Street. In less than a month, some 22.9 billion dollars of Central Bank forex reserves have been lost in the form of capital flight. (Bloomberg, October 26, 2008) As dictated by the Washington Consensus and implemented by the Central Bank under the helm of Hector Meirelles, there are no effective foreign exchange controls in Brazil which might protect the Real from the speculative onslaught:

Sales of reserves to buy reais in the spot market totaled $3.2 billion from Oct. 8 through Oct. 20, central bank President Henrique Meirelles said in testimony before congress late yesterday. The other types of intervention, including loans and currency swaps, don't affect the level of reserves....

Brazilian policy makers were forced to draw on record reserves of more than $200 billion after risk-adverse investors pulled money out of emerging markets, causing the worst tumble in the Brazilian real since the 1999 devaluation.

The real has lost a third of its value against the dollar since reaching a nine-year high Aug. 1, causing some of the biggest companies to report more than 5 billion reais ($2.2 billion) of losses from bad currency bets. The benchmark stock index is down 32 percent in the period.

In a decree published today, President Luiz Inacio Lula da Silva authorized the central bank to engage in currency swap transactions with foreign central banks. Officials at the central bank in Brasilia weren't immediately available to comment, according to the press office. (Bloomberg, October 26, 2008)

Moreover, the Brazilian government has emulated the US Treasury in setting up a bailout for Brazilian banking institutions, most of which are in fact controlled by foreign banks (American and European).

Brazil's Finance Minister Guido Mantega will be chairing the Group of 20 (G-20) meeting.

Federal Reserve Chairman Ben Bernanke (L), U.S. Secretary of the Treasury Henry M. Paulson Jr. (2nd-L), Brazil's Finance Minister Guido Mantega (2nd-R), president of Brazil's Central Bank Henrique Meirelles (R) and U.S. President George W. Bush (3rd-R) attend the International Monetary and Financial Committee meeting at IMF Headquarters October 11, 2008 in Washington, DC. Financial ministers and financial institution heads are in Washington for the annual meetings.

The G-20 countries/union are made up of the G-8 (US, UK, France, Germany, Japan, Canada, Italy, Russia) and the G-11 (Argentina, Australia, Brazil, China,  India, Indonesia, Mexico, Saudi Arabia, South Africa, South Korea, Turkey) plus the European Union. (The G-8 is the G-7 plus Russia).

Most of the G-11 countries, are heavily indebted to Western creditors. The neoliberal consensus prevails. With perhaps the exception of Australia and Saudi Arabia, these countries obey the diktats of the Bretton Woods institutions and Wall Street.

There are many World Bank and Wall Street Trojan Horses, scattered around the World in central banks and ministries of finance.

The G-20 meetings and negotiations are part of a ritual.

The creditor's cartel, Wall Street and the Bretton Woods institutions are always in on the debate and discussions behind closed doors, with their G-20 colleagues and cronies. It's "the old boys network".

It is highly unlikely that an "alternative" distinct from the Washington-Wall Street consensus will emerge from the BRIC or G-20 meetings.

..    28 October 2008

Evil Wall Street Exports Boomed With 'Fools' Born to Buy Debt
By Mark Pittman

Oct. 27 (Bloomberg) -- Tom Bosh lowered the telephone receiver into its cradle, making a decision on the way down. ``We're not buying any more,'' he told his traders at Bank of New York Co. ``Nothing.''

It was May 2007, and Bosh, who managed $25 billion from the bank's 13th-floor trading room above Times Square, had just hung up on Ralph Cioffi at Bear Stearns Cos. a dozen blocks away. Bosh had invested $50 million in notes from an issuer Cioffi  controlled, and he was ready to pull the plug.

``I had a bad feeling,'' Bosh, 45, recalled. ``Cioffi was just bulldogging everyone. He was saying, `These assets are good, the collateral is paying down, and I know more than you.' That type of attitude.''

Bosh's premonition, a month before two of Cioffi's funds blew up, struck a death knell for structured finance, the system Wall Street banks devised to fuel more than two decades of unprecedented borrowing. The system allowed financial companies to lend beyond  their capacity and outside the reach of regulators -- until it crashed this year.

While the collapse was most visible in the stock markets, the cause was the loss of confidence in the world's biggest bond market, structured finance. So far, it has led to the worst financial crisis since the Great Depression, the disappearance or takeover of more  than a dozen banks, including three storied Wall Street firms, and almost $3 trillion in government expenditures and guarantees to contain the contagion.

Biggest U.S. Export

The bundling of consumer loans and home mortgages into packages of securities -- a process known as securitization -- was the biggest U.S. export business of the 21st century. More than $27 trillion of these securities have been sold since 2001, according to  the Securities Industry Financial Markets Association, an industry trade group. That's almost twice last year's U.S. gross domestic product of $13.8 trillion.

The growth over the past decade was made possible by overseas banks, which saw the profits U.S. financial institutions were making and coveted the made-in-America technology, much as consumers around the world craved other emblems of American  ingenuity from Coca-Cola to Hollywood movies. Wall Street obliged, with disastrous results: two-thirds of a trillion dollars in bank losses, about 40 percent of them outside the U.S.

``Securitization was based on the premise that a fool was born every minute,'' Joseph Stiglitz, a professor of economics at Columbia University in New York, told a congressional committee on Oct. 21. ``Globalization meant that there was a global landscape on  which they could search for those fools -- and they found them everywhere.''

Eager Adopters

European banks, in particular, were eager adopters. Securitizations in Europe increased almost sixfold between 2000 and 2007, from 78 billion euros ($98 billion) to 453 billion euros, according to the European Securitization Forum, a trade organization.

Three Icelandic banks borrowed enough to buy $228 billion of assets, most of them securitizations, turning the country's financial system into a hedge fund. All three banks have been nationalized by the government, leading Prime Minister Geir Haarde to advise  citizens to switch from finance to fishing.

In Germany, one bank, Landesbank Sachsen Girozentrale, bought $26 billion worth of subprime-backed investments, putting the state of Saxony on the hook for $4.1 billion.

In Japan, Mizuho Financial Group Inc., the nation's third- largest bank, acquired an entire structured-finance team, which proceeded to lose $6 billion issuing mortgage-backed securities.

Shadow Banking

The damage reaches all the way to Australia, where the town council of Wingecarribee, a municipality outside Sydney with a population of 42,000, bought $20 million of securities from Lehman Brothers Holdings Inc. Now, Lehman is in bankruptcy, the town  council is in court and the securities are worth about 15 cents on the dollar.

Securitization is a shadow banking system that funds most of the world's credit cards, car purchases, leveraged buyouts and, for a while, subprime mortgages. The system, which pools loans and slices up the risk of default, made borrowing cheaper for everyone,  creating a debt culture that put credit cards in wallets from Seoul to Sao Paolo and enabled people to buy luxury cars and homes. It also pumped out record profits for banks, accounting for as much as one-fifth of their revenue over the last decade.

Beginning about three years ago, investment banks revved the system's engine to boost earnings. They raised revenue by funding more subprime mortgages and cut costs by relying increasingly on the $4.2 trillion sitting in U.S. money-market funds. As it turned  out, those decisions would prove fatal.

`Powerful Technology'

``It's a powerful technology that has been driven beyond the speed limit,'' said Juan Ocampo, a former consultant at New York-based advisory firm McKinsey & Co. who wrote a 1988 book popularizing structured finance. ``For the last five years, instead of going  65 mph, they've been gunning it to 140 mph, 150 mph.''

Before the invention of securitization, banks loaned money, received payments and profited from the difference between what the borrower paid and the bank's funding cost.

During the mid-1980s, mortgage-bond traders at Salomon Brothers devised a method of lending without using capital, a technique at the heart of securitization. It works by taking anything that has regular payments -- mortgages, car loans, aircraft leases, music  royalties -- and channeling the money to a trust that pays bondholders principal and interest.


The word ``securitization'' implies safety. Investors with less appetite for risk buy higher-rated securities and get paid first at lower interest rates. Those with a bigger appetite get paid later and receive more interest.

Securitization's biggest innovation was the use of off-balance-sheet accounting. If a bank couldn't sell a bond or didn't want to, the asset could be sold to a trust within a so-called special-purpose entity, incorporated in a place such as the Cayman Islands or Dublin,  and shifted off the books. Lending expanded, and banks still booked profits.

With this new technology, a bank could originate $100 million in loans, sell off some to investors, transfer the rest to a special-purpose entity and not have to hold any capital. The profit could be as much as 1.25 percentage points of the amount loaned, or $1.25  million for every $100 million issued.

``The banks could turn a low return-on-equity business into one that doesn't use any equity, which was the motivation for this,'' said Brad Hintz, a Sanford C. Bernstein & Co. analyst and former chief financial officer at Lehman. ``It becomes almost like a fee  business because it requires no capital.''

`Capture the Prize'

Like most new products, securitization found a market at home before going abroad. Bankers at Salomon and First Boston Inc. raced from bank to bank to convince issuers it was the wave of the future.

William Haley remembers a 10 a.m. meeting in 1987 at Imperial Thrift & Loan Association in Glendale, California. As Haley, at the time a 33-year-old Salomon banker, and his team walked into the conference room to make a pitch, the First Boston team was  walking out.

``We exchanged some knowing looks and then tried to beat the pants off them,'' said Haley, who now works at RBS Greenwich Capital Markets Inc., a firm specializing in mortgage-backed securities that is owned by Royal Bank of Scotland Group Plc. ``There  was a fierce desire to capture the prize.''

First Boston

First Boston, housed in the same New York office tower as McKinsey, was first out of the gate in March 1985 with a $192 million computer-lease securitization for Sperry Corp., a predecessor of Unisys Corp. The bank then oversaw a series of auto-loan  securitizations, including a $4 billion issue by General Motors Acceptance Corp. in October 1986, the biggest corporate debt issue at the time.

Haley's project was a $50 million deal for Banc One Corp. called Certificates for Amortizing Revolving Debts, or CARDs. It was the first credit-card securitization and a blueprint for the $358 billion of such securities now outstanding. The transaction also gave the  banks a way to securitize their own assets and get them off their balance sheets, which allowed the money to be lent all over again.

The strategy was detailed in Ocampo's 282-page book ``Securitization of Credit: Inside the New Technology of Finance,'' which he co-wrote with McKinsey consultant James Rosenthal. Ocampo, who received an MBA from Harvard after graduating from the  Massachusetts Institute of Technology, and Rosenthal, a Harvard Law School graduate, argued that banks could be more profitable if they used securitization.

McKinsey Book

The authors examined six of the first asset-backed transactions and gave readers a step-by-step guide for how to repeat them. They said that banks that didn't embrace the new technology would be at a disadvantage, and they predicted it would become the  dominant form of financing.

``The McKinsey book helped with credibility with issuers,'' said Haley. ``It wasn't that easy in the beginning. Conferences now have thousands of people, but I remember once in Beverly Hills, I gave a speech and there were maybe 25 people in the audience.  They were furiously taking notes, however.''

The new technology was spread around the world by the people who worked on the First Boston and Salomon teams. Salomon's group was led by Patricia Jehle, who later founded Bear Stearns's asset-backed unit. Another member, Michael Hutchins, started  the first team at a European bank when he went to Zurich-based UBS AG in 1996. A third, Michael Normile, moved to Merrill Lynch & Co., where he ran its securities business, then switched to London-based HSBC Holdings Plc in 2004. Haley built similar  teams at Lehman, Chase Manhattan Bank and Amsterdam-based ABN Amro Bank NV.

Hard Sell

First Boston's team included Walid Chammah, 54, who went on to head debt and equity capital markets at Morgan Stanley and is now co-president of that firm. Joseph Donovan, the banker responsible for the GMAC relationship, went to Smith Barney in 1995, to  Prudential Securities in 1998 and two years later took over the asset-backed group at Credit Suisse First Boston after Zurich-based Credit Suisse bought First Boston.

Donovan remembers traveling to Europe for First Boston in the early 1990s, trying to convince Volkswagen AG in Wolfsburg, Germany, and Renault SA outside Paris of the benefits of securitization. It was a hard sell. Europeans, he said, didn't take out auto loans.

``We tried over and over,'' Donovan recalled. ``We were trying to get more issuers, and there weren't any.''

`50-Year Pedigree'

By the time Donovan went to work for Credit Suisse in 2000, European attitudes had changed. Home-mortgage securitizations were especially appealing, he said, because European banks didn't need a ``50-year pedigree to compete.''

``You don't need a whole equity-research department and relationships with CEOs and CFOs,'' Donovan said. ``You basically needed good computers and distribution. You can always buy a Fannie, Freddie or Ginnie Mae pool. You just go online and buy it. You  can't buy a Ford Motor Credit deal, because you have to know people.''

CSFB went from third in underwriting structured finance in 2000, behind Lehman and Salomon Smith Barney, to first in 2001, when it issued $96.3 billion in securities. Its market share increased 50 percent to 12.7 percent. The bank fell to fourth place in 2005,  although its volume soared to $144.5 billion.

Exporting Debt

As securitization caught on, borrowing increased. U.S. consumer debt tripled in the two decades after 1988 to $2.6 trillion, according to the Federal Reserve. Foreign banks used the new technology to expand lending, seeking borrowers on their home turf.

``One of the things the United States exported overseas was a debt culture,'' Haley said.

While consumers were snapping up credit cards, Nicholas Sossidis and Stephen Partridge-Hicks at Citibank in London were figuring out a way to sell the new bonds. Their solution: Alpha Finance Corp., the first off-balance-sheet structured investment vehicle, or  SIV.

Alpha was created in 1988 as a way for Citibank, and later Citigroup Inc., to vertically integrate its business like an oil company. The raw material was found in a loan, refined into a security, then sold to a SIV at a profit.

Citigroup, formed in a merger of Citicorp and Travelers Group Inc., which owned asset-backed pioneer Salomon, also got a new product to sell: capital notes that boast returns of more than 20 percent a year. Owners of these notes receive all the excess return  when borrowers pay their bills on time, though they are the last to be paid when times get hard.

Citi SIVs

In the beginning, SIVs were small and cautious. Alpha was capitalized with $100 million of equity that supported $500 million of commercial paper and medium-term notes. The SIV could hold only debt rated A- or higher and didn't take any currency or interest- rate risk, according to a 1993 Fitch Ratings report.

Alpha was followed by a slew of SIVs with names such as Beta Corp. and Five Finance. By 2007, Citigroup's SIVs had $90 billion of assets, equal to the stock market value of PepsiCo Inc., making up about one-fourth of the entire SIV industry.

In 2003, the bank was sued by creditors of Enron Corp. for its role in setting up entities that enabled the Houston-based company to move assets off the balance sheet for Chief Executive Officer Jeffrey Skilling. Citigroup paid $1.66 billion in March to settle the  lawsuit. Skilling, a former McKinsey consultant, was convicted of accounting fraud and is serving a 24-year prison sentence.

Mismatched Funding

Starting around 2005, securitization began to rely more on short-term money-market funds for financing. This was especially true for securities made by pooling other bonds, known as collateralized debt obligations, or CDOs. Investors were loath to buy long-term  debt of issuers that didn't have a track record, so new issuers sold asset-backed commercial paper that matured in less than a year. While money markets are the cheapest way to finance, they can also be the most dangerous for borrowers because they can  mature as soon as the next day.

``What happened in 2005 was that because of subprime and some other changes, commercial paper and asset-backed securities offered a bigger spread than anything that had ever been in the market before,'' said Deborah Cunningham, chief investment officer  of Federated Investors in Pittsburgh, who oversees $235 billion in commercial paper. ``It was hundreds of basis points, as opposed to 10 or 20 basis points before.''

SIVs, banks and CDOs sold trillions of dollars of asset- backed commercial paper between 2005 and 2007 in maturities ranging from nine months to overnight. In the U.S., the amount outstanding marched higher almost every week beginning in April 2005,  peaking at $1.2 trillion for the week ending Aug. 8, 2007.

`Huge Appetite'

Once money-market funds began to be tapped for financing, Ocampo said, ``it created a huge appetite for high-yield assets, far more than could be originated on a sound basis.''

To accommodate the demand, banks funded more subprime mortgages, with an average life of seven years, replacing car loans with an average life of three years and credit-card bonds paid off within 18 months.

Among conservative lenders, that rang an alarm: Bankers are taught to avoid such mismatched funding, in which a lender has to pay back money before the borrower has to pay the principal.

``Most of the terrible things happening now are because of the presence of money-market assets, taking what used to be long-term funding and making it short-term,'' Bruce Bent, 71, who started the first money-market fund in 1970, said in an interview in July.

Reserve Funds

Bent, chairman of New York-based Reserve Funds, said he didn't buy any asset-backed commercial paper until 2007, when the market froze in the wake of the collapse of the Bear Stearns hedge funds. That's when his Reserve Primary Fund began buying  castoffs of asset-backed commercial paper at cut-rate prices from other funds.

Yet asset-backed securities weren't Bent's undoing. His fund also owned $785 million in Lehman debt, bought before the firm filed for bankruptcy Sept. 15. In the two days following the bankruptcy, Reserve clients asked to pull about $40 billion from the $62.5  billion fund, and its net asset value fell to 97 cents. It was the first time that a money fund ``broke the buck,'' or fell below $1, in 14 years. The fund is now being liquidated, and Bent hasn't given an interview since.

Reserve Primary Fund's implosion, and the subsequent seizing up of two Commonfund portfolios used by universities and endowments to hold cash, triggered a panic in U.S. money markets, cutting off this form of credit to industrial companies and banks. No  one could be sure whether the banks held securitizations that had dropped in value, making them insolvent. That set off a series of bank takeovers and bailouts around the world, including a $64 billion capital injection by the U.K. government into that nation's  financial institutions and 400 billion euros in loan guarantees pledged by Germany.

`Absolute Disaster'

``We've created an absolute disaster,'' said Nouriel Roubini, a New York University professor of economics, who predicted the failure of investment banks in a paper he wrote in February titled ``Twelve Steps to Financial Disaster.'' ``The reputation of the United  States as a financial center and a leader has been tarnished significantly.''

Also tarnished, if not blackened, is the securitization business itself. Sales of European asset-backed securities, including bonds for car loans and credit cards, fell by 40 percent to 12.7 billion euros in the second quarter, and CDO sales fell by two-thirds to 10  billion euros. In the U.S., mortgage bonds issued by entities not affiliated with the government plummeted to $10.8 billion in the first half of the year, one-twentieth of the $241 billion sold in the same period in 2007.

Cioffi, Bosh

The authors of the 1988 McKinsey handbook on securitization have moved on. Rosenthal, who declined to be interviewed, became a managing director at Lehman and is now in charge of information technology at Morgan Stanley. Ocampo received a patent for  risk-controlled investing and founded an institutional fund-management firm, Trajectory Asset Management. The firm doesn't have any structured-finance obligations.

Bear Stearns's Cioffi, 52, was indicted on charges of misleading investors by assuring them that his hedge funds were healthy when he knew they weren't. Cioffi, who now works out of his home in Tenafly, New Jersey, has pleaded not guilty. He declined to  comment.

The Bank of New York's Bosh lost his job when his company was merged with Mellon Corp. in June 2007. He's still looking for work. ``You try to do the right thing,'' Bosh said in an interview this month. ``And this is what happens.''

To contact the reporter on this story: Mark Pittman in New York at

October 29, 2008

Reserve Fund’s Investors Still Await Their Cash

The national “bank holiday” that ushered in the New Deal in 1933 locked up the public’s cash for four days. The crisis that hit last month at the Reserve Fund, the nation’s oldest money market fund, has frozen hundreds of thousands of customer accounts for more than six weeks — with no sure end in sight.

At least 400,000 people, and perhaps as many as a million, can’t get access to their savings, a problem that has quietly persisted in spite of widely publicized federal efforts to restore confidence in money-fund investments.

Some of these customers — who, like most Americans, assumed their money funds were as safe and accessible as bank accounts — are getting desperate.

“Longer term, I just don’t know how we’ll deal with it,” said John Oakes, a retired engineer in Austin, Tex., who can’t tap $20,000 in a Reserve account to pay his mother’s nursing home bill. “They say we may get some money this week, but we don’t know if we’ll get 100 percent, 90 percent or 30 percent.”

Sandra and Lawton Dews, a retired couple in North Myrtle Beach, S.C., had more than $250,000 — 35 percent of their retirement assets —invested in the Reserve US Government Fund.

“They even bragged that you could sleep at night if you invested in their funds,” Mrs. Dews said. “In the past month and a half, we don’t sleep at all.”

Her insomnia began soon after Sept. 15, when the Reserve Fund was hit by a wave of redemptions, apparently because its largest fund had a stake in notes backed by the newly bankrupt Lehman Brothers.

The next day, its $62 billion Primary Fund and two small offshore funds “broke the buck,” incurring losses that pushed their per-share price below a dollar.

Only one other money fund, a small bank fund, had ever broken the buck, and the announcement on Sept. 16 sent tremors from Wall Street to Washington. It ultimately played a role in persuading the Treasury to set up a temporary insurance program for money market funds.

And the Reserve Fund had seemed the least likely candidate for trouble, given its long and stable history — its founder, the legendary Henry B. R. Brown, had invented money market funds.

Initially, the company simply announced that it would delay redemptions from the Primary Fund for up to seven days, as allowed by law. Customers were somewhat reassured, but anyone trying to get additional information was met with busy phone lines and unanswered e-mail.

The news occasionally posted on the fund’s Web site got steadily worse. On Sept. 18, investors in a host of other Reserve money funds learned that their money would be tied up for as long as a week; that delay later became open-ended. On Sept. 19, the fund delayed redemptions from both the Primary Fund and the US Government Fund indefinitely.

Since then, investors have been on a roller coaster of broken promises, with the company repeatedly blaming its record-keeping systems for delays.

Several requests for comment from management of the Reserve Fund have been declined. “I have no confidence at all in what it says,” said Mrs. Dews.

Mrs. Dews and Mr. Oakes are among the plaintiffs in a lawsuit filed against the Primary Fund and the Reserve Fund management by Girard Gibbs, a law firm in San Francisco.

It is one of eight cases pending against the fund company, including one that accuses the fund management of tipping off big investors before the Primary Fund broke the buck so they could get out in time — an allegation the fund has denied.

Many Reserve investors say their issue has become the forgotten crisis. “The government is focused on the banks and the big problems,” said Sherry Bryan, a retired industrial photographer in Atlanta. “But this is happening right now to real people.”

Ms. Bryan, 58, said she thought of her Reserve Fund investment as “very safe — an ‘old-granny’ investment.” She added, “We really never expected to lose money on this.”

Ms. Bryan has tried to keep a sense of humor about having to “tighten my belt and tighten it again.” Selling other nest-egg securities in a bad market to pay her bills was “like I’d gone out and bought a speedboat and a Mercedes and traveled all around Europe,” she added. “It’s cost me the same amount of money, but I didn’t have any of the fun.”

The Reserve has posted updates on its Web site, In those reports, it has asked customers to be patient as it tries to cope with “these unprecedented events.”

Regulators have had to be patient, too. Despite all their efforts to restore liquidity and confidence in all money funds, they don’t have any good options in this case other than to monitor the liquidations carefully.

“The staff has been actively involved in the entire process, intervening to protect all shareholders,” said John Heine, a spokesman for the Securities and Exchange Commission.

But it can intervene only so much. The Reserve has proprietary computer systems, so taking over the process at this point could delay the redemptions even further, current and former regulators said.

The largest fund, the Primary Fund, is not eligible for the ad hoc insurance program the Treasury set up for money funds last month. The big US Government Fund seems to meet the criteria and has applied for coverage, but no announcement of its acceptance has been made.

The biggest mystery is why redemptions from that government fund have not been handled more promptly, said James Cracchiolo, chief executive of Ameriprise Financial Services in Minneapolis.

Ameriprise is among those suing the Reserve Fund over the Primary Fund’s losses — it is the company that contends management tipped off big investors . But that lawsuit does not name the US Government Fund, Mr. Cracchiolo said.

“This is good government paper — even the government itself could take it from this fund and not lose a penny,” he said. “We are all very frustrated at the lack of responsiveness from that fund’s trustees. For heaven’s sake, if they can’t find a white knight to take the paper, we’ll take some of it.”

Ameriprise alone has about 400,000 clients caught in the freeze, he said, and his rough calculations indicate that “as many as a million, a million-plus people” could be affected. Records from last year showed the Reserve had about 170,000 separate accounts, but many of those were large omnibus accounts that could serve tens of thousands of individuals, businesses and local governments.

Mr. Cracchiolo’s firm, like some others, is temporarily offering customers very low-interest loans to help them cope while they wait for a resolution.

The mutual fund industry is equally frustrated, said Paul Schott Stevens, chief executive of the Investment Company Institute, a trade association. “I can’t emphasize too strongly that this absolutely is not typical of money funds,” he added.

He cited a large money fund at Putnam Investments, which was also hit with heavy redemption demands the week of Sept. 15. But it promptly froze the fund and sold it to Federated Investors with scarcely a glitch in customer’s access to their money.

The Reserve Fund’s prolonged crisis is particularly baffling to Michael Brunner, a research scientist in Columbus, N.J., who has been a customer since the fund first opened its doors in 1970. He knew the money fund was not insured, as bank deposits are. “But after 30 years, one doesn’t think it will go bad,” he said.

He can manage without his frozen assets, he added — but he is furious that he still has to, after so much time.

“People talk about this like it’s something that happened,” he said. “But this isn’t something that ‘happened.’ This is still happening. I still don’t have my money and I still don’t know what’s going to happen to it.”


October 29, 2008

Loans? Did We Say We’d Do Loans?

According to Treasury Secretary Henry Paulson, the chief proponent of the big bank bailout, flooding the banks with taxpayers’ money was supposed to get them to start lending freely again. And that, in turn, was supposed to stabilize the markets and prevent the downturn from being worse than it otherwise would be.

It was not entirely clear from the start exactly how Mr. Paulson would ensure that things would go that way. Indeed, earlier this month, shortly after the bailout was enacted, The Times’s Mark Landler reported that Treasury officials also wanted to steer the bailout billions to banks that would use the money to buy up other banks.

Now, lo and behold, with $250 billion in bailout funds committed to dozens of large and regional banks, it turns out that many of the recipients of this investment from taxpayers are not all that interested in making loans. And it appears that Mr. Paulson is not so bothered by their reluctance.

Mr. Paulson and the bailout recipients have some explaining to do. Congress should plan hearings as soon as possible — and take action to set a clear strategy.

In his column on Saturday, The Times’s Joe Nocera told about a conference call that he had listened in on recently between employees and executives of JPMorgan Chase. Asked how an infusion of $25 billion of bailout funds would change the bank’s lending policy, an executive said the money would be used to buy other banks.

“I think there are going to be some great opportunities for us to grow in this environment, and I think we have an opportunity to use that $25 billion in that way,” the executive said. He added that the money could also be used as a backstop in case “recession turns into depression or what happens in the future.”

There was not a word about lending — not to businesses or home buyers or car buyers or students or other consumers. Just the opposite. In response to another question, the executive said that the bank expected to continue to tighten credit.

JPMorgan Chase is not alone. The Wall Street Journal reported on Tuesday that some regional-bank recipients of the bailout money had acknowledged that only a small portion would be used for loans and the rest for acquisitions and other purposes.

It is prudent for government officials to encourage healthy banks to acquire weak banks. Doing so prevents bank failures and avoids the taxpayer costs and economic disruption that accompany such collapses.

The problem is that the Treasury has refused to put conditions on the banks’ use of the bailout funds, allowing them, in effect, to make purchases of banks that are not on the verge of failure. That could help to maximize the banks’ profits — a worthy goal when the capital they are using is from private investors.

However, when they’re using taxpayer-provided capital, as they are now, Congress and the public have every right to require that the money be used to benefit the public directly, even if doing so crimps the banks’ profits. If Treasury won’t impose conditions, Congress must, including a requirement that banks accepting bailout money increase their loans to creditworthy borrowers and limit their acquisitions to failing banks, such as those listed as troubled by the Federal Deposit Insurance Corporation. The bailout should not be an occasion for banks to make a killing.

An even bigger problem is that the bailout was sold as a way to spur loans. If that never was — or no longer is — the primary aim, Congress and the public need to know that. Lawmakers should not release the second installment — $350 billion — until they have answers and guarantees that the bailout money will be spent in ways that put the public interest first.

October 30, 2008

A Question for A.I.G.: Where Did the Cash Go?

The American International Group is rapidly running through $123 billion in emergency lending provided by the Federal Reserve, raising questions about how a company claiming to be solvent in September could have developed such a big hole by October. Some analysts say at least part of the shortfall must have been there all along, hidden by irregular accounting. “You don’t just suddenly lose $120 billion overnight,” said Donn Vickrey of Gradient Analytics, an independent securities research firm in Scottsdale, Ariz.

Donn Vickrey, a forensic analyst, is skeptical of A.I.G.’s past reports. “You don’t just suddenly lose $120 billion overnight,” he said.

Mr. Vickrey says he believes A.I.G. must have already accumulated tens of billions of dollars worth of losses by mid-September, when it came close to collapse and received an $85 billion emergency line of credit by the Fed. That loan was later supplemented by a $38 billion lending facility.

But losses on that scale do not show up in the company’s financial filings. Instead, A.I.G. replenished its capital by issuing $20 billion in stock and debt in May and reassured investors that it had an ample cushion. It also said that it was making its accounting more precise.

Mr. Vickery and other analysts are examining the company’s disclosures for clues that the cushion was threadbare and that company officials knew they had major losses months before the bailout.

Tantalizing support for this argument comes from what appears to have been a behind-the-scenes clash at the company over how to value some of its derivatives contracts. An accountant brought in by the company because of an earlier scandal was pushed to the sidelines on this issue, and the company’s outside auditor, PricewaterhouseCoopers, warned of a material weakness months before the government bailout.

The internal auditor resigned and is now in seclusion, according to a former colleague. His account, from a prepared text, was read by Representative Henry A. Waxman, Democrat of California and chairman of the House Committee on Oversight and Government Reform, in a hearing this month.

These accounting questions are of interest not only because taxpayers are footing the bill at A.I.G. but also because the post-mortems may point to a fundamental flaw in the Fed bailout: the money is buoying an insurer — and its trading partners — whose cash needs could easily exceed the existing government backstop if the housing sector continues to deteriorate.

Edward M. Liddy, the insurance executive brought in by the government to restructure A.I.G., has already said that although he does not want to seek more money from the Fed, he may have to do so.

Continuing Risk

Fear that the losses are bigger and that more surprises are in store is one of the factors beneath the turmoil in the credit markets, market participants say. “When investors don’t have full and honest information, they tend to sell everything, both the good and bad assets,” said Janet Tavakoli, president of Tavakoli Structured Finance, a consulting firm in Chicago. “It’s really bad for the markets. Things don’t heal until you take care of that.”

A.I.G. has declined to provide a detailed account of how it has used the Fed’s money. The company said it could not provide more information ahead of its quarterly report, expected next week, the first under new management. The Fed releases a weekly figure, most recently showing that $90 billion of the $123 billion available has been drawn down.

A.I.G. has outlined only broad categories: some is being used to shore up its securities-lending program, some to make good on its guaranteed investment contracts, some to pay for day-to-day operations and — of perhaps greatest interest to watchdogs — tens of billions of dollars to post collateral with other financial institutions, as required by A.I.G.’s many derivatives contracts.

No information has been supplied yet about who these counterparties are, how much collateral they have received or what additional tripwires may require even more collateral if the housing market continues to slide.

Ms. Tavakoli said she thought that instead of pouring in more and more money, the Fed should bring A.I.G. together with all its derivatives counterparties and put a moratorium on the collateral calls. “We did that with ACA,” she said, referring to ACA Capital Holdings, a bond insurance company that filed for bankruptcy in 2007.

Of the two big Fed loans, the smaller one, the $38 billion supplementary lending facility, was extended solely to prevent further losses in the securities-lending business. So far, $18 billion has been drawn down for that purpose.

For securities lending, an institution with a long time horizon makes extra money by lending out securities to shorter-term borrowers. The borrowers are often hedge funds setting up short trades, betting a stock’s price will fall. They typically give A.I.G. cash or cashlike instruments in return. Then, while A.I.G. waits for the borrowers to bring back the securities, it invests the money.

In the last few months, borrowers came back for their money, and A.I.G. did not have enough to repay them because of market losses on its investments. Through the secondary lending facility, the insurer is now sending those investments to the Fed, and getting cash in turn to repay customers.

A spokesman for the insurer, Nicholas J. Ashooh, said A.I.G. did not anticipate having to use the entire $38 billion facility. At midyear, A.I.G. had a shortfall of $15.6 billion in that program, which it says has grown to $18 billion. Another spokesman, Joe Norton, said the company was getting out of this business. Of the government’s original $85 billion line of credit, the company has drawn down about $72 billion. It must pay 8.5 percent interest on those funds.

An estimated $13 billion of the money was needed to make good on investment accounts that A.I.G. typically offered to municipalities, called guaranteed investment contracts, or G.I.C.’s.

When a local government issues a construction bond, for example, it places the proceeds in a guaranteed investment contract, from which it can draw the funds to pay contractors.

After the insurer’s credit rating was downgraded in September, its G.I.C. customers had the right to pull out their proceeds immediately. Regulators say that A.I.G. had to come up with $13 billion, more than half of its total G.I.C. business. Rather than liquidate some investments at losses, it used that much of the Fed loan.

For $59 billion of the $72 billion A.I.G. has used, the company has provided no breakdown. A block of it has been used for day-to-day operations, a broad category that raises eyebrows since the company has been tarnished by reports of expensive trips and bonuses for executives.

The biggest portion of the Fed loan is apparently being used as collateral for A.I.G.’s derivatives contracts, including credit-default swaps.

The swap contracts are of great interest because they are at the heart of the insurer’s near collapse and even A.I.G. does not know how much could be needed to support them. They are essentially a type of insurance that protects investors against default of fixed-income securities. A.I.G. wrote this insurance on hundreds of billions of dollars’ worth of debt, much of it linked to mortgages.

Through last year, senior executives said that there was nothing to fear, that its swaps were rock solid. The portfolio “is well structured” and is subjected to “monitoring, modeling and analysis,” Martin J. Sullivan, A.I.G.’s chief executive at the time, told securities analysts in the summer of 2007.

Gathering Storm

By fall, as the mortgage crisis began roiling financial institutions, internal and external auditors were questioning how A.I.G. was measuring its swaps. They suggested the portfolio was incurring losses. It was as if the company had insured beachfront property in a hurricane zone without charging high enough premiums.

But A.I.G. executives, especially those in the swaps business, argued that any decline was theoretical because the hurricane had not hit. The underlying mortgage-related securities were still paying, they said, and there was no reason to think they would stop doing so.

A.I.G. had come under fire for accounting irregularities some years back and had brought in a former accounting expert from the Securities and Exchange Commission. He began to focus on the company’s accounting for its credit-default swaps and collided with Joseph Cassano, the head of the company’s financial products division, according to a letter read by Mr. Waxman at the recent Congressional hearing.

When the expert tried to revise A.I.G.’s method for measuring its swaps, he said that Mr. Cassano told him, “I have deliberately excluded you from the valuation because I was concerned that you would pollute the process.”

Mr. Cassano did not attend the hearing and was unavailable for comment. The company’s independent auditor, PricewaterhouseCoopers, was the next to raise an alarm. It briefed Mr. Sullivan late in November, warning that it had found a “material weakness” because the unit that valued the swaps lacked sufficient oversight.

About a week after the auditor’s briefing, Mr. Sullivan and other executives said nothing about the warning in a presentation to securities analysts, according to a transcript. They said that while disruptions in the markets were making it difficult to value its swaps, the company had made a “best estimate” and concluded that its swaps had lost about $1.6 billion in value by the end of November.

Still, PricewaterhouseCoopers appears to have pressed for more. In February, A.I.G. said in a regulatory filing that it needed to “clarify and expand” its disclosures about its credit-default swaps. They had declined not by $1.6 billion, as previously reported, but by $5.9 billion at the end of November, A.I.G. said. PricewaterhouseCoopers subsequently signed off on the company’s accounting while making reference to the material weakness.

Investors shuddered over the revision, driving A.I.G.’s stock down 12 percent. Mr. Vickrey, whose firm grades companies on the credibility of their reported earnings, gave the company an F. Mr. Sullivan, his credibility waning, was forced out months later.

The Losses Grow

Through spring and summer, the company said it was still gathering information about the swaps and tucked references of widening losses into the footnotes of its financial statements: $11.4 billion at the end of 2007, $20.6 billion at the end of March, $26 billion at the end of June. The company stressed that the losses were theoretical: no cash had actually gone out the door.

“If these aren’t cash losses, why are you having to put up collateral to the counterparties?” Mr. Vickrey asked in a recent interview. The fact that the insurer had to post collateral suggests that the counterparties thought A.I.G.’s swaps losses were greater than disclosed, he said. By midyear, the insurer had been forced to post collateral of $16.5 billion on the swaps.

Though the company has not disclosed how much collateral it has posted since then, its $447 billion portfolio of credit-default swaps could require far more if the economy continues to weaken. More federal assistance would then essentially flow through A.I.G. to counterparties. “We may be better off in the long run letting the losses be realized and letting the people who took the risk bear the loss,” said Bill Bergman, senior equity analyst at the market research company Morningstar.

October 30, 2008

Cuomo Asks for Pay Data From Banks

Wall Street is coming under mounting political pressure to cut bonuses for top executives, traders and bankers in what was already expected to be a down year for pay.

Under pressure from members of Congress to curtail compensation, banks now face a new threat from Andrew M. Cuomo, the New York attorney general, who sent a letter on Wednesday to nine big financial institutions receiving government aid.

Mr. Cuomo gave the companies a week to provide a “detailed accounting regarding your expected payments to top management in the upcoming bonus season.” That could prove difficult for the banks, which typically do not complete bonus pools until later this month at the earliest. Mr. Cuomo’s letter also warned that payments worth more than the services provided by executives might violate New York law.

The letter follows one sent earlier this week to the same banks by Henry A. Waxman, the California Democrat who is chairman of the House Committee on Oversight and Government Reform, urging them not to use any government money for bonuses or other payments and asking for data on pay going back to 2006.

The demands from Mr. Cuomo and Mr. Waxman reflect an increased concern among lawmakers and regulators about payments to executives, which have drawn strong public reactions since the government approved a $700 billion bailout to stabilize the financial system. Other politicians have also held private meetings with bank executives to warn them that big bonus figures this year would create enormous political problems.

Any lawsuit based on the law cited by Mr. Cuomo would take some creative legal footwork, said Edward R. Morrison, a law professor at Columbia University. The law permits creditors to try to recover or block payments. “You have to find a way for the attorney general, for Cuomo, to shoehorn himself into the position of a creditor,” Professor Morrison said. “It’s not implausible.” The attorney general could act under the law, Professor Morrison said, if New York state pension funds hold bonds issued by the nine companies. Mr. Cuomo might also claim jurisdiction over any of the companies that might owe taxes to New York.

The attention raised questions on Wall Street, because bonus payments are already expected to be as much as 50 percent smaller than last year and perhaps even far smaller at banks that posted big losses. The New York State comptroller estimated that Wall Street paid $33.2 billion in bonuses for 2007, compared with $33.9 billion the year before.

Even banks like Morgan Stanley and Goldman Sachs, which produced decent profits this year, are expected to award significantly smaller bonuses. Lloyd C. Blankfein, the chief executive of Goldman Sachs, received bonus and stock awards worth about $68.5 million last year, while Goldman’s co-presidents got just slightly less. Those numbers will not be repeated. John J. Mack, Morgan Stanley’s chief executive, declined to take a bonus last year.

Last week, Mr. Cuomo reached an agreement with the American International Group, the insurance conglomerate that has received tens of billions of dollars in loans from the Federal Reserve, to freeze millions in payments to former executives. His latest move appears to expand the inquiry into executive compensation at companies participating in the government’s financial bailout program. “Taxpayers are, in many ways, now like shareholders of your company,” Mr. Cuomo wrote, “and your firm has a responsibility to them.”

In his letter, Mr. Cuomo asked specifically for a description of bonus pools for this year, a description of how money in those pools would be allocated, an explanation of how that allocation might have changed since each company received money under the federal Troubled Asset Relief Program and a description of bonuses paid to executives earning more than $250,000 in 2006 and 2007.

Mr. Cuomo’s letter was sent to Bank of America, Bank of New York Mellon, Citigroup, Goldman Sachs, JPMorgan Chase, Merrill Lynch, Morgan Stanley, State Street and Wells Fargo, all of which received capital injections from the government as part of a wide-reaching program to stabilize the financial system. Representatives of Morgan Stanley, JPMorgan Chase, Bank of America and Wells Fargo declined to comment on the letter.

Citigroup said it would “cooperate with federal and state inquiries about our global expenditures for wages, health insurance and other benefits, which we believe reflect compensation best practices. In addition, we will of course adhere to applicable legal and regulatory requirements, including those in the federal government investment program, such as restrictions on executive compensation.”

In an e-mail message, a spokeswoman for State Street said the bank was “carefully evaluating” Mr. Cuomo’s request. Other financial institutions did not return calls.

October 30, 2008

Layoffs Sweep From Wall St. Across New York Area

A broad array of businesses across the New York region have begun eliminating jobs by the thousands as the pain of the financial crisis spreads well beyond Wall Street.

Companies as varied as Yahoo, American Express, Time Inc. and Swissport Cargo Services at Kennedy International Airport say they are preparing to lay off employees, including online ad sales representatives, magazine editors and baggage handlers, in the coming weeks.

Economists and labor-market analysts predict that the cuts will be part of a large wave of pink slips that is expected to drive up the city’s unemployment rate and strain the state’s unemployment insurance fund. In the week that ended Oct. 11 — the latest week for which data is available — New York led all states with an increase of 5,224 first-time unemployment claims.

Law firms are shrinking and publishing companies, which employ about 54,000 people in the city, announced layoffs of about 880 employees this week. Other service businesses, like consulting, catering and tourism, are almost certain to follow suit, said James Brown, who analyzes the city’s job market for the New York State Department of Labor.

“The professional fields are going to feel the impact of falling corporate profits,” Mr. Brown said. “We have a lot of firms in professional services and they sell to corporations nationally and internationally. With corporate profits dropping, their business is weakening. I expect them to start losing jobs soon.”

Those cuts would come on top of the layoffs of tens of thousands on Wall Street, which is in the midst of its most wrenching changes in decades.

Despite large cutbacks at some of the city’s most venerable banks, city and state unemployment rates have risen only gradually this year, with each holding at 5.8 percent from August to September. But that is expected to change: The number of New Yorkers filing claims for unemployment benefits has been rising at an accelerating pace, in part because layoffs are spreading beyond Wall Street.

In the first nine months of this year, about 60,000 New York City residents collected unemployment checks, according to the Labor Department. That was an increase of about 7,000, or 13 percent, from the first nine months of 2007. Financial services accounted for the biggest share of that rise, but every other sector in the economy also saw increases in unemployment claims. The number of unemployed city residents who used to work in the media, for instance, rose by about 20 percent to more than 2,800, according to the department’s figures.

Those numbers did not include the seven employees of Wenner Media, the publisher of Rolling Stone magazine, who were laid off this week, or the 600 jobs that Time Inc. said it planned to eliminate during a reorganization announced on Tuesday. But among them may have been some of the 270 people whose jobs were eliminated in the last three months at McGraw-Hill, which owns BusinessWeek magazine and the Standard & Poor’s debt-rating agency.

The digital media, a bright spot in the Bloomberg administration’s efforts to reduce the city’s economic dependence on Wall Street, may be the next to scale back. Yahoo, which is based in California but has much of its ad sales force in Manhattan, is preparing to eliminate at least 1,500 jobs before the end of the year, the company announced last week. Analysts predicted that some of those layoffs would be in New York, but Kim Rubey, a Yahoo spokeswoman, declined to say how many there would be.

Kevin P. Ryan, the chief executive of Alleycorp, which owns six start-up online companies, said that even a relatively robust industry like his would have to cut back if the downturn is prolonged.

“Almost every industry’s going to be impacted,” Mr. Ryan said. “There will be less financing available. Already, a lot of conversations about consolidation are happening. I think it’s going to happen pretty rapidly.”

The traditional advertising agencies of Madison Avenue, he said, are due for some significant layoffs because of the faster decline of printed publications. But much of that cutting might be put off until after the busy fourth quarter.

“The interesting moment’s going to come early next year” in the advertising and retail businesses, Mr. Ryan said. “I think a lot of it’s going to come in January.”

The outlook for the metropolitan area has darkened quickly in the last several weeks. Moody’s, a research firm, raised its projection of job losses in financial services by two-thirds this month, to 100,000 from 60,000, which, it said, would put the region into recession before the end of the year.

In recent weeks, each new forecast of the fallout has been bleaker than the one before. Two weeks ago, the office of the city comptroller raised its estimate of job losses on Wall Street to 35,000 from 25,000. On Tuesday, Gov. David A. Paterson raised the estimate again, to 45,000, and projected that the state’s unemployment rate would climb to 6.5 percent. He also said his administration was projecting that the state would lose 160,000 private sector jobs by the end of next year.

On Wednesday, Governor Paterson told Congress that the state expected 90,000 laid-off workers who have been out of work for six months to exhaust their 13 weeks of additional emergency benefits by Dec. 31.

So far, investment banks, brokerage and other securities firms have accounted for almost all of the jobs lost in financial services in the city. But that, too, is about to change. American Express, the giant credit card company, has been hinting that a large layoff would be part of a restructuring plan that it expects to unveil in the next few weeks. A spokeswoman for the company, which is based in Lower Manhattan, declined to say how many of the layoffs would be in the metropolitan area.

While the number of jobs in all professional services in the city was still higher last month than it had been a year before, the legal business is smaller than it was a year ago, Mr. Brown said. Law firms are suffering from the sharp drop in transactions on Wall Street, as well as the softening real estate market, Mr. Brown said.

Heller Ehrman, a firm with a big presence in Manhattan (with Lehman Brothers as a client), went out of business this month. This week, the managing partners of Thelen, a law firm with about 300 employees in New York, recommended that the firm be dissolved by the end of next month. A spokesman said approval of the shutdown was a “formality.”

At Kennedy International, Swissport is considering eliminating 97 of 128 jobs in its baggage-handling operation by the end of next month because of the impact of the slowing economy on airline traffic, according to documents filed with the state labor department. Swissport, which is based in Zurich, handles luggage for several airlines at Kennedy, said Stephan Beerli, a spokesman for the company. Mr. Beerli declined to discuss details of the layoff plan, saying that no “official” notice had been given to employees. “We are right now in a phase where everybody’s preparing contingency plans,” Mr. Beerli said.

OCTOBER 30, 2008

Securities-Lending Sector Feels Credit-Crisis Squeeze

The credit crisis is causing a contraction of the little-noticed but huge business of securities lending, and financial players including pension funds, insurers and hedge funds are paying a price.

Losses are sparking lawsuits from customers who pursued securities lending as a way to squeeze additional gains with seemingly little risk. Northern Trust Corp. and Wells Fargo & Co., which run programs for institutional investors  with securities to lend, were sued last week by clients who alleged that they mismanaged money and, in the case of Wells Fargo, deceived the clients about the nature of their investments and degree of losses. Both companies are  defending against the suits.

Securities lending programs, which combined have represented at least a trillion dollars, involve lending securities to short sellers or others and investing the collateral for gains. The strategy for many has lately backfired as once- reliable credit investments have seized up amid market woes.
[Getting Shorter]

In recent weeks, the city of Hartford, Conn., and other institutional investors have suspended their securities lending programs. State Street Corp. and other large custodian banks have restricted investors from exiting from the  programs. And insurers including MetLife Inc. and Chubb Corp. are trimming or winding down their programs; American International Group Inc., has suffered more than $15 billion in unrealized and realized losses.

Kathleen Palm Devine, treasurer of the city of Hartford's $1 billion Municipal Employees' Retirement Fund, froze her securities-lending plan in August, when it had securities worth $52 million. She said the fund earned about $425,000  a year, "but we are willing to forgo that income until we know better what is going in the markets."

If markets improve, it is possible fear of losses will subside and participants will resume their level of lending activity. Investors who hold large portfolios of securities such as pension funds, index funds, insurers and endowments often  lend them out and profit by investing the collateral they receive in exchange for the securities. Often a custodian handles the program including the investing, which is generally done in low-risk investments. While the profit on any  individual transaction is small, with big portfolios the gains add up.

Securities lending is widespread but it has had critics. David Swensen, chief investment officer of Yale University's endowment, has derided these programs as "make a little, make a little, make a little, lose a lot."

In Minnesota, the Robins, Kaplan, Miller & Ciresi Foundation for Children, two other foundations and a nonprofit insurance association filed a state-court lawsuit last week alleging Wells Fargo repeatedly assured securities-lending  clients that their cash collateral would be invested in safe investments, such as "high-grade money market instruments." Instead, "Wells Fargo also invested in highly illiquid securities, including mortgage-backed assets with maturity  dates that reach out nearly 40 years."

The suit says the combined losses, going back to last year, for the four clients are at least $17 million on securities lending programs valued at about $373 million. But the suit adds that "since Wells Fargo's valuations have been based  on an artificially inflated [net asset value] it is believed that these numbers substantially understate actual losses."

Wells Fargo spokesman Gabriel Boehmer said: "We dispute the allegations. Like all investments, investors bear the risk of losses. We intend to vigorously defend against these charges." He added: "All the investments were highly  rated and highly liquid at the time of purchase."

BP Corporation North America Inc., a unit of BP PLC, filed a suit last week in U.S. District Court against Northern Trust, seeking to get its pension fund out of Northern Trust's securities lending program without incurring losses. BP  alleges the bank violated federal employment law operating "the securities lending program in an imprudent manner."

The suit said some of cash collateral investments had defaulted, while others "have been marked down in value and...have become so illiquid that such investments could only be sold" at substantial markdowns.

Northern Trust, which has acknowledged losses, says that the BP suit "seeks to avoid safeguards that Northern Trust put in place to ensure that all the participants in those funds are treated equitably during extraordinarily difficult  economic conditions."

The University of Washington sued Northern Trust last month to get out of its securities lending program when the university learned it was losing money. The school agreed to accept a $6.6 million loss to exit from the program,  according to an Oct. 3 settlement agreement. The school's program had been $750 million.

Some insurers also have large securities lending programs, though they generally lend debt securities to Wall Street firms seeking to hedge positions. Their programs play off their expertise running huge bond portfolios. Problems with  the securities lending program at AIG prompted it this month to secure up to $37.8 billion from the federal government, which had already made available $85 billion to the insurer to help it avoid bankruptcy last month.

MetLife had about $45 billion of securities on loan as of June 30, the company's chief financial officer, William J. Wheeler, told investors and analysts in an Oct. 8 conference call. The total was down to about $40.4 billion as of Sept. 30,  according to a regulatory filing. On its third-quarter conference call Thursday morning, executives are expected to discuss the latest cutback in the securities-lending program. "I think it's safe to say we assume that the program, the overall outstandings, will probably shrink," Mr. Wheeler said on the Oct. 8 call.

The three big custodian banks that run securities lending programs with a combined value of around $1 trillion could be among the bigger losers if institutions continue pulling out.

State Street had $246 million in revenue from securities lending in the third quarter, or about 10% of its total revenue that quarter. Moody's Investors Service this month cited the possibility that "client interest in securities lending activities  could also decline going forward" as a reason for keeping State Street's credit outlook as negative. A spokeswoman said "about 10% of our customers and 10% of the assets have left the program -- something that we believe to be  temporary."

Bank of New York Mellon Corp. said it had revenue of $155 million from securities lending in the third quarter, out of total revenue of $3.9 billion. The bank said on a recent conference call that about 2% of its client base, and slightly  more than that in terms of assets, has exited from its securities lending program.

Because of the losses in its cash collateral investments, Northern Trust says its securities-lending revenue in the third quarter was negative $4.6 million. That figure was down from $150 million in revenue from securities lending, or  15% of the bank's total revenue, in the second quarter.
—Jenny Strasburg contributed to this article.

Write to Craig Karmin at and Leslie Scism at   October 30, 2008

David Blanchflower wants interest rates to fall rapidly
Bank insider urges deep rate cuts

The current financial crisis may be more far-reaching than even the 1929 crash, a Bank of England policymaker has warned. Professor David Blanchflower is a member of the Bank's Monetary Policy Committee (MPC), and has often been a lone voice in urging rate cuts. Now he has said big interest rate cuts are needed to avoid a deep recession.
UK rates are at 4.5%, after the Bank cut them by half a percentage point earlier this month. The cut was part of a co-ordinated move with both the Federal Reserve and European Central Bank (ECB). On Wednesday the Fed cut its key rate further, to just 1%.

"My view remains that interest rates do need to come down significantly - and quickly," Prof Blanchflower told an academic audience in Canterbury. "If rates are not cut aggressively we do face the prospect of a relatively deep and long-lasting recession."

'Synchronised downturn'

His comments follow those recently made by Bank of England governor Mervyn King and Prime Minister Gordon Brown that the UK is probably heading towards recession. And Prof Blanchflower said international financial problems could turn out to have long-lasting repercussions. "It is even possible that this event may turn out to be more significant than the 1929 crash which primarily involved bank failures in the United States," he said. "The current difficulties in financial markets are more global in nature and more comparable to what happened in the First World War."

He also said a range of surveys of UK economic activity had shown a marked downturn since last summer. "It is not sufficient to consider the data month by month until it emerges that the UK is in recession. "I believe this trend has been apparent for some time. The synchronised downturn in so many business surveys should have led us to realise sooner that the UK economy was entering a recession."    October 30, 2008

Mizuho $7 Billion Loss Turned on Toxic Aardvark Made in America
By Finbarr Flynn

Oct. 29 (Bloomberg) -- Alexander Rekeda, a 34-year-old Ukrainian-born math whiz, turned in his BlackBerry and security card and sent an e-mail to his bosses at Calyon, the investment- banking unit of Credit Agricole SA. Then,  along with ten colleagues from the New York structured-finance team, who fired off similar messages, he walked two blocks down the Avenue of the Americas to Mizuho Financial Group Inc.

It was Dec. 8, 2006, and Rekeda's arrival was a coup for Mizuho, Japan's second-largest bank by revenue. A month earlier, it became the first Japanese lender to list on the New York Stock Exchange since 1989 -- a move hailed by  John Thain, then chief executive officer of the bourse, as a sign that Mizuho was taking ``its place among the world's leading companies.''

The hires would prove a costly blunder. Rekeda, who became head of structured credit in the Americas, and his team led Mizuho into a business it knew little about, securities backed by U.S. subprime mortgages, where it lost 672  billion yen ($7.1 billion), more than any bank in Asia. Most of the losses were related to defaults on collateralized debt obligations.

Mizuho expects as much as 20 billion yen in potential further losses on bonds and bad loans related to bankrupt Lehman Brothers Holdings Inc., company spokeswoman Masako Shiono said on Sept. 16. Moody's Investors Service,  citing ``questions regarding the effectiveness of Mizuho's risk management and its risk appetite,'' continues to give the bank a negative outlook. ``Mizuho never made a penny out of subprime in the good times, they just got left holding the can in the bad,'' says David Threadgold, an analyst at Fox-Pitt Kelton Asia Ltd. in Tokyo who has an ``underperform'' rating on the stock.  ``They made a very poor decision to launch into the packaging of subprime products at the end of 2006.''

Toxic Assets

How a Japanese bank that traces its roots to 1864 made such a bold entry into the U.S. subprime securities market, and almost choked on the toxic assets it created, is a tale of overreaching and poor timing. It also illustrates how  financial technology made in the U.S. wreaked havoc on the other side of the globe.

Many of the details are spelled out in a lawsuit Calyon filed against Mizuho in U.S. federal court seeking $750 million for ``covertly'' inducing its employees to quit. The case was settled out of court in September 2007 for an undisclosed  amount. Shiono said Mizuho wouldn't comment for this article.

Rekeda, who has a master's degree in mathematics from Kiev State University of Economics in Ukraine and an MBA from the University of Connecticut, had built Calyon's CDO business over two years. He closed six deals for the  French bank in 2006, according to an affidavit in the case.

Signing-On Fee

All six, including two with the celestial names Cetus and Orion, later defaulted as Paris-based Credit Agricole racked up more than 6.5 billion euros ($8.1 billion) in subprime losses. Rekeda, now 34, declined to be interviewed.

On Oct. 18, 2006, Rekeda and his team were offered an $11 million signing-on fee to defect to the Japanese bank, a Calyon lawyer said at a court hearing. Mizuho's plan to expand into the U.S. was hatched earlier that year, as  Japanese lenders were recovering from a 14-year debt crisis that forced them to take $1.1 trillion in writedowns for bad loans.

Mizuho, formed in 2000 in a merger of three banks, beat out rivals Mitsubishi UFJ Financial Group Inc. and Sumitomo Mitsui Financial Group Inc. to win approval from U.S. regulators to set up a financial holding company. That  enabled it to operate as a full-service investment bank.

As Mizuho President Terunobu Maeda said at a press briefing on May 15 this year, the bank had excess capital and ``needed to study'' the U.S. mortgage-backed securities business.

Bad Loans

Maeda, 63, a former chairman of the Japanese Bankers Association and an amateur gardener who doesn't use air conditioners at his home during Tokyo's humid summers to make an environmental point, became president of  Mizuho in April 2002. The bank recorded a loss of 2.38 trillion yen that fiscal year as it wrote off bad loans accrued during three recessions in a decade. Maeda returned it to profitability the next year after reducing non-performing assets  and through gains on investments in Japanese stocks.

While Mizuho was a newcomer to the CDO market in the U.S., it had experience arranging and selling similar investments in Japan and Europe. The company had ramped up its loan- securitization business, which Japanese banks  were able to do without borrowers' consent after October 1998. Merrill Lynch & Co., Bear Stearns Cos. and Goldman Sachs Group Inc. all helped Japanese banks repackage and market securities backed by corporate loans and  mortgages.

Rising Delinquencies

Even so, Mizuho decided it needed help in the U.S. Talks with the Calyon team began in early 2006, when Douglas Munson, a sales director for the French bank, approached golfing buddy Theodore Ake, head of fixed income for  Mizuho in New York, according to two people familiar with the negotiations. The size of the group and the amount of sign-on bonuses snowballed after Rekeda was brought into the discussion, the people said. Munson and Ake  declined to comment.

By the time the deal was consummated, the market was turning. On Dec. 11, 2006, the same day Mizuho announced it was setting up an office in the U.S. to create asset-backed debt securities, Fitch Ratings said the outlook for U.S.  subprime mortgage bonds was ``negative.'' It expected delinquencies on those loans to rise by 50 percent.

There was also confusion about the hiring deal. The Calyon team turned out to include more than the five people expected by Hitoshi Shimoyama, then deputy president of investment banking unit Mizuho Securities USA Inc.,  documents in the case allege. ``Mizuho did not even know the number or names of additional persons until shortly before they came,'' Shimoyama said in a March 17, 2007, affidavit.

Bonus Pool

Benjamin Lee, one of those who defected on Dec. 8, returned to the French bank five days later. He said he ``had been misled by Rekeda'' about the terms of employment at Mizuho, according to an affidavit he filed.

Lee said he was initially told by Rekeda that he could expect $1 million to $1.5 million from a bonus pool. He later learned there was a separate contract for him and other junior members of the group that didn't include a revenue- related bonus. Senior team members were entitled to share as much as 25 percent of revenue from completed transactions, court documents said.

Rekeda's group priced its first deal within 10 weeks, after the Mortgage Bankers Association reported that the default rate on U.S. subprime loans reached 12.6 percent, the highest level since the first quarter of 2003.

Aardvark CDO

The deal was named after a squat animal with a pig-like snout that feeds on ants and termites. Incorporated as a special- purpose company in the Cayman Islands, Aardvark ABS CDO was an ugly concoction: 31 percent of its $1.5  billion of securities were backed by subprime loans, 23 percent by residential mortgages repackaged from other CDO deals, and 33 percent by Alt- A mortgages, a category just above subprime. The remaining 13 percent were prime  loans.

One reason Rekeda was able to move so fast was that the deal had already been assembled by London-based Lloyds TSB Group Plc, which pulled out before completion, said three people familiar with the transaction. HarbourView  Asset Management Corp., a unit of New York-based OppenheimerFunds Inc., stayed on as manager. Spokesmen for Lloyds and HarbourView declined to comment.

Moody's assigned its highest short-term rating of P-1 to $1.3 billion of the Aardvark securities. In the prospectus, Mizuho pledged to back 87 percent of the deal, meaning that the bank, rather than investors, was on the hook for most of  the potential losses.

In the Pipeline

A subsequent Mizuho offering, Tigris CDO 2007-1, valued at $902 million in March 2007, was backed by the lowest investment- grade tranches of CDO deals arranged by other Wall Street firms, including Merrill, Lehman and Citigroup Inc., according to a report that month by Fitch Ratings. More than 80 percent of the securities in the CDO had Fitch's lowest investment rating, BBB-, which is nine grades below AAA.

Rekeda planned to bring at least nine more CDO deals to market within six months, the investment newsletter Asset-Backed Alert reported on May 11, 2007. The newsletter quoted him saying the bank had ``built up the pipeline.'' As  of April 1, 2007, Mizuho Securities had amassed more than 550 billion yen in residential mortgage-backed securities and CDOs supported by home loans, according to the bank's financial statements.

One of those deals made it to market in June 2007: a special-purpose entity called Delphinus 2007-1. Although named after a constellation, its contents were hardly stellar. Three- quarters of its securities were based on subprime  mortgages, according to a July 23 Fitch report.

Ratings Downgrade

About 80 percent of the deal was backed by credit-default swaps arranged by firms including JPMorgan Chase & Co., Citigroup and Wells Fargo & Co. Citing ``strong demand'' from investors, Mizuho increased the size of the deal that  July to $1.6 billion from $1.2 billion.

That was eight days before two Bear Stearns funds were shut down, heralding the start of the subprime crisis. Less than three months later, on Sept. 27, Fitch put Delphinus on its watch list. The negative designation, Fitch analyst  Kevin Kendra said at the time, was ``probably the quickest I've seen'' on a CDO. In other words, Mizuho struggled to find buyers for its CDOs and, as their values plummeted, the bank would have to absorb the loss.

Mizuho didn't tell investors about the extent of its exposure until November 2007, when it reported a 70 billion-yen loss on subprime-related securities in the first half ended Sept. 30. It also said it expected that figure to grow to 170 billion  yen for the full year.

CDO Default

By December, Mizuho had halted its U.S. CDO business. It fired Rekeda and at least four others on the team, putting an end to the bank's one-year experiment with American financial technology.

In January, as delinquencies on loans that backed Mizuho's CDOs increased, Aardvark, Tigris and Delphinus went into default. Subsequent downgrades of all of the tranches of Tigris and Aardvark required the bank to write down the  value of the CDOs.

Mizuho had to inject 150 billion yen of capital into its securities unit, shelve a planned merger with Shinko Securities Co. and axe 300 jobs. The bank's shares lost half their value in the fiscal year ended March 31.

When a record 2,474 shareholders gathered at the Tokyo International Forum on June 26 for the bank's annual meeting, they were out for blood. ``The responsibility rests at the top with Maeda,'' Kenjiro Endo, 66, who bought Mizuho shares when he retired from chipmaker Toshiba Corp. six years ago, said after the meeting. ``If this were overseas, he'd resign.''

`Market Crashed'

Endo may have had a point. Citigroup CEO Charles O. ``Chuck'' Prince, Merrill's Stan O'Neal and Wachovia Corp.'s Kennedy Thompson were all forced to resign after significant subprime losses. In Japan, where executives often  bow and apologize for their mistakes, Mizuho's Maeda stood firm. ``Unfortunately, from October, the securitized investment- product market crashed, and even if we tried to sell the investments, it wasn't possible,'' Maeda said at the shareholders' meeting. ``When the market stops functioning, there is  no measure to avoid it.''

Maeda also defended the bank's decision to enter the U.S. securities market. ``It's not because of some management failure that things turned out like this,'' he said. ``I am very sorry to tell you, doing nothing, and not taking risk, is not a bank.''

Failure to Hedge

Yet Mizuho might have incurred half as many losses if it had accelerated the sale of subprime-related investments and hedged more bets with credit-default swaps, according to a person familiar with its U.S. operations. The bank,  fearing it would lose as much as two-thirds of its potential profit, decided not to hedge, the person said. Mizuho declined to comment. ``The holding company was unable to grasp the size of losses at Mizuho Securities when the subprime problem emerged,'' said Keisuke Moriyama, a Tokyo-based analyst at Nomura Holdings Inc. ``Mizuho has a governance  problem. How it fixes it is the biggest issue that faces the group.''

The ultimate cost to Mizuho may be greater than the 672 billion yen it wrote down. The bank, the first in Japan to put money in U.S. financials amid the credit crunch, invested $1.2 billion in Merrill in January. The Wall Street bank's  shares have slumped 70 percent this year.

`Missed Out'

Now Mizuho is sidelined as other Japanese banks swoop in to buy troubled U.S. assets. Nomura purchased some of Lehman's Asian and European businesses in September, and Mitsubishi UFJ, the nation's largest bank, acquired  21 percent of Morgan Stanley for $9 billion. ``Mizuho has totally missed out,'' said Amir Anvarzadeh, director of Japanese equity sales at KBC Financial Products in London. ``They've been very aggressive overseas, trying to grow this business organically, and some of those  ambitions have come back to haunt them.''

Although it was the biggest loser, Mizuho wasn't the only Japanese bank that got hurt. In all, 672 domestic banks and credit cooperatives had 1.5 trillion yen in losses from overseas securitized products, the country's financial regulator  reported Sept. 4.

Rekeda, meanwhile, has moved on. He now works for Guggenheim Capital Markets LLC in New York, along with Paolo Torti and Xavier Capdepon, who both followed him from Calyon to Mizuho. Their new jobs: selling distressed  CDOs at a discount.

To contact the reporter on this story: Finbarr Flynn in Tokyo at    October 30, 2008  (Update2)

World According to TARP No Laughing Matter for U.S.
By Abigail Moses and Shannon D. Harrington

Oct. 29 (Bloomberg) -- The financial crisis exacerbated by credit derivatives is costing so much to fix that speculators are now using those same instruments to bet on governments as the price tag for bailing out banks approaches $3  trillion.

The cost to hedge against losses on $10 million of Treasuries is about $40,000 annually for 10 years, up from $1,000 in the first half of 2007, based on CMA Datavision prices. The equivalent for German bunds has risen to more than  $36,000 from $2,000, while it has jumped to $64,000 from $3,000 for U.K. gilts.

Unlike John Irving's novel ``The World According to Garp,'' which provokes laughter from readers, the devastation amplified by derivatives is proving unfunny as taxpayers finance the financial system's rescue through measures such  as the $700 billion Troubled Asset Relief Program, or TARP. Pressure is rising on policy makers to regulate a market that's moved beyond its origins protecting banks from loan losses to $55 trillion, prompting Warren Buffett to call the  contracts a ``time bomb.''

``There's a huge gap in our regulatory system,'' former U.S. Securities and Exchange Commission Chairman Harvey Pitt said at an industry conference yesterday, referring to legislation almost a decade ago that excluded the  derivatives from government oversight. The regulatory system is ``terribly broken,'' he said.

The Federal Reserve has given futures exchanges until Oct. 31 to present written plans on how they'll make the market more transparent, said four people familiar with the request. The Fed called banks and exchanges into three  meetings in two weeks, pressing them to agree on a clearinghouse that would require dealers to post collateral and pay into a fund that would absorb losses if one of them were to fail.

Calls for Regulation

Turmoil triggered by credit-default swaps prompted calls from SEC Chairman Christopher Cox, Commodity Futures Trading Commissioner Bart Chilton and lawmakers including Senator Tom Harkin, a Democrat from Iowa, for  Congress to authorize governing bodies to regulate the market.

New York Governor David Paterson said in a Sept. 22 statement that ``the absence of regulatory oversight is the principal cause of the Wall Street meltdown we are currently witnessing.'' New York officials proposed rules that would  treat some of the contracts as insurance after the government was forced to bail out American International Group Inc.

`Absolutely Urgent'

``It's absolutely urgent that we bring disclosure to this corner of the market, that we let the market see where the risk is and price accordingly,'' the SEC's Cox told the House Committee on Oversight and Government Reform on Oct.  23. Derivatives are contracts whose value is derived from assets including stocks, bonds, currencies and commodities, or from events such as the weather or changes in interest rates.

Credit-default swaps trade over-the-counter, leaving each party exposed to the risk the other won't fulfill the terms of the contract. The International Swaps and Derivatives Association, the industry group that has been setting the rules  and acting as a self-regulator of the market, cited estimates that there were as much as $400 billion of contracts tied to Lehman Brothers Holdings Inc., even though the company only had $162.8 billion of debt, according to Bank of  America Corp. analysts.

The Depository Trust & Clearing Corp., which runs a central registry for trades, placed the amount at about $72 billion. The contracts, which aren't issued by the companies they are linked to, pay the holder the face value of the amount protected in exchange for the underlying securities if a borrower fails to adhere to debt agreements. A basis point on a  credit-default swap contract protecting $10 million of sovereign debt from default for 10 years is equivalent to $1,000 a year.

AIG's $440 Billion

New York-based AIG amassed bets of more than $440 billion on U.S. home loans, corporate bonds and other assets by selling protection against default via the derivatives.

After ratings firms downgraded the insurer in September because of potential losses from the trades, AIG had to accept an $85 billion loan from the government and turn over majority control because of more than $10 billion in  collateral it was required to post on the trades.

Lehman was one of the 10 biggest dealers in the credit- default swap market before it failed. New York-based Primus Guaranty Ltd. which managed $24.2 billion of credit-default swaps and sold guarantees on companies including  Lehman and bankrupt Washington Mutual Inc. of Seattle, has tumbled 94 percent this year on the New York Stock Exchange to 40 cents a share.

CDX Index

Banks are now driving the cost of debt protection to records as they seek to guard against losses on contracts bought from money-losing hedge funds. The Markit CDX North America Investment Grade Index, linked to the bonds of 125  companies in the U.S. and Canada, reached a record 240 basis points on Oct. 24, before falling back to 207.5 today, according to Phoenix Partners Group. Europe's benchmark index reached a record 193 basis points before falling  back to 159.5, according to JPMorgan Chase & Co.

Buffett, called ``the world's greatest investor'' by biographer Robert Hagstrom, described derivatives in an annual report to shareholders of his Omaha, Nebraska-based Berkshire Hathaway Inc. as ``financial weapons of mass  destruction.'' ``The range of derivatives contracts is limited only by the imagination of man or sometimes, so it seems, madmen,'' Buffett said in the 2003 letter to shareholders.

Credit-default swaps are just a tool available to investors to hedge against losses, said Robert Pickel, head of the International Swaps and Derivatives Association in New York. ``To say that CDS were the cause, or even a large contributor, to that turmoil is inaccurate and reflects an understandable confusion of the various financial products that have been developed in recent years,'' Pickel told a House  committee on Oct. 14.

Competing Proposal

Four groups are vying to operate clearing operations, including a partnership between Chicago-based CME Group Inc. and Citadel Investment Group LLC and a team consisting of dealer- owned Clearing Corp., Atlanta-based  Intercontinental Exchange Inc. and credit-default swap index owner Markit Group Ltd. Eurex AG, the world's biggest futures exchange, and NYSE Euronext have also submitted proposals.

The push to make the industry more transparent may finally let exchange-traded derivatives gain traction after years of failing to compete with banks. Eurex, the world's biggest futures exchange, opened the first market for exchange- traded credit derivatives in March 2007, beating Chicago Mercantile Holdings Inc. and Euronext, though dealers resisted moving to their platforms because it threatened their profits. ``The CDS market is going to go to exchanges,'' Emmanuel Roman, co-chief executive officer of GLG Partners Inc., which manages about $24 billion, said at the Hedge 2008 conference in London on Oct. 23. ``That's a very good  development. Not good for the banks but good for everyone else.''

Downgrade Fears

Trading of credit-default swaps on government debt has increased since countries from the U.S. to Germany began pumping cash into their banks to prevent more failures, said Puneet Sharma, head of investment-grade credit  strategy at Barclays Capital in London. The expenditures mean the ``probability of downgrade has increased,'' he said.

Investors are buying protection on countries to speculate on a deterioration of their credit quality and ratings as governments take on risky assets, even if they don't think there is a chance of default.

Gross issuance of Treasury coupon securities will rise to about $1.15 trillion in the 2009 fiscal year from $724 billion in fiscal 2008, according to Credit Suisse Securities USA LLC, one of the 17 primary dealers of U.S. government  securities that are obligated to bid at the Treasury's auctions.

`Going Down'

``I do not think the U.S. market will blow up,'' said Pierre Naim, who bought default protection on Treasuries in January for his Rainbow Global High Yield hedge fund in the Bahamas. ``But the quality of U.S. government assets is  going down by the day.''

Credit-default swaps on Treasuries have risen nearly 40 percent since TARP was signed into law Oct. 3, and are now about the same as Mexican and Thai government debt before the credit markets began to seize up in June 2007,  CMA Datavision prices show. Contracts on bunds soared by 77 percent and gilts by 66 percent over the same period.

The Treasury has allocated an initial $250 billion out of the $700 billion approved by Congress to shore up lenders, and is being pressured by the Financial Services Roundtable, a trade association of the 100 largest banks, securities  firms and insurers, to broaden its guidelines so that insurance companies, broker-dealers, automobile companies and institutions controlled by foreign banks could also sell stakes to the government.

To contact the reporters on this story: Abigail Moses in London; Shannon D. Harrington in New York at    October 30, 2008  (Update2)

U.S. Treasury Program Shuns Banks That Need Cash Most
By David Mildenberg and Linda Shen

Oct. 29 (Bloomberg) -- The U.S. government's $160 billion handout to banks from Niagara Falls to Beverly Hills is going mostly to lenders that need it least, putting weaker rivals at risk of being shut down or taken over, analysts say.

``This has the unintended effect of making the strong stronger and the weak weaker,'' said Gray Medlin, founder of Carson Medlin Co., a Raleigh, North Carolina, investment bank focused on banking deals. ``Banks that are getting bad  exams and are under intense pressure from regulators won't be successful in applying.''

The government buying spree has so far targeted two dozen regional lenders. One, PNC Financial Services Group Inc., immediately bought a competitor, National City Corp. Another, Saigon National Bank, had almost four times the  minimum level of capital before selling a $1.2 million stake.

Treasury Secretary Henry Paulson is doling out cash to recapitalize lenders and jump-start takeovers. Besides PNC and Saigon National, regional lenders that have accepted government stakes in exchange for cash include SunTrust  Banks Inc., Capital One Financial Corp. and KeyCorp. They also include City National Corp., in Beverly Hills, and First Niagara Financial Group Inc., in upstate New York.

``The goal with this over time is to drive consolidation,'' said Ron Farnsworth, chief financial officer of Umpqua Holdings Corp. in Portland, Oregon, which expects to sell a $246 million stake to the government. Takeovers, either  independently or helped by the Federal Deposit Insurance Corp., are ``definitely one of the opportunities we have,'' Farnsworth said.

Boehner's Letter

House Minority Leader John A. Boehner, an Ohio Republican, today questioned the program, saying in a letter to Paulson that ``funds made available under the economic rescue package should not be used to pay for bank  acquisitions, raises, and executive bonuses.'' His letter came as House Speaker Nancy Pelosi, a California Democrat, and Majority Leader Harry Reid, a Nevada Democrat, told Paulson to restrict pay at firms that get government  money.

Banks that haven't yet joined the government's Troubled Asset Relief Program, or TARP, include Colonial Bancgroup Inc., a Montgomery, Alabama-based lender that lost $71 million in the third quarter and had its credit rating reduced  Oct. 27 to BBB-by Fitch Ratings, the lowest investment-grade rating. Colonial has a Tier 1 capital ratio of 10 percent, compared with the 6 percent level deemed ``well-capitalized'' by regulators.

High Exposure

``I'd view their approval in the TARP as unlikely,'' said Adam Barkstrom, an analyst at Sterne Agee & Leach Inc. in Baltimore. ``They have a high exposure to Florida residential construction loans and there is a perception that they  have been dragging their feet in addressing their problems.''

Colonial Chief Financial Officer Sarah Moore said the lender was ``interested'' in the funding, and that it could be eligible for as much as $570 million. Banks have until Nov. 14 to apply to the Treasury's program.

Some lenders, including International Bancshares Corp., Trustmark Corp. and Park National Corp., have said they intend to apply for Treasury funds. IBC and Park National both said shareholders must vote to permit issuing preferred  shares.

Of 60 banks followed by Sterne Agee, five may not qualify for government help, the firm said in a report yesterday. Four of those are in Alabama or Florida, states hurt by the housing- market meltdown. The government money  ``amounts to a sort of `seal of approval' from the Treasury,'' CreditSights Inc. analysts led by David Hendler wrote in a note Oct. 27.

Struggling the Most

``Those struggling the most probably aren't going to participate,'' said Karen Dorway, president of BauerFinancial, a Coral Gables, Florida-based research firm that studies the financial health of banks. She included as examples  Downey Financial Corp., BankUnited Financial Corp. and Vineyard National Bancorp.

All three are operating under regulatory enforcement orders, and Downey earlier this month reported its fifth consecutive quarterly loss, bringing the total to $680 million. Downey said on Sept. 5 it had until Oct. 20 to submit a long-term  plan to the Office of Thrift Supervision. Elizabeth Stover, Downey's spokeswoman, said on Oct. 22 that the company wouldn't discuss the plan publicly.

The government isn't forthcoming on explaining the purchase program because of concern it may spark bank runs, said Randy Dennis, president of DD&F Consulting, a Little Rock, Arkansas, firm that advises banks. ``Banks that are  left out will have to deal with the PR effect of not being included,'' he said.

Good Deal

Some lenders say the deal was too good to refuse. The preferred shares that banks are selling to the U.S. Treasury yield 5 percent annually for the first five years before increasing to 9 percent. ``The program is so attractive that even though we have a fairly strong capital ratio, we just felt that it was an opportunity to get capital at a very attractive rate,'' said Roy Painter, chief financial officer at Saigon National, based in the  Orange County, California, community of Westminster. ``We're a small organization, we expect to grow, and we'll need the additional capital down the road.''

Being early to attract Treasury's attention is an advantage, Farnsworth said in an interview Oct. 28. ``In the next few weeks, smaller banks are going to be reaching out to the FDIC saying, `Hey, we'd like some.'''

To contact the reporters on this story: David Mildenberg in Charlotte at; Linda Shen in New York at    October 30, 2008  (Update2)

Credit `Tsunami' Swamps Trade as Banks Curtail Loans
By Michael Janofsky, Mark Drajem and Alaric Nightingale

Oct. 29 (Bloomberg) -- Richard Burnett's lumber company had started loading wood onto ships heading for China. More was en route to the docks. It was all part of an order that would fill 100 40-foot cargo containers.

Then Burnett got a call from his buyer at Shanghai VIVA Wood Products Co. The deal was dead. He told Burnett, president of Cross Creek Sales LLC in Augusta, Georgia, he couldn't get a letter of credit to guarantee payment for at  least six months. ``It was like a spigot got cut off,'' Burnett said, recounting the transaction that fell apart in July. The inability of buyers in China and Vietnam to get letters of credit has cost his company as much as $4 million this year, a third of projected  revenue, forcing him to lay off 15 of 35 employees, he said.

Suppliers of oil, coal, grains and consumer products from Chicago to Mumbai are losing sales as the credit crisis spreads beyond financial institutions, and banks refuse financing or increase the fees for buyers. Coupled with declining  demand, the credit squeeze is threatening international trade, one of the lone bright spots in the global economy. ``It's like standing on a beach watching a tsunami, knowing that it's coming,'' said Scott Stevenson, manager of the International Finance Corp.'s Global Trade Finance Program. IFC is the World Bank's private lending arm.

Emerging markets such as Brazil, Vietnam and South Africa are particularly vulnerable because buyers have more trouble proving their financial strength. The slowdown is also damaging the U.S., the world's largest economy, where  exports accounted for almost two-thirds of the 2.1 percent growth in gross domestic product in the 12 months through June, according to the U.S. Trade Representative's office.

Shipping Rates Fall

Another sign of trouble: The Baltic Dry Index, a measure of commodity shipping costs that banks watch as an economic indicator, fell below 1,000 yesterday for the first time in six years, dropping it 89 percent for the year.

Global trade volumes may sink next year, their first decrease since 1982, according to Andrew Burns, a lead economist at the World Bank. While there is still uncertainty over future prospects, trade may contract by as much as 2  percent, after annual increases of 5 percent to 10 percent over the past decade.

``We only see this kind of shock when we have outbreaks of war, or maybe the oil shocks of the 1970s,'' said Kjetil Sjuve, a commodities shipbroker at Lorentzen & Stemoco AS in Oslo. ``This lack of credit was a shock to the entire  economy. We were hit second after the banks.''

Letters of Credit

Of the $13.6 trillion of goods traded worldwide, 90 percent rely on letters of credit or related forms of financing and guarantees such as trade credit insurance, according to the Geneva-based World Trade Organization.

Letters of credit are centuries-old instruments that allow far-flung partners to complete large transactions. An importing company gets its bank to issue the letter, guaranteeing payment for a delivery. That bank provides the letter to the  exporter's bank, which then guarantees payment to the exporting company.

The system breaks down when banks don't trust one another and are unwilling to accept a letter of credit as proof that payment is coming.

From 2000 through last year, the use of letters of credit declined to about 10 percent of global trade transactions, the IFC's Stevenson said. Over the past six months, they began ``roaring back into fashion'' as sellers sought to guarantee  payments from buyers they no longer trusted, he said. At the same time, liquidity problems caused banks to increase charges.

Rates Rise

The cost of a letter of credit has tripled for buyers in China and Turkey and doubled for Pakistan, Argentina and Bangladesh, said Uwe Noll, director of country risk sales at Deutsche Bank AG. Banks are now charging 1.5 percent of  the value of the transaction for credit guarantees for some Chinese transactions, bankers say.

``The whole global trade production line relies on letters of credit,'' Matt Robinson, an analyst at Moody's wrote in an Oct. 23 report. ``No letters of credit, no transactions -- and no transactions mean no international  trade.''

The evidence is piling up in the world's ports.

An Iranian oil tanker able to carry enough crude oil to supply Ireland for five days arrived at the Turkish port of Ceyhan on Oct. 6. Then she waited eight days before the company that hired her was able to secure a letter of credit that  was acceptable to Iraq, the country selling the cargo, according to two people involved in the loading and unloading of the oil.

`Crisis Situation'

Mumbai-based Essar Shipping Ports & Logistics Ltd. couldn't buy equipment used to handle bulk materials at ports when the Chinese supplier wasn't able get a letter of credit from an Indian state-owned bank accepted in China, said  V. Ashok, Essar's executive director. ``This is absolutely a crisis situation here,'' Ashok said. ``If you don't discount LCs, how will you do business? Business around the world is done on LCs, not cash. It's all jammed.''

In Chicago, C1 Resources is holding up 1 million metric tons of cement valued at as much as $150 million, because an African customer can't secure a letter of credit, said Chief Operating Officer Rob Risner. The order was placed  Sept. 10 for shipment to Nigeria, Cameroon and Angola and the customer is still seeking a line of credit, Risner said.

Burnett, of Cross Creek, said the demise of his deals with Asian buyers also reflects the weakness of the U.S. economy, including a slowdown in construction that has reduced demand for the wood products companies such as  Shanghai VIVA make. Liu Jian Jun, manager of Shanghai VIVA, said weak demand in the U.S. and elsewhere killed the deal with Cross Creek, not access to credit.

Small Business Hurt

James Morrison, president of the Small Business Exporters Association in Washington, polled 1,000 of his members this month on the impact tight credit is having on their ability to trade. By a margin of six to one, companies that had  tried to get export financing recently said they faced ``unusual difficulties.'' A few said their banks had told them the terms of existing credit facilities had to be reworked and the companies would have to provide more principal, Morrison said.

The same is true in Brazil. An Oct. 23 report from the country's Confederacao Nacional das Industrias, which represents 27 industry groups and 7,000 trade associations, found that Brazilian companies of all size are losing access to  credit. ``To make exports feasible, you need funding and this has virtually dried up in the last weeks,'' said Flavio Castelo Branco, chief economist for the group.

`More Cautious'

Policymakers are responding. Pascal Lamy, head of the WTO, has called a meeting of trade officials for Nov. 12 in Geneva to discuss how to get more credit to exporters in poor nations. The organization has invited heads of the  largest development banks as well as representatives from Citigroup Inc., JPMorgan Chase & Co. and other commercial banks.

The World Bank has added $500 million to the $1 billion it was already using to guarantee export financing. The U.S. Export- Import Bank, a government-chartered entity that helps finance exports, is gearing up to provide more  guarantees, said Jeffrey Abramson, vice president for trade finance.

Dominic Ng, chief executive officer of Pasadena, California- based East-West Bancorp Inc., the biggest lender serving the Chinese community in the U.S., said his bank this year has reduced the number of letters of credit issued for the  first time. It is providing about 10 percent fewer letters, after annual increases of 10 percent to 20 percent in the past decade. ``We've become more cautious,'' Ng said, blaming the retrenchment on a decline in the number of credit-worthy customers. Bank bailouts funded by the U.S. and other governments have begun to ease liquidity problems. ``But we still have credit issues,'' he said. ``And they are going to get worse, not better, because the economy is getting worse.''

To contact the reporters for this story: Michael Janofsky in Los Angeles at; Mark Drajem in Washington at; Alaric Nightingale in London at    October 31, 2008

DTCC to Provide CDS Data from Trade Information Warehouse

New York, October 31, 2008 – The Depository Trust & Clearing Corporation (DTCC) announced today that it will begin to publish aggregate market data from its Trade Information  Warehouse (Warehouse), the worldwide central trade registry it maintains on credit derivatives. Starting Tuesday, November 4 and continuing weekly, DTCC will post on its website the outstanding gross and net notional values ("stock" values) of credit default swap (CDS) contracts registered in the Warehouse for the top 1,000 underlying  single-name reference entities and all indices, as well as certain aggregates of this data on a gross notional basis only. The data is intended to address market concerns about  transparency.

The data will be shown in two sections. Section 1 will show the outstanding notional values at a given point in time (the end of each week). Section 2 will show data relating to the  weekly confirmed trade volume, or "turnover," with respect to the same underlying reference entities and indices, as well as similar aggregations of such data. Section 2 data will be  published beginning the week after the initial publication of outstanding notional values.

The Trade Information Warehouse is a service offering of DTCC Deriv/SERV LLC, a wholly-owned subsidiary of DTCC, and is the market’s first and only central registry and  automated trade database supporting the post-trade processing of over-the-counter derivatives contracts over their lifecycles, from confirmation through to final settlement. Established  in November 2006, the Warehouse is the OTC derivatives industry’s electronic central registry for credit default swaps. With a client base that includes virtually all global derivatives  dealers and more than 1,100 buy-side firms in 31 countries, DTCC’s Warehouse has registered the vast majority of all credit default swaps traded worldwide.

About DTCC

DTCC, through its subsidiaries, provides clearance, settlement and information services for equities, corporate and municipal bonds, government and mortgage-backed securities,  money market instruments and over-the-counter derivatives. In addition, DTCC is a leading processor of mutual funds and insurance transactions, linking funds and carriers with their  distribution networks. DTCC’s depository provides custody and asset servicing for more than 3.5 million securities issues from the United States and 110 other countries and territories,  valued at US$40 trillion. In 2007, DTCC settled more than US$1.86 quadrillion in securities transactions. DTCC has operating facilities in multiple locations in the United States and  overseas.

DTCC Deriv/SERV LLC, a wholly-owned subsidiary of DTCC, provides automated matching and confirmation for OTC derivatives contracts, including credit, equity and interest rate  derivatives. According to major market participants, over 90% of credit derivatives traded globally are electronically confirmed through Deriv/SERV. The Trade Information Warehouse,  a service offering of Deriv/SERV launched in November 2006, is the market’s first and only comprehensive trade database and centralized electronic infrastructure for post-trade  processing of OTC derivatives contracts over their lifecycles, from confirmation through to final settlement.

Contact: Judy Inosanto, DTCC, 212-855-5424,    OCTOBER 31, 2008

Behind AIG's Fall, Risk Models
Failed to Pass Real-World Test

Gary Gorton, a 57-year-old finance professor and jazz buff, is emerging as an unlikely central figure in the near-collapse of American International Group Inc.

Mr. Gorton, who teaches at Yale School of Management, is best known for his influential academic papers, which have been cited in speeches by Federal Reserve Chairman Ben  Bernanke. But he also has a lucrative part-time gig: devising computer models used by the giant insurer to gauge risk in more than $400 billion of devilishly complicated deals called credit-default swaps.

AIG relied on those models to help figure out which swap deals were safe. But AIG didn't anticipate how market forces and contract terms not weighed by the models would turn the  swaps, over the short term, into huge financial liabilities. AIG didn't assign Mr. Gorton to assess those threats, and knew that his models didn't consider them. Those risks have cost AIG  tens of billions of dollars and pushed the federal government to rescue the company in September.

The global financial crisis is studded with tales of venerable financial firms failing to protect themselves against the unexpected. In the case of AIG, as with many other firms, the  financial horrors were hidden in the enormous market for credit-default swaps, which are a form of insurance against defaults on all sorts of debts.

A close look at AIG's risk-management operations, and the rapid-fire chain of events that crippled the firm, raises questions about the run-up to the financial crisis: Did firms like AIG  plunge into lucrative but perilous new markets without thoroughly understanding the pitfalls? Had the sheer complexity of the financial products made it all but impossible to fully  calculate the risk? And did firms put too much faith in computer models to assess dangers?

The turmoil at AIG is likely to fan skepticism about the complicated, computer-driven modeling systems that many financial giants rely on to minimize risk. As chief executive of  Berkshire Hathaway Inc., which owns insurance companies, Warren Buffett has been sounding the alarm about the issue for years. Recently, he told PBS interviewer Charlie Rose: "All  I can say is, beware of geeks...bearing formulas."

Last December, at a meeting with investors, Martin Sullivan, then AIG's chief executive officer, told investors concerned about exposure to credit-default swaps that models helped give  AIG "a very high level of comfort." Mr. Gorton explained at the meeting that "no transaction is approved" by the chief of AIG's financial-products unit "if it's not based on a model that we  built."

Now, a federal criminal probe in Washington is examining whether AIG executives misled investors at that meeting, and whether any of its executives misled its outside auditor last fall.  AIG itself has been forced to post about $50 billion in collateral to its trading partners, largely to offset sharp drops in the value of securities it insured with the credit-default swaps. These  payments have continued to balloon after the bailout -- raising the specter that the government will eventually have to lend more taxpayer money to AIG.

This account of AIG's risk-management blunders is based on more than two dozen interviews with current and former AIG executives, AIG's trading partners and others with direct  knowledge of the firm, as well as internal AIG documents, regulatory filings and congressional testimony. Mr. Gorton, who continues to be a paid AIG consultant, referred questions  about his role to AIG. Mr. Sullivan declined to comment.

AIG's credit-default-swaps operation was run out of its AIG Financial Products Corp. unit, which had offices in London and Wilton, Conn. In essence, AIG sold insurance on billions of  dollars of debt securities backed by everything from corporate loans to subprime mortgages to auto loans to credit-card receivables. It promised buyers of the swaps that if the debt  securities defaulted, AIG would make good on them. AIG executives, not Mr. Gorton, decided which swaps to sell and how to price them.

In His Own Words - Gary Gorton on risk models, market shifts and investor panic:

AIG's "models are guided by a few, very basic principals, which are designed to make them very robust and to introduce as little model risk as possible. We always build our own  models. Nothing in our business is based on buying a model or using a publicly available model." -- Dec. 5, 2007, AIG investor meeting

"The subprime mortgage credit crisis demonstrates that while financial intermediaries have changed in many ways, at root their problems remain the same. Indeed, the old problem of  banking panics can reappear in new guises."
--National Bureau of Economic Research paper, 2007

"We have known for a long time that the banking system was metamorphosing into an off-balance sheet and derivatives world -- the shadow banking system."
--"The Panic of 2007," presented at Federal Reserve Bank of Kansas City, Jackson Hole Conference, August 2008

"You have this very, very complicated chain of the movement of the risk, which made it very opaque about where the risk finally resided. And it ended up residing in many places. So the  whole infrastructure of the financial market became kind of infected, because nobody knew exactly where the risk was."
--Yale University School of Management, transcript, published October 2008
Source: Yale University, Thomson Financial

Plus, watch Mr. Gorton speak at a Yale School of Management roundtable on the causes of the financial crisis.

The swaps expose AIG to three types of financial pain. If the debt securities default, AIG has to pay up. But there are two other financial risks as well. The buyers of the swaps -- AIG's  "counterparties" or trading partners on the deals -- typically have the right to demand collateral from AIG if the securities being insured by the swaps decline in value, or if AIG's own  corporate-debt rating is cut. In addition, AIG is obliged to account for the contracts on its own books based on their market values. If those values fall, AIG has to take write-downs.

Mr. Gorton's models harnessed mounds of historical data to focus on the likelihood of default, and his work may indeed prove accurate on that front. But as AIG was aware, his models  didn't attempt to measure the risk of future collateral calls or write-downs, which have devastated AIG's finances.

The problem for AIG is that it didn't apply effective models for valuing the swaps and for collateral risk until the second half of 2007, long after the swaps were sold, AIG documents and  investor presentations indicate. The firm left itself exposed to potentially large collateral calls because it had agreed to insure so much debt without protecting itself adequately through  hedging.

The credit crisis hammered the markets for debt securities, sparking tough negotiations between AIG and its trading partners over how much more collateral AIG should have to post.  Goldman Sachs Group Inc., for instance, has pried from AIG $8 billion to $9 billion, covering virtually all its exposure to AIG -- most of it before the U.S. stepped in.

Such payments continued after the government bailout. AIG already has borrowed $83.5 billion from the Federal Reserve, a little more than two-thirds of the $123 billion in taxpayer  loans made available to AIG so far. In addition, AIG affiliates recently obtained from the government as much as $21 billion in short-term loans called commercial paper. Much of the $83.5 billion has been used to meet the financial obligations of the financial-products unit. If turmoil in the markets causes prices of many assets to fall further, the government might  have to cough up more money to help keep AIG afloat. Cutting it off would risk renewing the market upheaval the policy makers have struggled to tame.

Mr. Gorton, the son of a Phoenix psychiatrist, took a circuitous route to academia. He studied Mandarin, considered becoming an actor and briefly drove a cab in Cleveland, where he  carried a gun for protection, he later told acquaintances. Eventually, he collected multiple degrees, including a Ph.D. in economics, and joined the faculty of the Wharton School of the  University of Pennsylvania.

He drove an old Volkswagen Beetle, lived in a gritty North Philadelphia row house and accumulated a vast trove of jazz records, which he would cue up at night on two turntables to  keep the music coming, recalls his wife at the time, Rachel Bliss.

He was passionate about mathematics, engaging in late-night conversations with fellow teachers, says Ms. Bliss. One of his academic interests was how banks could unload risk and  sell loans to investors.

In 1987, AIG launched its financial-products unit with Howard Sosin, a math expert and former Drexel Burnham Lambert executive. Among his hires were Joseph Cassano, a former  Drexel colleague. After Mr. Sosin left, Mr. Gorton joined as a consultant in the late 1990s. Mr. Cassano later took over the unit.

Early on, Mr. Gorton billed AIG about $250 an hour, which likely would have netted him about $200,000 a year, says a former senior executive at the unit. Eventually, his pay was far  greater; another former colleague estimates it at $1 million a year.

Mr. Gorton collected vast amounts of data and built models to forecast losses on pools of assets such as home loans and corporate bonds. Speaking to investors last December, Mr.  Cassano credited Mr. Gorton with "developing the intuition" that he and another top executive had "relied on in a great deal of the modeling that we've done and the business that we've  created."

AIG began selling credit-default swaps around 1998. Mr. Gorton's work "helped convince Cassano that these things were only gold, that if anybody paid you to take on these risks, it  was free money" because AIG would never have to make payments to cover actual defaults, according to the former senior executive at the unit. However, Mr. Gorton's work didn't  address the potential write-downs or collateral payments to trading partners.

AIG became one of the largest sellers of credit-default-swap protection, according to a Moody's Investors Service report last week. For years, the business was extremely lucrative. In a  2006 SEC filing, AIG said none of the swap deals now causing it pain had ever experienced high enough defaults to consider the likelihood of making a payout more than "remote, even  in severe recessionary market scenarios."

AIG charged its trading partners a fraction of a penny a year for every dollar of credit protection. The company realized, of course, that it might have to post collateral if the market values  of the underlying securities declined. But AIG executives believed that such price moves were unlikely to occur, according to people familiar with AIG's operation.

As the debt securities created by Wall Street became more complicated, so did the swaps AIG offered. Around 2004, it began selling swaps designed to provide insurance on securities  called collateralized-debt obligations, or CDOs, that were backed by securities such as mortgage bonds. Merrill Lynch & Co., then a major seller of the CDOs, was a big client.

So-called multisector CDOs, in particular, were exceptionally complex, involving more than 100 securities, each backed by multiple mortgages, auto loans or credit-card receivables.  Their performance depended on tens of thousands of disparate loans whose value was hard to determine and performance difficult to systematically predict. In assessing their risk, Mr.  Gorton constructed worst-case scenarios that factored in the probability of defaults on the underlying securities.

In late 2005, senior executives at the unit grew worried about loosening lending standards in the subprime-mortgage market. AIG decided to stop selling credit protection on multisector  CDOs, partly due to "concerns that the model was not going to be able to handle declining underwriting standards," Mr. Gorton told investors last December. But by the time it stopped,  in early 2006, its exposure to multisector CDOs had ballooned to $80 billion.

By mid-2007, as the housing slump took hold, the subprime mortgage market was weakening and many mortgage bonds were sinking in value. Ratings agencies began downgrading  many mortgage securities, a departure from the historical pattern, Mr. Gorton later explained to investors. Concern began mounting about AIG's credit-default swaps, even though AIG  didn't have large exposures to subprime-mortgage bonds issued in the worst years of 2006 and 2007.

AIG's trading partners were worried. Goldman Sachs held swaps from AIG that insured about $20 billion of securities. In August 2007, Goldman demanded $1.5 billion in collateral,  arguing that the assets backing the securities were falling in value. AIG argued that the demand was excessive, and the two firms eventually agreed that AIG would post $450 million to  Goldman, this person says.

Late last October, Goldman asked for even more collateral, $3 billion. Again, AIG disagreed, and it ultimately posted $1.5 billion. Goldman hedged its exposure by making a bearish bet  on AIG, buying credit-default swaps on AIG's own debt, according to one person knowledgeable about this move.

When AIG's outside auditor, PricewaterhouseCoopers LLP, learned about Goldman's demands, it reviewed the value of the swaps, according to a Pricewaterhouse official cited in  minutes of a meeting of the audit committee of AIG's board. Last November, when AIG reported third-quarter results, it took its first major write-down on the swaps, lowering their value  by $352 million.

That same month, collateral calls came in from Merrill and Société Générale SA, says the person familiar with AIG's finances. It's not clear how much those two banks asked for, or  how much they got.

AIG decided to talk to investors last Dec. 5 about the financial-product unit's exposure to the mortgage market. A Pricewaterhouse official said his firm told AIG's then-CEO, Mr.  Sullivan, and a deputy six days before the event that AIG might have a "material weakness" in its risk management, according to minutes of a Jan. 15 meeting of AIG's audit committee.  Pricewaterhouse declined to comment.

In his presentation to investors, held at New York's Metropolitan Club, Mr. Sullivan praised the unit's models as "very reliable" in analyzing many mortgages, saying they had helped  give AIG "a very high level of comfort."

Mr. Gorton was introduced. "The models are all extremely simple," he said. "They're highly data intensive." He said he didn't rely on the default-risk predictions of credit-rating services,  and instead came up with his own estimates of what was safe enough for AIG to insure.

Mr. Cassano, the unit's head, told investors: "We believe this is a money-good portfolio....As Gary said, the models we use are simple, they're specific and they're highly conservative."

But the collateral calls kept coming. By the end of 2007, at least four other banks that had purchased swaps from AIG -- UBS AG, Barclays PLC, Credit Agricole SA's Calyon  investment-banking unit and Royal Bank of Scotland Group PLC -- had asked for money, according to people familiar with collateral calls. Deutsche Bank and Canadian banks CIBC  and Bank of Montreal also have demanded collateral at various points, a person familiar with AIG's finances says.

In February, AIG disclosed that Pricewaterhouse had found a "material weakness" in its accounting controls. Late that month, AIG announced a $5.3 billion fourth-quarter loss, its  largest ever, driven largely by write-downs on the swaps. It also said it was "possible" that actual losses on the swaps could be material.

Mr. Sullivan told investors that Mr. Cassano, the unit's head, was retiring. He remained a consultant, receiving, until recently, $1 million a month, according to a document later released  by Congress.

In May, AIG announced another record quarterly loss, of $7.8 billion, largely driven by write-downs of the value of the swaps. That same month, Yale's School of Management  announced it had hired Mr. Gorton away from Wharton.

Mr. Sullivan was ousted in June. As of July 31, AIG had handed over $16.5 billion in collateral on its swaps, according to a regulatory filing.

By August, AIG had increased its estimates for what it might ultimately lose on the swaps in the case of defaults to as high as $8.5 billion. (The estimates are distinct from potential  losses on write-downs and collateral calls.) That same month, Mr. Gorton attended the Federal Reserve Bank of Kansas City's annual gathering in Jackson Hole, Wyo. He presented a 92-page paper, "The Panic of 2007," which explained how the financial markets came unglued after a series of unexpected events, such as when clients of financial firms suddenly  sought to reclaim assets put up as collateral. "It is difficult to convey," he wrote, "the ferocity of the fights over collateral."

Credit markets worsened in late August and September, and AIG's trading partners demanded additional collateral. When Lehman Brothers Holdings Inc. filed for bankruptcy protection  on Sept. 15, bond markets essentially froze. That same day, rating agencies slashed AIG's credit ratings. Company executives figured the downgrade would require AIG to post more  than $18 billion in additional collateral to its trading partners, according to a person familiar with the matter. Worried that a bankruptcy filing could roil markets world-wide, the  government stepped in with a bailout.

The rescue didn't stop the collateral calls, which have eaten up much of the government's initial $85 billion loan commitment, which on Oct. 8 it boosted to $123 billion.

Washington Post    October 31, 2008

Hank Paulson's $125 Billion Mistake
By Steven Pearlstein

It was only a few weeks ago that most right-thinking economists and left-leaning bloggers were jumping on Treasury Secretary Hank Paulson for his plan to jump-start the markets in asset-backed securities by having the government buy them up at auction. Much better, they argued, to use the $700 billion to "recapitalize" the banking system, just as Gordon Brown was doing in Britain. Even the Federal Reserve thought that a better idea.

So Paulson changed course, called in the nine biggest banks and "forced" them as a group to accept $125 billon in new capital. The critics patted themselves on the back for having been right all along.

Now, many of the same people are shocked -- shocked! -- to discover that the banks aren't using the money to make new loans to households and businesses, as they had assumed, but are using it to maintain dividend payments to shareholders, pay this year's bonuses to executives and traders, or squirrel it away for future acquisitions.

I hate to say it, but I told you so. Sprinkling money around a highly fragmented banking system when markets were panicked and everyone was scrambling to reduce leverage was always akin to shoveling sand against the tide.

Certainly there are situations in which capital injections are necessary. In Britain, for example, there are only a handful of banks that matter, and those had their capital so depleted that there was no choice but to pour money into them, on onerous terms and with lots of strings attached. And certainly, as with PNC's purchase of National City, a dose of government capital can grease the takeover of a weak bank that might have otherwise failed and required government intervention.

But making modest investments in dozens of banks, whether they needed it or not, produces little for the public beyond the small profit for the Treasury. What it does do, however, is open the door for every politician and populist to second-guess every decision and expenditure the banks make, based on the false assumption that everything they do is with "our money."

Paulson's first mistake was in allowing himself to be diverted from his original strategy, which stood a good chance of establishing reasonable and credible market prices for asset-backed securities -- a necessary first step in attracting other buyers back into those frozen markets. That would take tremendous pressure off all banks, insurance companies, hedge funds and bond insurers, most of which now can't raise capital because nobody can even guess what the assets on their books are worth, forcing accountants and auditors to assume the worst. It also would get liquidity to those institutions that most need it.

Paulson's second mistake was buying into the silly idea that it was crucial to attract all the big banks into the program so that any bank that might really need the money could avoid the stigma of having to ask for it. That's a surprising stance from a Treasury that claims to trust markets and encourage transparency. Nor does it square with recent evidence that investors are quite capable of sniffing out weak financial institutions long before managements come clean.

Moreover, in trying to persuade banks that don't need the money to take it, the Treasury has wound up offering everyone the same sweetheart deal that gives the government little say in how the money is used or how the banks are run. That's particularly dangerous in the case of weaker banks, which might be tempted to take big risks in the hope of recouping past losses or to divert money to shareholders and executives before the inevitable government takeover.

In the case of some of the stronger banks, however, much of the carping about bonuses and dividends and refusal to lend are a bit overblown.

These are, after all, large institutions with many activities, some of which make money even as others lose it. Paying the bonuses to successful employees is not only fair but is also necessary to attract and retain top talent. It hardly serves the interest of taxpayers if all the banks they invest in wind up losing top talent to all the banks they didn't.

Moreover, banks like J.P. Morgan, Wells Fargo, State Street and the newly chartered Goldman Sachs remain highly profitable and well-capitalized. It ought to be up to them to decide whether to use those profits to add to capital reserves or pay them out in dividends and executive bonuses. We might not like their choices, or their values, but this is still a market economy, and these are still shareholder-owned companies. The industry hasn't been nationalized just yet.

It is also useful to remember that the way banks make money is to lend it out, not hold it in the vault or invest it in low-yielding Treasury bonds. Hoarding is not generally a winning strategy for maximizing share prices or executive bonuses. It is also useful to remember what got us into this mess in the first place. If banks are using their new capital to reduce their own leverage, or are more cautious about whom they lend to, that's probably a good thing.

Perhaps the worst part of this misguided effort to recapitalize the banking system is that it has prompted other industries to line up for similar sweetheart deals. Automakers, insurers, auto finance companies and local governments are already besieging the Treasury, and you can be sure that others are refining their pitch. One can only hope that the terms of future deals will be sufficiently onerous that going to the Treasury will be become a last resort, not a first instinct, for industries in trouble.

Steven Pearlstein can be reached at

Schweizer Fernsehen SF1    2.November 2008

Sternstunde Philosophie: "Der Schwarze Herbst".
Der Wirtschaftshistoriker Hansjörg Siegenthaler im Gespräch mit Roger de Weck - 11.00 Uhr

Krisenzeiten sind Umbruchzeiten. Welche Gesellschaft wird aus der grössten Wirtschaftskrise seit 1929 erwachsen? Treten neue Werte, neue Denkweisen in den Vordergrund? Folgt auf die Globalisierung der Konzerne die der Politik? Siegenthaler, langjähriger Geschichtsprofessor in Zürich hat über „Vertrauen, Prosperität und Krisen“ geforscht. Er vergleicht die jetzige Zeitenwende mit dem Bruch von 1875 in der englischen Geschichte. Private Firmen wie die Britische Ostindien-Kompanie hatten die Welt kolonisiert. Doch plötzlich erforderte eine Wirtschaftskrise das Eingreifen des Staats. Wie einst die Kolonisierung tritt jetzt die Globalisierung in ihre zweite, ganz andere Phase: Nachdem Konzerne unsere Welt globalisierten, nimmt nun die Staatengemeinschaft das Heft in die Hand.

Da stellt sich die Frage: Schafft diese Krise neue Machtverhältnisse? Erlangt die Politik wieder das Primat über die Wirtschaft? Naht das Ende der allerletzten Utopie, nämlich der Heilsvorstellung, wonach der Markt alles richte? Wird das Versagen des Raubtierkapitalimus die Linke stärken oder aber die Rechtspopulisten? Was ist die Zukunft des Liberalismus? Ein Blick zurück in die Zukunft.

Hansjörg Siegenthaler: Regelvertrauen, Prosperität und Krisen. Die Ungleichmässigkeit wirtschaftlicher Entwicklung als Ergebnis individuellen Handelns und sozialen Lernens, Tübingen: Mohr Siebeck 1993
Hansjörg Siegenthaler: Understanding and the mobilisation of error-eliminating controls in evolutionary learning, in: Pelikan, Pavel; Wegner, Gerhard (es.): The Evolutionary Analysis of Economic Policy, Edward Elgar 2003, pp. 245 - 260

Wiederholungen der Sternstunde Philosophie auf SF1:
Montag, 03. November 2008 um 01.10 Uhr
Dienstag, 04. November 2008 um 12.00 Uhr auf SFinfo
Mittwoch, 05. November 2008 um 04.30 Uhr
Samstag, 08. November 2008 um 09.00 Uhr
Sonntag, 09. November 2008 um 09.15 Uhr auf 3sat

VHS- oder DVD-Bestellung direkt:

(siehe auch die vierteilige Reihe "Das Unbehagen im globalisierten Kapitalismus" der «Sternstunde Philosophie» mit Nobelpreisträger Joseph Stiglitz, Christoph Binswanger, Anthony Atkinson, Tania Singer)

Washington Post    November 2, 2008

Discord on Economies In a World Of Trouble
Conflicts Emerge as Nations Seek Solutions
By Steven Mufson, Mary Jordan and Edward Cody

Presidents and prime ministers from major countries around the world will gather in Washington in two weeks to begin heated negotiations over the shape of global financial regulation as they scramble to avoid a deep worldwide recession and restore confidence in markets.

Key European allies are pushing for broad new roles for international organizations, empowering them to monitor everything from the global derivatives trade to the way major banks are regulated across borders. But the Bush administration has signaled reluctance to go that far. In the past, it has resisted similar proposals as potentially co-opting the independence of the U.S. financial system or compromising free markets.

Some economists and policymakers say the summit could launch important reforms. But others predict it could turn into an economic tower of Babel, with weak political leaders promoting solutions fundamentally at odds with one another. And if leaders cannot bridge their differences, they could risk another bout of financial disarray.

There are also differences of opinion on the issue of timing. French President Nicolas Sarkozy, who pressed for the 20-nation summit, says it must produce concrete and immediate results. But the host, President Bush, is a lame duck who says the meeting will be "the first in a series" and should focus on principles even though "the specific solutions pursued by every country may not be the same." Emerging proposals to sharpen existing regulatory tools appear to conflict with plans to create entirely new ones.

What is clear is that expectations for the summit among many observers are high.

"At the moment, I don't think it would be acceptable for the major leaders to come back from this conference and to go to their respective parliaments or whatever and say, 'Yes, we rearranged the deck chairs a little bit.' Because this is genuinely a Titanic crash," said Howard Davies, director of the London School of Economics and former head of Britain's financial regulator, the Financial Services Authority.

The summit does have a precedent, one reaching back more than six decades. At the 1944 Bretton Woods conference, world leaders gathered to design the current international financial architecture, laying the groundwork for the International Monetary Fund and the World Bank. The Nov. 15 summit has been popularly referred to as Bretton Woods II.

But this time is different. Two years of preparation went into the 1944 summit. And whereas the United States and Britain largely shaped the postwar financial system, financial regulation and coordination will now require the participation of a broader and more unwieldy group, including emerging economies, many of them loaded with foreign exchange reserves, foreign debts and influence over global financial markets.

Those emerging economies, far from being "decoupled" from traditional industrial powers as many analysts believed just a few months ago, have found that they and more developed nations need one another.

One unknown factor, for now at least, is the U.S. president-elect. Both Sen. Barack Obama (D-Ill.) and Sen. John McCain (R-Ariz.) have said little about their views on the summit. The White House has said it does not expect the winner of Tuesday's election to attend, but to have input to some extent.

Bush, meanwhile, has been reserved. "We need to proceed with caution and care but also with all due speed," White House press secretary Dana Perino said recently. "The president is concerned about moving too far too fast and wanting to avoid unintended consequences."

Locking In Allies

World leaders are already maneuvering for position. Sarkozy, in particular, has methodically sought allies.

He won a key, although carefully worded, endorsement for action from China on Oct. 25 in Beijing, where a Europe-Asia economic cooperation summit called for more regulation of global financial markets.

"Each of us perfectly understood that it was not possible to meet [Nov. 15] just to talk," Sarkozy told reporters at a closing news conference.

"This is about no less and no more than the creation of a new financial constitution," German Chancellor Angela Merkel said.

Sarkozy has also called a Nov. 7 summit of the European Union's 27 heads of state and government in hopes of winning a Europe-wide mandate to demand swift action in Washington. Recognizing Britain's special contacts with the United States, Sarkozy invited Prime Minister Gordon Brown to a strategy session Tuesday at a presidential retreat in Versailles.

Still, despite all the posturing, there are different views on what concrete action would mean.

Sarkozy and Brown have voiced support for a new international regulatory body to supervise large transnational banks. Brown has called for strengthening the Financial Stability Forum, created after the Asian financial crisis of the late 1990s. The group of central bankers, finance ministry officials and international financial institution representatives produces important recommendations, Brown said in a speech this week, but, he added, "It never had enough teeth."

Merkel, who has been more conservative in dealing with the crisis than the hard-charging Sarkozy, favors a stronger International Monetary Fund, giving it a supervisory role in international finance and making it a "guard" of financial stability. Brown, too, has proposed making the IMF "an early-warning system" for financial problems, singling out low bank capital ratios or wildly mispriced securities.

IMF officials have embraced the idea that the fund could take on a larger role, perhaps as part of a secretariat involving other multilateral institutions.

Sarkozy has also sought support for proposals to curtail tax havens with new international investigative powers; require increased transparency on high-risk hedge fund investments; and regulate financial traders' compensation packages in a way that would reduce the incentive to make risky investments. But a French analyst said Sarkozy may scale back some of those ambitions given U.S. opposition. "He may have overreached a bit," said the analyst, who spoke on condition of anonymity so that he could speak candidly.

Japanese Prime Minister Taro Aso, in power just five weeks, spelled out in a nationally televised speech Thursday night what he wants from the summit: international regulation of financial institutions and of credit rating agencies as well as standardized accounting for international business and markets.

"The current system under which the authorities in each individual country supervise their respective financial institutions is insufficient," Aso said.

He blamed "grave shortcomings" in the credit ratings of subprime mortgage securities and questioned whether the U.S. accounting requirement that firms value securities at market value made sense "given the tremendous volatility in the financial markets that we are currently seeing." Many financial institutions have argued that market panic drives down the value of those securities too far; other experts say that alternatives give financial institutions too much leeway to come up with their own, often inflated, valuations.

China may prove more cautious than any other nation. Wu Xiaoqiu, director of the Institute of Finance and Securities, said he thinks Chinese officials, while joining their European counterparts in calling for an overhaul of current regulatory systems, would stop short of supporting a proposal for a worldwide organization with significant power.

"It is important to have an agency which can coordinate the global market and policies of different countries," Wu said. "But China doesn't like the idea of having a global SEC since no organization should affect the sovereignty of countries."

Prospects for Politicians

For some leaders, the financial crisis offers a political opportunity at a time when electorates are deeply concerned about the future. Brown, Merkel and Sarkozy are all facing low approval ratings.

"I think all of the governments are uncomfortably aware that they have got very, very nervous electorates. Point one is just to show that somehow there is an agenda which can allow people to feel that something's under control," said Davies, the director of the London School of Economics. "People like Sarkozy, in particularly, and Brown know that their future depends on it appearing that they are responding adequately to this crisis."

There are dangers, though. The pressure to be seen as taking vigorous action could lead to overregulation, say many business leaders, especially in London, where the financial services sector plays a key role in the economy.

Willem Buiter, a professor at the London School of Economics and a former Bank of England policymaker, said he feared "we will . . . end up regulating so tightly that a lot of financial institutions will be untenable and unprofitable and we will spend the next decade slowly chipping away at over-regulation."

Disunity is another risk. If world leaders fail to coordinate, the consequences could be severe. Their staggered responses to the financial crisis in September contributed to bank runs and currency fluctuations, as money fled to whatever country was promising the most generous guarantees.

"If we forbid alcohol in two pubs only, everyone would just go to the other pubs," said Dimitrios Tsomocos, professor of financial economics at Oxford University and a consultant to the Bank of England, who added that one nation's regulatory scheme must not be more attractive to business than another's.

"Now, with the crisis I think the chances have improved for coming to an international consensus," said Michael Meister, a parliamentarian with Merkel's Christian Democrats. "I hope the crisis will serve as a chance for real reform. . . . The more time elapses, the more difficult it will be to change regulations because once the urgency passes, there will be reluctance for action."

Robert Hormats, a vice chairman at Goldman Sachs and former National Security Council staffer, said that the November summit would be valuable if it became the first in a series of G-20 meetings, widening economic coordination.

"We're at a point of time where the role of emerging economies has become very apparent and where the G-7 does not have the capacity in the eyes of many people in the world to solve this problem alone," Hormats said.

"We've learned from this crisis that you can't conceivably in the future try to pretend that the global financial system can be run by the occasional phone call between the Fed, the Bank of England, the SEC and the FSA," Davies agreed. "That's not going to work anymore."

Brown, in a speech to business leaders in London this week, said, "We have got to . . . involve China, India and all the emerging market economies because the world economy is changing before our eyes, and the system that is just built on Europe and America will not survive the test of time."

Jordan reported from London, Cody from Paris. Correspondents Blaine Harden in Tokyo and Ariana Eunjung Cha in Shanghai, as well as special correspondents Karla Adam in London, Akiko Yamamoto in Tokyo, Shannon Smiley in Berlin and Stella Kim in Seoul contributed to this report.

Washington Post    November 3, 2008     5:36:56 PM

Beware of monopolists for good ideas!

  Steven Mufson and his colleagues' tell-tale account (Discord on Economies In a World Of Trouble, WP 2 Nov 08) on the preparations for the upcoming G-20 emergency meeting in Washington reminds me of the then-blinding joy and general confusion which gripped every chancellery everywhere when, in 1989, the Berlin Wall fell - nota bene in our direction if I remember correctly, some current bureaucratic lawmaking appearances to the contrary notwithstanding. Then as now, having lost the political magnetic field, our leaders everywhere were and are seen to be trying in vain to read their magnetic compass as their main guiding system, to engage in empty gesticulations designed to show that they are on top of things, rather than admit ignorence and look out for new sources of inspiration and guidance, e.g. time-tested principles and intuition. And though all that's not now the subject of my foremost concerns, that other truly historic event may actually have deeper and stronger links to current events in the financial and political world than the surface of things seems to suggest.

    Not Keynes or Hayek, but genuine competition between differing, even opposing views will help our leaders and the citizens to recognize the origine of current failed policies, to clear their rubble for more lasting and individually rewarding common good approaches, and thus to save the world from an even more destructive sequence of events. Not more state control vs more sovereign citizens, but more recognition and respect for, e.g. - state-controlled and universally appreciated - Swiss Railways and, on the other side, for the equally exemplary global achievements of a privately-owned global player like Nestlé. That's essentially what I took away from Roger de Weck's Sternstunde interview of this Sunday with Hansjörg Siegenthaler on Swiss TV.

    And if the interview had lasted a bit more, some rare and potentially helpful information pearls might also have been aired. Notably on the Swiss lawmakers' ill-considered, world-widely copied - and now proven-to-be devastating - legal innovations of the 80ies for pension managers. For the latter were thus formally authorized and encouraged to look for "market-level returns" rather than low-risk family-father investments. To look for big companies as a measure for greater security (sic! e.g. ENRON). And even explicitly to venture into the unfathomably sophisticated derivatives & "securization" casino, i.e. the back-office of the stock-market which is supposed to serve and not to undermine the real economy. Also, other insights might have come out, some of which have been collected systematically since the FED, in March 2006, intriguingly, stopped publishing its M3 figures ( One such potentially helpful insight is the fact that all laws are basically designed for individuals and/or small units. Indeed, lawmakers all over the world regularly rely on those in charge of macro-economic units to be able and to have vision, character and sense of common good responsibilities - all of which are required for effectively arbiting conflicting interests on their macro-economic level where short-term exploiting or even abusing unintended but anyway mostly inevitable legal loopholes are counter-indicated, for harmful to the common good. These managers and financial service partners are thus expected to have the intelligence at least to remember and strictly heed the insight that in finance, too, there is no such thing as a perpetuum mobile - claims to the contrary by fast-talking algorithm fans, greed gurus and other apprentice-sourcerers not withstanding.

    All that and other insights might, helpfully, have had a second chance at said G-20 meeting. Except that the traditionally low-key Swiss - which are said to be trustees for and help manage about a third of the world's private funds - are understood not to be part of the G-20 and thus not to figure on Bush 43' farewell photo op. We'll see whether this is because some Swiss lawmakers have already staked out alternative tracks, like a de-coupling of the Swiss Franc from the US dollar, a return to real-value currencies, and a stop to all further Swiss gold sales for propping up the American currency ( And we'll see whether staying at home will be a blessing or a curse for those interested in genuine solutions to fundamental problems. In either case - like most of his partners abroad - hopefully Bush's successor doesn't believe in the world to be flat. Hopefully, he has no claim to a monopoly for good ideas. And, hopefully, perhaps he thus may actually find it opportune and possible to set aside the hen-and-egg debate, the Keynes or Hayek dogmas, and instead get the genuine debate going on what lessons to draw from the still evolving financial, societal and political tsunamis.

The New Yorker    November 3, 2008

When credit rating agencies, wall street analysts & hedge funds join procyclical forces: market collapse
Greasing the Slide
by James Surowiecki

“Death by a thousand cuts.” “Fire-sale liquidation.” “A vortex of selling.” No matter how people described the market collapse that hit a month ago, the message was the same: it felt like there was nowhere to go but down, and it felt like we’d be going there forever. (Given last week’s dip, it still does.) Beginning on September 29th, the U.S. stock market fell on nine of the next ten trading days, plummeting twenty-six per cent; then, after a short, sharp rally, it lost ten per cent more in less than two days. Explanations for the crash often focussed on the hysteria and panic that periodically seem to seize investors. But the madness of crowds wasn’t the whole story. In a healthy market, there are countercyclical forces—mechanisms and institutions that go against the general market trend and encourage diversity of thinking—that make it harder for feedback loops and vicious cycles to take hold. Lately, though, many of these institutions and mechanisms have become procyclical: instead of countering trends, they amplify them.

Take, for instance, the credit rating agencies, which investors rely upon for evaluations of companies’ creditworthiness and general financial well-being. They are supposed to be a kind of early-warning system for investors, evaluating the health of companies in a way that’s insulated from prevailing market trends. Yet many studies have found that rating agencies are more likely to upgrade companies when investors are bullish and downgrade them when investors are bearish. This makes rating changes less useful to investors and also means that they push the market in the direction it’s already going. On October 9th, Standard & Poor’s announced, late in the day, that it was considering downgrading G.M. That helped an already shaky market fall four per cent in the final hour of trading.

Wall Street analysts have also been good at pouring gasoline on a raging fire. Analysts’ ability to take the long view and scrutinize company fundamentals should make them a counterweight whenever investors get too giddy or too gloomy. And sometimes it works that way: last fall, when investors were still relatively optimistic about banks, Oppenheimer’s Meredith Whitney correctly forecast serious trouble for the industry. More often, though, we see what the U.C.L.A. finance professor Bradford Cornell calls “positive feedback between stock price movements and analyst recommendations.” In other words, analysts often end up following the market, rather than leading it. In the case of a sell-off, this tends to make a bad situation worse. Earlier this month, Goldman Sachs downgraded steel companies like AK Steel. A bold call, you might think, except that it came only after AK Steel’s stock had fallen nearly seventy-five per cent in two months.

Rating agencies and Wall Street analysts are always with us. But the most destructive procyclical force in today’s market is relatively new—hedge funds. There’s an irony here: hedge funds have been touted as a great countercyclical force. Because hedge-fund investors, unlike mutual-fund investors, usually can’t pull their money out on a daily basis, the funds were supposed to be able to take a longer-term view and pursue contrarian strategies (like the hedge-fund manager John Paulson’s huge bets against the subprime bubble). Because they can follow myriad investment strategies—selling short as well as going long, trading derivatives, and so on—they were supposed to add diversity to the market. And the growing influence of hedge funds did indeed coincide with a decline in market volatility. A study by the Federal Reserve Bank of Cleveland showed that hedge funds generally made markets more stable.

Unfortunately, what was true of normal markets has turned out to be irrelevant in a crisis. Hedge-fund investors can’t ask for their money back tomorrow, but they commonly can ask for it at the end of any quarter, and after the market’s tumble this summer many of them did just that—to the tune of more than forty billion dollars in September alone, according to one estimate. The funds had to raise cash to meet those redemptions, which led them to dump stocks seemingly without regard to price. This colossal liquidation led stocks with a high percentage of hedge-fund ownership to fall, in some cases, forty or fifty per cent in a matter of weeks. The problem was magnified by the fact that the funds inevitably piggyback on one another’s trades, which made the selling feed on itself. And the faster funds’ positions shrank the more shares they had to sell in order to raise cash. The process was made still more destructive by many hedge funds’ reliance on leverage—funds often make bets totalling four or five times their capital. On the way up, leverage is great for maximizing returns. On the way down, it’s great at maximizing pain.

The great paradox of the sell-off, then, is that the factors that were supposed to increase the flow of information to investors, foster long-term thinking, and encourage contrarian positions did exactly the opposite. If there’s a silver lining in all this, it’s that investors who can endure past the present moment now have the chance to buy what at least look like very cheap stocks. Still, it’s not surprising that investors have been unwilling to step up. It’s hard enough to catch a falling knife. But it’s nearly impossible when hedge funds are hurling it.    NOVEMBER 4, 2008

Private Equity Draws the Cold Shoulder
Endowments, Pension Funds Rebuff Calls to Make Investments as Some Aim to Offload Stakes

Large institutional investors that provided much of the capital that put some of America's best-known companies into private hands are starting to cool on the investment strategy, suggesting that the lifeline for private equity is eroding.

Public pension funds and endowments are turning down invitations to make private-equity investments. The nation's largest public pension fund, the California Public Employees' Retirement System, or Calpers, is asking private-equity firms to ease off on requests for additional capital it had previously committed to deliver. Calpers has $189.6 billion of assets under management.

Harvard University, with an endowment of $36.9 billion under Jane Mendillo, is seeking to offload about $1.5 billion in investments with private-equity firms such as Bain Capital LLC, according to people familiar with the situation. If the Harvard portfolio trades, the transaction would be one of the largest-ever sales of a private-equity stake. Bids are due this week.

Meanwhile, private-equity firms, some of which earned hundreds of millions of dollars for their founders less than two years ago by taking their firms public, continue to struggle amid the financial crisis. Kohlberg Kravis Roberts & Co., which has been trying to go public since July 2007, on Monday said that it would further delay its initial public offering until 2009. It also substantially reduced the valuations on several of its largest holdings in the third quarter, including the large Texas utility Energy Future Holdings Corp., formerly TXU Corp., by 28% and Dutch semiconductor company NXP BV by about 45%.

Shares of Blackstone Group LP and Fortress Investment Group LLC, two large U.S. private-equity firms that listed their shares in 2007, each have fallen more than 70% from their IPOs.

"People have awakened to the fact that private equity can be a liability, not just an asset," said Andrew Rosenfield, chairman of Guggenheim Investment Advisors, which has more than $50 billion under management or supervision for endowments and wealthy families.

Harvard's timing is notable as it apparently is willing to sell into weakness to pursue what it perceives as preferable opportunities elsewhere. Discounts on secondary sales -- buying another investor's private-equity position -- have become much steeper in the past few months, industry participants said. The declines come amid general market malaise and as some pension funds and endowments, known as limited partners, have felt crunched by private-equity "capital calls" or demands to deliver cash to private-equity firms per prior agreements.

Another factor in the mix: Private-equity firms mark their assets at most quarterly, while public securities trade daily. The result is that the recent, extreme stock market selloff has left some funds with outsized allocations of private-equity stakes.

This allocation issue is prompting one of the country's largest public pension funds -- the California State Teachers' Retirement System, or Calstrs, with $147 billion under management -- to ask its board this week to expand its permissible private-equity allocation as part of a wider program to give the fund more flexibility for all types of investments. "Careful management is absolutely critical during this period," said the investment committee of Calstrs.

Pension funds, endowments and foundations are among the most important clients of private-equity firms, and for many years the relationships have proved mutually fruitful. At Harvard, private equity has delivered a 10-year annualized average return of 28.3%. That easily exceeds the 18.5% return from emerging-market equity, the next best performer, and was double the endowment's 13.8% average annual return over that period. But many other pension funds and endowments were late to the game or didn't have access to the same level of expertise that Harvard commands.

Harvard's endowment has been exploring the sale of private-equity partnerships in the secondary market since July, when Ms. Mendillo, the new head of the company that manages the endowment, took over, people familiar with the matter said.

Meanwhile, the environment for raising new capital has worsened. Blackstone has cut back its ambitions for its latest fund, telling investors it was ratcheting back its $20 billion goal. Madison Dearborn Partners LLC has taken a similar tack with its most recent fund.

Calpers has been unloading stocks and other assets in a falling market to make sure it has enough cash to meet its obligations, including capital calls due to private-equity partners. Calpers has asked some of its partners to delay their capital calls, according to people familiar with the matter. A Calpers spokeswoman said Calpers has been "working with its private-equity partners on the timing" of the capital calls.

Write to Peter Lattman at, Craig Karmin at craig.karmin@wsj.comand Pui-Wing Tam at    NOVEMBER 4, 2008

Convertible Bonds Cause Hedge Funds Serious Pain

Pain in the market for convertible bonds is crippling big hedge funds and cutting off a key avenue of financing for many companies.

This market, which has long welcomed businesses struggling to raise cash, is the latest to suffer from too much borrowing and faulty hedges, which came unwound in the recent turmoil.

Overall, the $200 billion convertible-bond market has lost 36% so far this year, a bit more than the stock market, according to Merrill Lynch. But the average convertible-bond hedge fund has lost about 50% in that time, including a 35% plunge in October, according to Hedge Fund Research Inc.

Buying and selling convertible bonds is a bread-and-butter trade for many hedge funds, and the market's decline has hit some of the biggest ones. Among them is Highbridge Capital Management, which at one point managed as much as $34 billion. The firm is down 22% so far this year, its first down year, in large part because of convertible losses.

About a quarter of the 35% or so losses that Citadel Investment Group has suffered so far this year are from convertible bonds, according to people close to the matter. Jabre Capital Partners, a convert specialist that began the year managing $3 billion, has seen losses of more than 15% this year and recently laid off about 15% of its employees, according to investors.

Convertible bonds are part stocks, part bonds. They act like bonds and usually pay interest. But, as an added kicker, they give holders the right to convert the securities into stocks at a certain price. The market is normally less volatile than stocks, but the securities can have the same upside if a company rebounds.

Lately, convertible bonds have been falling amid worries about the health of companies that sold them. And stock prices of companies that sold convertible bonds have fallen so far that most would have to at least double for the conversion-option to have any value.

Perhaps more important, hedge funds have been selling convertible bonds to raise cash to meet redemption requests, putting further pressure on prices, while Wall Street banks also are unloading the securities as they reduce their own appetite for risk.

Hedge funds, which at times owned as much as 70% of the outstanding convertible bonds, traditionally try to protect themselves by shorting, or borrowing and selling, shares of the same companies, profiting from the difference in the movement of the securities. But some funds did a poor job hedging themselves, or didn't do much hedging at all, figuring the market wouldn't tumble, traders say.

At the same time, some funds focused on convertibles borrowed as much as $5 for each $1 of equity in recent years, leverage that for some has turned small losses into huge ones. A 10% loss can become a 60% drop if a firm's borrowings amounted to five times its capital.

Now prime brokers are either cutting off hedge-fund clients, raising borrowing rates or forcing them to produce more collateral to back the borrowed money.

Convertible bonds have long been a crucial means of financing for companies facing challenges that make a stock or bond sale too expensive. But just $57 billion has been raised in the convertible market so far this year.

Now some specialists, such as Advent Capital, a $4 billion investment firm, are launching convertible-bond "recovery" funds. "The market is the cheapest it's been in 30 years," says Odell Lambroza, a partner at Advent Capital. The market is up 10% in the past three days, in part because some hedge funds have stopped selling.

Write to Gregory Zuckerman at    NOVEMBER 4, 2008

Herbert Hoover was no proponent of laissez-faire
Five Myths About the Great Depression

    The current financial crisis has revived powerful misconceptions about the Great Depression. Those who misinterpret the past are all too likely to repeat the exact same mistakes that made the Great Depression so deep and devastating.
    Here are five interrelated and durable myths about the 1929-39 Depression:

-     Herbert Hoover, elected president in 1928, was a doctrinaire, laissez-faire, look-the-other way Republican who clung to the idea that markets were basically self-correcting.
    The truth is more illuminating. Far from a free-market idealist, Hoover was an ardent believer in government intervention to support incomes and employment. This is critical to understanding the origins of the Great Depression. Franklin Roosevelt didn't reverse course upon moving into the White House in 1933; he went further down the path that Hoover had blazed over the previous four years. That was the path to disaster.
    Hoover, a one-time business whiz and a would-be all-purpose social problem-solver in the Lee Iacocca mold, was a bowling ball looking for pins to scatter. He was a government activist fixated on the idea of running the country as an energetic CEO might run a giant corporation. It was Hoover, not Roosevelt, who initiated the practice of piling up big deficits to support huge public-works projects. After declining or holding steady through most of the 1920s, federal spending soared between 1929 and 1932 -- increasing by more than 50%, the biggest increase in federal spending ever recorded during peacetime.
    Public projects undertaken by Hoover included the San Francisco Bay Bridge, the Los Angeles Aqueduct, and Hoover Dam. The Republican president won plaudits from the American Federation of Labor for his industrial policy, which included jawboning business leaders to refrain from cutting wages as the economy fell. Referring to counteracting the business cycle and propping up wages, Hoover said: "No president before has ever believed that there was a government responsibility in such cases . . . we had to pioneer a new field." Though he did not coin the phrase, Hoover championed many of the basic ideas -- such as central planning and control of the economy -- that came to be known as the New Deal.

-     The stock market crash in October 1929 precipitated the Great Depression.
    What the crash mainly precipitated was a raft of wrongheaded policies that did major damage to the economy -- beginning with the disastrous retreat into protectionism marked by the passage of the Smoot-Hawley tariff, which passed the House in May 1929 and the Senate in March 1930, and was signed into law by Hoover in June 1930. As prices fell, Smoot-Hawley doubled the effective tariff duties on a wide range of manufactures and agricultural products. It triggered the beggar-thy-neighbor policies of countervailing tariffs that caused the international economy to collapse. Some have argued that the increasing likelihood that the Smoot-Hawley tariff would pass was a major contributing factor to the stock-market collapse in the fall of 1929.

-     Where the market had failed, the government stepped in to protect ordinary people.
    Hoover's disastrous agricultural policies involved the know-it-all Hoover acting as his own agriculture secretary and in fact writing the original Agricultural Marketing Act that evolved into Smoot-Hawley. While exports accounted for 7% of U.S. GDP in 1929, trade accounted for about one-third of U.S. farm income. The loss of export markets caused by Smoot-Hawley devastated the agricultural sector. Following in Hoover's footsteps, FDR concentrated on trying to raise farm income by such tactics as setting quotas on production and paying farmers to remove acreage from production -- even though this meant higher prices for hard-pressed consumers and had the effect of both lowering productivity and driving farmers off their land.

-     Greed caused the stock market to overshoot and then crash.
    The real culprit here -- as in the housing bubble in our own time -- is the one identified by the economic historian Charles Kindleberger in the classic book "Manias, Panics, and Crashes": a speculative fever induced by excessively easy credit and broken by the inevitable return to more realistic valuations.
    In the late 1920s, cheap and easy money fueled a tremendous increase in margin trading and a proliferation of "investment trusts" that offered little in the way of dividends or demonstrable earnings per share, but still promised phenomenal capital gains. "Speculation," as Kindleberger neatly defined it, "involves buying for resale rather than use in the case of commodities, and for resale rather than income in the case of financial assets."
    The last thing Hoover wanted to do upon coming to office was to rein in the stock market boom by allowing interest rates to rise to a more normal level. The key to prosperity, in his view, lay not in sound money and rising productivity, but in letting the good times roll -- through government action aimed at maintaining high wages and high stock market valuations.

-     Enlightened government pulled the nation out of the worst downturn in its history and came to the rescue of capitalism through rigorous regulation and government oversight.
    To the contrary, the Hoover and Roosevelt administrations -- in disregarding market signals at every turn -- were jointly responsible for turning a panic into the worst depression of modern times. As late as 1938, after almost a decade of governmental "pump priming," almost one out of five workers remained unemployed. What the government gave with one hand, through increased spending, it took away with the other, through increased taxation. But that was not an even trade-off. As the root cause of a great deal of mismanagement and inefficiency, government was responsible for a lost decade of economic growth.
    Hoover was destined to fill the role of the left's designated scapegoat. Despite that, the one place where he and FDR truly "triumphed" was in enlisting the support of leading writers and intellectuals for government planning and intervention. This had a lasting effect on the way that generations of people think about the Great Depression. The antienterprise spirit among thought leaders of this time (and later) extended to top business publications. "Do you still believe in Lazy-Fairies?" Business Week asked derisively in 1931. "To plan or not to plan is no longer the question. The real question is who is to do it?"
    In his economic policies and his incessant governmental activism, Hoover differed far more sharply with his Republican predecessor than he did with his Democratic successor. Calvin Coolidge, president from 1923 to 1929, made no secret of his disdain for Hoover, who served as his secretary of commerce and won praise from such highly regarded liberals as John Maynard Keynes and Jean Monnet. "That man has offered me unsolicited advice for six years, all of it bad," Coolidge said. He mockingly referred to Hoover as "Wonder Boy."

    With the vitality of U.S. and world economies at stake, it is essential that the decisions of the coming months are shaped by the right lessons -- not the myths -- of the Great Depression.

Mr. Wilson, a former Business Week bureau chief, is a writer based in St. Louis.    NOVEMBER 4, 2008

Some Lessons of the Financial Crisis
Seven principles to guide reform, here and abroad

    We are in the middle of the worst financial crisis in recent memory. Vast efforts are being made to extricate us from it, but there is little focus on preventing the next one.
    Rather than wait, there are things we can do now to avoid another crisis, or at least cushion the blow when it comes. I have seven principles that should underlie any system of global financial regulation and monitoring:
    First, we need to finalize a common set of accounting principles across borders. In global markets, you cannot have global institutions abiding by differing standards of accounting and disclosure simply because they are headquartered in different countries.
    Second, the financial regulatory regimes in the world's major markets need to be structured along broadly the same lines. Each country needs a finance minister at the political level, a central bank and one single financial services regulator with a very broad mandate.
    The regulatory agencies in the U.S. are too small, too fragmented and often not powerful enough to cope with a system-wide crisis. Our hodgepodge of regulatory agencies also encourages financial institutions to play regulatory arbitrage, seeking the most compliant and accommodating regulator. No major financial market can afford that.
    Third, you need full transparency for financial statements. Nothing should be eliminated. Off-balance-sheet vehicles that suddenly return to the balance sheet to wreak havoc make a mockery of principles of disclosure.
    Fourth, you need full disclosure of all financial instruments to the regulator. No regulator can do its job of assessing risk and systemic soundness if large parts of the financial markets are invisible to it. A regulator must be able to monitor all derivatives, including, for example, $60 trillion in credit default swaps.
    Fifth, the regulator should have oversight over all financial institutions that participate in the markets, regardless of their charter, location or legal status. For example, it makes no sense if you are worried about leverage in the system to exclude major categories of borrowers, such as hedge funds.
    Sixth, we need to abolish mark-to-market accounting for hard-to-value assets. There is now emerging a broad realization that mark-to-market accounting has exacerbated the current crisis. We are not talking about publicly traded equities with a readily ascertainable value. The problem involves securities held for investment purposes, and those instruments during certain times of the cycle for which there is no readily observable market. These securities and instruments would be fully disclosed to the regulator. However, a financial institution would not be forced to suddenly take huge write downs at artificial, fire-sale prices and thus contribute to financial instability.
    Finally, we have to move to a principles-based regulatory system rather than a rules-based system. A system of rules and regulations is utterly incapable of dealing with the speed and complexity of the modern financial system. Current SEC and bank regulation was unable to stem the current crisis.
    If we are to sweep a vast array of financial institutions into the net of a single regulator, then that regulator has to be able to regulate not by promulgating a blizzard of ever more complex rules, but by enunciating a set of guiding principles. If these principles are coupled with strong disclosure and oversight, they will give the regulator the flexibility needed to cope with an ever-changing financial landscape, and to provide a clear direction for the regulated institutions.
    Until the current crisis, the American financial services industry had been the envy of the world for its creativity and nimbleness. We must not create a new system of regulation that throttles innovation through the ever-increasing complexity of its rules. Sarbanes-Oxley has made a fetish of compliance with complex regulations as a substitute for good judgment. This has not made American corporations any more stable or profitable, but it has damaged our competitiveness and weakened our domestic financial markets. We must not make the same mistake.
    Finally, to implement a new system of global financial regulation and monitoring we need a new global organization of regulators. We live in global markets, but the regulators of the world's major economies are largely operating independently.
This new international organization of financial regulators would be permanently staffed and constantly in session. Through it, the regulators of the world's major economies could exchange detailed information on what is happening in their respective markets. The organization's permanent staff would collect, analyze and publish that information quickly, helping investors, and helping regulators correct incipient problems before they become serious.
    Markets with excess exposures to any one sector or with excessive growth in risky financial instruments are the ones that implode first, yet we never seem to discover them in time to take remedial action. Regulators with input from the world's markets and their fellow regulators will be able to act more wisely.
    In the weeks and months to come we will no doubt spend a lot of time discovering how we got to this financial crisis. More important is what we do next. Affixing blame may make us feel better; fixing the system for the future will make us so much safer.

Mr. Schwarzman is chairman, co-founder and CEO of the Blackstone Group, an investment and advisory firm.

November 5, 2008

Wall Street’s Extreme Sport

Today’s economic turmoil, it seems, is an implicit indictment of the arcane field of financial engineering — a blend of mathematics, statistics and computing. Its practitioners devised not only the exotic, mortgage-backed securities that proved so troublesome, but also the mathematical models of risk that suggested these securities were safe.

What happened?

The models, according to finance experts and economists, did fail to keep pace with the explosive growth in complex securities, the resulting intricate web of risk and the dimensions of the danger.

But the larger failure, they say, was human — in how the risk models were applied, understood and managed. Some respected quantitative finance analysts, or quants, as financial engineers are known, had begun pointing to warning signs years ago. But while markets were booming, the incentives on Wall Street were to keep chasing profits by trading more and more sophisticated securities, piling on more debt and making larger and larger bets.

“Innovation can be a dangerous game,” said Andrew W. Lo, an economist and professor of finance at the Sloan School of Management of the Massachusetts Institute of Technology. “The technology got ahead of our ability to use it in responsible ways.”

That out-of-control innovation is reflected in the growth of securities intended to spread risk widely through the use of financial instruments called derivatives. Credit-default swaps, for example, were originally created to insure blue-chip bond investors against the risk of default. In recent years, these swap contracts have been used to insure all manner of instruments, including pools of subprime mortgage securities.

These swaps are contracts between two investors — typically banks, hedge funds and other institutions — and they are not traded on exchanges. The face value of the credit-default market has soared to an estimated $55 trillion.

Credit-default swaps, though intended to spread risk, have magnified the financial crisis because the market is unregulated, obscure and brimming with counterparty risk (that is, the risk that one embattled bank or firm will not be able to meet its payment obligations, and that trading with it will seize up).

The market for credit-default swaps has been at the center of the recent Wall Street banking failures and rescues, and these instruments embody the kinds of risks not easily captured in math formulas.

“Complexity, transparency, liquidity and leverage have all played a huge role in this crisis,” said Leslie Rahl, president of Capital Market Risk Advisors, a risk-management consulting firm. “And these are things that are not generally modeled as a quantifiable risk.”

Math, statistics and computer modeling, it seems, also fell short in calibrating the lending risk on individual mortgage loans. In recent years, the securitization of the mortgage market, with loans sold off and mixed into large pools of mortgage securities, has prompted lenders to move increasingly to automated underwriting systems, relying mainly on computerized credit-scoring models instead of human judgment.

So lenders had scant incentive to spend much time scrutinizing the creditworthiness of individual borrowers. “If the incentives and the systems change, the hard data can mean less than it did or something else than it did,” said Raghuram G. Rajan, a professor at the University of Chicago. “The danger is that the modeling becomes too mechanical.”

Mr. Rajan, a former chief economist at the International Monetary Fund, points to a new paper co-authored by a University of Chicago colleague, Amit Seru, “The Failure of Models That Predict Failure,” which looked at securitized subprime loans issued from 1997-2006. Their research concluded that the quantitative methods underestimated defaults for subprime borrowers in what the paper called “a systematic failure of default models.”

A recent paper by four Federal Reserve economists, “Making Sense of the Subprime Crisis,” found another cause. They surveyed the published research reports by Wall Street analysts and economists, and asked why the Wall Street experts failed to foresee the surge in subprime foreclosures in 2007 and 2008. The Fed economists concluded that the risk models used by Wall Street analysts correctly predicted that a drop in real estate prices of 10 or 20 percent would imperil the market for subprime mortgage-backed securities. But the analysts themselves assigned a very low probability to that happening.

The miss by Wall Street analysts shows how models can be precise out to several decimal places, and yet be totally off base. The analysts, according to the Fed paper, doggedly clung to the optimists’ mantra that nominal housing prices in the United States had not declined in decades — even though house prices did fall nationally, adjusted for inflation, in the 1970s, and there are many sizable regional declines over the years.

Besides, the formation of a housing bubble was well under way. Until 2003, prices moved in line with employment, incomes and migration patterns, but then they departed from the economic fundamentals.

The Wall Street models, said Paul S. Willen, an economist at the Federal Reserve in Boston, included a lot of wishful thinking about house prices. But, he added, it is also true that asset price trends are difficult to predict. “The price of an asset, like a house or a stock, reflects not only your beliefs about the future, but you’re also betting on other people’s beliefs,” he observed. “It’s these hierarchies of beliefs — these behavioral factors — that are so hard to model.”

Indeed, the behavioral uncertainty added to the escalating complexity of financial markets help explain the failure in risk management. The quantitative models typically have their origins in academia and often the physical sciences. In academia, the focus is on problems that can be solved, proved and published — not messy, intractable challenges. In science, the models derive from particle flows in a liquid or a gas, which conform to the neat, crisp laws of physics.

Not so in financial modeling. Emanuel Derman is a physicist who became a managing director at Goldman Sachs, a quant whose name is on a few financial models and author of “My Life as a Quant — Reflections on Physics and Finance” (Wiley, 2004). In a paper that will be published next year in a professional journal, Mr. Derman writes, “To confuse the model with the world is to embrace a future disaster driven by the belief that humans obey mathematical rules.”

Yet blaming the models for their shortcomings, he said in an interview, seems misguided. “The models were more a tool of enthusiasm than a cause of the crisis,” said Mr. Derman, who is a professor at Columbia University.

In boom times, new markets tend to outpace the human and technical systems to support them, said Richard R. Lindsey, president of the Callcott Group, a quantitative consulting group. Those support systems, he said, include pricing and risk models, back-office clearing and management’s understanding of the financial instruments. That is what happened in the mortgage-backed securities and credit derivatives markets.

Better modeling, more wisely applied, would have helped, Mr. Lindsey said, but so would have common sense in senior management. The mortgage securities markets, he noted, grew rapidly and generated high profits for a decade. “If you are making a high return, I guarantee you there is a high risk there, even if you can’t see it,” said Mr. Lindsey, a former chief economist of the Securities and Exchange Commission.

Among quants, some recognized the gathering storm. Mr. Lo, the director of M.I.T. Laboratory for Financial Engineering, co-wrote a paper that he presented in October 2004 at a National Bureau of Economic Research conference. The research paper warned of the rising systemic risk to financial markets and particularly focused on the potential liquidity, leverage and counterparty risk from hedge funds.

Over the next two years, Mr. Lo also made presentations to Federal Reserve officials in New York and Washington, and before the European Central Bank in Brussels. Among economists and academics, he said, the research was well received. “On the industry side, it was dismissed,” he recalled.

The dismissive response, Mr. Lo said, was not really surprising because Wall Street was going to chase profits in the good times. The path to sensible restraint, he said, will include not only better risk models, but also more regulation. Like others, Mr. Lo recommends higher capital requirements for banks and the use of exchanges or clearinghouses for the trade of exotic securities, so that prices and risks are more visible. Any hedge fund with more than $1 billion in assets, he added, should be compelled to report its holdings to regulators.

Financial regulation, Mr. Lo said, should be seen as similar to fire safety rules in building codes. The chances of any building burning down are slight, but ceiling sprinklers, fire extinguishers and fire escapes are mandated by law.

“We’ve learned the hard way that the consequences can be catastrophic, even if statistically improbable,” he said.    NOVEMBER 5, 2008

CDS Data Show Scope of Wagers on Nations

New data from the Depository Trust & Clearing Corp. speak volumes about trading activity in the vast credit-default-swap market. On Tuesday, the DTCC began publishing weekly numbers on its Web site that detail how much of these insurance-like contracts are tied to individual companies and countries.

The information -- previously unavailable to the public -- showed that 10 debt issuers most widely referenced by the swaps include Turkey and Russia and Wall Street firms Morgan Stanley and Goldman  Sachs Group Inc. The data illustrate that investors around the world use credit-default swaps to bet on, or hedge their exposures to, nations as much, if not more, than they do for companies.

Buyers of credit-default swaps pay regular fees to sellers, who in turn promise to compensate buyers if specific bonds and loans default. Swap buyers may be protecting investments they own or simply  making bearish bets against companies or countries.

At the end of October, the DTCC's database contained about 2.5 million outstanding swap contracts covering $33.6 trillion in debt. The numbers are "notional" values, meaning they reflect the amount of  debt that has been insured by the contracts. In many cases, they well exceed the actual amount of bonds and loans that a company or country has issued.

More than $188 billion in swaps were written on the sovereign debt of Turkey, the most for any debt issuer. Italy and Brazil were next, with more than $140 billion each.

Merrill Lynch & Co., Morgan Stanley and Goldman Sachs, which were the subject of significant investor concern in recent weeks, each had more than $90 billion in swaps tied to their debt. Consumer  lenders GMAC LLC, General Electric Capital Corp. and Countrywide Home Loans, a unit of Bank of America Corp., were also among the top-10 most widely referenced debt issuers.

The DTCC decided to release some of its data publicly to help improve transparency in the swaps market. Tuesday's numbers also showed that, for most bonds, the net volumes of contracts, which exclude  trades that effectively offset each other, were relatively small.

Credit-default-swap trading has recently come under scrutiny by regulators. "Transparency provides a great deal of comfort to the market that the numbers we were scaring ourselves with were inflated,"  says Brian Yelvington, an analyst at debt research firm CreditSights, noting that the market, once hailed as more than $60 trillion in size, could be much smaller.

DTCC's data also showed that more than 80% of the credit-default-swap trades took place between Wall Street dealers, many of which are banks. Dealers entered into fewer swaps with customers such  as hedge funds.

Write to Serena Ng at and Liz Rappaport at

Washington Post     November 5, 2008   8:49:09 AM

Salve Obama!

    Congratulations to President-elect Barack Hussein Obama, the beacon of hope for the peoples of America and the world.

    Yes, after 8 years on the road of darkness and to the IV Reich, after so much betrayal of the American dream and promises, I too look forward to be able again to identify with the American reality. Where I can say whole-heartedly: I'm with you and, in my corner, will do my part for the common good - both on the way back to real-value currencies ( and towards a regionally-stablizing solution of the Iraq quagmire (

    A special thank goes to those who, with their actions - even "over-reaction" - and inactions, so far succeded to keep the flat-earth bullies and apprentice-sorcerers here and there from unleashing Armageddon in the Middle East. I'm holding my breath and pray that the 44th US President will actually have the opportunity and, in this, will be supported by all men of good will, to bring us all back from the brink and help us achieve our individually and mutually beneficial objectives. Salve Obama!

Neue Zürcher Zeitung    8. November 2008

Auch der Staat hat versagt
Die Ursachen der Finanzkrise liegen tiefer als nur in «entfesselten Marktkräften»
Von Wernhard Möschel*

Der Ursprung der Finanzkrise ist im amerikanischen Immobilienmarkt zu suchen. Dieser wurde von der Politik lange Zeit stark gefördert. Mit der Finanzkrise ist die marktwirtschaftliche Ordnung generell in die Kritik geraten. Die Krise ist allerdings bei weitem nicht nur auf ein «Marktversagen» zurückzuführen, wie der Autor im Folgenden zeigt. Im Gegenteil hat auch der Staat in vieler Hinsicht versagt.
Die gegenwärtige Finanzkrise, besonders ihr Ausmass, schürt Kritik an der Legitimität und an der Leistungsfähigkeit der marktwirtschaftlichen Ordnung. Diese Kritik kommt nicht nur von notorischen Marktskeptikern wie linksradikalen Splittergruppen oder von sich populistisch gebärdenden Politikern wie Oskar Lafontaine, sondern auch von ernst zu nehmenden Adressen. So verkündete etwa Nicolas Sarkozy, der französische Staatspräsident: «Der Markt, der immer recht hat – das ist vorbei.» Stattdessen sei jetzt die Stunde des Staates gekommen und die der Wahrheit. Doch lässt sich auch eine völlig gegensätzliche These begründen: Die gegenwärtige Finanzkrise ist weniger eine Krise der Marktwirtschaft als eine Krise des Staates.

Hoch reguliertes Bankgewerbe
Neben der Versicherungsbranche ist weltweit wohl kein Gewerbe so stark reguliert wie das Bankgewerbe. Dies reicht von Zulassungsvorschriften über Eigenkapital- und Liquiditäts-Anforderungen, eingehende Regulierung einzelner Geschäfte wie namentlich des Kreditgeschäftes bis hin zu einer laufenden Überwachung mit Hilfe von Auskünften und Prüfungen. Einlagen unterliegen einem häufig üppigen Versicherungsschutz. Diese besondere Aufsicht wird regelmässig von einer speziellen Aufsichtsbehörde oder der Notenbank oder in Kooperation von beiden wahrgenommen. Von «entfesselten Marktkräften» kann hier schon im Ansatz nicht die Rede sein. Es besteht vielmehr ein ungewöhnlich festgezurrter Regelungsrahmen.

Diese generelle Form der Bankenregulierung hat sich etwa seit Mitte der 1930er Jahre weltweit durchgesetzt. Man darf seitdem – jedenfalls insgesamt – von einer Erfolgsbilanz sprechen. Bankenkrisen sind der Zahl und dem Ausmass nach in den vergangenen Jahrzehnten begrenzt geblieben und konnten letztlich immer bewältigt werden. Auch blieben die Finanzmärkte in der Lage, ihre volkswirtschaftlichen Aufgaben eher geräuschlos zu erfüllen. Dies gilt für das weltweite Wirtschaftswachstum, namentlich für den seit Ende des Zweiten Weltkrieges dramatisch zunehmenden internationalen Handel mit Waren und Dienstleistungen. Auch grösste Investitionen wie etwa die Erdölförderung in der Nordsee oder Megafusionen vom Typ Mannesmann/Vodafone blieben Gegenstand von privaten Finanzierungsentscheidungen.

Dabei hat die bestehende Regulierung, einer Verhältnismässigkeits-Überlegung folgend, in den Wettbewerb des Bankensektors – jedenfalls in der Tendenz – nicht mehr als unbedingt erforderlich eingegriffen. Eine risikoreiche Kreditgewährung ist wirtschaftlich vielfach sinnvoll, sie verhilft dem technischen Fortschritt zum Durchbruch. Die Innovationsfähigkeit des Finanzsektors wurde durch die Regulierung nicht sonderlich gebremst. Im Wesentlichen aus dem anglo-amerikanischen Raum kam es zu einem ununterbrochenen Strom neuer, passgenauer Angebote.

Politisch geförderter Immobilienmarkt
Ist alles seit der Finanzkrise von 2007/08 anders? Peer Steinbrück, der deutsche Finanzminister, sieht es beispielsweise so: «Die Welt wird nicht wieder so werden wie vor dieser Krise. Die USA werden ihren Status als Supermacht des Weltfinanzsystems verlieren» (Rede vom 25. 9. 08 im Deutschen Bundestag). Die amerikanische Subprime-Krise will er nur als vordergründige Ursache verstehen: «Die eigentlichen Ursachen liegen tiefer – nämlich in einer aus meiner Sicht unverantwortlichen Überhöhung des <Laisser-faire-Prinzips>, also dem von staatlicher Regulierung möglichst vollständig befreiten Spiel der Marktkräfte im anglo-amerikanischen Finanzmarktsystem.» Diese Aussagen sind allzu polemisch. Der überaus differenzierten und engmaschigen Bankenregulierung in den USA werden sie nicht gerecht. Immerhin gehört der Bundesfinanzminister nicht zu den Fundamentalkritikern. Er teile etwa dezidiert die Auffassung, dass die Finanzkrise die Idee der sozialen Marktwirtschaft auf lange Sicht weltweit stärken könne, so Steinbrück.

Der Ursprung der Krise liegt indessen klar in den amerikanischen Immobilienmärkten. Es entsprach über Jahrzehnte dem Willen von Regierung und Kongress, auch den Beziehern kleiner und kleinster Einkommen den Erwerb eines eigenen Hauses zu ermöglichen. Die dafür ausgelegten Kredite betrugen in den letzten Jahren im Durchschnitt 185 000 $ pro Objekt. Für diesen politischen Willen mag es gute oder wenigstens vertretbare Gründe gegeben haben. Aus der Sicht einer «soundness of banking» war dies fast aberwitzig (Fehler 1). In Deutschland nennt man Finanzierungen wie den Erwerb eines Hauses ohne Eigenkapital «Zahnarztfinanzierungen». Sie kommen kaum vor – da zu teuer und riskant – und wenn doch, dann nur, falls als Sicherheit ein verlässlich erzielbares hohes Einkommen zur Verfügung steht (bei gleichzeitigem Versicherungsschutz mit Blick auf die Rückzahlungschancen bei Todesfall oder Ähnlichem).

Die amerikanische Politik bediente sich zur Förderung des Wohneigentums zweier Spezialbanken (in Deutschland würde man sagen Förderbanken). Das Unternehmen Fannie Mae war 1938 im Rahmen des New Deal als staatseigene Bank gegründet und 1968 privatisiert worden. Es ist eine reine Hypothekenbank. Ihr Geschäftsfeld war auf den sogenannten «secondary mortgage-market» beschränkt, Geschäfte mit Endkunden waren ihr verwehrt. Freddie Mac ist eine im Jahre 1968 gegründete börsennotierte Hypothekenbank gleichen Typs. Die Gründung geschah auf Veranlassung des Kongresses, der auf diese Weise für Konkurrenz zu Fannie Mae sorgen wollte. Das Geschäftsmodell beider Banken bestand – stark vereinfacht – darin, den Kreditinstituten Forderungen und dingliche Sicherheiten abzukaufen, diese zu bündeln und als hypothekenbesicherte Papiere («mortgage-backed securities») an Anleger weiterzuverkaufen. Vielfach waren Zweckgesellschaften («special purpose vehicles») dazwischengeschaltet, oder diese übernahmen selbst das Geschäft der Verbriefung. Zu den Anlegern gehörten namentlich andere Kreditinstitute. Der Vertrieb dieser Wertpapiere erfolgte weltweit. So ist China einer der grössten Investoren, und Millionenbeträge landeten zum Beispiel auch im Portfolio einer Provinzbank wie der Sachsen LB.

Garantie für Fannie und Freddie
Fannie Mae und Freddie Mac hatten keine Staatsgarantie im rechtlichen Sinne, arbeiteten aber unter einer impliziten Garantie des amerikanischen Finanzministeriums. Dies führte zu einem erstklassigen Rating. Sie konnten Gelder zu günstigen Zinssätzen aufnehmen. Als beide Institute im Zuge der Finanzkrise am 7. September 2008 von der zuständigen Aufsichtsbehörde, der Federal Housing Finance Agency, übernommen und damit verstaatlicht wurden, verwirklichte sich diese implizite Garantie in der Tat. Dabei sind die Verbriefung und Veräusserung von hypothekenbesicherten Anleihen aus regulatorischer Sicht insoweit zu begrüssen, als das Risiko eines Kreditausfalls auf viele Gläubigerschultern verteilt wird. Das ist eine wünschenswerte Diversifikation. Sie wird allerdings zum Fehler, wenn alle diese Papiere abhängig sind von der Entwicklung der amerikanischen Immobilienmärkte (Fehler 2). Dann unterliegen sie trotz mancher Heterogenität dieser Märkte einem gleichartigen Wertverlustrisiko. Genau dieses hat sich realisiert.

Entscheidend ist, dass beide Spezialbanken mit dem Segen der höchsten Politik – und in ihrem Kielwasser auch private Banken – ein viel zu grosses Rad drehten (Fehler 3). Sie hatten zur Refinanzierung der aufgekauften Hypotheken und sonstiger Aktivitäten auf dem Immobilienmarkt Anleihen im Wert von über 4 Bio. $ begeben. Sie gehörten damit zu den grössten Schuldnern weltweit. Es war evident, dass diese Förderbanken bei einem Rückgang der Immobilienpreise in äusserste Gefahr geraten mussten. Dasselbe geschah mit privaten Banken, die ebenfalls auf den überhitzten amerikanischen Immobilienmarkt gesetzt hatten.

Zu viel billiges Geld
Hinzu kam eine Politik des billigen Geldes vonseiten der Federal Reserve Bank (Fed) unter dem Notenbankgouverneur Alan Greenspan (Fehler 4). Dafür mag es nach dem Platzen der Hightech-Blase einleuchtende Gründe gegeben haben. Auch ist zu bedenken, dass der Notenbank-Auftrag in den USA nicht prioritär der Erhaltung der Geldwertstabilität dient wie bei ihrem europäischen Pendant, der Europäischen Zentralbank, sondern gleichgewichtig die Förderung der wirtschaftlichen Entwicklung umfasst. Hinzu kamen Rückflüsse wachsender Devisenreserven von Schwellenländern an die Kapitalmärkte der Industrieländer. Folge dieser Politik war freilich, dass die Immobilienmärkte mit Geld geflutet wurden. Dies löste den dort herrschenden Überschwang aus. In den Jahren 2002 bis 2006 stiegen in den USA die Immobilienpreise in den Ballungsgebieten mit einer durchschnittlichen Jahresrate von 20%. Bei solchen Steigerungsraten kann es nicht verwundern, wenn bei den Hypothekarschuldnern die Sicherungen durchbrannten und bei den kreditgebenden Banken ebenso. Diese sahen kaum mehr ein Risiko, was die Werthaltigkeit des als Sicherheit dienenden Objektes anbelangte. Als die Fed dann in den Jahren 2006 und 2007 die Leitzinsen auf ein normales Niveau zu heben begann, nahm die Krise auf den Immobilienmärkten ihren Lauf. Dabei sind Immobilienmärkte Schlüsselmärkte einer Finanzwirtschaft. Dies gilt für das Volumen dieser Märkte wie für die Langfristigkeit der Belastungen: Das Zinsänderungsrisiko ist besonders gross, ebenso gross sind die Auswirkungen eines Zerfalls des Wertes des Objekts.

Werden die beschriebenen Fehler betrachtet, die zur gegenwärtigen Finanzkrise entscheidend beigetragen haben, kann man also mit Fug vom Versagen des amerikanischen Staates sprechen.

(*) Wernhard Möschel ist Professor für bürgerliches Recht, Handels- und Wirtschaftsrecht an der Universität Tübingen.

Neue Zürcher Zeitung    8. November 2008

 Fehlverhalten der Privaten ist nicht gleich Marktversagen
Von Wernhard Möschel (*)

Die Welt ist nicht manichäisch. Sie lässt sich nicht trennscharf in Gut und Böse aufteilen. Auch aufseiten der Marktteilnehmer ist es auf dem Weg zur Finanzkrise zu Fehlverhalten gekommen. Es zeigt sich aber, dass eine Bewertung dieses Fehlverhaltens als «Marktversagen» den Sachverhalt nicht präzise trifft. Die Kreditrisiken auf den amerikanischen Immobilienmärkten wurden falsch eingeschätzt, vor Ort und nach Verbriefung der hypothekenbesicherten Forderungen von den Käufern dieser Anleihen. Dabei kam es zu einem ausgeprägten Herdenverhalten. Wenn (einstmals) so erstklassige Adressen wie Lehman Brothers oder UBS die Papiere anstandslos in ihr Portefeuille nahmen, so folgten viele Institute diesseits und jenseits des Atlantiks schlicht diesem Beispiel. Das ist kein vorbildliches Verhalten einer Bankleitung. Dass es auch anders ging, zeigte die Geschäftsleitung der amerikanischen Grossbank J. P. Morgan Chase. Diese hatte das Hypothekengeschäft nahezu vollständig gemieden. Dafür war sie in der Lage, aus der Finanzkrise die angeschlagene Investmentbank Bear Stearns und die in Liquiditätsprobleme geratene Sparkasse Washington Mutual nachgerade zu Schnäppchenpreisen zu erwerben.

Riesige Verschuldungshebel
Investmentbanken wie Goldman Sachs oder Morgan Stanley – sehr viel weniger reguliert als Geschäftsbanken – arbeiteten früher überwiegend für ihre Kunden: Sie handelten im Auftrag ihrer meist institutionellen Auftraggeber mit Aktien und Anleihen. Sie brachten Neuemissionen im Markt unter. Sie betrieben das Beratungsgeschäft bei Mergers und Acquisitions ebenso wie bei Unternehmens-Abspaltungen. Dafür lösten sie Gebühren und Honorare. Vor geraumer Zeit waren sie in das Geschäft mit Wertpapieren auf eigene Rechnung eingestiegen. Diese Eigengeschäfte unterlagen einem sehr viel höheren Risiko als ihr traditionelles Geschäft.

Die beiden Förderbanken für das Hypothekengeschäft und die Investmentbanken benutzten zudem Verschuldungshebel, die alle Masse sprengten. Wer 100 $ Eigenkapital einsetzt und als Ertrag 10 $ erzielt, hat eine ordentliche Rendite von 10%. Wer die eingesetzten 100 $ mit 90 $ Kredit finanziert, erzielt auf das Eigenkapital von 10 $ einen Ertrag von 10 $ (oder 100%, wenn die Kosten des Kredites der Einfachheit halber vernachlässigt werden). Die amerikanischen Investmentbanken arbeiteten im Durchschnitt mit einem Hebel von 24 zu 1. Bear Stearns hatte ein Fremdkapital-Eigenkapital-Verhältnis von 35 zu 1. Lehman Brothers hielt vor dem Zusammenbruch Anlagen in Höhe von 700 Mrd. $ bei einem Eigenkapital von lediglich 23 Mrd. $; die «leverage ratio» belief sich auf 30 zu 1. Bei Fannie und Freddie kommen plausible Berechnungen zu einem erstaunlichen Hebelfaktor von 60 zu 1. Das lässt sich nur auf der Basis eines unfassbaren Vertrauens in einen ständig zur Verfügung stehenden Refinanzierungsmarkt nachvollziehen.

Ein weiteres Problem waren die anreizorientierten Vergütungsmodelle. Bankmanager erzielen an der Wall Street nach fünfzehn Berufsjahren ein Grundgehalt in Höhe von 200 000 $ bis 300 000 $ im Jahr. Bonuszahlungen gingen demgegenüber bis zum Fünf- bis Zehnfachen dieses Betrages. Ein solches Anreizsystem führte dazu, die Erträge sozusagen um jeden Preis wenigstens kurzfristig zu steigern. Die längerfristigen Risiken wurden in den Hintergrund gedrängt. Im Weiteren haben Fehler der Rating-Agenturen zur Auslösung der Krise beigetragen. Bei Kreditverbriefungen sind Investoren wegen ihrer Ferne zu den Schuldnern in ganz besonderem Masse auf die Informationen dieser Agenturen angewiesen; diese haben sich im Nachhinein oft als falsch herausgestellt.

Überblickt man diese Ursachen, dann sind es begrenzte Einsicht und übermässiges Gewinnstreben, die private Akteure in die Finanzkrise getrieben haben. Dies sind alte Bekannte jeder Bankenaufsicht. Sie gehören zur Conditio humana, sie liegen also in der Natur des Menschen und begründen an sich noch kein «Versagen» der marktwirtschaftlichen Ordnung. Soweit das Regelwerk falsche Signale gab, muss man wieder von Staatsversagen sprechen. In den USA betraf dies im Wesentlichen die unabhängigen Investmentbanken. Solche gibt es jetzt nicht mehr. Die beiden letzten, Goldman Sachs und Morgan Stanley, haben sich im Zuge der Finanzkrise in Geschäftsbanken umgewandelt und unterstehen nun der sehr viel strafferen Bankenaufsicht der Fed. Als Vorteil haben sie dafür unmittelbaren Zugang zu Krediten der Notenbank und Kundengeldern.

Zurückhaltung bei Reformen
Sinnt man über Reformvorschläge nach, so ist in mindestens vier Punkten zur Vorsicht zu mahnen. Erstens ist es wenig sinnvoll, Vorschläge an die amerikanische Adresse zu richten. Man sollte vor der eigenen Türe kehren. Zweitens bestehen zentrale Schwachstellen des amerikanischen Finanzsystems diesseits des Atlantiks nicht; sie betrafen dort vornehmlich die bisherigen Investmentbanken. Unberührt bleibt das Grundübel: das langjährige Ungleichgewicht in der amerikanischen Zahlungsbilanz und die daraus resultierende Verschuldung der USA gegenüber der übrigen Welt. Drittens stellt sich die Frage, ob man die Finanzkrise zum Anlass nimmt, auf ursächlich gewordene Fehlentwicklungen zu antworten, oder ob man beliebige Anliegen der Finanzmarktregulierung durchsetzen will – Letzteres drohte in einer Überregulierung zu münden. Und viertens: Entscheidende Ursachen von Bankenkrisen, die hier als begrenzte Einsicht und übermässiges Gewinnstreben zusammengefasst wurden, lassen sich nur begrenzt beherrschen. In einer gewissen Demut mag man mit dem früheren Bundeskanzler Konrad Adenauer feststellen: «Die Menschen sind, wie sie sind. Andere gibt es nicht.»

The New Yorker    November 10, 2008

It seems wholly contrary to common sense that the market for products that derive
from real things should be unimaginably vaster than the market for things themselves.
Melting into Air
Before the financial system went bust, it went postmodern.
by John Lanchester

The fragility of the banks was easily disguised: “value,” in the financial markets, was as elusive as “meaning” in deconstruction.

For most adults, the sensation of being proved right is usually a complex and bittersweet one. You might have said that your brother-in-law would turn out to be a no-goodnik, or that the forty-third President would turn out to be the worst in American history, and you may regard subsequent events as inarguable proof that you were right—but it’s not an especially happy feeling. It changes nothing about the world outside your head. You were right. Congratulations. And?

One of the peculiar things about the world of finance is that it freely offers the sensation of being proved right to its participants. Every transaction in the markets has a buyer and a seller, and, in most cases, one of them is right and the other wrong, because the price goes either up or down. The cumulative weight of this right-or-wrongness is one of the things that make financial types psychologically distinctive. Artists, sportsmen, surgeons, plumbers, and the rest of us have secret voices of doubt, inner reservations about ourselves, but if you go to work with money, and make money, you can be proved right in the most inhumanly pure way. This is why people who have succeeded in the world of money tend to have such a high opinion of themselves. And this is why they seem to regard themselves as paragons of rationality, while others often regard them as slightly nuts. The chairman and C.E.O. of Lehman Brothers, Richard Fuld, in his no-apologies testimony to a congressional committee after his company’s collapse, gave us a glimpse of this state of mind in its full pomp.

This is also why the financial masters of the universe tend not to write books. If you have been proved—proved—right, why bother? If you need to tell it, you can’t truly know it. The story of David Einhorn and Allied Capital is an example of a moneyman who believed, with absolute certainty, that he was in the right, who said so, and who then watched the world fail to react to his irrefutable demonstration of his own rightness. This drove him so crazy that he did what was, for a hedge-fund manager, a bizarre thing: he wrote a book about it.

The story began on May 15, 2002, when Einhorn, who runs a hedge fund called Greenlight Capital, made a speech for a children’s-cancer charity in Hackensack, New Jersey. The charity holds an annual fund-raiser at which investment luminaries give advice on specific shares. Einhorn was one of eleven speakers that day, but his speech had a twist: he recommended shorting—betting against—a firm called Allied Capital. Allied is a “business development company,” which invests in companies in their early stages. Einhorn found things not to like in Allied’s accounting practices—in particular, its way of assessing the value of its investments. The mark-to-market accounting that Einhorn favored is based on the price an asset would fetch if it were sold today, but many of Allied’s investments were in small startups that had, in effect, no market to which they could be marked. In Einhorn’s view, Allied’s way of pricing its holdings amounted to “the you-have-got-to-be-kidding-me method of accounting.” At the same time, Allied was issuing new equity, and, according to Einhorn, the revenue from this could be used to fund the dividend payments that were keeping Allied’s investors happy. To Einhorn, this looked like a potential Ponzi scheme.

The next day, Allied’s stock dipped more than twenty per cent, and a storm of controversy and counter-accusations began to rage. “Those engaging in the current misinformation campaign against Allied Capital are cynically trying to take advantage of the current post-Enron environment by tarring a great and honest company like Allied Capital with the broad brush of a Big Lie,” Allied’s C.E.O. said. Einhorn would be the first to admit that he wanted Allied’s stock to drop, which might make his motives seem impure to the general reader, but not to him. The function of hedge funds is, by his account, to expose faulty companies and make money in the process. Joseph Schumpeter described capitalism as “creative destruction”: hedge funds are destructive agents, predators targeting the weak and infirm. As Einhorn might see it, people like him are especially necessary because so many others have been asleep at the wheel. His book about his five-year battle with Allied, “Fooling Some of the People All of the Time” (Wiley; $29.95), depicts analysts, financial journalists, and the S.E.C. as being culpably complacent. The S.E.C. spent three years investigating Allied. It found that Allied violated accounting guidelines, but noted that the company had since made improvements. There were no penalties. Einhorn calls the S.E.C. judgment “the lightest of taps on the wrist with the softest of feathers.” He deeply minds this, not least because the complacency of the watchdogs prevents him from being proved right on a reasonable schedule: if they had seen things his way, Allied’s stock price would have promptly collapsed and his short selling would be hugely profitable. As it was, Greenlight shorted Allied at $26.25, only to spend the next years watching the stock drift sideways and upward; eventually, in January of 2007, it hit thirty-three dollars.

All this has a great deal of resonance now, because, on May 21st of this year, at the same charity event, Einhorn announced that Greenlight had shorted another stock, on the ground of the company’s exposure to financial derivatives based on dangerous subprime loans. The company was Lehman Brothers. There was little delay in Einhorn’s being proved right about that one: the toppling company shook the entire financial system. A global cascade of bank implosions ensued—Wachovia, Washington Mutual, and the Icelandic banking system being merely some of the highlights to date—and a global bailout of the entire system had to be put in train. The short sellers were proved right, and also came to be seen as culprits; so was mark-to-market accounting, since it caused sudden, cataclysmic drops in the book value of companies whose holdings had become illiquid. It is therefore the perfect moment for a short-selling advocate of marking to market to publish his account. One can only speculate whether Einhorn would have written his book if he had known what was going to happen next. (One of the things that have happened is that, on September 30th, Ciena Capital, an Allied portfolio company to whose fraudulent lending Einhorn dedicates many pages, went into bankruptcy; this coincided with a collapse in the value of Allied stock—finally!—to a price of around six dollars a share.) Given the esteem with which Einhorn’s profession is regarded these days, it’s a little as if the assassin of Archduke Franz Ferdinand had taken the outbreak of the First World War as the timely moment to publish a book advocating bomb-throwing—and the book had turned out to be unexpectedly persuasive.

The well-disguised fact about Einhorn, though, is that he is rather old-fashioned. His hedge fund, Greenlight, is a long-short value fund. It bets directly on companies (that is the “long,” and larger, part of the fund) or against them (that’s the “short” side). This is, in the world of high finance, not at all the new new thing. Indeed, the very fact that Einhorn is able to explain in plain English what his fund does is a sign that he isn’t at the cutting edge of finance. Another man who shuns that bleeding edge is Warren Buffett, who also happens to be quantifiably the greatest investor alive.

Buffett is unique in many respects, and one of them is his eagerness to explain how and why he does what he does. His advice sounds so plain and so reasonable—“Put your eggs in one basket, and then watch the basket”—that the reader thinks it can’t possibly be that simple. Underlying the desire to explain what he’s up to is the wish to be proved right, since Buffett regards himself as living proof that the “efficient market” theory of market pricing is wrong. The theory holds that markets, given perfect information, will always set an accurate price for a stock, one that takes full account of all the relevant probabilities and variables. Buffett thinks his own success shows that it’s possible to use generally available information to consistently outperform the market. This sounds so commonsensical that it’s hard to explain just how at odds this is with the way people have been trained to think about stock markets. Common sense is one of the hallmarks of Buffett’s writings on finance—which are, very Buffettishly, to be found pretty much nowhere other than in his annual letters to shareholders of his company, Berkshire Hathaway. Here is Buffett on the junk-bond boom, from 1989:
In effect, a Scarlett O’Hara “I’ll think about it tomorrow” position in respect to principal payments was taken by borrowers and accepted by a new breed of lender, the buyer of original-issue junk bonds. Debt now became something to be refinanced rather than repaid. The change brings to mind a New Yorker cartoon in which the grateful borrower rises to shake the hand of the bank’s lending officer and gushes: “I don’t know how I’ll ever repay you.”

There’s something almost nineteenth century about Buffett’s writing on finance—calm, sane, and literate. It’s not a tone you’ll readily find in anyone else’s company reports, letters to shareholders, public filings, or press releases. That’s because finance, like other forms of human behavior, underwent a change in the twentieth century, a shift equivalent to the emergence of modernism in the arts—a break with common sense, a turn toward self-referentiality and abstraction and notions that couldn’t be explained in workaday English. In poetry, this moment took place with the publication of “The Waste Land.” In classical music, it was, perhaps, the première of “The Rite of Spring.” Jazz, dance, architecture, painting—all had comparable moments. The moment in finance came in 1973, with the publication of a paper in the Journal of Political Economy titled The Pricing of Options and Corporate Liabilities, by Fischer Black and Myron Scholes.

The revolutionary aspect of Black and Scholes’s paper was an equation that enabled people to calculate the price of financial derivatives based on the value of the underlying asset. Derivatives themselves had been a long-standing feature of financial markets. At their simplest, a farmer would agree to a price for his next harvest a few months in advance—and the right to buy this harvest was a derivative, which could itself be sold. A similar arrangement could be made with equity shares, where what was traded was an option to buy or sell them at a given price on a given date. The trade in these derivatives was hampered, however, by the fact that—owing to the numerous variables of time and risk—no one knew how to price them. The Black-Scholes formula provided a way to do so. It was a defining moment in the mathematization of the market. The trade in derivatives took off, to the extent that the total market in derivative products around the world is counted in the hundreds of trillions of dollars. Nobody knows the exact figure, but the notional amount certainly exceeds the total value of all the world’s economic output, roughly sixty-six trillion dollars, by a huge factor—perhaps tenfold.

It seems wholly contrary to common sense that the market for products that derive from real things should be unimaginably vaster than the market for things themselves. With derivatives, we seem to enter a modernist world in which risk no longer means what it means in plain English, and in which there is a profound break between the language of finance and that of common sense. It is difficult for civilians to understand a derivatives contract, or any of a range of closely related instruments, such as credit-default swaps. These are all products that were designed initially to transfer or hedge risks—to purchase some insurance against the prospect of a price going down, when your main bet was that the price would go up. The farmer selling his next season’s crop might not have understood a modern financial derivative, but he would have recognized that use of it. The trouble is that derivatives are so powerful that—human nature being what it is—people could not resist using them as a form of leveraged bet. Buffett dislikes derivatives. From 2002:
The range of derivatives contracts is limited only by the imagination of man (or sometimes, so it seems, madmen). At Enron, for example, newsprint and broadband derivatives, due to be settled many years in the future, were put on the books. Or say you want to write a contract speculating on the number of twins to be born in Nebraska in 2020. No problem—at a price, you will easily find an obliging counterparty.

From 2003:
No matter how financially sophisticated you are, you can’t possibly learn from reading the disclosure documents of a derivatives-intensive company what risks lurk in its positions. Indeed, the more you know about derivatives, the less you will feel you can learn from the disclosures normally proffered you. In Darwin’s words, “Ignorance more frequently begets confidence than does knowledge.”

Buffett was horribly right about the risks. A number of new books describe the link between derivatives, subprime mortgages, and the meltdown of ’08, and they all have the claim on our attention of having been written before the full scale of the implosion became clear. In other words, their authors are people who said it was going to happen before it happened—who enjoy the ambivalent status of having been proved right. Charles R. Morris’s The Trillion Dollar Meltdown (PublicAffairs; $22.95) was handed to the publisher last Thanksgiving, a fact that gives Morris, a former banker, rock-solid status as a predictor of the crash. He homes in on the complexity and the paradoxical unpredictability of these financial instruments, which were supposed to manage risk and ended up magnifying it.

The result is a new kind of crash. The broad rules of market bubbles and implosions are well known. They were systematized by the economist Hyman Minsky (a student of Schumpeter’s), in the nineteen-sixties [see Minsky's "The Financial Instability Hypothesis"], and their best-known popular formulation is in Charles P. Kindleberger’s classic work Manias, Panics, and Crashes: A History of Financial Crises (1978). Tulip bulbs in the sixteen-thirties, railways in the eighteen-forties, and Internet stocks in the nineteen-nineties are all examples of the boom-bust cycle of a mania leading to a crash. As Morris points out, however, a credit bubble is a different thing: “We are accustomed to thinking of bubbles and crashes in terms of specific markets—like junk bonds, commercial real estate, and tech stocks. Overpriced assets are like poison mushrooms. You eat them, you get sick, you learn to avoid them. A credit bubble is different. Credit is the air that financial markets breathe, and when the air is poisoned, there’s no place to hide.”

The crisis began with defaulting subprime mortgages, and spread throughout the international financial system. Thanks to the new world of derivatives and credit-default swaps, nobody really knows who is at risk from the wonderfully named “toxic debt” at the heart of the trouble. As a result, banks are reluctant to lend to each other, and, since the entire financial system depends on interbank liquidity, the entire financial system is at risk. It is for this reason that Warren Buffett was doubly right to compare the new financial products to “weapons of mass destruction”—first, because they are lethal, and, second, because no one knows how to track them down.

If the invention of derivatives was the financial world’s modernist dawn, the current crisis is unsettlingly like the birth of postmodernism. For anyone who studied literature in college in the past few decades, there is a weird familiarity about the current crisis: value, in the realm of finance capital, evokes the elusive nature of meaning in deconstructionism. According to Jacques Derrida, the doyen of the school, meaning can never be precisely located; instead, it is always “deferred,” moved elsewhere, located in other meanings, which refer and defer to other meanings—a snake permanently and necessarily eating its own tail. This process is fluid and constant, but at moments the perpetual process of deferral stalls and collapses in on itself. Derrida called this moment an “aporia,” from a Greek term meaning “impasse.” There is something both amusing and appalling about seeing his theories acted out in the world markets to such cataclysmic effect. Anyone invited to attend a meeting of the G-8 financial ministers would be well advised not to draw their attention to this.

The result of our era of financial deconstruction has been a decades-long free-for-all of deregulation and (for the most part) bull markets, ending in partial nationalization. It’s like a surreal parody of what happened in the former Soviet Union, with decades of socialism ending in the overnight transition to a full market economy. The map of how we got here is laid out with painful clarity in Kevin Phillips’s book Bad Money (Viking; $25.95), a powerful account of how the debt bubble, the housing bubble, weak regulation, and too-cheap credit helped to create the current mess. Phillips rightly calls the place we’re in now a “global crisis of American capitalism.” Unfortunately, a clear view of the road taken doesn’t offer much of a guide to action, once the immediate dangers have passed.

One man who does have some ideas is the Yale economist Robert Shiller, who would merit attention if only for the fact that he predicted the bursting of the Internet bubble, in 2000, with his book “Irrational Exuberance,” then discussed at length the dangers of systematic risk in his next, “The New Financial Order: Risk in the 21st Century.” Now, in The Subprime Solution (Princeton; $16.95)—published in August, after the start of the meltdown, but before the full scale of the disaster had become manifest—he comes up with a set of startlingly counterintuitive suggestions about what to do next.

Shiller’s basic idea is that there should be more market activity. He has a number of suggestions for spreading the risk of homeownership: “continuous workout mortgages,” in which loan terms are adjusted monthly against economic conditions and the borrower’s ability to pay; comprehensive financial advice targeted at the poor (an idea that nobody could argue with, and that nobody will want to pay for); a “financial product safety commission,” as proposed by the Harvard legal scholar Elizabeth Warren; improved disclosure on the part of financial institutions; and the expansion of housing-futures markets. These would mean that “any skeptic anywhere in the world could, through his or her actions in the marketplace, act to reduce a speculative bubble in a city.” Anyone who thought property prices in an area were too high could bet against them by selling them short—which would, the theory goes, exert a downward pressure on prices. This would help all of us, by reducing the bubble-and-bust cycle of property prices. We need every tool we can get to help reduce the risk of having all our capital tied up in a single heavily leveraged, highly illiquid asset—that is to say, our homes. Shiller approvingly quotes an argument that “the introduction of derivatives tends to improve the liquidity and informativeness of markets,” which, given what has just happened, might be the worst-timed assertion ever to have been made by a prominent economist. That doesn’t mean he’s wrong, though, and his book would have to be on the bedside table of whoever gets to design the systems that make a repetition of this particular crash less likely. (Shiller also points out that “bailout” has no entry in the twenty-volume Oxford English Dictionary.)

It seems loopy that the cure for a disaster caused by a headlong dash in the direction of ever freer capital markets should be even freer capital markets; but that is part of Shiller’s point. When it comes to the free global movement of capital, there is no plan B. Are there any unreconstructed Marxists left, anywhere in the wild? (Universities don’t count.) If there are, now would be a good moment for one of them to publish a book saying that the man in the beard would regard himself as having been proved right.

Le Temps     12 novembre 2008

Férues d'équation, les banques ont négligé le facteur humain.
Crise: la malédiction des maths
Sylvain Besson, Paris

Paris est la capitale mondiale des mathématiques financières. Une discipline ésotérique qui, par la faute de banquiers présomptueux et de modèles délirants, a joué un rôle central dans le désastre des «subprime». Enquête.
Une partie d'équation évaluant le risque sur un crédit, telle qu'on les conçoit dans ce haut lieu de la finance française qu'est le quartier de la Défense, à Paris. (photo: DR)

Une ambiance studieuse règne dans les salles de l'université Dauphine, à la frontière ouest de Paris. Devant les tableaux noirs couverts de formules, on ne trouve ni sociologues aux airs rebelles, ni historiens en herbe tentés par le gauchisme, mais de futurs traders et magiciens des marchés. Avec Polytechnique et quelques autres, Dauphine est une des écoles qui font la France une superpuissance dans cette science lucrative mais ardue que sont les mathématiques financières.

 Aux étages supérieurs, on trouve des offres d'emplois destinées aux étudiants: analyste quantitatif, ingénieur en modélisation stochastique, expert en «valorisation de books de produits exotiques hybrides». Ces spécialités peuvent rapporter gros - des bonus annuels de un, deux millions d'euros ne sont pas rares, disent les initiés. Car depuis des années, le savoir-faire français s'exporte dans les plus grandes banques, à Londres, New York ou Hongkong

«Cette excellence en trading mathématique est une spécificité française, explique Christian Saint-Etienne, professeur d'économie à Dauphine. Nos traders sont très recherchés, ils sont au cœur de la finance anglo-saxonne.» Dans un pays davantage réputé pour les diatribes de ses politiciens contre le «capitalisme financier», le paradoxe est frappant.

Longtemps, les élites de l'Hexagone se sont discrètement félicitées de cette domination. La presse a publié des articles flatteurs sur ces «matheux tricolores» devenus «génies de la City» (L'Express) ou «faiseurs de superprofits» (Paris Match). Mais aujourd'hui, l'heure est au malaise. Des voix réputées dénoncent le rôle joué par les apprentis sorciers des mathématiques dans la propagation de la crise financière. «Ils ont négligé le facteur humain, ils ont voulu imposer leurs certitudes dans un monde où il n'y a pas de certitudes», accuse Thami Kabbaj, ancien trader et auteur de livres* sur la finance.

Ce débat s'est ouvert avec une série de pertes spéculatives dans les grandes banques françaises (lire ci-dessous). Elles ont révélé des défaillances graves de la part de «matheux» désormais présents à tous les échelons de la hiérarchie bancaire.

Mais le mal est bien plus profond que cette suite d'incidents, même catastrophiques. «Maintenant, notre réputation est ternie, parce que les modèles mathématiques ont rendu opaques les risques contenus dans les actifs toxiques», regrette Hélyette Geman, une spécialiste réputée des mathématiques financières.

«Il y a eu une course à la sophistication, ajoute son collègue Patrice Poncet, professeur à la Sorbonne et à l'ESSEC. Même pour quelqu'un comme moi, les produits étaient difficiles à comprendre. Je me demande comment des gens ont pu être assez naïfs pour les acheter.»

Que font, au juste, les mathématiciens de la finance? Pour le comprendre, il faut entrer dans l'univers étrange des processus d'Itô et de Lévy, des martingales en temps discret, des semi-anneaux idempotents ou des équations de Kolmogorov. Le jargon est terrifiant, mais il recouvre des besoins économiques réels. A l'origine, il s'agissait de se protéger contre les risques inhérents aux opérations de marché, d'améliorer la rentabilité des produits financiers et de donner un juste prix aux instruments utilisés dans ce but.

C'est ainsi qu'est née une nouvelle classe d'actifs, les dérivés de crédit. Ils ont permis aux banques de transférer les risques hors de leur bilan et de se refinancer plus facilement, ce qui a contribué au boom économique des années 1990 et 2000.

«De 1986 à 1996, la contribution des probabilités, surtout, a été très positive, estime Hélyette Geman. Mais ensuite, il y a eu une phase de mathématisation excessive, où la beauté des résultats a été faussée par le postulat qu'on pouvait confondre le modèle et le monde réel.» Cette dérive a été désastreuse pour toute l'économie mondiale.

Un bon exemple du phénomène est celui des CDO ou Collateralized debt obligations. L'idée de départ est simple: il s'agit de constituer un portefeuille de produits offrant des rendements et des risques différents, allant des obligations d'Etat, très peu risquées et peu rentables, aux titres hautement spéculatifs, mais qui rapportent plus.

Une fois agrégé, l'ensemble donne un objet volumineux, mathématiquement complexe, mais qui permet de réduire les risques de faillite sur les titres les plus spéculatifs, et de limiter le capital que la banque doit mettre de côté pour respecter ses obligations prudentielles. L'ennui est que les CDO de base ont rapidement engendré une famille de produits plus complexes, comme les CDO carrés. Au lieu d'être constitués de titres classiques comme les obligations, ils sont formés par d'autres CDO - ce sont des CDO de CDO.

Jusque récemment, les banques n'ont rien trouvé à redire à cette complexité croissante. «La hiérarchie a vendu des produits qu'elle ne comprenait pas», explique le professeur Poncet. «Les acheteurs se sont dit qu'ils ne comprenaient pas, mais ils ne voulaient pas rester en dehors de classes d'actifs très profitables», ajoute Hélyette Geman.

Passé un certain seuil, toutefois, les synthèses d'actifs très différents réalisées au sein des CDO deviennent «non faisables». En d'autres termes, leur attribuer un prix devient impossible, ce que les agences de notation n'ont pas compris à temps. L'autre péché de ces produits est qu'ils ont répandu partout le poison des «subprime», ces dérivés de crédits basés sur l'endettement des ménages et l'immobilier américains, qui entraient dans la composition de nombreux CDO.

Lorsque ces deux secteurs sont entrés en crise, les modèles qui servaient à évaluer la valeur des CDO sont devenus caducs. Et plus la crise s'est amplifiée, plus le problème s'est aggravé. «Normalement, mettre deux produits non corrélés dans un portefeuille réduit le risque, explique Patrice Poncet. Mais quand tout va mal, la corrélation passe de 0 à 1, et votre portefeuille devient complètement sous-optimal.»

En 2007, les marchés sont devenus fous, portant le coup de grâce aux modèles mathématiques. «Les spreads de crédit, c'est-à-dire les différentiels entre les taux des obligations d'Etat et celles émises par les entreprises - plus risquées puisque ces dernières peuvent faire faillite - sont devenus infiniment proches de zéro, raconte Hélyette Geman. C'était anormal. Or le dogme, c'était que le marché a raison, et qu'il suffit de calibrer les modèles aux prix du marché. Tout cela a conduit à un effondrement du système.»

Désormais, des jours sombres s'annoncent pour les analystes quantitatifs, les ingénieurs financiers et autres spécialistes issus des prestigieuses écoles françaises. Les clients, paniqués, se détournent des produits complexes. «Les gens sont en train de pleurer, ils nous demandent: «Combien vaut ce truc? Je ne crois plus ma banque», résume Eric Benhamou de la société Pricing Partners à Paris.

Lui, issu de Polytechnique, a vu son chiffre d'affaires exploser: «Les gens cherchent de la transparence, de l'indépendance, or les banques sont juges et parties. Elles sont mal placées pour évaluer les produits qu'elles vendent.» Ainsi, même si les gros bataillons de mathématiciens recrutés par les banques risquent d'être décimés, les compétences dans ce domaine restent très demandées.

Et selon Eric Benhamou, les modèles qui tiendront compte de la crise des «subprime» sont déjà en préparation. Ils pourraient arriver sur le marché d'ici à quelques mois. Les étudiants de Dauphine, sagement alignés devant leurs tableaux noirs, ont peut-être encore un avenir.

* Thami Kabbaj, «L'Art du trading», Paris, Ed. Eyrolles, 2007.

Les «matheux» bernés par des «traders fous»
Férues d'équation, les banques ont négligé le facteur humain.
Sylvain Besson

En treize mois, trois banques françaises ont subi des pertes colossales du fait de traders isolés. En septembre 2007, la banque d'investissement Calyon perd 250 millions d'euros par la faute d'un New-Yorkais de 26 ans. Quatre mois plus tard, Jérôme Kerviel, 31ans, inflige un trou de 5milliards à la Société Générale. En octobre dernier, enfin, le dérapage de Boris Picano-Nacci, 33ans, coûte 750millions d'euros à la Caisse d'épargne.

Ce trader est un pur produit des grandes écoles françaises. Il enseignait les «mathématiques appliquées à la valorisation de produits dérivés» à Dauphine. «Un élève doué, plus intelligent que la moyenne, mais pas très fiable», se souvient un de ses anciens professeurs.

Jérôme Kerviel n'avait pas un curriculum aussi brillant. Mais ceux qu'il a bernés durant quatorze mois par des faux grossiers et des explications abracadabrantesques l'étaient. «Les gens chargés de le contrôler étaient des matheux qui travaillaient dans la banque depuis longtemps», précise Caroline Wassermann, une de ses avocates.

C'est aussi sous la houlette d'un polytechnicien féru de maths, Jean-Pierre Mustier, que la Société Générale est devenue l'un des leaders mondiaux des produits dérivés. Dans les milieux financiers, on lui reproche aujourd'hui d'avoir sacrifié les ressources consacrées aux contrôles internes au profit d'une course sans merci à la rentabilité.

«Quand Kerviel gagnait, tout le monde gagnait, et ceux qui gagnaient le plus, c'étaient les actionnaires de la banque, mais aussi ses supérieurs, confie une source bancaire. Il est très difficile de croire que sa hiérarchie ne savait rien, mais elle n'aurait jamais accepté une exposition de 50milliards» - justement celle qui a été creusée par Jérôme Kerviel en quelques jours fatidiques de janvier 2008.

«Tout cela est douloureux pour les banques, ajoute un connaisseur des établissements précités. A priori, elles ne sont pas là pour soupçonner tout de suite des gens en qui elles ont confiance de mal faire.» A l'avenir, elles devront se montrer plus méfiantes: «Dans certaines situations, un individu peut devenir totalement irrationnel, estime l'ancien trader Thami Kabbaj. Nous sommes tous des Kerviel en puissance.»

The Big Picture    12 November 2008
(adapted, if not plagiated article, for apparently claimed by the blog owner Barry Ritholtz)

Replacing the cancerous fiat (un-backed) currency system which grew in the shadow
of self-perpetuating institutions of a murdered real-value monetary system (Bretton Woods)
A Not-So Modest Proposal
Paul Brodsky & Lee Quaintance, QB Partners, a private macro-oriented investment fund, New York

  a) the US reports official gold holdings of approximately 8100 tonnes, or, about 286 million ounces
    b) the liabilities of the US Federal Reserve's balance sheet equal, today, approximately $2.5 trillion
    c) simply dividing "b" by "a" yield an equilibrium gold price of ~ $8700 per ounce
    These cold hard facts will make a classical gold standard politically difficult to propose and adopt no doubt.
Nonetheless, the logic and rationale of such a proposal are indeed fundamentally sound
and, at a minimum, provide the basis for a constructive debate going forward.
[extract from Quaintance's comment on "Stable Money Is the Key to Recovery", Wall Street Journal, 14.8.08]

In our sparsely populated office – a beacon of both waste and hope – hangs a framed poster of Albert Einstein and his quote: “imagination is more important than knowledge.” The poster is different from the other “art” hanging on our walls – not because of its cheesy cheapness or because it makes an otherwise stark white wall only slightly more interesting. (That is common in our office, where taciturn riveters laze on I-Beams perched 800 feet above what would become Rockefeller Plaza.). No, the Einstein poster is different because its simple declarative is neither ironic nor banal. The most brilliant man of his time noted the importance of imagination, which we’re sure was an acknowledgement of its scarcity.

Maybe Einstein recognized early something the rest of us just confirmed? Senators McCain and Obama spent two years competing to convince us that each was more naturally at ease with political dynamism and that change was the secret sauce to fix a world where US democracy- and wealth-spreading machines had run into a ditch. People didn’t need convincing. The wars became pointless to most Americans and the economy became more important to most people than merely glancing at the closing level of the Dow Jones Industrial Average. Within this context, electing Obama would be a rational choice – not because his ideology was necessarily better for the times but because the country’s economic situation had no precedent from which age or experience would add any value. Change seemed like a reasonable priority and Americans voted for the candidate they felt could execute it best – the one with the better imagination.

There are no formal elections held on Wall Street, where daily money flows are the only votes cast. Such a free-market approach should, theoretically, reflect (or guide) confidence levels as well as the speed and quality of capital formation and regulation. But it isn’t that easy. The markets are comprised and dominated by dedicated investors – institutions that must allocate all their money into markets no matter what the outlook, and by extrapolators – Pavlovian sages who can recite
conditional responses chapter and verse - why the market or economy should go in a certain direction because “eight out of the last ten times this did that, then…” and who shame their flocks (usually with a chuckle and wink) “not to buy into the notion that this time is different!”

Well, this time is different. You know that and we know that, but an expert can’t be an expert if he doesn’t have expertise (real or perceived) and expertise regarding the current economic situation can’t be extrapolated. It must be game-theoried and theoretically applied. It must be imagined, the way a German patent clerk did while global academic institutional extrapolators did not.

There is no greater time for imagination than during periods of adversity or when old methods just won’t do anymore. The post World War II agreement among global powers reached in Bretton Woods, New Hampshire in 1944 provided the free world with a necessary roadmap for terms of trade and global monetary exchange following World War II. Old, combative ways were abandoned and new, inclusive ways were adopted. Re-working that arrangement after almost 65 years has become, well, unimaginable. But it is time.

President Bush’s recent invitation to gather the G20 on November 15 - ostensibly to update the Bretton Woods Agreement - is the perfect opportunity for President-elect Obama to begin encouraging the crafting of a new financial world order built for the twenty-first century. Merely enacting new economic and market oversight policies – as is currently being hinted by the US - would be insufficient. European and Asian leaders have already suggested that significant change is
necessary. The US, as the remaining superpower and the administrator of the world’s reserve currency, should lead this change. Vastly improving the current terms of global monetary and trade policy is a moral and practical imperative.

The recent bursting of the credit bubble in the US and Europe is quickly spreading economic disruption throughout all global economies. At its core, the credit bubble was the result of an unsustainable currency bubble. Credit is simply claims on future money that must be earned or created in the future. The unlikelihood of being able to earn or create about $75 trillion in new dollars to satisfy outstanding US credit claims was the nexus – and justification - for the credit unwinding we are now experiencing.

While strengthening global banking oversight might help forestall a repeat of current problems, it would fall far short of a fundamental solution. Perhaps it is time for the US to help design and construct a fairer, more equitable mechanism for the world’s economies to do business, to compete, and to allocate resources? US policy makers should consider leading the world in forming a new financial monetary order. It’s time for a little imagination.


The Bretton Woods agreement in 1944 provided, among other things, that the US dollar would be exchangeable into gold bullion at $35 per ounce and that other major currencies would be exchangeable into US dollars at fixed exchange rates. Provisions were included that allowed policy makers to tinker with these rates as capital flows between nations warranted. It was a predictable and adaptable global monetary model. Despite temporary “cheating” among economies, global trade
flourished with this underpinning of rationality.

The gold standard was formally abandoned in 1971 when President Nixon closed the gold window after receiving pressure from European nations to exchange their weakening US dollar reserves for gold. (The US dollar’s value had been declining versus other currencies because the US had been diluting the dollar to fund deficit spending from the Vietnam War.) With a stroke of the pen, US dollars and all global currencies implicitly tied to it were no longer pegged to gold. The modern era of
fiat (un-backed) currencies was born. Paper ruled and the dollar was the new “gold”.

The fiat monetary system is currently showing its glaring and predictable weakness – the propensity to blow asset bubbles that result in long periods of societal hardship. Fiat money is created by central banking systems, which ensures the system will be highly susceptible to political pressures to postpone economic adversity. Where there are no periods of economic digestion there can only be false and synthesized asset values and rising debt loads to sustain them.

Indeed the notion of multiple subjective global monetary policies managed by unitary policy makers seems anachronistic. Fiat currencies allow sovereign governments and their central banks to issue as much paper currency as they wish, as long as merchants, consumers and trading partners are willing to accept that paper in return for goods, services and assets. Because various nations have different growth rates, as well as differing social, economic and political agendas, it follows that subjective domestic monetary policies and the absolute and relative purchasing powers of their attendant currencies are highly unstable and, in many instances, inordinately unfair.

Maybe the US dollar – or whatever form of money the world chooses to have as its reserve currency in the twenty-first century – should revert back to the gold standard? A gold standard is a quaint idea inasmuch as the theory of relativity is a quaint idea. Nothing has changed in the current global economic environment that argues against the legitimacy, flexibility and practicality of re-adopting a currency anchor – not the size, divergent interests or sophistication of global economies, banking systems and capital markets.

The common fear that banking systems could extend only limited credit under a gold regime is fallacious. There is plenty of gold – at the right gold price – to peg paper money to it. As long as fractional reserve banking systems exist, money and credit growth would be limited only by natural economic forces – not by rigid formulae. Neither is re-anchoring currencies to gold a partisan issue, as is so often thought. The healthy tension surrounding free market control and the distribution of
wealth would remain in the political sphere, to be argued by liberals and conservatives.

Within all nations, it is the peoples’ collective wealth - earned from innovation, natural resources, labor and productivity - that their central banks attempt to optimize. Central banks throughout history have spotty records of doing this. Politicians across the political spectrum are equally critical of the limitations of a subjective central banking system capable of promoting violent economic booms and busts, which may threaten the very viability of their nation. The question of fairness within an
economy – the manner in which collective wealth is concentrated, distributed or re-distributed - is a separate matter with a different pathology from employing a gold peg.

Gold-backed currencies require fiscal and trade discipline among all constituent economies – not necessarily rigid mandated controls. A nation that runs a persistent trade deficit, for example, would find gold leaving its vaults for those of net-exporting nations. This would prompt one of two responses by the indulgent nation: 1) tighten domestic monetary policy which, all else equal, would lessen demand for imports and lead to a rebalancing of accounts or, 2) adjust its fixed exchange rate
downward, which would hinder its relative terms of trade with other nations (the overly indulgent nation’s exports would become relatively cheaper while goods it had been importing would become more expensive). These disciplinary dynamics work naturally to rebalance trade and capital flows and to encourage domestic economic sustainability and fairness among trading partners. This is timeless theory (straight from Adam Smith) and would be very practical today.


The fiat monetary system was undeniably a boon for the US. All the new money and credit creation funded investments in capital producing businesses, which broadened and raised the level of employment and diversified the US economy (from an emphasis on goods production to more service-oriented commerce). It also increased the size and strength of the US military, funded an arms race that some would argue may have eventually bankrupted the Soviet Union, and increased the stature and power of the US globally. Monetary inflation has been very good for the US.

The US specifically benefited because the US dollar held global reserve currency status. In effect, the US dollar became the world’s “gold standard” in 1971 (even though the Fed had no limitations on how much “gold” it could print). Since then, the Fed has issued increasing US dollar bank reserves that have, through the US fractional reserve banking system, led to ever increasing flows of dollar-based credit. Generally easy money combined with low bank reserve requirements and lax regulatory oversight helped swell the global (dollar-linked) money stock and credit claims derived from it.

As we are now beginning to see, however, decades of monetary inflation have a dark side. The money that was created out of thin air by all US Administrations, Congresses and Fed boards since 1971, along with ever-larger credit lines being rolled over each day by the Fed to the US banking system (and then redistributed through the capital markets to homeowners, credit card users, international banks etc.), built a dangerously leveraged and unsustainable global economy. [A gold-
pegged dollar would have stopped money and credit growth much sooner, which would have greatly mitigated the slowdown (or even contractionary period) the world is beginning to experience.]

What has emerged in the US and much of Europe are finance based economies in which copious funding ultimately became mistaken for wealth, and in which money ultimately became mistaken for investment capital. In recent years the US economy has had lots of money and what seemed like boundless funding with which it was creating diminishing capital and sustainable resources. One dollar of US debt in the early eighties produced over three times as much output growth as it did in
the last few years. The credit/debt build up that emanated from an undisciplined currency regime has had diminishing marginal returns and embedded structural risk to US output growth and the dollar.

The US has not pursued such an undisciplined monetary policy in a vacuum. Due to its status as the world’s reserve currency, foreign central banks have been forced to follow the same monetary policies, more or less, that the US dictates regardless of their organic economic growth profiles. US trading partners inflated their currencies along with the US to maintain a semblance of their implicit US dollar peg. Large and small emerging economies with much higher natural growth rates had to inflate their sovereign currencies even more to maintain terms of trade that allowed them to profitably export goods and services.

Money and credit growth eventually spun out of control. The US stopped publishing its broadest measure of monetary growth in 2006 (M3, which included repurchase agreements – the primary tool that enabled Wall Street banks to lever their balance sheets as much as 35 to 1). Prior to the recent credit crisis, independent researchers such as Shadow Government Statistics estimated US money and credit grew upwards of 15% annually. That growth rate is now “unlimited,” as the government pledges to replace market losses with new currency or claims on it (credit).

No amount of new money and credit that Treasury, Congress and the Fed create and deliver into the banking system or the housing market will save the US dollar. Indeed these actions will only destroy its absolute value faster. The money and credit that US policy makers are now synthesizing to counteract deflating asset prices (a.k.a. the credit crisis) are reducing the inflation-adjusted value of all US dollar-denominated assets. When investors liquidate propped-up assets, each dollar they
receive in proceeds will likely buy less at the grocery store. Global wealth (deferred purchasing power) is being destroyed as money and credit are being created.


It may be surprising to many that Americans are currently positioned to benefit from inflation. Printing new money and credit inflates away current public and private sector debt burdens (the more dollars in circulation, the easier it is to pay down the relatively constant principal value of debt). It would be brilliant strategy for policy makers to execute now when the US is so deeply in debt and has a negative savings rate. And so we are convinced this is current monetary policy – inflate, inflate, inflate. Meanwhile though, merchants, investors and central banks residing in less indebted nations that have been using the US dollar as its “gold peg” are beginning to ask “why should we continue to hold US dollar reserves?” The global drumbeat for change has already begun.

Within this context, global acceptance of a new gold-backed monetary order would have two main positive outcomes. First, it would promote global foreign exchange market stability. This would be a multilateral win for global trade, as it would be an implicit source of price stability. Business managers in international markets would have much more pricing certainty when developing business plans. Second, it would promote the free-market ideal of Ricardian comparative advantage. Countries generally seek to produce goods and services that they can bring to market most efficiently (i.e., in a cost-effective manner). The ideal of comparative advantage in global trade to the betterment of all is nearly universally accepted.


Mechanically, reverting back to a global gold standard would be straightforward. First, an intrinsic global value of gold would have to be defined in order to convert various paper currencies. If the original Bretton Woods agreement were to be used as a model, we first divide the respective sizes of
each central bank balance sheet by its corresponding official gold holdings. For example [figures applying to first half of 2008];

• The Fed reports official US gold holdings to be roughly 8,100 tonnes, which equates to a US dollar value (at $800/oz) of approximately $230 billion.

• The US Federal Reserve’s balance sheet liabilities (private banking system reserves) are approximately $1.75 trillion.

• Therefore, the US dollar would have to be pegged to gold at somewhere around $6,100/ounce.

Aggregating the gold holdings of the ECB and the legacy central banks that comprise the Eurozone would imply a $6,300 gold price, which would require a “slight tweak” in the Euro / US Dollar exchange rate from about 1.35 currently to 1.30. Again using the Bretton Woods system as a model, the US dollar and Euro might be designated as “global reserve currencies” because they could most easily be converted to gold. The remainder of participating global currencies could then be made exchangeable into US Dollars/Euros at fixed, but amendable rates (floating foreign exchange rates).

The trickier part of converting paper currencies to a global gold standard would be persuading economies with high paper currency-to-gold ratios. Their paper currencies would suffer devaluations versus currencies with higher gold reserves. For example, the Japanese Yen’s gold price equilibrium would equate to nearly $40,000/ounce when calculated against the Bank of Japan’s gold holdings and the Chinese Renminbi’s gold price equilibrium would equate to about $117,000/ounce when calculated against the People’s Bank of China’s published gold holdings.

A theoretical official global currency peg at, say, $6,200/ounce - while justified by the size of Fed and Eurozone central bank balance sheets - would clearly create tension among the world’s economies. Such a peg would imply substantial currency devaluations for Japan, China and most other paper currencies. But this doesn’t mean doing so would be impossible or even unlikely.

Consider that while it appears to be unequivocally true that major exporting economies would lose the majority of value held in US and Euro currencies and bonds, we believe, (as we suspect policymakers in Asia must already know) that this pool of US dollar- and Euro-based savings is doomed to devaluation under any circumstances. Devaluation is certain by either coordinated decree or, left to free market devices, via organic price inflation. Much like an investor who holds 30% of a company’s stock, major holders of Dollars, Euros and their sovereign debt could not liquidate their holdings without negatively impacting their valuations.

Should this pool of savings come out of its sterilized hole to be spent, the effective float of these currencies would rise dramatically and set ablaze global demand for all things US dollar- or Euro-denominated (these savings are sterilized in the sense that they are parked away in US and European sovereign debt instruments). In this event, the Fed and ECB would likely inflate aggressively to beat those Asian dollars to market (as they are doing now?). We suspect there would be an ugly race to the bottom as a currency crisis would accelerate and all sides would lose. Surely global policy makers understand this dilemma and we think that they would
rather manage such devaluation than allow a potential cruel and destabilizing free market outcome. Both sides have proverbial guns pointed at each other’s heads.

Creditor nations (like China and Japan) would likely accrue gold as long as they remain net exporters. The “win” for these nations is that they would work and export in exchange for real money today and real goods and services for their efforts tomorrow. Currently, they are saturated with paper claims that will have very uncertain purchasing power when eventually brought to the market for goods, services and assets denominated in US dollars. (Clearly US equity and private credit markets must look attractive to them at the moment.)

Global trade would not likely be materially affected under a gold-backed global currency regime. Net importing nations (e.g. the US) would likely continue to be net importers and net exporting nations (e.g. China) would likely to continue to be net exporters. Under a Bretton Woods-type regime, net importing nations would tender currency backed by gold for their imports (not limitlessly-produced and un-backed fiat currency). Those economies that run trade deficits would see their gold holdings flow to economies that run trade surpluses. This would put a natural boundary on imports and be a motivation to promote exports of goods and services. On the other hand, as gold would flow to exporting nations who, not coincidentally, seem to have relative deficits of gold, the gold backing of their respective currencies would be enhanced toward parity with those of more advanced nations.

Over the longer term, two unequivocally stabilizing and positive outcomes would accrue to global traders: 1) large net importers would be motivated to expand their exports and thus grow their economies and, 2) the currencies of developing economies (usually net exporters) would ultimately reach parity (in gold terms) with those of developed economies. Policy makers could tweak the foreign exchange fixes as necessary during this slow and steady migration.

The reluctance of Americans and Europeans to sign on to such a global currency regime would be understandable. The US has been printing and exporting dollars (inflation) while receiving goods and cheap investment “capital” in return. This policy has allowed the Fed to inflate the money supply and promote credit growth aggressively without driving up domestic price inflation (CPI, PPI, etc.). In fact, much of the price inflation generated over this period has, fortuitously for the US, been expressed in US asset prices. It’s been a win-win for the aggregate US economy and balance sheet.

As homeowners, investors and policy makers are currently concluding, however, much of that asset price appreciation was not real (once adjusted for dollar-dilutive global monetary inflation). Asset prices are now reverting to more sustainable levels. While the US enjoyed two and a half decades of general asset price appreciation driven by credit creation and debt assumption, it is now in the process of reducing that leverage and asset values are falling in both nominal and real terms. Converting to a gold standard would elicit a one-time transfer of wealth to the US and the Eurozone via the devaluation of public and private sector debts (in real or, more specifically, gold terms). It might take a long time for the US to re-tool its economy to compete in a global Ricardian-style economy. Fixing the US dollar to gold at its equilibrium price would effectively pay the US today for what would most likely be a long period of economic digestion. The US would have to execute new measures of fiscal and trade discipline to the betterment and fairness of all.

The writing is on the wall. The US’s largest trading partners are tiring of US dollars in their current form (witness the seven year relative weakness in the exchange value of the US dollar, the bull markets in commodities and gold, and the more recent de-leveraging of virtually all paper asset markets). Rhetoric from all corners is increasing to diversify terms of payments away from dollars. Yet, the US still retains more gold than any other economy. These holdings would allow it to continue
to import as needed while its economy restructures (and jobs come home) to develop competitive exporting businesses and industries again.

Contrary to the belief of casual observers, the gold standard was in no way responsible for the booms and busts in any era. The blame for this lies squarely at the feet of the credit (business) cycle - the magnitude of which may be directly tied to the political frailties of regulators overseeing the fractional reserve banking system. When a banking system gets overleveraged and asset collateral prices rise to unsustainable levels, economic gravity ensures an ensuing bust. (We suspect that
global policy changes orchestrated going forward would address this concern. Basel III perhaps?)

A gold peg would not hinder a central bank’s ability to expand bank reserves. What it would do, however, is create perfect transparency of managed bank reserve maneuverings. As Congress and regulators that oversee banks, capital markets and consumers are right to insist on increasing global market transparency, we believe global consumers and investors should insist on increasing central bank transparency.

The benefits and costs of a new financial order to some economies would be mostly counterbalanced by the benefits and costs to other economies. We think the unavoidable devaluation of the global foreign exchange reserve pool, which would certainly be a point of contention among many emerging economies, could be overcome easily through negotiated diplomatic and trade initiatives. Such a bold strategy would set the stage for a new era of equitable and growing world trade. This would hopefully cure, not just temporarily fix, the troubled foundation that has led to today’s global financial and economic crises. We are confident our leaders can muster the necessary imagination to get the job done.

Lee Quaintance
Paul Brodsky

   NOVEMBER 14, 2008

How the G-20 can rebuild the 'capitalism of the future.'
Stable Money Is the Key to Recovery

Martin Kozlowski

Tomorrow's "Summit on Financial Markets and the World Economy" in Washington will have a stellar cast. Leaders of the Group of 20 industrialized and emerging nations will be there, including Chinese President Hu Jintao, Brazilian President Luiz Inacio Lula da Silva, King Abdullah of Saudi Arabia and Russian President Dmitry Medvedev. French President Nicolas Sarkozy, who initiated the whole affair, in order, as he put it, "to build together the capitalism of the future," will be in attendance, along with the host, our own President George W. Bush, and the chiefs of the World Bank, the International Monetary Fund and the United Nations.
     One thing is guaranteed: Most attendees will take the view that Wall Street greed and inadequate regulatory oversight by U.S. authorities caused the global financial crisis -- never mind that their own regulatory agencies missed the boat and that their own governments eagerly bought up Fannie Mae and Freddie Mac securities for the higher yield over Treasurys.
    But whatever they agree to pursue, whether new transnational regulatory authority or globally mandated limits on executive remuneration, would only stultify prospects for economic recovery -- and completely miss the point.
    At the bottom of the world financial crisis is international monetary disorder. Ever since the post-World War II Bretton Woods system -- anchored by a gold-convertible dollar -- ended in August 1971, the cause of free trade has been compromised by sovereign monetary-policy indulgence.
    Today, a soupy mix of currencies sloshes investment capital around the world, channeling it into stagnant pools while productive endeavor is left high and dry. Entrepreneurs in countries with overvalued currencies are unable to attract the foreign investment that should logically flow in their direction, while scam artists in countries with undervalued currencies lure global financial resources into brackish puddles.
    To speak of "overvalued" or "undervalued" currencies is to raise the question: Why can't we just have money that works -- a meaningful unit of account to provide accurate price signals to producers and consumers across the globe?
    Consider this: The total outstanding notional amount of financial derivatives, according to the Bank for International Settlements, is $684 trillion (as of June 2008) -- over 12 times the world's nominal gross domestic product. Derivatives make it possible to place bets on future monetary policy or exchange-rate movements. More than 66% of those financial derivatives are interest-rate contracts: swaps, options or forward-rate agreements. Another 9% are foreign-exchange contracts.
    In other words, some three-quarters of the massive derivatives market, which has wreaked the most havoc across global financial markets, derives its investment allure from the capricious monetary policies of central banks and the chaotic movements of currencies.
In the absence of a rational monetary system, investment responds to the perverse incentives of paper profits. Meanwhile, price signals in the global marketplace are hopelessly distorted.
    For his part, British Prime Minister Gordon Brown says his essential goal is "to root out the irresponsible and often undisclosed lending at the heart of our problems." But if anyone has demonstrated irresponsibility, it is not those who chased misleading price signals in pursuit of false profits -- but rather global authorities who have failed to provide an appropriate international monetary system to serve the needs of honest entrepreneurs in an open world economy.
    When President Richard Nixon closed the gold window some 37 years ago, it marked the end of a golden age of robust trade and unprecedented global economic growth. The Bretton Woods system derived its strength from a commitment by the U.S. to redeem dollars for gold on demand.
    True, the right of convertibility at a pre-established rate was granted only to foreign central banks, not to individual dollar holders; therein lies the distinction between the Bretton Woods gold exchange system and a classical gold standard. Under Bretton Woods, participating nations agreed to maintain their own currencies at a fixed exchange rate relative to the dollar.
    Since the value of the dollar was fixed to gold at $35 per ounce of gold -- guaranteed by the redemption privilege -- it was as if all currencies were anchored to gold. It also meant all currencies were convertible into each other at fixed rates.
    Paul Volcker, former Fed chairman, was at Camp David with Nixon on that fateful day, Aug. 15, when the system was ended. Mr. Volcker, serving as Treasury undersecretary for monetary affairs at the time, had misgivings; and he has since noted that the inflationary pressures which caused us to go off the gold standard in the first place have only worsened. Moreover, he suggests, floating rates undermine the fundamental tenets of comparative advantage.
    "What can an exchange rate really mean," he wrote in "Changing Fortunes" (1992), "in terms of everything a textbook teaches about rational economic decision making, when it changes by 30% or more in the space of 12 months only to reverse itself? What kind of signals does that send about where a businessman should intelligently invest his capital for long-term profitability? In the grand scheme of economic life first described by Adam Smith, in which nations like individuals should concentrate on the things they do best, how can anyone decide which country produces what most efficiently when the prices change so fast? The answer, to me, must be that such large swings are a symptom of a system in disarray."
    If we are to "build together the capitalism of the future," as Mr. Sarkozy puts it, the world needs sound money. Does that mean going back to a gold standard, or gold-based international monetary system? Perhaps so; it's hard to imagine a more universally accepted standard of value.
    Gold has occupied a primary place in the world's monetary history and continues to be widely held as a reserve asset. The central banks of the G-20 nations hold two-thirds of official world gold reserves; include the gold reserves of the International Monetary Fund, the European Central Bank and the Bank for International Settlements, and the figure goes to nearly 80%, representing about 15% of all the gold ever mined.
    Ironically, it was French President Charles de Gaulle who best made the case in the 1960s. Worried that the U.S. would be tempted to abuse its role as key currency issuer by exporting domestic inflation, he called for the return to a classical international gold standard. "Gold," he observed, "has no nationality."
    Mr. Sarkozy might build on that legacy if he can look beyond the immediacy of the crisis and work toward a future global economy based on monetary integrity. This would indeed help to restore the values of democratic capitalism. And Mr. Volcker, an influential adviser to President-elect Barack Obama, could turn out to be a powerful ally in the pursuit of a new stable monetary order.

Ms. Shelton, an economist, is author of "Money Meltdown: Restoring Order to the Global Currency System" (Free Press, 1994).


Jake Peachey  Posted: Fri Nov 14, 2008 8:14 am Post subject: Re: Stable Money Is the Key to Recovery

At the bottom of the world financial crisis is international monetary disorder. At the bottom of the world's financial crisis is credit bubbles and collapses. At this point, the value of different currency in exchange is quite peripheral.

The role of derivatives was to spread risk, which I think to some degree had merit. But this confidence in risk diffusion encouraged increased credit expansion and leverage beyond historical norms --- that extension of that inverted pyramid built on a small foundation of base money supply. This shaky edifice might have survived an economic downturn if it weren't for the reckoning of worthless mortgages that detonated throughout the structure, and now a large part of the global financial system is lying in smoldering ruins.

Credit contraction destroys money. This causes money values to soar relative to other assets which leads to the secondary effect, the additional snowball factor in depression economics: slowdown in money velocity. This relates to loss of confidence and fear in investing and consumer demand --- as well as speculative holding of currency as it appreciates against other assets.

In the pursuit of stability in monetary value, all analysis and news reporting of currency values should be in reference to a basket of nonmonetary assets, goods and services rather than other currencies. This would greatly clarify the picture. If other countries pursue deflationary or deflationary policies which will cause their currencies to rise or fall relative to other currencies --- that's their problem --- not ours.

Our problem now is the spiral of collapsing money supply from debt deleveraging which is causing the dollar value to soar relative to other assets. The solution is to create money and introduces this cash flow through tax rebates into the private economy in large enough amounts to stop the slide of asset values.

megunter    Joined: 20 Oct 2006, Posted: Fri Nov 14, 2008 8:15 am Post subject: Re: Stable Money Is the Key to Recovery

The idea that exchange rate discrepancies and related dynamics are a root cause of the current financial crises is,in my opinion, a case of missing the forest for the trees. History can teach us a lot here. Historically, it is common for "irrational exhuberance" to lead to speculation and finally to a panic, crash, or depression. Tulip bulbs and Railroads are two cases that come to mind easily.

Everyone is an investor now, there is a growing "investor class" and more and more capital available for investment. Therefore, the competition for each good investment opportunity is increasingly in the "dog-eat-dog" category. Investors commonly pay a premium just to join the latest bandwagon investment opportunity.

This has led to several interesting dynamics:
1: a large number of people find they have more money to invest: in their homes, retirements, and possibly business ventures.

2: the various markets (stock, housing, forex) fight to attract more and more of this capital into their markets. This is done in the spirit of capitalism and sound investment. But risk is viewed as less important than business growth.

3: The "institutionalized" promise of guaranteed 8% returns along with the obligatory practice of portfolio diversification, distorts reality for the investor and the institution. Funds are either squandered in low growth assets or, if risk is not a concern, they join the other funds sloshing back and forth between the best investments of the day, like Internet stocks, or Houses. Like Disney world on a overly crowded and hot summer day, the markets have become a dysfunctional caracature of themselves.

All is not hopeless, however, at the core of the problem is the solution: an enormous amount of private capital available for lending and investing. Let's hope we can build a new financial and monetary system that is properly motivated to channel that capital more prudently. Unfortunately, the answer will offend many proponents of "dog-eat-dog" capitalism -to discourage the pointless sloshing and dispel the false promises and false assurances that have justified it in the past.

Matt Gunter, Tampa FL

Lee Quaintance  Posted: Fri Nov 14, 2008 11:33 am Post subject: Re: Stable Money Is the Key to Recovery

    My partner and I have been espousing views very similar to Ms. Shelton's for some time now and take great relief in seeing that rational thought in approaching the global financial system morass is being published in the main now. Kudos to Judy for her efforts here (and also to the WSJ for publishing them).

    There are two issues of immense practicality that need to be considered before a classical gold standard can be adopted globally however:
    1) political forces have for years embraced the power to control a nation's money supply - I very much doubt that the enablers and beneficiaries of the current fiat money system will yield to such a seemingly rational solution without a fight.
    2) given the massive growth in global paper "reserves" of the last 40 or so years, the equilibrium price of a gold peg today is simply shocking in terms of its magnitude (in all major currencies - not just the US dollar).

    Regarding point # 2, simple back-of-the-envelope calculations imply that for existing US dollar bank reserves to be made exchangeable into gold, the current exchange ratio (or price) would be approximately $8700 per ounce! (The figures for the large Asian economies are multiples of this by the way.)
    We come to this figure in a rather straightforward manner and readily acknowledge that more precise calculations can be made (regardless, the qualitative nature of this point will remain valid we suspect):
  a) the US reports official gold holdings of approximately 8100 tonnes, or, about 286 million ounces
    b) the liabilities of the US Federal Reserve's balance sheet equal, today, approximately $2.5 trillion
    c) simply dividing "b" by "a" yield an equilibrium gold price of ~ $8700 per ounce

    These cold hard facts will make a classical gold standard politically difficult to propose and adopt no doubt. Nonetheless, the logic and rationale of such a proposal are indeed fundamentally sound and, at a minimum, provide the basis for a constructive debate going forward.
    We outline in much greater detail this proposal in a recent essay entitled "A Not-So Modest Proposal" which my partner (Paul Brodsky) and I are happy to share with a broader audience.

    Kind regards, Lee Quaintance, Principal, QB Partners

Ronald Kitching  Posted: Fri Nov 14, 2008 7:51 pm Post subject: Re: Stable Money Is the Key to Recovery

From his The Theory of Money and Credit.” [1912, 1981, vol.IV, chapter 21]

"First of all there is need to remember that the gold standard did not collapse. Governments abolished it in order to pave the way for inflation. The whole grim apparatus of oppression and coercion - policemen, customs guards, penal courts, prisons in some countries even executioners - had to be put into action in order to destroy the gold standard. Solemn pledges were broken, retroactive laws were promulgated, provisions of constitutions and bills of rights were openly defied. And hosts of servile writers praised what the governments had done and hailed the dawn of the fiat money millennium.

The most remarkable thing about this allegedly new monetary policy, however, is its complete failure. If you glance at the financial page of any newspaper you discover at once that gold is still the world’s money, and not the variegated products of the divers government printing offices. These scraps of paper are the more appreciated the more stable their price is in terms of an ounce of gold.

Whoever today dares to hint at the possibility that nations may return to a domestic gold standard is cried down as a lunatic. This terrorism may still go on for some time. But the position of gold as the world’s standard is impregnable. The policy of ‘going off the gold standard’ did not relieve a country’s monetary authorities from the necessity of taking into account the monetary unit’s price in terms of gold."

The Washington Post    November 15, 2008

Growing Sense Of Outrage Over Executive Pay
By Heather Landy

NEW YORK -- The public's indignation over lavish executive pay has rippled beyond the circles of activist investors and corporate governance watchdogs, who for years have wrung their hands over compensation practices. It has spread even beyond grass-roots community organizers and public policy think tanks to people who make their living in the financial industry, like money manager William Fitzpatrick.

"This is a topic that doesn't really get a whole lot of attention during more benign economic times, but clearly this is something that really got away from us. As a profession, we really kind of fell asleep at the switch here," said Fitzpatrick, who helps oversee about $1 billion at Optique Capital Management in Milwaukee.

Compensation is being scrutinized as never before, especially on Wall Street, where the year-end bonus season is coinciding with a government bailout of finance companies. At a time when the average taxpayer already is feeling stretched, public money is being used to support an industry that paid out $33 billion of bonuses last year. Wall Street itself blames the compensation system for playing a role in the credit crisis by encouraging excessive risk-taking.

Fitzpatrick said there is little he, or his small investment shop, can do to stop the current crop of executives from pocketing every cent promised in their employment contracts. But he expects the runaway pay problem to work itself out, as chastened boards cut more modest deals with the next batch of hires.

Dallas money manager Don Hodges isn't feeling as patient. He has spent the past decade railing against excessive pay packages. He protested quietly at first, avoiding stocks of companies with practices he considered to be abusive to shareholders. As his frustration built, he tried a new tactic, giving $50,000 to his alma mater, West Texas A&M University, to promote the teaching of corporate responsibility. The university used the gift to start courses this year in accounting ethics and corporate governance. The latter is required for finance majors.

Now Hodges wants to make sure corporate directors are equally educated about their duties to investors. "In a publicly owned company, I think they should have some sort of certification. The CPA does. The lawyer does," said Hodges, co-manager of the Hodges Fund. "I think the answer is to toughen up boards and make them realize they have a responsibility to shareholders."

Executive pay barely registered on Hodges's radar screen during his first 40 years in the investment business. It wasn't until the last decade that he began seeing a pattern of jaw-dropping pay packages, which often seemed disconnected from stock performance.

In 1993, Congress allowed companies to keep taking a tax deduction for executive compensation over $1 million but required that the pay be tied to performance. That helped encourage the giant stock option grants that now make up the bulk of executive pay at many of the biggest public companies.

Meanwhile, corporate boards that were eager to stay competitive routinely offered pay packages that would keep their executives in the middle to upper pay ranges for their industries. That strategy eventually drove up the averages.

But this year, bonuses are likely to be sharply lower on Wall Street. Johnson Associates, a compensation consulting firm, predicts annual incentive pay for senior executives will fall at least 60 percent this year at investment banks, and by 55 percent or more at commercial banks.

But whether that's punishment enough for the industry's critics is a matter of debate. "Wall Street, when I began my career, had no public companies. They were private partnerships where executives had their personal wealth at stake, and they developed their risk-reward system when it was their own money at risk," said Jeffrey Sonnenfeld, an associate dean at the Yale School of Management. "They've kept that system, but it's other people's money at risk now. That's kind of outrageous."

Congress tried to tackle the pay issue last month in the bill that authorized a financial industry rescue. But corporate governance experts say the bill's pay provisions, which focus primarily on golden parachutes that executives often pocket upon a change in corporate control, are too weak and too narrow in scope to significantly change pay practices.

Rallying Around Reform

The lack of reform has fanned the frustrations of grass-roots groups including the Northeast Ohio American Friends Service Committee, which had never used executive compensation as a rallying cry until recently.

Greg Coleridge, a director of the committee, said the pay issue is a new manifestation of economic injustices that have long concerned the Quaker social action group, and one that has struck a nerve with members.

"We have public dollars coming from taxpayers, people who are having an increasingly difficult time in our corner of the world in Ohio, being transferred" to Wall Street, said Coleridge, who works in Cuyahoga Falls, north of Akron. "The leverage these dollars provide gives someone inside government an opportunity, and maybe in fact the responsibility, to provide some kind of limit on executive pay."

The Treasury Department, which got broad authority from Congress to dictate the terms of assistance granted to financial firms under the emergency rescue plan, forced American International Group to freeze the size of its bonus pool for 70 senior executives as a condition of a $40 billion capital infusion. But AIG is planning to pay $503 million in deferred compensation to some senior employees, warning they might otherwise leave the firm.

The Treasury Department, not wanting to discourage healthier firms from accepting bailout money intended to jump-start lending, has taken few steps to curb pay at the banks being bailed out. The department, however, has barred financial firms that receive capital infusions from deducting from their taxes any executive compensation exceeding $500,000 for each senior executive.

Uncertainty about what role, if any, the government should play in setting corporate pay standards has made it tougher for some activists to find an approach to the runaway pay problem.

"People involved in the movement for economic justice don't necessarily know how to mobilize around this issue," said Andrea Batista Schlesinger, executive director of the Drum Major Institute for Public Policy, a progressive think tank in New York. "Discontent and frustration is only furthered when you have a conversation in the abstract."

The institute held its first ever forum on executive pay this week. Featured was Jim Keyes, chief executive at Blockbuster, whose novel employment contract required him to buy $3 million of company stock in his first 30 days on the job. He also must take his annual performance bonuses in the form of stock.

When Keyes was hired, Blockbuster was still recovering from a bitter proxy battle with billionaire investor Carl Icahn. Pay was one of the issues Icahn raised in his campaign to install new directors at the movie-rental chain, which in 2004 gave then-chief executive John Antioco a $54 million package that Icahn called "unconscionable."

Cognizant of the history, Keyes went to the board upon his hire last year with the unusual terms he proposed for his contract. It was a twist on a lesson he had learned in his previous job running 7-Eleven, where he said he developed "a sensitivity to the differential" in pay for executives and the hourly workforce they relied on to ring up sales at the convenience stores.

"I recognized coming into Blockbuster that there were questions about employee compensation," Keyes said. "Somewhat selfishly, I knew that I had to sell the investment community a new business strategy for this company, and that the case for change was more easily made if I was seen to be a co-investor with shareholders."

NZZ am Sonntag    16. November 2008

Der Bund stieg damals mit einem Viertel des ganzen Bundesbudgets ins Eigenkapital der Volksbank ein.
Bund und Nationalbank gründeten 1932 die Darlehenskasse, welche die faulen Kredite übernehmen sollte.
Bund rettet Bank – ein Déjà-vu-Ereignis

Im November vor genau 75 Jahren rettete der Bund die damals zweitgrösste Bank, die Schweizerische Volksbank. Die Parallelen zu heute sind verblüffend. Nur die Summe war bei der Rettung der Volksbank relativ gesehen noch viel grösser als das staatliche Engagement für das UBS-Hilfspaket. Damals stieg der Bund mit 100 Mio. Fr. ins bedrohte Eigenkapital der Volksbank ein, was ein Viertel des ganzen Bundesbudgets ausmachte. Heute entspräche dies einem Betrag von 15 Mrd. Fr., es wäre also mehr als doppelt so viel wie die 6 Mrd Fr., die der Bund jetzt in das Kapital der notleidenden Grossbank einschiesst.
von Beat Kappeler

Den tiefen Fall der damaligen Schweizerischen Volksbank verursachte die gleiche Mischung internationaler Verquickungen und hauseigener Unfähigkeit wie bei den schwächelnden Banken heute. Die Volksbank hatte in den frühen 1920er Jahren hohe Verluste auf ihren Krediten an die Uhren- und Stickereiindustrie erlitten. Die Rettung sah sie in kurzfristigen Krediten ans Ausland während der «tollen 1920er Jahre», die bis zu 10% Zins abwarfen. Die Bank verdoppelte ihre Bilanzsumme innert nur acht Jahren, ein damals ungeheures Tempo. Wie die UBS ein Dreivierteljahrhundert später hatte sie einen Quantensprung anvisiert. Tatsächlich erholte sich die Volksbank dank der massiven Auslandsexpansion ihrer Anlagen. Als die Weltwirtschaftskrise sich verlängerte, blockierte jedoch Deutschland im Sommer 1931 alle Guthaben ausländischer Banken – und die Volksbank sass darin fest.

Im Juli 1933 verschärfte die Regierung Hitlers die Ausfuhrsperren weiter. Nach der Abwertung des Pfunds und dem Absinken des Dollars befürchteten die Anleger auch eine Franken-Abwertung – und zogen Geld aus der Schweiz ab. Eine Bankenkrise in Genf verscheuchte ebenfalls viele ausländische Anleger. Wie heuer im September standen auch damals die kurzfristigen Ausleihungen zwischen den Banken still.

Nach einem Gesuch der Volksbank veröffentlichte der Bundesrat innert Tagen seinen Vorschlag am 29. November 1933. Sein Hauptmotiv war die enorme volkswirtschaftliche Bedeutung der Volksbank, welche 70 000 Gewerbebetriebe finanzierte, jedem zweiten oder dritten Haushalt Einlagen schuldete und 100 000 Genossenschafter aus meist einfachen Kreisen hatte. Genossenschafter aber können ihre Anteile kündigen, so dass eine Panik die Kassen der Bank zweimal geleert hätte – durch die Einleger wie durch die Eigentümer.

Presse und Politiker waren damals höflicher im Umgang mit strauchelnden Wirtschaftsführern, aber der Bundesrat kam in seinem Antrag ans Parlament dennoch zum Punkt. Die Volksbank habe ihre Auslandgeschäfte «nicht nach einem festen Plane» geführt, «sondern es handelte sich mehr um Gelegenheitsgeschäfte». Die Bankleitung «wurde überrascht», hielt der Bundesrat fest, und sie besass nicht «die hiefür qualifizierten Direktoren».

Das waren – gemessen am damaligen Sprachgebrauch – klatschende Ohrfeigen. Die Volksbank wurde aber saniert. Die bisherigen Genossenschafter verloren die Hälfte des Werts ihrer Anteile, der Bund besass dank seiner Kapitaleinlage danach die Hälfte der Volksbank. In den folgenden Jahren versuchte diese, wie auch die anderen Banken, die blockierten Anlagen aus Deutschland, aber auch aus Ungarn, Österreich und anderen Ländern abzuziehen.

Gegenüber solchen Staaten mit blockiertem Geldabzug richtete die Schweiz Clearing-Stellen ein. Wenn ein schweizerischer Importeur dann Reichsmark brauchte, verrechnete man diese mit blockierten Reichsmark-Guthaben von Exporteuren oder Banken. Man kann sich vorstellen, dass zwischen deren Ansprüchen lebhafte Kämpfe um die verfügbaren Gelder ausgetragen wurden. Und alles kam sowieso nicht zurück. Die Volksbank musste deshalb ihr Kapital ein zweites Mal halbieren, so dass der Bund Ende 1936 die Hälfte seines Einschusses schon verloren hatte. Im Verlaufe der nächsten Jahre verdiente die Volksbank wieder Geld, erhöhte 1948 ihr Kapital und zahlte den Bund aus. Zwar war die Hälfte ohnehin schon verloren, und der Franken von 1948 war real nochmals bloss die Hälfte wert.

Mit gleichen Instrumenten wie heute wurden drei andere Grossbanken saniert. Der Bund und die Nationalbank gründeten 1932 die Eidgenössische Darlehenskasse, welche faule Kredite übernehmen sollte, wie heute die Auffanggesellschaft der Nationalbank die 60 Mrd. Fr. gefährdeter Papiere der UBS abkauft.

Trotz der Millionenhilfe verloren aber die Eidgenössische Bank und die Basler Handelsbank ihre Selbständigkeit an Bankgesellschaft und Bankverein, während die Genfer Diskont-Bank 1934 schliessen musste. Das Bundesparlament hatte der Darlehenskasse verboten, mehr als die geschätzten Werte der faulen Pfandpapiere auszuzahlen, wodurch nur flüssiges, aber kein stützendes Geld zugeführt wurde. Auch dieses Problem stellt sich heute dem Stützungsfonds der USA von 700 Mrd. $ und bewegte ihn diese Woche dazu, keine Pfänder auszufinanzieren. Die Schweizerische Bankgesellschaft, der Vorfahre der UBS, sanierte sich durch private neue Kapitalien. Die Schweizerische Kreditanstalt, heute CS, kam sogar ohne Sanierung durch.

Für den Sanierungslauf des ganzen Banksystems allerdings sind die fernen dreissiger Jahre kein Muster, möchte man wenigstens hoffen. Denn die politischen Eingriffe von aussen, die Devisenstopps, die Beschlagnahmungen, Abwertungen und die Vernichtungen im Kriege schliesslich boten ein viel unheilvolleres Umfeld. Die bessere Parallele wäre vielleicht die Liquiditäts- und Bankenkrise von 1907, die damals ohne Notenbanken und Staat gelöst wurde. Aber das war eine noch fernere Zeit.

November 17, 2008

The Reckoning
A Deregulator Looks Back, Unswayed

WASHINGTON — Back in 1950 in Columbus, Ga., a young nurse working double shifts to support her three children and disabled husband managed to buy a modest bungalow on a street called Dogwood Avenue.

Phil Gramm, the former United States senator, often told that story of how his mother acquired his childhood home. Considered something of a risk, she took out a mortgage with relatively high interest rates that he likened to today’s subprime loans.

A fierce opponent of government intervention in the marketplace, Mr. Gramm, a Republican from Texas, recalled the episode during a 2001 Senate debate over a measure to curb predatory lending. What some view as exploitive, he argued, others see as a gift. “Some people look at subprime lending and see evil. I look at subprime lending and I see the American dream in action,” he said. “My mother lived it as a result of a finance company making a mortgage loan that a bank would not make.”

On Capitol Hill, Mr. Gramm became the most effective proponent of deregulation in a generation, by dint of his expertise (a Ph.D in economics), free-market ideology, perch on the Senate banking committee and force of personality (a writer in Texas once called him “a snapping turtle”). And in one remarkable stretch from 1999 to 2001, he pushed laws and promoted policies that he says unshackled businesses from needless restraints but his critics charge significantly contributed to the financial crisis that has rattled the nation.

He led the effort to block measures curtailing deceptive or predatory lending, which was just beginning to result in a jump in home foreclosures that would undermine the financial markets. He advanced legislation that fractured oversight of Wall Street while knocking down Depression-era barriers that restricted the rise and reach of financial conglomerates.

And he pushed through a provision that ensured virtually no regulation of the complex financial instruments known as derivatives, including credit swaps, contracts that would encourage risky investment practices at Wall Street’s most venerable institutions and spread the risks, like a virus, around the world.

Many of his deregulation efforts were backed by the Clinton administration. Other members of Congress — who collectively received hundreds of millions of dollars in campaign contributions from financial industry donors over the last decade — also played roles.

Many lawmakers, for example, insisted that Fannie Mae and Freddie Mac, the nation’s largest mortgage finance companies, take on riskier mortgages in an effort to aid poor families. Several Republicans resisted efforts to address lending abuses. And Congressional committees failed to address early symptoms of the coming illness.

But, until he left Capitol Hill in 2002 to work as an investment banker and lobbyist for UBS, a Swiss bank that has been hard hit by the market downturn, it was Mr. Gramm who most effectively took up the fight against more government intervention in the markets.

“Phil Gramm was the great spokesman and leader of the view that market forces should drive the economy without regulation,” said James D. Cox, a corporate law scholar at Duke University. “The movement he helped to lead contributed mightily to our problems.”

In two recent interviews, Mr. Gramm described the current turmoil as “an incredible trauma,” but said he was proud of his record. He blamed others for the crisis: Democrats who dropped barriers to borrowing in order to promote homeownership; what he once termed “predatory borrowers” who took out mortgages they could not afford; banks that took on too much risk; and large financial institutions that did not set aside enough capital to cover their bad bets.

But looser regulation played virtually no role, he argued, saying that is simply an emerging myth. “There is this idea afloat that if you had more regulation you would have fewer mistakes,” he said. “I don’t see any evidence in our history or anybody else’s to substantiate it.” He added, “The markets have worked better than you might have thought.”

Rejecting Common Wisdom

Mr. Gramm sees himself as a myth buster, and has long argued that economic events are misunderstood. Before entering politics in the 1970s, he taught at Texas A & M University. He studied the Great Depression, producing research rejecting the conventional wisdom that suicides surged after the market crashed. He examined financial panics of the 19th century, concluding that policy makers and economists had repeatedly misread events to justify burdensome regulation. “There is always a revisionist history that tries to claim that the system has failed and what we need to do is have government run things,” he said.

From the start of his career in Washington, Mr. Gramm aggressively promoted his conservative ideology and free-market beliefs. (He was so insistent about having his way that one House speaker joked that if Mr. Gramm had been around when Moses brought the Ten Commandments down from Mount Sinai, the Texan would have substituted his own.)

He could be impolitic. Over the years, he has urged that food stamps be cut because “all our poor people are fat,” said it was hard for him “to feel sorry” for Social Security recipients and, as the economy soured last summer, called America “a nation of whiners.”

His economic views — and seat on the Senate banking committee — quickly won him support from the nation’s major financial institutions. From 1989 to 2002, federal records show, he was the top recipient of campaign contributions from commercial banks and in the top five for donations from Wall Street. He and his staff often appeared at industry-sponsored speaking events around the country.

From 1999 to 2001, Congress first considered steps to curb predatory loans — those that typically had high fees, significant prepayment penalties and ballooning monthly payments and were often issued to low-income borrowers. Foreclosures on such loans were on the rise, setting off a wave of personal bankruptcies.

But Mr. Gramm did everything he could to block the measures. In 2000, he refused to have his banking committee consider the proposals, an intervention hailed by the National Association of Mortgage Brokers as a “huge, huge step for us.”

A year later, he objected again when Democrats tried to stop lenders from being able to pursue claims in bankruptcy court against borrowers who had defaulted on predatory loans.

While acknowledging some abuses, Mr. Gramm argued that the measure would drive thousands of reputable lenders out of the housing market. And he told fellow senators the story of his mother and her mortgage.

“What incredible exploitation,” he said sarcastically. “As a result of that loan, at a 50 percent premium, so far as I am aware, she was the first person in her family, from Adam and Eve, ever to own her own home.”

Once again, he succeeded in putting off consideration of lending restrictions. His opposition infuriated consumer advocates. “He wouldn’t listen to reason,” said Margot Saunders of the National Consumer Law Center. “He would not allow himself to be persuaded that the free market would not be working.”

Speaking at a bankers’ conference that month, Mr. Gramm said the problem of predatory loans was not of the banks’ making. Instead, he faulted “predatory borrowers.” The American Banker, a trade publication, later reported that he was greeted “like a conquering hero.”

At the Altar of Wall Street

Mr. Gramm would sometimes speak with reverence about the nation’s financial markets, the trading and deal making that churn out wealth. “When I am on Wall Street and I realize that that’s the very nerve center of American capitalism and I realize what capitalism has done for the working people of America, to me that’s a holy place,” he said at an April 2000 Senate hearing after a visit to New York.

That viewpoint — and concerns that Wall Street’s dominance was threatened by global competition and outdated regulations — shaped his agenda.

In late 1999, Mr. Gramm played a central role in what would be the most significant financial services legislation since the Depression. The Gramm-Leach-Bliley Act, as the measure was called, removed barriers between commercial and investment banks that had been instituted to reduce the risk of economic catastrophes. Long sought by the industry, the law would let commercial banks, securities firms and insurers become financial supermarkets offering an array of services.

The measure, which Mr. Gramm helped write and move through the Senate, also split up oversight of conglomerates among government agencies. The Securities and Exchange Commission, for example, would oversee the brokerage arm of a company. Bank regulators would supervise its banking operation. State insurance commissioners would examine the insurance business. But no single agency would have authority over the entire company.

“There was no attention given to how these regulators would interact with one another,” said Professor Cox of Duke. “Nobody was looking at the holes of the regulatory structure.”

The arrangement was a compromise required to get the law adopted. When the law was signed in November 1999, he proudly declared it “a deregulatory bill,” and added, “We have learned government is not the answer.”

In the final days of the Clinton administration a year later, Mr. Gramm celebrated another triumph. Determined to close the door on any future regulation of the emerging market of derivatives and swaps, he helped pushed through legislation that accomplished that goal.

Created to help companies and investors limit risk, swaps are contracts that typically work like a form of insurance. A bank concerned about rises in interest rates, for instance, can buy a derivatives instrument that would protect it from rate swings. Credit-default swaps, one type of derivative, could protect the holder of a mortgage security against a possible default.

Earlier laws had left the regulation issue sufficiently ambiguous, worrying Wall Street, the Clinton administration and lawmakers of both parties, who argued that too many restrictions would hurt financial activity and spur traders to take their business overseas. And while the Commodity Futures Trading Commission — under the leadership of Mr. Gramm’s wife, Wendy — had approved rules in 1989 and 1993 exempting some swaps and derivatives from regulation, there was still concern that step was not enough.

After Mrs. Gramm left the commission in 1993, several lawmakers proposed regulating derivatives. By spreading risks, they and other critics believed, such contracts made the system prone to cascading failures. Their proposals, though, went nowhere.

But late in the Clinton administration, Brooksley E. Born, who took over the agency Mrs. Gramm once led, raised the issue anew. Her suggestion for government regulations alarmed the markets and drew fierce opposition.

In November 1999, senior Clinton administration officials, including Treasury Secretary Lawrence H. Summers, joined by the Federal Reserve chairman, Alan Greenspan, and Arthur Levitt Jr., the head of the Securities and Exchange Commission, issued a report that instead recommended legislation exempting many kinds of derivatives from federal oversight.

Mr. Gramm helped lead the charge in Congress. Demanding even more freedom from regulators than the financial industry had sought, he persuaded colleagues and negotiated with senior administration officials, pushing so hard that he nearly scuttled the deal. “When I get in the red zone, I like to score,” Mr. Gramm told reporters at the time.

Finally, he had extracted enough. In December 2000, the Commodity Futures Modernization Act was passed as part of a larger bill by unanimous consent after Mr. Gramm dominated the Senate debate. “This legislation is important to every American investor,” he said at the time. “It will keep our markets modern, efficient and innovative, and it guarantees that the United States will maintain its global dominance of financial markets.”

But some critics worried that the lack of oversight would allow abuses that could threaten the economy. Frank Partnoy, a law professor at the University of San Diego and an expert on derivatives, said, “No one, including regulators, could get an accurate picture of this market. The consequences of that is that it left us in the dark for the last eight years.” And, he added, “Bad things happen when it’s dark.”

In 2002, Mr. Gramm left Congress, joining UBS as a senior investment banker and head of the company’s lobbying operation. But he would not be abandoning Washington.

Lobbying From the Outside

Soon, he was helping persuade lawmakers to block Congressional Democrats’ efforts to combat predatory lending. He arranged meetings with executives and top Washington officials. He turned over his $1 million political action committee to a former aide to make donations to like-minded lawmakers.

Mr. Gramm, now 66, who declined to discuss his compensation at UBS, picked an opportune moment to move to Wall Street. Major financial institutions, including UBS, were growing, partly as a result of the Gramm-Leach-Bliley Act.

Increasingly, institutions were trading the derivatives instruments that Mr. Gramm had helped escape the scrutiny of regulators. UBS was collecting hundreds of millions of dollars from credit-default swaps. (Mr. Gramm said he was not involved in that activity at the bank.) In 2001, a year after passage of the commodities law, the derivatives market insured about $900 billion worth of credit; by last year, the number had swelled to $62 trillion.

But as housing prices began to fall last year, foreclosure rates began to rise, particularly in regions where there had been heavy use of subprime loans. That set off a calamitous chain of events. The weak housing markets would create strains that eventually would have financial institutions around the world on the edge of collapse.

UBS was among them. The bank has declared nearly $50 billion in credit losses and write-downs since the start of last year, prompting a bailout of up to $60 billion by the Swiss government.

As Mr. Gramm’s record in Congress has come under attack amid all the turmoil, some former colleagues have come to his defense. “He is a true dyed-in-the-wool free-market guy. He is very much a purist, an idealist, as he has a set of principles and he has never abandoned them,” said Peter G. Fitzgerald, a Republican and former senator from Illinois. “This notion of blaming the economic collapse on Phil Gramm is absurd to me.”

But Michael D. Donovan, a former S.E.C. lawyer, faulted Mr. Gramm for his insistence on deregulating the derivatives market. “He was the architect, advocate and the most knowledgeable person in Congress on these topics,” Mr. Donovan said. “To me, Phil Gramm is the single most important reason for the current financial crisis.”

Mr. Gramm, ever the economics professor, disputes his critics’ analysis of the causes of the upheaval. He asserts that swaps, by enabling companies to insure themselves against defaults, have diminished, not increased, the effects of the declining housing markets. “This is part of this myth of deregulation,” he said in the interview. “By and large, credit-default swaps have distributed the risks. They didn’t create it. The only reason people have focused on them is that some politicians don’t know a credit-default swap from a turnip.”

But many experts disagree, including some of Mr. Gramm’s former allies in Congress. They say the lack of oversight left the system vulnerable. “The virtually unregulated over-the-counter market in credit-default swaps has played a significant role in the credit crisis, including the now $167 billion taxpayer rescue of A.I.G.,” Christopher Cox, the chairman of the S.E.C. and a former congressman, said Friday.

Mr. Gramm says that, given what has happened, there are modest regulatory changes he would favor, including requiring issuers of credit-default swaps to demonstrate that they have enough capital to back up their pledges. But his belief that government should intervene only minimally in markets is unshaken. “They are saying there was 15 years of massive deregulation and that’s what caused the problem,” Mr. Gramm said of his critics. “I just don’t see any evidence of it.”

Griff Palmer contributed reporting from New York.

NOVEMBER 17, 2008

Obama would be a fool to trust his economy to the discretion of central bankers
To Prevent Bubbles, Restrain the Fed

On Nov. 14, 2008, the Dow Jones Industrial Average closed at 8497.31. On Nov. 13, 1998, the adjusted (for dividends and split) close was 8919.59. There has been great volatility, but no net capital accumulation as measured by the Dow in a decade. Other indexes, such as the Nasdaq, tell a similar story. Capital has been invested but as much value has been destroyed as created.

The U.S. cannot afford to have another lost decade. Or to see the dreams of another generation of Americans who had been told to take responsibility for their financial health by investing in the stock market dashed by failed monetary and fiscal polices.

Today, the most urgent task facing President-elect Barack Obama is stabilizing financial markets by instituting policies that foster economic growth and prevent the type of boom and bust cycle that has just wiped out a decade's worth of wealth accumulation.

Mr. Obama's task is made all the more difficult because there has been a perfect storm of bad policies and practices. Laudable goals, such as fostering more homeownership, went terribly awry. Financial services regulation has failed at its most basic task, protecting the soundness of the system. And a dysfunctional compensation system has given corporate managers incentives to take excessive risks with investors' money.

None of the policies and practices that are now widely criticized suddenly appeared in the past decade. But they were kindling for a financial firestorm that needed only an accelerant and a spark. Both were provided by a policy of easy money that came in response to the bursting of the dot-com bubble in 2000-01, the ensuing recession, and the Sept. 11 attacks.

At first Fed easing was in order. The central bank needed to counter the "irrational exuberance" of the dot-com bubble. And by May of 2000 the Fed had done that by raising the fed-funds target to 6.5%. That needed to come down when the bubble burst. Aggressive cutting brought it to 2% in November 2001.

The problem is the rate remained at 2% or less for three years (for a year it was at 1%). During most of this period, the real (inflation-adjusted) fed-funds rate was negative. People were being paid to borrow and they responded by often borrowing irresponsibly.

Consider subprime mortgages. In 2001, there was $190 billion worth of subprime loan originations -- 8.6% of total mortgage originations. In 2005, there was $625 billion worth of subprime originations -- 20% of the total. In the same period, the percentage of subprime mortgages securitized -- loans that were packaged and sold to investors -- rose from just about 50% to a little more than 81%. (These numbers all trailed off slightly in 2006.) The great easing in monetary policy ended (with a lag) when the Fed began raising rates in June 2004.

The subprime saga follows a familiar pattern. Easy credit begets a boom and then the inevitable tightening of credit bursts the bubble. What is not familiar is the scale of the devastation wrought in this boom-bust cycle.

Never before had financial markets evolved such a complex superstructure of interlinked securities, derivatives of all kinds, and special-purpose investment vehicles. Professor Gary Gorton of the Yale School of Management has best described that complexity in his paper "The Panic of 2007," published by the National Bureau of Economic Research. He makes clear that as this system evolved there was not a sufficient guard against systemic risk.

No president could want these events to repeat themselves on his watch. But they could be repeated.

The economy now confronts deflationary forces. If past is prologue the Fed will concentrate on those deflationary forces for too long and rekindle an asset boom of some kind. The fiscal "stimulus" being contemplated by Congress could be another economic accelerant. If both the fiscal and money stimulus efforts kick in just as market forces also kick in, we're likely to see another unsustainable boom that will be followed by a bust.

The incoming administration must think about that possibility because the timing of boom and bust cycles seems to be shortening. The next bust could come five or six years from now -- or about in the middle of an Obama second term. Should that happen, Mr. Obama would be unable to blame Republicans for the mess and would be tagged as the second coming of Jimmy Charter.

To avoid such a fate, Mr. Obama needs to stop the next asset bubble from being inflated by imposing a commodity standard on the Fed. A commodity standard (such as a gold standard) imposes discipline on a central bank because it forces it to acquire commodity reserves in order to increase the money supply. Today the government can inflate asset bubbles without paying a cost for it because the currency isn't linked to the price of a commodity.

With a commodity standard in place, the government would also have price signals that would alert it to the formation of a bubble. Why? Because the price of the commodity would be continuously traded in spot and futures markets. Excessive easing by the Fed would be signaled by rising prices for the commodity. In recent years, Fed officials have claimed that they cannot know when an asset bubble is developing. With a commodity standard in place, it would be clear to anyone watching spot markets whether a bubble is forming. What's more, if Fed officials ignored price signals, outflows of commodity reserves would force them to act against the bubble.

The point is not to deflate asset bubbles, but to avoid them in the first place. Imposing a commodity standard is a practical response to the repeated failures of central banks to maintain sound money and financial stability. What would be impractical is to believe that the next time central banks will get it right on their own.

Mr. O'Driscoll, a senior fellow at the Cato Institute, was formerly a vice president at the Federal Reserve Bank of Dallas.

Le Temps    25 novembre 2008

Guy de Picciotto: «Nous courons le risque d’être relégués
à une place de seconde zone, voire un paradis fiscal.»
CRISE. Guy de Picciotto, qui dirige l'UBP, plaide en faveur des plans de relance.
Frédéric Lelièvre

«Vingt ans d'excès financiers ne peuvent pas, d'un côté, se résorber sans intervention publique ou réglementation.  D'un autre côté, on fait porter le chapeau au monde financier; il n'empêche que l'ensemble des acteurs et des  stakeholders se réjouissaient des rendements à 25/30% sur les banques. Alors que les taux d'intérêt étaient à 3%. De  tels gains ne peuvent se faire sans prise de risque. Nous sommes donc tous coupables d'avoir construit cette  pyramide: la cupidité est le coupable.»

Dans un bureau au 7e étage de l'Union Bancaire Privée (UBP), Guy de Picciotto, son directeur général, s'est assis  face à la vue sur le lac. Comme pour prendre du recul sur cette «horrible année» qui tarde à s'achever et sur la grave  récession qu'il voit arriver. «Nous savions que l'économie allait de toute façon ralentir cette année; mais avec la crise  financière, liée à l'endettement américain et aux engagements des banques aux Etats-Unis, le mal est maintenant  grave et profond», analyse le banquier genevois.

Renouveau des hedge funds

Le salut ne peut donc venir que de l'intervention publique. Et le banquier de se réjouir que le G20 se soit tenu. Un  premier résultat. Le deuxième: «Ils ont décidé de décider. Tout est donc ouvert. La vérité, c'est que la crise n'est pas  venue d'un manque de réglementation, mais bien d'un déficit de contrôle et d'audit.»

Guy de Picciotto s'inquiète en revanche d'une chose, «que la Suisse ait été absente. Nous courons le risque d'être  relégués à une place financière de seconde zone, voire un paradis fiscal. Si nous voulons défendre notre place au-delà du secret bancaire, il faut être au G20. Et en tout cas, il ne faut pas se rendre sans combattre.» [voir à ce sujet la réponse du Conseil fédéral à la motion parlamentaire 08.3718 "Conférence Bretton Woods II et auto-protection monétaire"]

Combattre, justement, le DG juge les plans de relance des Etats annoncés à travers le monde «nécessaires pour lutter  contre la déflation qui commence à venir». L'an prochain, «lorsque nous verrons l'inflation aux Etats-Unis à 0% et le  chômage proche des 10%, les conditions seront alors réunies pour que la reflation (ndlr: politique monétaire très  expansionniste pour relancer l'activité économique, mais qui recrée de l'inflation) puisse se faire de façon importante.  Il faut purger le système avant de le relancer, de façon contrôlée.» Selon lui, la Suisse devrait mieux résister,  «abstraction faite de la finance», car «la gouvernance et la gestion des entreprises est plus saine qu'ailleurs.»

Guy de Picciotto, dont la banque gérait, à fin juin, près de 126 milliards de francs, juge par ailleurs qu'il ne faut pas  réglementer les hedge funds, mais «limiter leur niveau d'endettement. Comme celui des banques». En outre, cette  activité va «d'elle-même massivement se redimensionner». Les stratégies qui «ont connu un succès extraordinaire  sont notamment celles d'arbitrage avec un fort effet de levier. C'est terminé», assure Guy de Picciotto. Les gérants  qui vont s'en sortir miseront sur «une analyse plus fondamentale sur des secteurs de l'économie et des titres des  sociétés et pas d'arbitrage grâce à des modèles mathématiques avec beaucoup de munitions». Il y aura alors «une  nouvelle phase d'expansion, basée sur l'expertise, l'innovation et le talent».

Pour l'instant, «2008 est à ramener au rang de 1929. Reste à savoir si on dépassera le krach de 29 dans l'horreur.  Les politiques ont pris conscience de la gravité du problème après le cas Lehman Brothers et la paralysie du marché  interbancaire qui en a résulté», conclut-il.

© Le Temps, 2008

November 25, 2008

All Fall Down

I spent Sunday afternoon brooding over a great piece of Times reporting by Eric Dash and Julie Creswell about Citigroup. Maybe  brooding isn’t the right word. The front-page article, entitled “Citigroup Pays for a Rush to Risk,” actually left me totally disgusted.

Why? Because in searing detail it exposed — using Citigroup as Exhibit A — how some of our country’s best-paid bankers were  overrated dopes who had no idea what they were selling, or greedy cynics who did know and turned a blind eye. But it wasn’t only the  bankers. This financial meltdown involved a broad national breakdown in personal responsibility, government regulation and financial  ethics.

So many people were in on it: People who had no business buying a home, with nothing down and nothing to pay for two years; people  who had no business pushing such mortgages, but made fortunes doing so; people who had no business bundling those loans into  securities and selling them to third parties, as if they were AAA bonds, but made fortunes doing so; people who had no business rating  those loans as AAA, but made a fortunes doing so; and people who had no business buying those bonds and putting them on their  balance sheets so they could earn a little better yield, but made fortunes doing so.

Citigroup was involved in, and made money from, almost every link in that chain. And the bank’s executives, including, sad to see, the  former Treasury Secretary Robert Rubin, were clueless about the reckless financial instruments they were creating, or were so  ensnared by the cronyism between the bank’s risk managers and risk takers (and so bought off by their bonuses) that they had no  interest in stopping it.

These are the people whom taxpayers bailed out on Monday to the tune of what could be more than $300 billion. We probably had no  choice. Just letting Citigroup melt down could have been catastrophic. But when the government throws together a bailout that could end  up being hundreds of billions of dollars in 48 hours, you can bet there will be unintended consequences — many, many, many.

Also check out Michael Lewis’s superb essay, “The End of Wall Street’s Boom,” on Lewis, who first chronicled Wall  Street’s excesses in “Liar’s Poker,” profiles some of the decent people on Wall Street who tried to expose the credit binge — including  Meredith Whitney, a little known banking analyst who declared, over a year ago, that “Citigroup had so mismanaged its affairs that it  would need to slash its dividend or go bust,” wrote Lewis.

“This woman wasn’t saying that Wall Street bankers were corrupt,” he added. “She was saying they were stupid. Her message was  clear. If you want to know what these Wall Street firms are really worth, take a hard look at the crappy assets they bought with huge  sums of borrowed money, and imagine what they’d fetch in a fire sale... For better than a year now, Whitney has responded to the  claims by bankers and brokers that they had put their problems behind them with this write-down or that capital raise with a claim of her  own: You’re wrong. You’re still not facing up to how badly you have mismanaged your business.”

Lewis also tracked down Steve Eisman, the hedge fund investor who early on saw through the subprime mortgages and shorted the  companies engaged in them, like Long Beach Financial, owned by Washington Mutual.

“Long Beach Financial,” wrote Lewis, “was moving money out the door as fast as it could, few questions asked, in loans built to self- destruct. It specialized in asking homeowners with bad credit and no proof of income to put no money down and defer interest payments  for as long as possible. In Bakersfield, Calif., a Mexican strawberry picker with an income of $14,000 and no English was lent every  penny he needed to buy a house for $720,000.”

Lewis continued: Eisman knew that subprime lenders could be disreputable. “What he underestimated was the total unabashed  complicity of the upper class of American capitalism... ‘We always asked the same question,’ says Eisman. ‘Where are the rating  agencies in all of this? And I’d always get the same reaction. It was a smirk.’ He called Standard & Poor’s and asked what would happen  to default rates if real estate prices fell. The man at S.& P. couldn’t say; its model for home prices had no ability to accept a negative  number. ‘They were just assuming home prices would keep going up,’ Eisman says.”

That’s how we got here — a near total breakdown of responsibility at every link in our financial chain, and now we either bail out the  people who brought us here or risk a total systemic crash. These are the wages of our sins. I used to say our kids will pay dearly for  this. But actually, it’s our problem. For the next few years we’re all going to be working harder for less money and fewer government  services — if we’re lucky.

Washington Times    November 26, 2008

The Fed: Solution or problem?
Richard Rahn

Should we abolish the Fed? The Federal Reserve Bank, or "The Fed" as it is commonly known, is the central bank of the United States. It was created by Congress in 1913 as the direct result of the Panic of 1907 (recessions or depressions were previously called panics, and they tended to be short lived and self-correcting).

The United States had been without a central bank since the closure of the Second Bank of the United States in 1836 by Andrew Jackson. A major goal of the Fed was to stop bank panics which had occurred with some regularity from the Founding of the American Republic. The Fed also was charged with maintaining a stable price level and full employment.

When considering whether the Fed should be kept, or at least kept in its present form, it is always useful to look at the data. Specifically, what happened in the 94 years prior to 1914 (when the Fed became operational), and what happened in the 94 years since 1914?

The United States. was on the gold standard in most of the years prior to the Fed, and there was no systemic inflation over the century before the Fed. There were some periods of inflation (during the Civil War) and a sustained period of deflation in the 1890s, but wholesale prices were nearly the same in 1914 as 100 years earlier. (Note: There are reasonably reliable wholesale and/or producer price numbers from the late 1700s, but the consumer price index [CPI] did not exist in the 19th century. The CPI has grown by more than 2,000 percent since 1913, meaning the typical item that cost $20 back then would now cost more than $400.)

It is unambiguously clear that the Fed has failed in its charge to maintain a stable price level.

The total number of banks grew rapidly in the century before the creation of the Fed, but the number declined rapidly during the Depression of the 1930s, both because of bank failures and mergers. The merger trend has continued in recent decades, and the total number of banks continues to fall - not necessarily a bad thing except when they are "too big to fail."

The Fed was supposed to regulate banks (in conjunction with state bank regulators, the Office of Thrift Supervision, and the Comptroller of the Currency) to avoid large numbers of bank failures that occurred in the Panics of 1878, 1893, 1896 and 1907. However, these episodes only resulted in the closure of a few hundred banks, which turned out to be minor compared to the Great Depression where thousands of banks failed, or even the S&L crisis of the late 1980s and early 1990s where a total of approximately 1,600 banks failed.

There is also no evidence unemployment rates have been lower on average since the Fed's creation. The unemployment statistics only go back to 1890, and there were a few years in the early 1890s where unemployment was in the double digits, but this episode was neither as long nor as severe as the one in the 1930s.

If those members of Congress who voted for the creation of the Fed in 1913 had been able to know what the results of their handiwork would be for the next 94 years, given the empirical data, it is unlikely the closely contested bill would have passed.

The "Panic of 2008" appears to have the same origins as the previous panics or recessions/depressions. What typically occurs is a monetary expansion (too much money and/or credit) where interest rates are too low, resulting in a rapid rise in the price of assets, which leads to what Austrian economist and Nobel prize winner F.A. Hayek called not too much investment but "mal-investment," which, in turn, leads to a rise in consumer prices. Under a gold or commodity standard, the loss of reserves finally brings the inflation to a halt.

Under a fiat monetary system, which the Fed and almost all other central banks now use, the end of the inflation only comes when the central bank finally decides to end it by restricting money and credit.

Gerald O'Driscoll, a former senior Fed official and very able economist, recently said it best: "The central bank is like an arsonist watching a fire he set, expressing amazement at how such an event could have happened. The Fed created a moral hazard by first, implicitly, then explicitly promising to bail investors out of risky commitments. [Former Fed Chairman Alan] Greenspan promised to 'mitigate the fallout' from asset deflation. How does a central bank do that? By reflating asset prices, or, as Greenspan euphemistically put it in his 1999 testimony, 'ease the transition to the next expansion.' "

Before the Fed and big government, previous bank panics usually ended quickly without "bailouts" or "economic stimulus" programs. Given that the Fed, the Treasury and the Congress are obviously confused about what to do in the current situation, history indicates that perhaps the least harmful course of action is for them to do nothing.

Richard W. Rahn is a senior fellow at the Cato Institute and chairman of the Institute for Global Economic Growth.

WOZ    27.November 2008

Was tun? Macht die UBS zur Migros!
Wie kann die marode UBS saniert und die Finanzkrise langfristig überwunden werden?
In erster Linie gilt es, die Spekulation zu bändigen.
Von Gian Trepp

Spekulationsblasen sind das Markenzeichen der ständig wiederkehrenden kapitalistischen Krisen. Die Blasen entstehen, weil SpekulantInnen die Bör­senkurse so weit hochtreiben, dass sie nicht mehr in Bezug zur Entwicklung in der Realwirtschaft stehen. Die wenigen Börsenspieler­Innen, die rechtzeitig ihre Titel abstossen, machen dabei gigantische Gewinne, die letzten beissen die Hunde.

Das unausweichliche Platzen solcher Blasen verursacht jedes Mal enorme Kosten, die nur noch vom Staat, also der Bevölkerung aufgefangen werden können. Der grosse Teil dieser Kosten besteht in der Regel aus Finanzspritzen für private Banken, die für das Kredit- und Zahlungssystem eines Landes so bedeutend sind, dass ihr Bankrott die ganze Wirtschaft in den Abgrund reissen könnte. Das ist auch bei der UBS der Fall.

Der Zwang zur Staatshilfe hat bei solchen Grossinstituten zu einem gefährlichen Hochrisikoverhalten in der Wertschriftenspekulation geführt. Wenn der Staat einfach Geld gibt, aber nichts Grundsätzliches ändert, beginnt der Spekulationskreislauf von neuem, und nach einigen Jahren kommt es wieder zu einem Crash. Die derzeitige Politik der Nationalbank, des Bundesrates und der bürgerlichen Parlamentsmehrheit läuft genau auf dieses Szenario hinaus.

Mittel- und langfristig bringt das aktuelle Schweizer Krisenmanagement nichts. Allerdings ist Nichtstun auch keine Alternative. Um den destruktiven Spekulationszyklus innerhalb der UBS zu brechen, muss die Bank reorganisiert werden. Die Risiken im spekulativen Eigenhandel müssen künftig ohne Rückgriff auf den Staat getragen werden können. Gleichzeitig könnte eine solche Umgestaltung auch einen Beitrag gegen die systematische Beihilfe zur Steuerhinterziehung leisten, die der UBS zurzeit von der US-Justiz vorgeworfen wird.

Das Trennbankensystem

Zur Reorganisation der UBS liegen bereits verschiedene Vorschläge auf dem Tisch. Eine Möglichkeit wäre, dass man die Aktiengesellschaft zwangsweise in eine Genossenschaft umwandelt. Der Shareholder-Druck, die Profitraten immer höher hinaufzutreiben, würde so wegfallen. Die Beispiele von Migros und Coop beweisen, dass auch grosse Betriebe als Genossenschaften erfolgreich bestehen - und sich sogar für fairen Handel und ökologische Produktion einsetzen können. Eine andere Variante wäre die Verstaatlichung der UBS. Allerdings sind BankdirektorInnen, die von der Politik eingesetzt werden, ­keine GarantInnen für nachhaltiges Wirtschaften. Die Bankenverstaatlichung durch den französischen Staatspräsidenten François Mitterand von 1981 ist ein eher abschreckendes Beispiel.

Wichtig ist, dass die Spekulation der Grossbanken gebändigt wird. Dies kann durch eine gesetzliche Trennung der Investmentbanken und Hedgefonds von den Geschäftsbanken erreicht werden. In einem solchen Trennbankensystem dürften nur grosse Geschäftsbanken, nicht aber Börsenspekulant­Innen auf eine faktische Staatsgarantie hoffen.

Zusätzlich dämpfen müsste man die Spekulation durch die massive Einschränkung des Derivatehandels. Die sogenannten Credit Default Swaps etwa haben durch ihre Unberechenbarkeit die Krise stark verschärft. Solche Produkte sind zu verbieten. Nur schon aus ethischen Gründen sollte man zudem Nahrungsmittelderivaten den Riegel schieben. Auch sollten Derivate nur noch an den Börsen gehandelt werden dürfen, was die Übersichtlichkeit erhöhen würde. Ausserdem ist der maximale Verschuldungsgrad der einzelnen Banken stärker zu begrenzen und sind die Boni für BankmanagerInnen einzuschränken.

Superblase, Megacrash

Für alle Finanzkrisen gilt: je grösser die geplatzte Blase, desto grösser die Gefahr der Übertragung des Schocks auf die Realwirtschaft. Aus kleinen oder mittleren Blasen - wie jenen von 1987, 1998, 2002 - resultierten keine oder milde Rezessionen. Aus der geplatzten Superblase von 1929 dagegen entstand eine schwere Weltwirtschaftskrise. Alle Anzeichen deuten darauf hin, dass auch auf den jetzigen Megacrash im Finanzsektor eine grosse weltweite Rezession folgt.

Die Krise auf dem Finanzmarkt wird vor allem dadurch auf die Realwirtschaft übertragen, dass das kleine und mittlere Gewerbe wie auch die grosse Industrie nur noch mit Mühe Kredite von den Banken erhalten. Ohne Zugang zu Krediten, die sie zur Vorfinanzierung der Produktionskosten brauchen, können die Unternehmen ihre Arbeitsplätze nicht erhalten und schon gar keine neuen schaffen. Weil private profitstrebige Banken infolge ihrer Börsenverluste immer risikoscheuer werden, kann der Zugang von Industrie und Gewerbe zum Kredit nur durch die Stärkung des nicht nach Maximalprofit strebenden Staatsbankensektors sichergestellt werden. Als Sofortmassnahme wäre folglich eine volle Banklizenz für die staatliche Postfinance angebracht.

Die Fehler der Nationalbank

Es ist paradox. Jahrzehntelang verkündeten die neoliberalen Deregulierer­Innen, dass bankrotte Unternehmen nicht mit Staatssubventionen künstlich am Leben erhalten werden dürften. Und heute weiss die stark von neoliberalem Gedankengut beeinflusste Nationalbank nichts Besseres zu tun, als die völlig heruntergewirtschaftete UBS mit immer mehr Staatsgeld vor dem Konkurs zu bewahren. Obwohl diese gescheiterte US-amerikanisch-singapurisch-saudisch-schweizerische Bank heute ohne erkennbare Strategie, ohne glaubwürdige Führung und ohne neue private Schweizer KapitalgeberInnen dasteht, soll sie um jeden Preis gerettet werden.

Die Nationalbank versucht mit ihrem Krisenmanagement primär, etwas Gescheitertes zu bewahren, und gewichtet die Interessen der UBS-AktionärInnen höher als die Interessen des Wirtschaftsstandortes Schweiz. Dies ist ein kapitaler Fehler - der grösste seit der berüchtigten Nazi-Raubgold-Hehlerei im Zweiten Weltkrieg.

Wie die Geschichte lehrt, bringt es in Finanzkrisen nichts, kriselnden privaten Banken immer mehr Geld der öffentlichen Hand nachzuwerfen. Unlimitierte staatliche Kapitalspritzen wie im Falle der UBS, wo bereits das zweite Hilfsprogramm vorbereitet wird, verwischen die Grenze zwischen Liquiditätskrisen, das heisst temporären Zahlungsschwierigkeiten, wo Übergangshilfen sinnvoll sind, und Insolvenzkrisen, das heisst dem wachsenden Mangel an Eigenkapital, wo die Staatshilfe in ein Fass ohne Boden fliesst.

Das wichtigste Instrument der Sanierung insolventer Banken in Finanzkrisen ist nicht immer mehr Geld, sondern die gute Idee. Und diese Ideen gibt es, auch wenn die Nationalbank sie (noch) ignoriert: systemischer Rückbau der Spekulation [lies: Kasino-Zulassungsbeschränkung nicht nur für Jugendliche, sondern auch und besonders für Pensionskassen-Manager, im Gegensatz zu den zuwenig bedachten BVV2-Neuerungen!].

Vanity Fair    December 2008

Wall Street Lays Another Egg

Not so long ago, the dollar stood for a sum of gold, and bankers knew the people they lent to. The author charts the emergence of an abstract, even absurd world—call it Planet Finance—where mathematical models ignored both history and human nature, and value had no meaning.
by Niall Ferguson

The bigger they come: Uncle Sam and Wall Street take the hardest fall since the Depression. Illustration by Tim Bower.

This year we have lived through something more than a financial crisis. We have witnessed the death of a planet. Call it Planet Finance. Two years ago, in 2006, the measured economic output of the entire world was worth around $48.6 trillion. The total market capitalization of the world’s stock markets was $50.6 trillion, 4 percent larger. The total value of domestic and international bonds was $67.9 trillion, 40 percent larger. Planet Finance was beginning to dwarf Planet Earth.

Planet Finance seemed to spin faster, too. Every day $3.1 trillion changed hands on foreign-exchange markets. Every month $5.8 trillion changed hands on global stock markets. And all the time new financial life-forms were evolving. The total annual issuance of mortgage-backed securities, including fancy new “collateralized debt obligations” (C.D.O.’s), rose to more than $1 trillion. The volume of “derivatives”—contracts such as options and swaps—grew even faster, so that by the end of 2006 their notional value was just over $400 trillion. Before the 1980s, such things were virtually unknown. In the space of a few years their populations exploded. On Planet Finance, the securities outnumbered the people; the transactions outnumbered the relationships.

New institutions also proliferated. In 1990 there were just 610 hedge funds, with $38.9 billion under management. At the end of 2006 there were 9,462, with $1.5 trillion under management. Private-equity partnerships also went forth and multiplied. Banks, meanwhile, set up a host of “conduits” and “structured investment vehicles” (sivs—surely the most apt acronym in financial history) to keep potentially risky assets off their balance sheets. It was as if an entire shadow banking system had come into being.

Then, beginning in the summer of 2007, Planet Finance began to self-destruct in what the International Monetary Fund soon acknowledged to be “the largest financial shock since the Great Depression.” Did the crisis of 2007–8 happen because American companies had gotten worse at designing new products? Had the pace of technological innovation or productivity growth suddenly slackened? No. The proximate cause of the economic uncertainty of 2008 was financial: to be precise, a crunch in the credit markets triggered by mounting defaults on a hitherto obscure species of housing loan known euphemistically as “subprime mortgages.”

Central banks in the United States and Europe sought to alleviate the pressure on the banks with interest-rate cuts and offers of funds through special “term auction facilities.” Yet the market rates at which banks could borrow money, whether by issuing commercial paper, selling bonds, or borrowing from one another, failed to follow the lead of the official federal-funds rate. The banks had to turn not only to Western central banks for short-term assistance to rebuild their reserves but also to Asian and Middle Eastern sovereign-wealth funds for equity injections. When these sources proved insufficient, investors—and speculative short-sellers—began to lose faith.

Beginning with Bear Stearns, Wall Street’s investment banks entered a death spiral that ended with their being either taken over by a commercial bank (as Bear was, followed by Merrill Lynch) or driven into bankruptcy (as Lehman Brothers was). In September the two survivors—Goldman Sachs and Morgan Stanley—formally ceased to be investment banks, signaling the death of a business model that dated back to the Depression. Other institutions deemed “too big to fail” by the U.S. Treasury were effectively taken over by the government, including the mortgage lenders and guarantors Fannie Mae and Freddie Mac and the insurance giant American International Group (A.I.G.).

By September 18 the U.S. financial system was gripped by such panic that the Treasury had to abandon this ad hoc policy. Treasury Secretary Henry Paulson hastily devised a plan whereby the government would be authorized to buy “troubled” securities with up to $700 billion of taxpayers’ money—a figure apparently plucked from the air. When a modified version of the measure was rejected by Congress 11 days later, there was panic. When it was passed four days after that, there was more panic. Now it wasn’t just bank stocks that were tanking. The entire stock market seemed to be in free fall as fears mounted that the credit crunch was going to trigger a recession. Moreover, the crisis was now clearly global in scale. European banks were in much the same trouble as their American counterparts, while emerging-market stock markets were crashing. A week of frenetic improvisation by national governments culminated on the weekend of October 11–12, when the United States reluctantly followed the British government’s lead, buying equity stakes in banks rather than just their dodgy assets and offering unprecedented guarantees of banks’ debt and deposits.

Since these events coincided with the final phase of a U.S. presidential-election campaign, it was not surprising that some rather simplistic lessons were soon being touted by candidates and commentators. The crisis, some said, was the result of excessive deregulation of financial markets. Others sought to lay the blame on unscrupulous speculators: short-sellers, who borrowed the stocks of vulnerable banks and sold them in the expectation of further price declines. Still other suspects in the frame were negligent regulators and corrupt congressmen.

This hunt for scapegoats is futile. To understand the downfall of Planet Finance, you need to take several steps back and locate this crisis in the long run of financial history. Only then will you see that we have all played a part in this latest sorry example of what the Victorian journalist Charles Mackay described in his 1841 book, Extraordinary Popular Delusions and the Madness of Crowds.

Nothing New
As long as there have been banks, bond markets, and stock markets, there have been financial crises. Banks went bust in the days of the Medici. There were bond-market panics in the Venice of Shylock’s day. And the world’s first stock-market crash happened in 1720, when the Mississippi Company—the Enron of its day—blew up. According to economists Carmen Reinhart and Kenneth Rogoff, the financial history of the past 800 years is a litany of debt defaults, banking crises, currency crises, and inflationary spikes. Moreover, financial crises seldom happen without inflicting pain on the wider economy. Another recent paper, co-authored by Rogoff’s Harvard colleague Robert Barro, has identified 148 crises since 1870 in which a country experienced a cumulative decline in gross domestic product (G.D.P.) of at least 10 percent, implying a probability of financial disaster of around 3.6 percent per year.

If stock-market movements followed the normal-distribution, or bell, curve, like human heights, an annual drop of 10 percent or more would happen only once every 500 years, whereas in the case of the Dow Jones Industrial Average it has happened in 20 of the last 100 years. And stock-market plunges of 20 percent or more would be unheard of—rather like people a foot and a half tall—whereas in fact there have been eight such crashes in the past century.

The most famous financial crisis—the Wall Street Crash—is conventionally said to have begun on “Black Thursday,” October 24, 1929, when the Dow declined by 2 percent, though in fact the market had been slipping since early September and had suffered a sharp, 6 percent drop on October 23. On “Black Monday,” October 28, it plunged by 13 percent, and the next day by a further 12 percent. In the course of the next three years the U.S. stock market declined by a staggering 89 percent, reaching its nadir in July 1932. The index did not regain its 1929 peak until November 1954.

That helps put our current troubles into perspective. From its peak of 14,164, on October 9, 2007, to a dismal level of 8,579, exactly a year later, the Dow declined by 39 percent. By contrast, on a single day just over two decades ago—October 19, 1987—the index fell by 23 percent, one of only four days in history when the index has fallen by more than 10 percent in a single trading session.

This crisis, however, is about much more than just the stock market. It needs to be understood as a fundamental breakdown of the entire financial system, extending from the monetary-and-banking system through the bond market, the stock market, the insurance market, and the real-estate market. It affects not only established financial institutions such as investment banks but also relatively novel ones such as hedge funds. It is global in scope and unfathomable in scale.

Had it not been for the frantic efforts of the Federal Reserve and the Treasury, to say nothing of their counterparts in almost equally afflicted Europe, there would by now have been a repeat of that “great contraction” of credit and economic activity that was the prime mover of the Depression. Back then, the Fed and the Treasury did next to nothing to prevent bank failures from translating into a drastic contraction of credit and hence of business activity and employment. If the more openhanded monetary and fiscal authorities of today are ultimately successful in preventing a comparable slump of output, future historians may end up calling this “the Great Repression.” This is the Depression they are hoping to bottle up—a Depression in denial.

To understand why we have come so close to a rerun of the 1930s, we need to begin at the beginning, with banks and the money they make. From the Middle Ages until the mid-20th century, most banks made their money by maximizing the difference between the costs of their liabilities (payments to depositors) and the earnings on their assets (interest and commissions on loans). Some banks also made money by financing trade, discounting the commercial bills issued by merchants. Others issued and traded bonds and stocks, or dealt in commodities (especially precious metals). But the core business of banking was simple. It consisted, as the third Lord Rothschild pithily put it, “essentially of facilitating the movement of money from Point A, where it is, to Point B, where it is needed.”

The system evolved gradually. First came the invention of cashless intra-bank and inter-bank transactions, which allowed debts to be settled between account holders without having money physically change hands. Then came the idea of fractional-reserve banking, whereby banks kept only a small proportion of their existing deposits on hand to satisfy the needs of depositors (who seldom wanted all their money simultaneously), allowing the rest to be lent out profitably. That was followed by the rise of special public banks with monopolies on the issuing of banknotes and other powers and privileges: the first central banks.

With these innovations, money ceased to be understood as precious metal minted into coins. Now it was the sum total of specific liabilities (deposits and reserves) incurred by banks. Credit was the other side of banks’ balance sheets: the total of their assets; in other words, the loans they made. Some of this money might still consist of precious metal, though a rising proportion of that would be held in the central bank’s vault. Most would be made up of banknotes and coins recognized as “legal tender,” along with money that was visible only in current- and deposit-account statements.

Until the late 20th century, the system of bank money retained an anchor in the pre-modern conception of money in the form of the gold standard: fixed ratios between units of account and quantities of precious metal. As early as 1924, the English economist John Maynard Keynes dismissed the gold standard as a “barbarous relic,” but the last vestige of the system did not disappear until August 15, 1971—the day President Richard Nixon closed the so-called gold window, through which foreign central banks could still exchange dollars for gold. With that, the centuries-old link between money and precious metal was broken.

Though we tend to think of money today as being made of paper, in reality most of it now consists of bank deposits. If we measure the ratio of actual money to output in developed economies, it becomes clear that the trend since the 1970s has been for that ratio to rise from around 70 percent, before the closing of the gold window, to more than 100 percent by 2005. The corollary has been a parallel growth of credit on the other side of bank balance sheets. A significant component of that credit growth has been a surge of lending to consumers. Back in 1952, the ratio of household debt to disposable income was less than 40 percent in the United States. At its peak in 2007, it reached 133 percent, up from 90 percent a decade before. Today Americans carry a total of $2.56 trillion in consumer debt, up by more than a fifth since 2000.

Even more spectacular, however, has been the rising indebtedness of banks themselves. In 1980, bank indebtedness was equivalent to 21 percent of U.S. gross domestic product. In 2007 the figure was 116 percent. Another measure of this was the declining capital adequacy of banks. On the eve of “the Great Repression,” average bank capital in Europe was equivalent to less than 10 percent of assets; at the beginning of the 20th century, it was around 25 percent. It was not unusual for investment banks’ balance sheets to be as much as 20 or 30 times larger than their capital, thanks in large part to a 2004 rule change by the Securities and Exchange Commission that exempted the five largest of those banks from the regulation that had capped their debt-to-capital ratio at 12 to 1. The Age of Leverage had truly arrived for Planet Finance.

Credit and money, in other words, have for decades been growing more rapidly than underlying economic activity. Is it any wonder, then, that money has ceased to hold its value the way it did in the era of the gold standard? The motto “In God we trust” was added to the dollar bill in 1957. Since then its purchasing power, relative to the consumer price index, has declined by a staggering 87 percent. Average annual inflation during that period has been more than 4 percent. A man who decided to put his savings into gold in 1970 could have bought just over 27.8 ounces of the precious metal for $1,000. At the time of writing, with gold trading at $900 an ounce, he could have sold it for around $25,000.

Those few goldbugs who always doubted the soundness of fiat money—paper currency without a metal anchor—have in large measure been vindicated. But why were the rest of us so blinded by money illusion?

Blowing Bubbles
In the immediate aftermath of the death of gold as the anchor of the monetary system, the problem of inflation affected mainly retail prices and wages. Today, only around one out of seven countries has an inflation rate above 10 percent, and only one, Zimbabwe, is afflicted with hyperinflation. But back in 1979 at least 7 countries had an annual inflation rate above 50 percent, and more than 60 countries—including Britain and the United States—had inflation in double digits.

Inflation has come down since then, partly because many of the items we buy—from clothes to computers—have gotten cheaper as a result of technological innovation and the relocation of production to low-wage economies in Asia. It has also been reduced because of a worldwide transformation in monetary policy, which began with the monetarist-inspired increases in short-term rates implemented by the Federal Reserve in 1979. Just as important, some of the structural drivers of inflation, such as powerful trade unions, have also been weakened.

By the 1980s, in any case, more and more people had grasped how to protect their wealth from inflation: by investing it in assets they expected to appreciate in line with, or ahead of, the cost of living. These assets could take multiple forms, from modern art to vintage wine, but the most popular proved to be stocks and real estate. Once it became clear that this formula worked, the Age of Leverage could begin. For it clearly made sense to borrow to the hilt to maximize your holdings of stocks and real estate if these promised to generate higher rates of return than the interest payments on your borrowings. Between 1990 and 2004, most American households did not see an appreciable improvement in their incomes. Adjusted for inflation, the median household income rose by about 6 percent. But people could raise their living standards by borrowing and investing in stocks and housing.

Nearly all of us did it. And the bankers were there to help. Not only could they borrow more cheaply from one another than we could borrow from them; increasingly they devised all kinds of new mortgages that looked more attractive to us (and promised to be more lucrative to them) than boring old 30-year fixed-rate deals. Moreover, the banks were just as ready to play the asset markets as we were. Proprietary trading soon became the most profitable arm of investment banking: buying and selling assets on the bank’s own account.

Losing our shirt? The problem is that our banks are also losing theirs. Illustration by Barry Blitt.

There was, however, a catch. The Age of Leverage was also an age of bubbles, beginning with the dot-com bubble of the irrationally exuberant 1990s and ending with the real-estate mania of the exuberantly irrational 2000s. Why was this?

The future is in large measure uncertain, so our assessments of future asset prices are bound to vary. If we were all calculating machines, we would simultaneously process all the available information and come to the same conclusion. But we are human beings, and as such are prone to myopia and mood swings. When asset prices surge upward in sync, it is as if investors are gripped by a kind of collective euphoria. Conversely, when their “animal spirits” flip from greed to fear, the bubble that their earlier euphoria inflated can burst with amazing suddenness. Zoological imagery is an integral part of the culture of Planet Finance. Optimistic buyers are “bulls,” pessimistic sellers are “bears.” The real point, however, is that stock markets are mirrors of the human psyche. Like Homo sapiens, they can become depressed. They can even suffer complete breakdowns.

This is no new insight. In the 400 years since the first shares were bought and sold on the Amsterdam Beurs, there has been a long succession of financial bubbles. Time and again, asset prices have soared to unsustainable heights only to crash downward again. So familiar is this pattern—described by the economic historian Charles Kindleberger—that it is possible to distill it into five stages:

(1) Displacement: Some change in economic circumstances creates new and profitable opportunities. (2) Euphoria, or overtrading: A feedback process sets in whereby expectation of rising profits leads to rapid growth in asset prices. (3) Mania, or bubble: The prospect of easy capital gains attracts first-time investors and swindlers eager to mulct them of their money. (4) Distress: The insiders discern that profits cannot possibly justify the now exorbitant price of the assets and begin to take profits by selling. (5) Revulsion, or discredit: As asset prices fall, the outsiders stampede for the exits, causing the bubble to burst.

The key point is that without easy credit creation a true bubble cannot occur. That is why so many bubbles have their origins in the sins of omission and commission of central banks.

The bubbles of our time had their origins in the aftermath of the 1987 stock-market crash, when then novice Federal Reserve chairman Alan Greenspan boldly affirmed the Fed’s “readiness to serve as a source of liquidity to support the economic and financial system.” This sent a signal to the markets, particularly the New York banks: if things got really bad, he stood ready to bail them out. Thus was born the “Greenspan put”—the implicit option the Fed gave traders to be able to sell their stocks at today’s prices even in the event of a meltdown tomorrow.

Having contained a panic once, Greenspan thereafter had a dilemma lurking in the back of his mind: whether or not to act pre-emptively the next time—to prevent a panic altogether. This dilemma came to the fore as a classic stock-market bubble took shape in the mid-90s. The displacement in this case was the explosion of innovation by the technology and software industry as personal computers met the Internet. But, as in all of history’s bubbles, an accommodative monetary policy also played a role. From a peak of 6 percent in February 1995, the federal-funds target rate had been reduced to 5.25 percent by January 1996. It was then cut in steps, in the fall of 1998, down to 4.75 percent, and it remained at that level until June 1999, by which time the Dow had passed the 10,000 mark.

Why did the Fed allow euphoria to run loose in the 1990s? Partly because Greenspan and his colleagues underestimated the momentum of the technology bubble; as early as December 1995, with the Dow just past the 5,000 mark, members of the Fed’s Open Market Committee speculated that the market might be approaching its peak. Partly, also, because Greenspan came to the conclusion that it was not the Fed’s responsibility to worry about asset-price inflation, only consumer-price inflation, and this, he believed, was being reduced by a major improvement in productivity due precisely to the tech boom.

Greenspan could not postpone a stock-exchange crash indefinitely. After Silicon Valley’s dot-com bubble peaked, in March 2000, the U.S. stock market fell by almost half over the next two and a half years. It was not until May 2007 that investors in the Standard & Poor’s 500 had recouped their losses. But the Fed’s response to the sell-off—and the massive shot of liquidity it injected into the financial markets after the 9/11 terrorist attacks—prevented the “correction” from precipitating a depression. Not only were the 1930s averted; so too, it seemed, was a repeat of the Japanese experience after 1989, when a conscious effort by the central bank to prick an asset bubble had ended up triggering an 80 percent stock-market sell-off, a real-estate collapse, and a decade of economic stagnation.

What was not immediately obvious was that Greenspan’s easy-money policy was already generating another bubble—this time in the financial market that a majority of Americans have been encouraged for generations to play: the real-estate market.

The American Dream
Real estate is the English-speaking world’s favorite economic game. No other facet of financial life has such a hold on the popular imagination. The real-estate market is unique. Every adult, no matter how economically illiterate, has a view on its future prospects. Through the evergreen board game Monopoly, even children are taught how to climb the property ladder.

Once upon a time, people saved a portion of their earnings for the proverbial rainy day, stowing the cash in a mattress or a bank safe. The Age of Leverage, as we have seen, brought a growing reliance on borrowing to buy assets in the expectation of their future appreciation in value. For a majority of families, this meant a leveraged investment in a house. That strategy had one very obvious flaw. It represented a one-way, totally unhedged bet on a single asset.

To be sure, investing in housing paid off handsomely for more than half a century, up until 2006. Suppose you had put $100,000 into the U.S. property market back in the first quarter of 1987. According to the Case-Shiller national home-price index, you would have nearly tripled your money by the first quarter of 2007, to $299,000. On the other hand, if you had put the same money into the S&P 500, and had continued to re-invest the dividend income in that index, you would have ended up with $772,000 to play with—more than double what you would have made on bricks and mortar.

There is, obviously, an important difference between a house and a stock-market index. You cannot live in a stock-market index. For the sake of a fair comparison, allowance must therefore be made for the rent you save by owning your house (or the rent you can collect if you own a second property). A simple way to proceed is just to leave out both dividends and rents. In that case the difference is somewhat reduced. In the two decades after 1987, the S&P 500, excluding dividends, rose by a factor of just over six, meaning that an investment of $100,000 would be worth some $600,000. But that still comfortably beat housing.

There are three other considerations to bear in mind when trying to compare housing with other forms of assets. The first is depreciation. Stocks do not wear out and require new roofs; houses do. The second is liquidity. As assets, houses are a great deal more expensive to convert into cash than stocks. The third is volatility. Housing markets since World War II have been far less volatile than stock markets. Yet that is not to say that house prices have never deviated from a steady upward path. In Britain between 1989 and 1995, for example, the average house price fell by 18 percent, or, in inflation-adjusted terms, by more than a third—37 percent. In London, the real decline was closer to 47 percent. In Japan between 1990 and 2000, property prices fell by more than 60 percent.

The recent decline of property prices in the United States should therefore have come as less of a shock than it did. Between July 2006 and June 2008, the Case-Shiller index of home prices in 20 big American cities declined on average by 19 percent. In some of these cities—Phoenix, San Diego, Los Angeles, and Miami—the total decline was as much as a third. Seen in international perspective, those are not unprecedented figures. Seen in the context of the post-2000 bubble, prices have yet to return to their starting point. On average, house prices are still 50 percent higher than they were at the beginning of this process.

So why were we oblivious to the likely bursting of the real-estate bubble? The answer is that for generations we have been brainwashed into thinking that borrowing to buy a house is the only rational financial strategy to pursue. Think of Frank Capra’s classic 1946 movie, It’s a Wonderful Life, which tells the story of the family-owned Bailey Building & Loan, a small-town mortgage firm that George Bailey (played by James Stewart) struggles to keep afloat in the teeth of the Depression. “You know, George,” his father tells him, “I feel that in a small way we are doing something important. It’s satisfying a fundamental urge. It’s deep in the race for a man to want his own roof and walls and fireplace, and we’re helping him get those things in our shabby little office.” George gets the message, as he passionately explains to the villainous slumlord Potter after Bailey Sr.’s death: “[My father] never once thought of himself.… But he did help a few people get out of your slums, Mr. Potter. And what’s wrong with that? … Doesn’t it make them better citizens? Doesn’t it make them better customers?”

There, in a nutshell, is one of the key concepts of the 20th century: the notion that property ownership enhances citizenship, and that therefore a property-owning democracy is more socially and politically stable than a democracy divided into an elite of landlords and a majority of property-less tenants. So deeply rooted is this idea in our political culture that it comes as a surprise to learn that it was invented just 70 years ago.

Fannie, Ginnie, and Freddie
Prior to the 1930s, only a minority of Americans owned their homes. During the Depression, however, the Roosevelt administration created a whole complex of institutions to change that. A Federal Home Loan Bank Board was set up in 1932 to encourage and oversee local mortgage lenders known as savings-and-loans (S&Ls)—mutual associations that took in deposits and lent to homebuyers. Under the New Deal, the Home Owners’ Loan Corporation stepped in to refinance mortgages on longer terms, up to 15 years. To reassure depositors, who had been traumatized by the thousands of bank failures of the previous three years, Roosevelt introduced federal deposit insurance. And by providing federally backed insurance for mortgage lenders, the Federal Housing Administration (F.H.A.) sought to encourage large (up to 80 percent of the purchase price), long (20- to 25-year), fully amortized, low-interest loans.

By standardizing the long-term mortgage and creating a national system of official inspection and valuation, the F.H.A. laid the foundation for a secondary market in mortgages. This market came to life in 1938, when a new Federal National Mortgage Association—nicknamed Fannie Mae—was authorized to issue bonds and use the proceeds to buy mortgages from the local S&Ls, which were restricted by regulation both in terms of geography (they could not lend to borrowers more than 50 miles from their offices) and in terms of the rates they could offer (the so-called Regulation Q, which imposed a low ceiling on interest paid on deposits). Because these changes tended to reduce the average monthly payment on a mortgage, the F.H.A. made home ownership viable for many more Americans than ever before. Indeed, it is not too much to say that the modern United States, with its seductively samey suburbs, was born with Fannie Mae. Between 1940 and 1960, the home-ownership rate soared from 43 to 62 percent.

These were not the only ways in which the federal government sought to encourage Americans to own their own homes. Mortgage-interest payments were always tax-deductible, from the inception of the federal income tax in 1913. As Ronald Reagan said when the rationality of this tax break was challenged, mortgage-interest relief was “part of the American dream.”

In 1968, to broaden the secondary-mortgage market still further, Fannie Mae was split in two—the Government National Mortgage Association (Ginnie Mae), which was to cater to poor borrowers, and a rechartered Fannie Mae, now a privately owned government-sponsored enterprise (G.S.E.). Two years later, to provide competition for Fannie Mae, the Federal Home Loan Mortgage Corporation (Freddie Mac) was set up. In addition, Fannie Mae was permitted to buy conventional as well as government-guaranteed mortgages. Later, with the Community Reinvestment Act of 1977, American banks found themselves under pressure for the first time to lend to poor, minority communities.

These changes presaged a more radical modification to the New Deal system. In the late 1970s, the savings-and-loan industry was hit first by double-digit inflation and then by sharply rising interest rates. This double punch was potentially lethal. The S&Ls were simultaneously losing money on long-term, fixed-rate mortgages, due to inflation, and hemorrhaging deposits to higher-interest money-market funds. The response in Washington from both the Carter and Reagan administrations was to try to salvage the S&Ls with tax breaks and deregulation. When the new legislation was passed, President Reagan declared, “All in all, I think we hit the jackpot.” Some people certainly did.

On the one hand, S&Ls could now invest in whatever they liked, not just local long-term mortgages. Commercial property, stocks, junk bonds—anything was allowed. They could even issue credit cards. On the other, they could now pay whatever interest rate they liked to depositors. Yet all their deposits were still effectively insured, with the maximum covered amount raised from $40,000 to $100,000, thanks to a government regulation two years earlier. And if ordinary deposits did not suffice, the S&Ls could raise money in the form of brokered deposits from middlemen. What happened next perfectly illustrated the great financial precept first enunciated by William Crawford, the commissioner of the California Department of Savings and Loan: “The best way to rob a bank is to own one.” Some S&Ls bet their depositors’ money on highly dubious real-estate developments. Many simply stole the money, as if deregulation meant that the law no longer applied to them at all.

When the ensuing bubble burst, nearly 300 S&Ls collapsed, while another 747 were closed or reorganized under the auspices of the Resolution Trust Corporation, established by Congress in 1989 to clear up the mess. The final cost of the crisis was $153 billion (around 3 percent of the 1989 G.D.P.), of which taxpayers had to pay $124 billion.

But even as the S&Ls were going belly-up, they offered another, very different group of American financial institutions a fast track to megabucks. To the bond traders at Salomon Brothers, the New York investment bank, the breakdown of the New Deal mortgage system was not a crisis but a wonderful opportunity. As profit-hungry as their language was profane, the self-styled “Big Swinging Dicks” at Salomon saw a way of exploiting the gyrating interest rates of the early 1980s.

The idea was to re-invent mortgages by bundling thousands of them together as the backing for new and alluring securities that could be sold as alternatives to traditional government and corporate bonds—in short, to convert mortgages into bonds. Once lumped together, the interest payments due on the mortgages could be subdivided into strips with different maturities and credit risks. The first issue of this new kind of mortgage-backed security (known as a “collateralized mortgage obligation”) occurred in June 1983. The dawn of securitization was a necessary prelude to the Age of Leverage.

Once again, however, it was the federal government that stood ready to pick up the tab in a crisis. For the majority of mortgages continued to enjoy an implicit guarantee from the government-sponsored trio of Fannie, Freddie, and Ginnie, meaning that bonds which used those mortgages as collateral could be represented as virtual government bonds and considered “investment grade.” Between 1980 and 2007, the volume of such G.S.E.-backed mortgage-backed securities grew from less than $200 billion to more than $4 trillion. In 1980 only 10 percent of the home-mortgage market was securitized; by 2007, 56 percent of it was.

These changes swept away the last vestiges of the business model depicted in It’s a Wonderful Life. Once there had been meaningful social ties between mortgage lenders and borrowers. James Stewart’s character knew both the depositors and the debtors. By contrast, in a securitized market the interest you paid on your mortgage ultimately went to someone who had no idea you existed. The full implications of this transition for ordinary homeowners would become apparent only 25 years later.

The Lessons of Detroit
In July 2007, I paid a visit to Detroit, because I had the feeling that what was happening there was the shape of things to come in the United States as a whole. In the space of 10 years, house prices in Detroit, which probably possesses the worst housing stock of any American city other than New Orleans, had risen by more than a third—not much compared with the nationwide bubble, but still hard to explain, given the city’s chronically depressed economic state. As I discovered, the explanation lay in fundamental changes in the rules of the housing game.

I arrived at the end of a borrowing spree. For several years agents and brokers selling subprime mortgages had been flooding Detroit with radio, television, and direct-mail advertisements, offering what sounded like attractive deals. In 2006, for example, subprime lenders pumped more than a billion dollars into 22 Detroit Zip Codes.

These were not the old 30-year fixed-rate mortgages invented in the New Deal. On the contrary, a high proportion were adjustable-rate mortgages—in other words, the interest rate could vary according to changes in short-term lending rates. Many were also interest-only mortgages, without amortization (repayment of principal), even when the principal represented 100 percent of the assessed value of the mortgaged property. And most had introductory “teaser” periods, whereby the initial interest payments—usually for the first two years—were kept artificially low, with the cost of the loan backloaded. All of these devices were intended to allow an immediate reduction in the debt-servicing costs of the borrower.

In Detroit only a minority of these loans were going to first-time buyers. They were nearly all refinancing deals, which allowed borrowers to treat their homes as cash machines, converting their existing equity into cash and using the proceeds to pay off credit-card debts, carry out renovations, or buy new consumer durables. However, the combination of declining long-term interest rates and ever more alluring mortgage deals did attract new buyers into the housing market. By 2005, 69 percent of all U.S. householders were homeowners; 10 years earlier it had been 64 percent. About half of that increase could be attributed to the subprime-lending boom.

Significantly, a disproportionate number of subprime borrowers belonged to ethnic minorities. Indeed, I found myself wondering, as I drove around Detroit, if “subprime” was in fact a new financial euphemism for “black.” This was no idle supposition. According to a joint study by, among others, the Massachusetts Affordable Housing Alliance, 55 percent of black and Latino borrowers in Boston who had obtained loans for single-family homes in 2005 had been given subprime mortgages; the figure for white borrowers was just 13 percent. More than three-quarters of black and Latino borrowers from Washington Mutual were classed as subprime, whereas only 17 percent of white borrowers were. According to a report in The Wall Street Journal, minority ownership increased by 3.1 million between 2002 and 2007.

Here, surely, was the zenith of the property-owning democracy. It was an achievement that the Bush administration was proud of. “We want everybody in America to own their own home,” President George W. Bush had said in October 2002. Having challenged lenders to create 5.5 million new minority homeowners by the end of the decade, Bush signed the American Dream Downpayment Act in 2003, a measure designed to subsidize first-time house purchases in low-income groups. Between 2000 and 2006, the share of undocumented subprime contracts rose from 17 to 44 percent. Fannie Mae and Freddie Mac also came under pressure from the Department of Housing and Urban Development to support the subprime market. As Bush put it in December 2003, “It is in our national interest that more people own their own home.” Few people dissented.

As a business model, subprime lending worked beautifully—as long, that is, as interest rates stayed low, people kept their jobs, and real-estate prices continued to rise. Such conditions could not be relied upon to last, however, least of all in a city like Detroit. But that did not worry the subprime lenders. They simply followed the trail blazed by mainstream mortgage lenders in the 1980s. Having pocketed fat commissions on the signing of the original loan contracts, they hastily resold their loans in bulk to Wall Street banks. The banks, in turn, bundled the loans into high-yielding mortgage-backed securities and sold them to investors around the world, all eager for a few hundredths of a percentage point more of return on their capital. Repackaged as C.D.O.’s, these subprime securities could be transformed from risky loans to flaky borrowers into triple-A-rated investment-grade securities. All that was required was certification from one of the rating agencies that at least the top tier of these securities was unlikely to go into default.

The risk was spread across the globe, from American state pension funds to public-hospital networks in Australia, to town councils near the Arctic Circle. In Norway, for example, eight municipalities, including Rana and Hemnes, invested some $120 million of their taxpayers’ money in C.D.O.’s secured on American subprime mortgages.

In Detroit the rise of subprime mortgages had in fact coincided with a new slump in the inexorably declining automobile industry. That anticipated a wider American slowdown, an almost inevitable consequence of a tightening of monetary policy as the Federal Reserve belatedly raised short-term interest rates from 1 percent to 5.25 percent. As soon as the teaser rates expired and mortgages were reset at new and much higher interest rates, hundreds of Detroit households swiftly fell behind in their mortgage payments. The effect was to burst the real-estate bubble, causing house prices to start falling significantly for the first time since the early 1990s. And the further house prices fell, the more homeowners found themselves with “negative equity”—in other words, owing more money than their homes were worth.

The rest—the chain reaction as defaults in Detroit and elsewhere unleashed huge losses on C.D.O.’s in financial institutions all around the world—you know.

Drunk on Derivatives
Do you, however, know about the second-order effects of this crisis in the markets for derivatives? Do you in fact know what a derivative is? Once excoriated by Warren Buffett as “financial weapons of mass destruction,” derivatives are what make this crisis both unique and unfathomable in its ramifications. To understand what they are, you need, literally, to go back to the future.

For a farmer planting a crop, nothing is more crucial than the future price it will fetch after it has been harvested and taken to market. A futures contract allows him to protect himself by committing a merchant to buy his crop when it comes to market at a price agreed upon when the seeds are being planted. If the market price on the day of delivery is lower than expected, the farmer is protected.

The earliest forms of protection for farmers were known as forward contracts, which were simply bilateral agreements between seller and buyer. A true futures contract, however, is a standardized instrument issued by a futures exchange and hence tradable. With the development of a standard “to arrive” futures contract, along with a set of rules to enforce settlement and, finally, an effective clearinghouse, the first true futures market was born.

Because they are derived from the value of underlying assets, all futures contracts are forms of derivatives. Closely related, though distinct from futures, are the contracts known as options. In essence, the buyer of a “call” option has the right, but not the obligation, to buy an agreed-upon quantity of a particular commodity or financial asset from the seller (“writer”) of the option at a certain time (the expiration date) for a certain price (known as the “strike price”). Clearly, the buyer of a call option expects the price of the underlying instrument to rise in the future. When the price passes the agreed-upon strike price, the option is “in the money”—and so is the smart guy who bought it. A “put” option is just the opposite: the buyer has the right but not the obligation to sell an agreed-upon quantity of something to the seller of the option at an agreed-upon price.

A third kind of derivative is the interest-rate “swap,” which is effectively a bet between two parties on the future path of interest rates. A pure interest-rate swap allows two parties already receiving interest payments literally to swap them, allowing someone receiving a variable rate of interest to exchange it for a fixed rate, in case interest rates decline. A credit-default swap (C.D.S.), meanwhile, offers protection against a company’s defaulting on its bonds.

Bringing down the bull: The pain of America’s financial crisis is felt all over the world. Illustration by Brad Holland.

There was a time when derivatives were standardized instruments traded on exchanges such as the Chicago Board of Trade. Now, however, the vast proportion are custom-made and sold “over the counter” (O.T.C.), often by banks, which charge attractive commissions for their services, but also by insurance companies (notably A.I.G.). According to the Bank for International Settlements, the total notional amounts outstanding of O.T.C. derivative contracts—arranged on an ad hoc basis between two parties—reached a staggering $596 trillion in December 2007, with a gross market value of just over $14.5 trillion.

But how exactly do you price a derivative? What precisely is an option worth? The answers to those questions required a revolution in financial theory. From an academic point of view, what this revolution achieved was highly impressive. But the events of the 1990s, as the rise of quantitative finance replaced preppies with quants (quantitative analysts) all along Wall Street, revealed a new truth: those whom the gods want to destroy they first teach math.

Working closely with Fischer Black, of the consulting firm Arthur D. Little, M.I.T.’s Myron Scholes invented a groundbreaking new theory of pricing options, to which his colleague Robert Merton also contributed. (Scholes and Merton would share the 1997 Nobel Prize in economics.) They reasoned that a call option’s value depended on six variables: the current market price of the stock (S), the agreed future price at which the stock could be bought (L), the time until the expiration date of the option (t), the risk-free rate of return in the economy as a whole (r), the probability that the option will be exercised (N), and—the crucial variable—the expected volatility of the stock, i.e., the likely fluctuations of its price between the time of purchase and the expiration date (s). With wonderful mathematical wizardry, the quants reduced the price of a call option to this formula (the Black-Scholes formula), in which:

Feeling a bit baffled? Can’t follow the algebra? That was just fine by the quants. To make money from this magic formula, they needed markets to be full of people who didn’t have a clue about how to price options but relied instead on their (seldom accurate) gut instincts. They also needed a great deal of computing power, a force which had been transforming the financial markets since the early 1980s. Their final requirement was a partner with some market savvy in order to make the leap from the faculty club to the trading floor. Black, who would soon be struck down by cancer, could not be that partner. But John Meriwether could. The former head of the bond-arbitrage group at Salomon Brothers, Meriwether had made his first fortune in the wake of the S&L meltdown of the late 1980s. The hedge fund he created with Scholes and Merton in 1994 was called Long-Term Capital Management.

In its brief, four-year life, Long-Term was the brightest star in the hedge-fund firmament, generating mind-blowing returns for its elite club of investors and even more money for its founders. Needless to say, the firm did more than just trade options, though selling puts on the stock market became such a big part of its business that it was nicknamed “the central bank of volatility” by banks buying insurance against a big stock-market sell-off. In fact, the partners were simultaneously pursuing multiple trading strategies, about 100 of them, with a total of 7,600 positions. This conformed to a second key rule of the new mathematical finance: the virtue of diversification, a principle that had been formalized by Harry M. Markowitz, of the Rand Corporation. Diversification was all about having a multitude of uncorrelated positions. One might go wrong, or even two. But thousands just could not go wrong simultaneously.

The mathematics were reassuring. According to the firm’s “Value at Risk” models, it would take a 10-s (in other words, 10-standard-deviation) event to cause the firm to lose all its capital in a single year. But the probability of such an event, according to the quants, was 1 in 10,24—or effectively zero. Indeed, the models said the most Long-Term was likely to lose in a single day was $45 million. For that reason, the partners felt no compunction about leveraging their trades. At the end of August 1997, the fund’s capital was $6.7 billion, but the debt-financed assets on its balance sheet amounted to $126 billion, a ratio of assets to capital of 19 to 1.

There is no need to rehearse here the story of Long-Term’s downfall, which was precipitated by a Russian debt default. Suffice it to say that on Friday, August 21, 1998, the firm lost $550 million—15 percent of its entire capital, and vastly more than its mathematical models had said was possible. The key point is to appreciate why the quants were so wrong.

The problem lay with the assumptions that underlie so much of mathematical finance. In order to construct their models, the quants had to postulate a planet where the inhabitants were omniscient and perfectly rational; where they instantly absorbed all new information and used it to maximize profits; where they never stopped trading; where markets were continuous, frictionless, and completely liquid. Financial markets on this planet followed a “random walk,” meaning that each day’s prices were quite unrelated to the previous day’s, but reflected no more and no less than all the relevant information currently available. The returns on this planet’s stock market were normally distributed along the bell curve, with most years clustered closely around the mean, and two-thirds of them within one standard deviation of the mean. On such a planet, a “six standard deviation” sell-off would be about as common as a person shorter than one foot in our world. It would happen only once in four million years of trading.

But Long-Term was not located on Planet Finance. It was based in Greenwich, Connecticut, on Planet Earth, a place inhabited by emotional human beings, always capable of flipping suddenly and en masse from greed to fear. In the case of Long-Term, the herding problem was acute, because many other firms had begun trying to copy Long-Term’s strategies in the hope of replicating its stellar performance. When things began to go wrong, there was a truly bovine stampede for the exits. The result was a massive, synchronized downturn in virtually all asset markets. Diversification was no defense in such a crisis. As one leading London hedge-fund manager later put it to Meriwether, “John, you were the correlation.”

There was, however, another reason why Long-Term failed. The quants’ Value at Risk models had implied that the loss the firm suffered in August 1998 was so unlikely that it ought never to have happened in the entire life of the universe. But that was because the models were working with just five years of data. If they had gone back even 11 years, they would have captured the 1987 stock-market crash. If they had gone back 80 years they would have captured the last great Russian default, after the 1917 revolution. Meriwether himself, born in 1947, ruefully observed, “If I had lived through the Depression, I would have been in a better position to understand events.” To put it bluntly, the Nobel Prize winners knew plenty of mathematics but not enough history.

One might assume that, after the catastrophic failure of L.T.C.M., quantitative hedge funds would have vanished from the financial scene, and derivatives such as options would be sold a good deal more circumspectly. Yet the very reverse happened. Far from declining, in the past 10 years hedge funds of every type have exploded in number and in the volume of assets they manage, with quantitative hedge funds such as Renaissance, Citadel, and D. E. Shaw emerging as leading players. The growth of derivatives has also been spectacular—and it has continued despite the onset of the credit crunch. Between December 2005 and December 2007, the notional amounts outstanding for all derivatives increased from $298 trillion to $596 trillion. Credit-default swaps quadrupled, from $14 trillion to $58 trillion.

An intimation of the problems likely to arise came in September, when the government takeover of Fannie and Freddie cast doubt on the status of derivative contracts protecting the holders of more than $1.4 trillion of their bonds against default. The consequences of the failure of Lehman Brothers were substantially greater, because the firm was the counter-party in so many derivative contracts.

The big question is whether those active in the market waited too long to set up some kind of clearing mechanism. If, as seems inevitable, there is an upsurge in corporate defaults as the U.S. slides into recession, the whole system could completely seize up.

The China Syndrome
Just 10 years ago, during the Asian crisis of 1997–98, it was conventional wisdom that financial crises were more likely to happen on the periphery of the world economy—in the so-called emerging markets of East Asia and Latin America. Yet the biggest threats to the global financial system in this new century have come not from the periphery but from the core. The explanation for this strange role reversal may in fact lie in the way emerging markets changed their behavior after 1998.

For many decades it was assumed that poor countries could become rich only by borrowing capital from wealthy countries. Recurrent debt crises and currency crises associated with sudden withdrawals of Western money led to a rethinking, inspired largely by the Chinese example.

When the Chinese wanted to attract foreign capital, they insisted that it take the form of direct investment. That meant that instead of borrowing from Western banks to finance its industrial development, as many emerging markets did, China got foreigners to build factories in Chinese enterprise zones—large, lumpy assets that could not easily be withdrawn in a crisis.

The crucial point, though, is that the bulk of Chinese investment has been financed from China’s own savings. Cautious after years of instability and unused to the panoply of credit facilities we have in the West, Chinese households save a high proportion of their rising incomes, in marked contrast to Americans, who in recent years have saved almost none at all. Chinese corporations save an even larger proportion of their soaring profits. The remarkable thing is that a growing share of that savings surplus has ended up being lent to the United States. In effect, the People’s Republic of China has become banker to the United States of America.

The Chinese have not been acting out of altruism. Until very recently, the best way for China to employ its vast population was by exporting manufactured goods to the spendthrift U.S. consumer. To ensure that those exports were irresistibly cheap, China had to fight the tendency for its currency to strengthen against the dollar by buying literally billions of dollars on world markets. In 2006, Chinese holdings of dollars reached 700 billion. Other Asian and Middle Eastern economies adopted much the same strategy.

The benefits for the United States were manifold. Asian imports kept down U.S. inflation. Asian labor kept down U.S. wage costs. Above all, Asian savings kept down U.S. interest rates. But there was a catch. The more Asia was willing to lend to the United States, the more Americans were willing to borrow. The Asian savings glut was thus the underlying cause of the surge in bank lending, bond issuance, and new derivative contracts that Planet Finance witnessed after 2000. It was the underlying cause of the hedge-fund population explosion. It was the underlying reason why private-equity partnerships were able to borrow money left, right, and center to finance leveraged buyouts. And it was the underlying reason why the U.S. mortgage market was so awash with cash by 2006 that you could get a 100 percent mortgage with no income, no job, and no assets.

Whether or not China is now sufficiently “decoupled” from the United States that it can insulate itself from our credit crunch remains to be seen. At the time of writing, however, it looks very doubtful.

Back to Reality
The modern financial system is the product of centuries of economic evolution. Banks transformed money from metal coins into accounts, allowing ever larger aggregations of borrowing and lending. From the Renaissance on, government bonds introduced the securitization of streams of interest payments. From the 17th century on, equity in corporations could be bought and sold in public stock markets. From the 18th century on, central banks slowly learned how to moderate or exacerbate the business cycle. From the 19th century on, insurance was supplemented by futures, the first derivatives. And from the 20th century on, households were encouraged by government to skew their portfolios in favor of real estate.

Economies that combined all these institutional innovations performed better over the long run than those that did not, because financial intermediation generally permits a more efficient allocation of resources than, say, feudalism or central planning. For this reason, it is not wholly surprising that the Western financial model tended to spread around the world, first in the guise of imperialism, then in the guise of globalization.

Yet money’s ascent has not been, and can never be, a smooth one. On the contrary, financial history is a roller-coaster ride of ups and downs, bubbles and busts, manias and panics, shocks and crashes. The excesses of the Age of Leverage—the deluge of paper money, the asset-price inflation, the explosion of consumer and bank debt, and the hypertrophic growth of derivatives—were bound sooner or later to produce a really big crisis.

It remains unclear whether this crisis will have economic and social effects as disastrous as those of the Great Depression, or whether the monetary and fiscal authorities will succeed in achieving a Great Repression, averting a 1930s-style “great contraction” of credit and output by transferring the as yet unquantifiable losses from banks to taxpayers.

Either way, Planet Finance has now returned to Planet Earth with a bang. The key figures of the Age of Leverage—the lax central bankers, the reckless investment bankers, the hubristic quants—are now feeling the full force of this planet’s gravity.

But what about the rest of us, the rank-and-file members of the deluded crowd? Well, we shall now have to question some of our most deeply rooted assumptions—not only about the benefits of paper money but also about the rationale of the property-owning democracy itself.

On Planet Finance it may have made sense to borrow billions of dollars to finance a massive speculation on the future prices of American houses, and then to erect on the back of this trade a vast inverted pyramid of incomprehensible securities and derivatives.

But back here on Planet Earth it suddenly seems like an extraordinary popular delusion.

Niall Ferguson is Laurence A. Tisch Professor of History at Harvard University and a Senior Fellow of the Hoover Institution at Stanford, and the author of The War of the World: Twentieth-Century Conflict and the Descent of the West. Read Niall Ferguson’s prescient article on today’s financial woes, Empire Falls (November 2006).

Financial Times    December 8, 2008

Bystanders to this financial crime were many
By Nassim Nicholas Taleb and Pablo Triana

On March 13 1964, Catherine Genovese was murdered in the Queens borough of New York City. She was about to enter her apartment building at about 3am when she was stabbed and later raped by Winston Moseley. Moseley stole $50 from Genovese’s wallet and left her to die in the hallway.

Shocking as these details surely are, the lasting impact of the story may lie elsewhere. For plenty of people reportedly witnessed the attack, yet no one did much about it. Not one of the almost 40 neighbours who were said to have been aware of the incident left their apartments to go to Genovese’s rescue.

Not surprisingly, the Genovese case earned the interest of social psychologists, who developed the theory of the “bystander effect”. This claimed to show how the apathy of the masses can prevent the salvation of a victim. Psychologists concluded that, for a variety of reasons, the larger the number of observing bystanders, the lower the chances that the crime may be averted.

We have just witnessed a similar phenomenon in the financial markets. A crime has been committed. Yes, we insist, a crime. There is a victim (the helpless retirees, taxpayers funding losses, perhaps even capitalism and free society). There were plenty of bystanders. And there was a robbery (overcompensated bankers who got fat bonuses hiding risks; overpaid quantitative risk managers selling patently bogus methods).

Let us start with the bystander. Almost everyone in risk management knew that quantitative methods – like those used to measure and forecast exposures, value complex derivatives and assign credit ratings – did not work and could provide undue comfort by hiding risks. Few people would agree that the illusion of knowledge is a good thing. Almost everyone would accept that the failure in 1998 of Long Term Capital Management discredited the quantitative methods of the Nobel economists involved with it (Robert Merton and Myron Scholes) and their school of thought called “modern finance”. LTCM was just one in hundreds of such episodes.

Yet a method heavily grounded on those same quantitative and theoretical principles, called Value at Risk, continued to be widely used. It was this that was to blame for the crisis. Listening to us, risk management practitioners would often agree on every point. But they elected to take part in the system and to play bystanders. They tried to explain away their decision to partake in the vast diffusion of responsibility: “Lehman Brothers and Morgan Stanley use the model” or “it is on the CFA exam” or, the most potent argument, “modern finance and portfolio theory got Nobels”. Indeed, the same Nobel economists who helped blow up the system at least once, Professors Scholes and Merton, could be seen lecturing us on risk management, to the ire of one of the authors of this article. Most poignantly, the police itself may have participated in the murder. The regulators were using the same arguments. They, too, were responsible.

So how can we displace a fraud? Not by preaching nor by rational argument (believe us, we tried). Not by evidence. Risk methods that failed dramatically in the real world continue to be taught to students in business schools, where professors never lose tenure for the misapplications of those methods. As we are writing these lines, close to 100,000 MBAs are still learning portfolio theory – it is uniformly on the programme for next semester. An airline company would ground the aircraft and investigate after the crash – universities would put more aircraft in the skies, crash after crash. The fraud can be displaced only by shaming people, by boycotting the orthodox financial economics establishment and the institutions that allowed this to happen.

Bystanders are not harmless. They cause others to be bystanders. So when you see a quantitative “expert”, shout for help, call for his disgrace, make him accountable. Do not let him hide behind the diffusion of responsibility. Ask for the drastic overhaul of business schools (and stop giving funding). Ask for the Nobel prize in economics to be withdrawn from the authors of these theories, as the Nobel’s credibility can be extremely harmful. Boycott professional associations that give certificates in financial analysis that promoted these methods. Remove Value-at-Risk books from the shelves – quickly. Do not be afraid for your reputation. Please act now. Do not just walk by. Remember the scriptures: “Thou shalt not follow a multitude to do evil.”

Nassim Nicholas Taleb is a professor of risk engineering at New York University PolyTechnic Institute. He is the author of ‘The Black Swan: The Impact of the Highly Improbable’ (2007). Pablo Triana is a derivatives consultant and author. His new book, ‘Lecturing Birds on Flying’, will be released in spring 2009

Vanity  Fair   January 2009

The Economic Crisis
Capitalist Fools

Behind the debate over remaking U.S. financial policy will be a debate over who’s to blame. It’s crucial to get the history right, writes a Nobel-laureate economist, identifying five key mistakes—under Reagan, Clinton, and Bush II—and one national delusion.
by Joseph E. Stiglitz

Treasury Secretary Henry Paulson and former Federal Reserve Board chairman Alan Greenspan bookend two decades of economic missteps. Photo illustration by Darrow.

There will come a moment when the most urgent threats posed by the credit crisis have eased and the larger task before us will be to chart a direction for the economic steps ahead. This will be a dangerous moment. Behind the debates over future policy is a debate over history—a debate over the causes of our current situation. The battle for the past will determine the battle for the present. So it’s crucial to get the history straight.

What were the critical decisions that led to the crisis? Mistakes were made at every fork in the road—we had what engineers call a “system failure,” when not a single decision but a cascade of decisions produce a tragic result. Let’s look at five key moments.

No. 1: Firing the Chairman
In 1987 the Reagan administration decided to remove Paul Volcker as chairman of the Federal Reserve Board and appoint Alan Greenspan in his place. Volcker had done what central bankers are supposed to do. On his watch, inflation had been brought down from more than 11 percent to under 4 percent. In the world of central banking, that should have earned him a grade of A+++ and assured his re-appointment. But Volcker also understood that financial markets need to be regulated. Reagan wanted someone who did not believe any such thing, and he found him in a devotee of the objectivist philosopher and free-market zealot Ayn Rand.

Greenspan played a double role. The Fed controls the money spigot, and in the early years of this decade, he turned it on full force. But the Fed is also a regulator. If you appoint an anti-regulator as your enforcer, you know what kind of enforcement you’ll get. A flood of liquidity combined with the failed levees of regulation proved disastrous.

How did we land in a recession? Visit our archive, “Charting the Road to Ruin.” Illustration by Edward Sorel.

Greenspan presided over not one but two financial bubbles. After the high-tech bubble popped, in 2000–2001, he helped inflate the housing bubble. The first responsibility of a central bank should be to maintain the stability of the financial system. If banks lend on the basis of artificially high asset prices, the result can be a meltdown—as we are seeing now, and as Greenspan should have known. He had many of the tools he needed to cope with the situation. To deal with the high-tech bubble, he could have increased margin requirements (the amount of cash people need to put down to buy stock). To deflate the housing bubble, he could have curbed predatory lending to low-income households and prohibited other insidious practices (the no-documentation—or “liar”—loans, the interest-only loans, and so on). This would have gone a long way toward protecting us. If he didn’t have the tools, he could have gone to Congress and asked for them.

Of course, the current problems with our financial system are not solely the result of bad lending. The banks have made mega-bets with one another through complicated instruments such as derivatives, credit-default swaps, and so forth. With these, one party pays another if certain events happen—for instance, if Bear Stearns goes bankrupt, or if the dollar soars. These instruments were originally created to help manage risk—but they can also be used to gamble. Thus, if you felt confident that the dollar was going to fall, you could make a big bet accordingly, and if the dollar indeed fell, your profits would soar. The problem is that, with this complicated intertwining of bets of great magnitude, no one could be sure of the financial position of anyone else—or even of one’s own position. Not surprisingly, the credit markets froze.

Here too Greenspan played a role. When I was chairman of the Council of Economic Advisers, during the Clinton administration, I served on a committee of all the major federal financial regulators, a group that included Greenspan and Treasury Secretary Robert Rubin. Even then, it was clear that derivatives posed a danger. We didn’t put it as memorably as Warren Buffett—who saw derivatives as “financial weapons of mass destruction”—but we took his point. And yet, for all the risk, the deregulators in charge of the financial system—at the Fed, at the Securities and Exchange Commission, and elsewhere—decided to do nothing, worried that any action might interfere with “innovation” in the financial system. But innovation, like “change,” has no inherent value. It can be bad (the “liar” loans are a good example) as well as good.

No. 2: Tearing Down the Walls
The deregulation philosophy would pay unwelcome dividends for years to come. In November 1999, Congress repealed the Glass-Steagall Act—the culmination of a $300 million lobbying effort by the banking and financial-services industries, and spearheaded in Congress by Senator Phil Gramm. Glass-Steagall had long separated commercial banks (which lend money) and investment banks (which organize the sale of bonds and equities); it had been enacted in the aftermath of the Great Depression and was meant to curb the excesses of that era, including grave conflicts of interest. For instance, without separation, if a company whose shares had been issued by an investment bank, with its strong endorsement, got into trouble, wouldn’t its commercial arm, if it had one, feel pressure to lend it money, perhaps unwisely? An ensuing spiral of bad judgment is not hard to foresee. I had opposed repeal of Glass-Steagall. The proponents said, in effect, Trust us: we will create Chinese walls to make sure that the problems of the past do not recur. As an economist, I certainly possessed a healthy degree of trust, trust in the power of economic incentives to bend human behavior toward self-interest—toward short-term self-interest, at any rate, rather than Tocqueville’s “self interest rightly understood.”

The most important consequence of the repeal of Glass-Steagall was indirect—it lay in the way repeal changed an entire culture. Commercial banks are not supposed to be high-risk ventures; they are supposed to manage other people’s money very conservatively. It is with this understanding that the government agrees to pick up the tab should they fail. Investment banks, on the other hand, have traditionally managed rich people’s money—people who can take bigger risks in order to get bigger returns. When repeal of Glass-Steagall brought investment and commercial banks together, the investment-bank culture came out on top. There was a demand for the kind of high returns that could be obtained only through high leverage and big risktaking.

There were other important steps down the deregulatory path. One was the decision in April 2004 by the Securities and Exchange Commission, at a meeting attended by virtually no one and largely overlooked at the time, to allow big investment banks to increase their debt-to-capital ratio (from 12:1 to 30:1, or higher) so that they could buy more mortgage-backed securities, inflating the housing bubble in the process. In agreeing to this measure, the S.E.C. argued for the virtues of self-regulation: the peculiar notion that banks can effectively police themselves. Self-regulation is preposterous, as even Alan Greenspan now concedes, and as a practical matter it can’t, in any case, identify systemic risks—the kinds of risks that arise when, for instance, the models used by each of the banks to manage their portfolios tell all the banks to sell some security all at once.

As we stripped back the old regulations, we did nothing to address the new challenges posed by 21st-century markets. The most important challenge was that posed by derivatives. In 1998 the head of the Commodity Futures Trading Commission, Brooksley Born, had called for such regulation—a concern that took on urgency after the Fed, in that same year, engineered the bailout of Long-Term Capital Management, a hedge fund whose trillion-dollar-plus failure threatened global financial markets. But Secretary of the Treasury Robert Rubin, his deputy, Larry Summers, and Greenspan were adamant—and successful—in their opposition. Nothing was done.

No. 3: Applying the Leeches
Then along came the Bush tax cuts, enacted first on June 7, 2001, with a follow-on installment two years later. The president and his advisers seemed to believe that tax cuts, especially for upper-income Americans and corporations, were a cure-all for any economic disease—the modern-day equivalent of leeches. The tax cuts played a pivotal role in shaping the background conditions of the current crisis. Because they did very little to stimulate the economy, real stimulation was left to the Fed, which took up the task with unprecedented low-interest rates and liquidity. The war in Iraq made matters worse, because it led to soaring oil prices. With America so dependent on oil imports, we had to spend several hundred billion more to purchase oil—money that otherwise would have been spent on American goods. Normally this would have led to an economic slowdown, as it had in the 1970s. But the Fed met the challenge in the most myopic way imaginable. The flood of liquidity made money readily available in mortgage markets, even to those who would normally not be able to borrow. And, yes, this succeeded in forestalling an economic downturn; America’s household saving rate plummeted to zero. But it should have been clear that we were living on borrowed money and borrowed time.

The cut in the tax rate on capital gains contributed to the crisis in another way. It was a decision that turned on values: those who speculated (read: gambled) and won were taxed more lightly than wage earners who simply worked hard. But more than that, the decision encouraged leveraging, because interest was tax-deductible. If, for instance, you borrowed a million to buy a home or took a $100,000 home-equity loan to buy stock, the interest would be fully deductible every year. Any capital gains you made were taxed lightly—and at some possibly remote day in the future. The Bush administration was providing an open invitation to excessive borrowing and lending—not that American consumers needed any more encouragement.

No. 4: Faking the Numbers
Meanwhile, on July 30, 2002, in the wake of a series of major scandals—notably the collapse of WorldCom and Enron—Congress passed the Sarbanes-Oxley Act. The scandals had involved every major American accounting firm, most of our banks, and some of our premier companies, and made it clear that we had serious problems with our accounting system. Accounting is a sleep-inducing topic for most people, but if you can’t have faith in a company’s numbers, then you can’t have faith in anything about a company at all. Unfortunately, in the negotiations over what became Sarbanes-Oxley a decision was made not to deal with what many, including the respected former head of the S.E.C. Arthur Levitt, believed to be a fundamental underlying problem: stock options. Stock options have been defended as providing healthy incentives toward good management, but in fact they are “incentive pay” in name only. If a company does well, the C.E.O. gets great rewards in the form of stock options; if a company does poorly, the compensation is almost as substantial but is bestowed in other ways. This is bad enough. But a collateral problem with stock options is that they provide incentives for bad accounting: top management has every incentive to provide distorted information in order to pump up share prices.

The incentive structure of the rating agencies also proved perverse. Agencies such as Moody’s and Standard & Poor’s are paid by the very people they are supposed to grade. As a result, they’ve had every reason to give companies high ratings, in a financial version of what college professors know as grade inflation. The rating agencies, like the investment banks that were paying them, believed in financial alchemy—that F-rated toxic mortgages could be converted into products that were safe enough to be held by commercial banks and pension funds. We had seen this same failure of the rating agencies during the East Asia crisis of the 1990s: high ratings facilitated a rush of money into the region, and then a sudden reversal in the ratings brought devastation. But the financial overseers paid no attention.

No. 5: Letting It Bleed
The final turning point came with the passage of a bailout package on October 3, 2008—that is, with the administration’s response to the crisis itself. We will be feeling the consequences for years to come. Both the administration and the Fed had long been driven by wishful thinking, hoping that the bad news was just a blip, and that a return to growth was just around the corner. As America’s banks faced collapse, the administration veered from one course of action to another. Some institutions (Bear Stearns, A.I.G., Fannie Mae, Freddie Mac) were bailed out. Lehman Brothers was not. Some shareholders got something back. Others did not.

The original proposal by Treasury Secretary Henry Paulson, a three-page document that would have provided $700 billion for the secretary to spend at his sole discretion, without oversight or judicial review, was an act of extraordinary arrogance. He sold the program as necessary to restore confidence. But it didn’t address the underlying reasons for the loss of confidence. The banks had made too many bad loans. There were big holes in their balance sheets. No one knew what was truth and what was fiction. The bailout package was like a massive transfusion to a patient suffering from internal bleeding—and nothing was being done about the source of the problem, namely all those foreclosures. Valuable time was wasted as Paulson pushed his own plan, “cash for trash,” buying up the bad assets and putting the risk onto American taxpayers. When he finally abandoned it, providing banks with money they needed, he did it in a way that not only cheated America’s taxpayers but failed to ensure that the banks would use the money to re-start lending. He even allowed the banks to pour out money to their shareholders as taxpayers were pouring money into the banks.

The other problem not addressed involved the looming weaknesses in the economy. The economy had been sustained by excessive borrowing. That game was up. As consumption contracted, exports kept the economy going, but with the dollar strengthening and Europe and the rest of the world declining, it was hard to see how that could continue. Meanwhile, states faced massive drop-offs in revenues—they would have to cut back on expenditures. Without quick action by government, the economy faced a downturn. And even if banks had lent wisely—which they hadn’t—the downturn was sure to mean an increase in bad debts, further weakening the struggling financial sector.

The administration talked about confidence building, but what it delivered was actually a confidence trick. If the administration had really wanted to restore confidence in the financial system, it would have begun by addressing the underlying problems—the flawed incentive structures and the inadequate regulatory system.

Was there any single decision which, had it been reversed, would have changed the course of history? Every decision—including decisions not to do something, as many of our bad economic decisions have been—is a consequence of prior decisions, an interlinked web stretching from the distant past into the future. You’ll hear some on the right point to certain actions by the government itself—such as the Community Reinvestment Act, which requires banks to make mortgage money available in low-income neighborhoods. (Defaults on C.R.A. lending were actually much lower than on other lending.) There has been much finger-pointing at Fannie Mae and Freddie Mac, the two huge mortgage lenders, which were originally government-owned. But in fact they came late to the subprime game, and their problem was similar to that of the private sector: their C.E.O.’s had the same perverse incentive to indulge in gambling.

The truth is most of the individual mistakes boil down to just one: a belief that markets are self-adjusting and that the role of government should be minimal. Looking back at that belief during hearings this fall on Capitol Hill, Alan Greenspan said out loud, “I have found a flaw.” Congressman Henry Waxman pushed him, responding, “In other words, you found that your view of the world, your ideology, was not right; it was not working.” “Absolutely, precisely,” Greenspan said. The embrace by America—and much of the rest of the world—of this flawed economic philosophy made it inevitable that we would eventually arrive at the place we are today.

Joseph E. Stiglitz, a Nobel Prize-winning economist, is a professor at Columbia University.

The Guardian    5 January 2009

With all these trillions, how can we keep hold of the meaning of money?
We lack the slightest idea of the significance of the vast sums being pledged, lent, spent or squandered in our name
Max Hastings

My wife asked last week: "Is £35bn a lot of money?" This was not intended to be a facetious question, and was certainly not a foolish one. It was prompted by news that £35bn is the latest unofficial estimate for the cost of the Beijing Olympics and its associated infrastructure projects.

Last summer, international opinion held that China's spend on its prestige games was grotesquely large. It was alleged such a huge sum could only be squandered by a newly rich dictatorship unaccountable to an electorate. In September 2007, the British government's bail-out of Northern Rock was said  to have reached "an eye-watering £7.75bn". A few months ago, we were told that the Ministry of Defence faced a financial crisis because there is a £2bn "black hole" in its annual budget.

Yet in the past four months, the financial meltdown has yielded a flood of global figures that make all the above sums sound small change. The government has injected £37bn into part-nationalisation of the banking system, and is said to be exposed to £150bn of potential mortgage liabilities. In 1967,  Harold Wilson's government provoked a political crisis by devaluing the pound 14%, yet in 2008 the currency fell by almost 25%.

The US administration has pumped vast sums into its banks and mortgage institutions, and Barack Obama plans infrastructure spending and an economic fiscal stimulus that will cost close to a trillion dollars. A $17bn bail-out is projected for US motor manufacturers. Last year, £30 trillion was wiped off  the value of the world's stock markets.

Statistics of this kind pour forth daily from governments and institutions. The point of my wife's question, which I was unable to answer, is that in the face of such tidings most of us have succumbed to number blindness. Beyond grasping we are in a mess, we lack the slightest idea of the significance of the  sums of money being pledged, lent, spent or squandered in our name.

In the short term, such ignorance helps incumbent political parties. Electorates are grateful for any government action that promises to stave off immediate pain, job losses, bankruptcies, factory closures. A few months ago it was deemed a scandal that Labour was committed to spend £9.3bn of taxpayers'  money on the 2012 London Olympics. Now, so far have parameters changed, so drunk on figures have we become, that this sum sounds paltry.

Ministers are widely expected to throw up to £1bn at Jaguar Land Rover, notionally because it is "too big to fail", but more credibly to protect 15,000 jobs in marginal West Midlands constituencies. Almost every independent industrial and financial commentator condemns such a subsidy to the  manufacture of gas guzzlers. But it would be rash to assume that it will be bad politics. Nobody seems to take a billion pounds seriously any more.

How do we sustain a hold on reality about the meaning of money, and the relative significance of the sums being expended to assuage the financial crisis? I have tried to help myself to do so, by looking up some government spending figures for 2009. The nation's gross domestic product is projected to be  £1,473bn. The central government's budgeted expenditure is £455bn, that of local authorities a further £166bn. Central government will spend £110bn on healthcare, £52bn on welfare, £28bn on education, £37bn on defence, £10bn on transport.

All these commitments have been made before the government embarks on further bank and industrial rescues, infrastructure projects and new unemployment relief programmes. Even on the basis of the November pre-budget report numbers, government borrowing next year will reach £118bn.

I can grasp that the collapse of Bernard Madoff's hedge fund, to which UK banks are substantially exposed, has written off a sum almost as great as Britain's annual defence budget. I understand that central banks have little choice save to keep printing money, to start credit moving again and stave off a  depression. Thereafter I have little or no understanding of the implications of this huge government borrowing, beyond the fact that at some time there will be a ticket-collector at the head of the escalator.

Perhaps it is a mistake for a newspaper columnist to avow such ignorance about the greatest issue of modern times. But it may make similarly bewildered readers feel better, if a professional pundit occasionally runs up the white flag. Many of us are also pondering commonsense questions to which, thus  far, nobody seems to be offering answers. For instance: what share of the pain falling on private sector workers, savers and pensioners will be borne by their counterparts in the public sector?

Much has been written in recent weeks about Franklin Roosevelt's New Deal, the storm of activity with which, following his inauguration in March 1933, he sought to resurrect the US economy from the Great Depression. Among his less-noticed measures was a cut in public sector pay.

Today, is it credible that hundreds of millions of employees in the world's manufacturing, service and financial services industries should suffer, as they are going to, while public sector pay and benefits remain inviolate? Will our crippled economy be able to fund the huge public pension liability - and  even private sector final salary commitments?

We are told that future generations will have to pay the price for the government spending necessary to rescue economies from their worsening plight. What might this mean in terms of higher taxes and diminished public spending, say, a decade hence? Will government aid for struggling companies  focus on industries with a future rather than a past? How can banks regain solvency if they are obliged by ministers to provide indiscriminate support for private and commercial borrowers who have become recklessly overextended in the fantasy times?

I have no idea of the answers to any of these questions, but lots of people are asking them. Many crises that afflict the world - Zimbabwe, Congo, Iraq, Afghanistan, Gaza, even climate change - invite ready expressions of opinion, however footling, from every bar customer. What seems most striking  about the credit crunch is that it reduces most people to silence, because they find its implications and possible solutions beyond their comprehension.

It is rendered especially baffling because, metaphorically speaking, no bombs are falling. Shoppers still pack suburban malls, cars crowd motorways, passengers throng airports, the lights stay on. Thus far, for all except some hundreds of thousands who have already lost their jobs, only statistics reveal the  bad news. The implications have yet to work through into real life.

There seems an overwhelming public mood of fatalism. Anger must follow, sooner or later, and even perhaps social unrest. But this will come only when the consequences literally reach home. Meanwhile, number blindness has overtaken most of us. We are obliged to hope, with only limited conviction,  that this does not extend to Downing Street and the Obama White House.

Vanity  Fair    January 20, 2009

Niall Ferguson: America Needs to Cancel Its Debt
by Michael Hogan

As dedicated V.F. readers already know, Niall Ferguson “gets” the economic collapse. Now, the historian and bestselling author is sharing his insights with a new book, The Ascent of Money, and an accompanying TV special (which means regular people might actually absorb some of what he has to say).
And what he has to say is rather terrifying, with profound implications for an Obama presidency and, beyond that, the future of the United States as a superpower. I tried putting my most basic questions about the economy to Ferguson, and here’s how it went:

Michael Hogan: First of all, this whole financial collapse is great timing for your book. Are you psyched?
Niall Ferguson: Well, I can say with a degree of self-satisfaction that it wasn’t luck. Two and a half years ago I decided to write this book, because I was sure that this financial crisis was going to happen, and the reason I was sure was because people kept coming up to me—whether it was investment bankers or hedge fund managers—telling me that volatility was dead that there would never be another recession. I just thought, “These people have completely disconnected from reality, and financial history is going to come back and bite them in the ass.”

In the book, you identify the five stages of a bubble. What stage are we at now?
We’re pretty much at the last stage, which is the Panic stage.

If you remember roughly how it goes, you begin with some kind of Displacement or shift that changes the economic environment. I would say in this case, the displacement was really caused by the wall of Asian savings coming into the U.S. and keeping interest rates lower than would have normally been in the cycle.

Then you get the Euphoria, which is when people say, “God, now prices can only go up, we should buy more. We should borrow more, because this is a one-way bet.” And then more and more people enter the market, first-time buyers, and that’s the classic run-up phase of the bubble. Then there’s this sort of irrational-exuberance Mania—which came at the end of ’06, when we still had property prices rising at an annualized rate of 20 percent. But then you get Distress. That’s when the insiders, the smart people, start to look at one another and say, “This is nuts, we should get out.” That’s when the John Paulsons start to short the market.

And then you get the shift into downward movement of prices, which ultimately culminates in Panic, when everybody heads for the exit together. In this bubble, it happened in a strange kind of slow motion, because the game was really up in August 2007, but it wasn’t really a full-fledged panic—at least across the board—until Lehman Brothers, September 15, 2008, more than a year later. Wile E. Coyote ran off the cliff in August of ’07, but he didn’t really look down until over a year later.

What do you think happens next to the stock market, to the real estate market, and to the banks?
Well, they have further to fall, without doubt, because we’re going to get almost a third phase of the crisis. The third phase of the crisis is when rising unemployment starts to impact the real estate market and consumer spending generally. So, we go another leg down. Unemployment is rising at a very rapid rate. It could go as high as 10 percent, and it’s just going to keep going up in the next two quarters, maybe throughout the year, because this is bad. This is worse than the early 80s. This is as bad as it’s been since the 30s.

And in those conditions, there’s going to be further negative movement of real estate prices, and further negative movement of stock prices. People are going to get horrible earnings reports, and when the earnings reports turn out to be worse than anybody expected, the prices of most corporations are going to head south. So, it’s certainly not over. Best case, the rate of decline begins to slow, so we’re not falling vertiginously. We start to fall more gradually.

Is a $700 billion stimulus, like the one Obama is talking about, better than nothing?
Well, it is better than nothing.

Well, I think we have to realize that nothing would be the Great Depression. So it will be a “success” if output only contracts by five or seven percent. It will be a “success” if unemployment only reaches 11 percent, because in the Great Depression output contracted 30 percent, and unemployment went to 25 percent.

These measures that we’re taking at the moment are preventative measures. They’re really designed to prevent a complete implosion of the economy. That’s why I call this, the “Great Repression,” with an “R,” because we are repressing this problem. But, that’s not the same as a cure. And what we’re going to see will look very disappointing, because we’ll be comparing it to the recovery of the sort that we used to see. In a traditional post-war recession, there would be a shock; the Fed would cut rates; there would be some kind of fiscal stimulus; and the economy would quite quickly recover.

The reason that won’t work this time, and this is the key point, is that the whole U.S. economy became excessively leveraged in the last ten years. The debt burden, as a proportion of G.D.P., is in the region of 355 percent. So, debt is three and a half times the output of the economy. That’s some kind of historic maximum, and those debts aren’t going away.

So we’ve all been bingeing on money that we didn’t have.

That we borrowed. And we borrowed it from abroad, ultimately. This has been financed by borrowing from petrol exporters, and borrowing from Asian central banks, and sovereign wealth funds. But yeah, whether it was the people who refinanced their mortgages and spent the money that they pocketed, or banks that juiced their returns by piling on the leverage, the whole system became excessively indebted. And notice: what is the policy response? You guessed it, more debt. And, now it’s federal debt.

So you end up in a situation where you’re curing a debt problem with more debt. Is that going to bring about a sustained recovery? I find that hard to believe.

So I guess the unanswerable question is, what could you do to solve this problem?
Well I’ll tell you what you have to do—you actually have to cancel the debt. There are historical precedents for this.

Excessive debt burdens in the past tended to be public sector debts. What we’ve got now is an exceptional level of private debt. There’s never been an economy in history that’s had so much private debt. Britain and America today lead the world in the indebtedness of the household sector and the banking sector and the corporate sector. But debt is debt; it doesn’t even matter if it’s household debt or government. Once it gets to a certain level, there is a problem.

In the past, when excessive debt burdens were accumulated by government, they tended to do one of two things:  either they defaulted—this is the Argentine solution—where you say, “Ah, I’m sorry, I’m afraid we’re not going to be able to meet the interest payments this month, and never again will we make the interest payments.”

The other scenario is inflation, where the real debt burden is eroded because the money that it’s denominated in loses value.

I don’t think we’re really going to be out of the woods here until something of that sort happens to the huge debt burdens of the U.S. economy. Either these debts will have to be fundamentally written off in some way, or inflation will have to reduce the real burden.

Don’t either of those scenarios spell the end of America as the world’s unrivalled superpower?
Well, it certainly will be extremely painful. And that is why we have to look very closely at the attitude of the foreign creditors, because the U.S. owes the rest of the world a lot of money. Half the federal debt is held by foreigners. And if the U.S. either defaults on debt or allows the dollar to depreciate, the rest of the world is going to say, “Wait a second, you just screwed us.” And that’s, I think, the moment at which the United States experiences the British experience—when, in the dark days of the 60s and 70s, Britain fundamentally lost its credibility and ceased to be a financial great power.  The I.M.F. had to come in, and the pound plunged to unheard-of depths.

And George Soros became a billionaire, right?
George Soros and others made some serious money off the back of it, certainly. I mean, somebody can make an awful lot of money off a massive dollar sell-off this year.

How badly could the Chinese screw us if they wanted to?
Well, they would have a difficulty in that they would kind of be screwing themselves. This is their dilemma. There’s a sort of “death embrace” quality to this, I think that someone’s talked about mutually assured financial destruction. The Chinese have got, we know, reserves in the region of $1.9 trillion, and 70 percent [of it is] dollar denominated, probably. That’s a huge pile of treasury bonds, not to mention Fannie and Freddie debt that they’ve accumulated over the last decade, when they’ve been intervening to keep their currency weak, and earning these vast amounts of foreign currency by running these trade surpluses. Now, politically, it might be quite tempting for the Chinese to phone up and say, “We really disagree with you about, let’s say, Taiwan and Japan and North Korea. You’d better listen to us, because otherwise, People’s Bank of China starts selling ten-year treasuries, and then you guys are dead.”

But then their investments become worthless.
Then you lose about five percent of China’s GDP, and that’s a hard sell—even for an authoritarian regime. So, they have a dilemma, and they are discovering the ancient truth that, when the debt is big enough, it’s the debtor who has the power, not the creditor.

But, then again, these things aren’t always the result of calculated policy, decisions. There’s a sense in which a catalyst elsewhere could force the hand of People’s Bank of China. It doesn’t need to be the Chinese who start the run of the dollar. It could be Middle Eastern investors.

In which case the Chinese might just follow and cut their losses.
Well, they might have no alternative. They might be facing the decision that, “If we hold on, you know, we’re left really holding the hot potato.” So, that is a big worry of theirs. I know it’s a big worry of theirs. They’re thinking, “Can we somehow sneak out of some of these decisions without anybody noticing?” That’s why they’re so secretive.

One of the great problems for anybody trying to make a decision about currency is, where else do you go? Short-term, it seems to me that everybody is kind of stuck trying to avoid this dollar crisis because it would be so expensive for those people who are invested in the U.S. But you shouldn’t assume—you can’t assume—that this is a stable state of affairs. It’s anything but that. It’s very, very precarious.

Your book is about moments in history where there were innovations—the creation of money, the creation of credit, the creation of bonds, the stock market, and so on. And the people who were at the wheel during the run up to the bubble seemed convinced that they had overseen an innovation on this level. Now we’re seeing that maybe they didn’t. Fifty or 500 years from now, when someone writes a book like this one, do you think they’ll look back and see something valuable that came out of this?
I’m sure they will. They’ll look back and they’ll say, “What an extraordinary proliferation of new financial instruments and business models there was between 1980 and 2006. And then the crisis came along, and it was like one of those events in natural history: asteroid hits the Earth, environment becomes a lot colder, only the strong survive.

Some species will be extinct: investment banks are already extinct, and hedge funds will go extinct in six months. But they won’t all disappear, and the strong and well managed—and lucky!—will survive. The derivatives market will contract, but it won’t disappear, because those are useful things. They are simply insurance policies. Too many of them were sold at bad prices. It was clear that the models which were being used to price, say, credit default swaps were fundamentally unrealistic about the probability of defaults. That doesn’t mean that the underlying idea of being able to buy protection against default is a bad one.

And that’s characteristic of financial history. If you go back to, say, the banking innovations of the 17th and 18th century, when new banks proliferated all over the English-speaking world, from Scotland to Massachusetts and beyond, banks were invented, and then along would come a financial crisis, and large numbers of them would go bust. But yeah, the ones that survived generally ended up being better banks, and I think that’s the cheerful news. This is an evolutionary system, there is an element of Darwinian, of the survival of the fittest, and although crises seem to be an integral part of the system, no crisis has been completely fatal to it.

JANUARY 30, 2009
'Think Long' to Solve the Crisis
It's the only way to sustain lasting benefits from the stimulus.

The current economic crisis must be viewed as a gigantic wake-up call. We have been living beyond our means for some years now, and the message is clear: We must change our ways. We are so blessed with human talent and resources that we can meet the challenges and succeed.

How did this crisis get started? The effort to identify the sources of the problem can easily lead us into staggering complexity, but the outline is simple. In the first place, the environment included a prolonged period of Fed-provided, exceptionally easy money.

People and institutions behave more responsibly when they have some of their own equity at stake, some "skin in the game." The current financial crisis emerged after this principle became virtually inoperative. In an effort to make housing more affordable, financial wizards, with the implicit backing of the federal government, figured out how to give houses away: no down payment and few if any questions asked about ability to service loans.

When you give something away, demand rises rapidly, as do prices, so rapidly rising prices made the easy terms look reasonable and seemed to validate them. Meanwhile, financial intermediaries packaged these mortgages and traded in them, in all too many cases with very high (30 or more-to-1) leverage. Once again, there was little equity in these deals.

All this separated the originator of the mortgage (that is, the risk) from the eventual holders and, at the same time, created financial instruments that were obscure. So people had little equity in the game but made lots of money even while not knowing exactly what they were doing. As Charles Prince, then head of Citicorp, said, "[A]s long as the music is playing, you've got to get up and dance." What a party!

And now we have the hangover: bailouts of many financial institutions by the taxpayers. The Fed and the Treasury already have exposures in the trillions of dollars.

These events are not isolated instances that sprung from the blue. Rather, they're the product of our failure to deal adequately with clear problems and to think ahead about future consequences. So now, think long.

Taken as a whole, our society has been living beyond its means for a long time now. The fact that we consume more than we produce is made possible by the ever-larger deficits in our trade balance with the rest of the world. We import more than we export. This negative balance of trade has its financial counterpart.

In recent times, we have failed to save enough to finance our own investments. This is true of Americans as individuals and families, but also of our biggest collective effort -- the federal government. Deficits, acts of dis-saving, have, with the exception of a few years, become chronic. When we support our activities by financing from abroad, we are selling to others a piece of our future. So, with all due recognition of the immediate need to encourage spending, let us not forget the long-term need for a return to a pattern of higher savings.

The fact is well known and well documented that Social Security will soon reach a point where the large inflow of money generated by the payroll tax is insufficient to cover promised benefits. This prospect presents a major budget problem. We know how to fix this problem in the long run without threat to the incomes of older people and without increasing the payroll tax. This can be done by using one of several possible changes in the method of indexing benefits and, eventually, indexing retirement age to account for greater longevity, with workers 55 or older and with workers at the low end of the income scale completely protected.

We know that the costs of our health-care system are spinning out of control, and we also know that a large amount of that money is wasted. We need a system that avoids those wastes, improves quality, keeps costs under control, and is universally available. There are paths to these goals. We also know that wage and price controls, with their important, adverse consequences in the long run, are not among them.

We know that the reason for our impressive health and longevity compared with earlier years is largely attributable to a breathtaking run of basic research and its application. In some cases progress is slow, and in others it is dramatic, as in the conquest of polio with the Salk vaccine. Funding for this basic research effort and for basic science generally is an investment in our future.

We have been on an energy roller-coaster for the last four decades or so. This time, more brilliant scientific minds than ever are at work, and more ideas with genuine applicability are appearing. Keep this effort going so that we can get on to a steady course of a more secure and less threatening energy future.

We are blessed with opportunities and with inventive and productive people. If we roll up our sleeves today, we will emerge stronger and with confidence in our future. A competent, sustained effort to deal effectively with long-term issues is essential to reap real benefits from any immediate stimulus to the economy.

Mr. Shultz, secretary of labor (1969-70), secretary of Treasury (1972-74) and secretary of state (1982-89) is a fellow at Stanford University's Hoover Institution.

February 6, 2009

On the Edge
by Paul Krugman

A not-so-funny thing happened on the way to economic recovery. Over the last two weeks, what should have been a deadly serious debate about how to save an economy in desperate straits turned, instead, into hackneyed political theater, with Republicans spouting all the old clichés about wasteful government spending and the wonders of tax cuts.

It’s as if the dismal economic failure of the last eight years never happened — yet Democrats have, incredibly, been on the defensive. Even if a major stimulus bill does pass the Senate, there’s a real risk that important parts of the original plan, especially aid to state and local governments, will have been emasculated.

Somehow, Washington has lost any sense of what’s at stake — of the reality that we may well be falling into an economic abyss, and that if we do, it will be very hard to get out again.

It’s hard to exaggerate how much economic trouble we’re in. The crisis began with housing, but the implosion of the Bush-era housing bubble has set economic dominoes falling not just in the United States, but around the world.

Consumers, their wealth decimated and their optimism shattered by collapsing home prices and a sliding stock market, have cut back their spending and sharply increased their saving — a good thing in the long run, but a huge blow to the economy right now. Developers of commercial real estate, watching rents fall and financing costs soar, are slashing their investment plans. Businesses are canceling plans to expand capacity, since they aren’t selling enough to use the capacity they have. And exports, which were one of the U.S. economy’s few areas of strength over the past couple of years, are now plunging as the financial crisis hits our trading partners.

Meanwhile, our main line of defense against recessions — the Federal Reserve’s usual ability to support the economy by cutting interest rates — has already been overrun. The Fed has cut the rates it controls basically to zero, yet the economy is still in free fall.

It’s no wonder, then, that most economic forecasts warn that in the absence of government action we’re headed for a deep, prolonged slump. Some private analysts predict double-digit unemployment. The Congressional Budget Office is slightly more sanguine, but its director, nonetheless, recently warned that “absent a change in fiscal policy ... the shortfall in the nation’s output relative to potential levels will be the largest — in duration and depth — since the Depression of the 1930s.”

Worst of all is the possibility that the economy will, as it did in the ’30s, end up stuck in a prolonged deflationary trap.

We’re already closer to outright deflation than at any point since the Great Depression. In particular, the private sector is experiencing widespread wage cuts for the first time since the 1930s, and there will be much more of that if the economy continues to weaken.

As the great American economist Irving Fisher pointed out almost 80 years ago, deflation, once started, tends to feed on itself. As dollar incomes fall in the face of a depressed economy, the burden of debt becomes harder to bear, while the expectation of further price declines discourages investment spending. These effects of deflation depress the economy further, which leads to more deflation, and so on.

And deflationary traps can go on for a long time. Japan experienced a “lost decade” of deflation and stagnation in the 1990s — and the only thing that let Japan escape from its trap was a global boom that boosted the nation’s exports. Who will rescue America from a similar trap now that the whole world is slumping at the same time?

Would the Obama economic plan, if enacted, ensure that America won’t have its own lost decade? Not necessarily: a number of economists, myself included, think the plan falls short and should be substantially bigger. But the Obama plan would certainly improve our odds. And that’s why the efforts of Republicans to make the plan smaller and less effective — to turn it into little more than another round of Bush-style tax cuts — are so destructive.

So what should Mr. Obama do? Count me among those who think that the president made a big mistake in his initial approach, that his attempts to transcend partisanship ended up empowering politicians who take their marching orders from Rush Limbaugh. What matters now, however, is what he does next.

It’s time for Mr. Obama to go on the offensive. Above all, he must not shy away from pointing out that those who stand in the way of his plan, in the name of a discredited economic philosophy, are putting the nation’s future at risk. The American economy is on the edge of catastrophe, and much of the Republican Party is trying to push it over that edge.

WOZ     5.März 2009

Standpunkt: Ein Memo zuhanden der Taskforce Bankgeheimnis
Weiter denken, nicht weiterwursteln
Von Gian Trepp

Der Angriff der USA auf die UBS hat die politische Krise des Finanzplatzes Schweiz nochmals drastisch verschärft. Es ist eine Krise, die mit dem bisherigen und aktuellen ökonomischen Krisenmanagement nicht überwunden werden  kann.

Bis anhin gewährten Bundeskasse und Nationalbank der Not leidenden UBS Finanzhilfe in beispielloser Höhe ohne Recht auf Mitbestimmung. Dies in der Hoffnung, die Bank könne im Zuge einer Erholung der Weltfinanzmärkte in  zwei, drei Jahren wieder profitabel werden. Der neue Präsident Kaspar Villiger und der neue CEO Oswald Grübel sollen es richten.

Aber die Frontalattacke der USA auf das Bankgeheimnis erschwert nicht nur die Rettung der UBS; sie bedroht auch die Verwaltung ausländischer Privatvermögen in der Schweiz insgesamt. Schätzungen gehen von 40000 bis  50000 Arbeitsplätzen in diesem Geschäft aus, die aus der Verwaltung von rund 2000 Milliarden Franken eine jährliche Wertschöpfung von 20 bis 25 Milliarden Franken generieren, also vier bis fünf Prozent des  Bruttoinlandsproduktes. Wie viel von den verwalteten Milliarden im Herkunftsland unversteuert bleiben, ist nicht bekannt. Die Schätzungen liegen im Bereich von fünfzig bis achtzig Prozent.

Die USA, die EU und andere Staaten wollen das Schweizer Bankgeheimnis, das beim Hinterziehen von Steuern hilft, definitiv abschaffen. Gleichzeitig erodiert bei Parteien, Verbänden und in den Medien die Unterstützung dieser  traditionellen Spezialiät der Schweiz. Das Nein des Zürcher Stimmvolkes gegen die Pauschalbesteuerung reicher AusländerInnen war ein Fanal.

Der Einsatz des Schweizer Bankgeheimnisses als Steuerhinterziehungsgeheimnis für AusländerInnen, die Kernkompetenz des Finanzplatzes Schweiz, ist ein Auslaufmodell. Wenn diese Kernkompetenz wegbricht, ist die heutige  Strategie des Finanzplatzes als Steuerparadies gestorben. Ohne neue Strategie wird das hiesige Finanzdienstleistungsgewerbe für Ausländer-Innen über kurz oder lang verschwinden - gleich wie die einst bedeutende Textilindustrie.

Der Finanzplatz Schweiz braucht eine neue Strategie. Konzessionen ans Ausland bei der bisher nicht gewährten Amts- und Rechtshilfe in Sachen Steuerhinterziehung sind nur Rückzugsgefechte.

Vielversprechender wäre ein Umbau des Finanzplatzes Schweiz in eine -Finanzdrehscheibe. Das mag auf Anhieb banal klingen, ist es aber nicht. Als Finanzdrehscheibe würde die Schweiz der Welt das bieten, was sie in Zukunft  braucht: Sie könnte zwischen den unterschiedlichen wirtschaftlichen Interessen von Staaten, Regionen, Unternehmen, institutionellen und privaten Anlegern vermitteln.

Auf dieser Basis könnten die Banken und Vermögensverwalter die umwelt- und menschenfreundlichen Finanzdienstleistungen von morgen entwickeln und sogar im Wirtschaftsverkehr in konfliktträchtigen Konstellationen, etwa  zwischen den USA und Iran oder zwischen Indien und Pakistan, ausgleichend wirken.

-  Diese Finanzdrehscheibe wäre universal. Dazu müsste die traditionelle Schweizer Neutralität zeitgemäss weiterentwickelt werden. Gefordert wäre eine Neutralität ohne Servilität gegenüber MilliardärInnen, Grossunternehmen  und Grossmächten, auch ohne Arroganz gegenüber Kleinstaaten und KleinkundInnen. Gefordert wäre aber auch eine wertebasierte Neutralität, auf dem Boden der Einhaltung der Menschenrechte und des sozial- und  ökoverträglichen Wirtschaftens.-?  Diese Finanzdrehscheibe wäre stabil - vom Bankensystem über die Finanzmarktregulation, die technische Infrastruktur bis zu den Währungsverhältnissen. Diese Stabilität wird nur möglich sein, wenn es bei den beiden  amerikalastigen Grossbanken UBS und Credit Suisse zu Redimensionierungen kommt. Und bei der Nationalbank muss der gefährlich hohe Dollaranteil in der Bilanz verringert werden.

-  Die Finanzdrehscheibe wäre verlässlich. Rechtssicherheit im Inland und Respektierung der Gesetze im Ausland durch die Finanzdienstleister ist garantiert. Die Qualität der Finanzdienstleister wird überprüft.

Der Umbau des Finanzplatzes vom Steuerparadies zur weltweiten Finanzdrehscheibe müsste realistischerweise mit einer Schrumpfung verbunden sein. Arbeitsplätze und Steuerabgaben des Finanzdienstleistungssektors dürften sinken.  Diese Aussicht bereitet niemandem Freude. Aber weitermachen wie bisher ist keine Option. Das Steuerhinterziehungsparadies ist bereits tot.

Die Frage, die bleibt: Wer arbeitet an dieser oder an anderen neuen Strategien, wer hat überhaupt Visionen? Sicher nicht die diskreditierten Banken und Finanzdienstleister, die nichts anderes als das bisherige System kennen. Eine  neue Strategie muss in einem politischen Prozess von Regierung, Parlament, Medien und Öffentlichkeit entwickelt werden. Nur als konkordanzdemokratisches Projekt hat der Finanzplatz Schweiz eine Zukunft.

Gian Trepp ist Bankenexperte und Journalist und schreibt seit Jahren über Wirtschaftsthemen in der WOZ: Sein 1994 erschienenes Szenario für den Derivate-Crash von 2008 wie auch sein Vorschlag für einen Umbau des  Finanzplatzes Schweiz finden sich ebenfalls im Dossier Finanzkapitalismus.

March 8, 2009

The Inflection Is Near?

Sometimes the satirical newspaper The Onion is so right on, I can’t resist quoting from it. Consider this faux article from June 2005 about America’s addiction to Chinese exports:

 »FENGHUA, China — Chen Hsien, an employee of Fenghua Ningbo Plastic Works Ltd., a plastics factory that manufactures lightweight household items for Western markets, expressed his disbelief Monday over the “sheer amount of [garbage] Americans will buy. Often, when we’re assigned a new order for, say, ‘salad shooters,’ I will say to myself, ‘There’s no way that anyone will ever buy these.’ ... One month later, we will receive an order for the same product, but three times the quantity. How can anyone have a need for such useless [garbage]? I hear that Americans can buy anything they want, and I believe it, judging from the things I’ve made for them,” Chen said. “And I also hear that, when they no longer want an item, they simply throw it away. So wasteful and contemptible.”

Let’s today step out of the normal boundaries of analysis of our economic crisis and ask a radical question: What if the crisis of 2008 represents something much more fundamental than a deep recession? What if it’s telling us that the whole growth model we created over the last 50 years is simply unsustainable economically and ecologically and that 2008 was when we hit the wall — when Mother Nature and the market both said: “No more.”

We have created a system for growth that depended on our building more and more stores to sell more and more stuff made in more and more factories in China, powered by more and more coal that would cause more and more climate change but earn China more and more dollars to buy more and more U.S. T-bills so America would have more and more money to build more and more stores and sell more and more stuff that would employ more and more Chinese ...

We can’t do this anymore.

“We created a way of raising standards of living that we can’t possibly pass on to our children,” said Joe Romm, a physicist and climate expert who writes the indispensable blog We have been getting rich by depleting all our natural stocks — water, hydrocarbons, forests, rivers, fish and arable land — and not by generating renewable flows.

“You can get this burst of wealth that we have created from this rapacious behavior,” added Romm. “But it has to collapse, unless adults stand up and say, ‘This is a Ponzi scheme. We have not generated real wealth, and we are destroying a livable climate ...’ Real wealth is something you can pass on in a way that others can enjoy.”

Over a billion people today suffer from water scarcity; deforestation in the tropics destroys an area the size of Greece every year — more than 25 million acres; more than half of the world’s fisheries are over-fished or fished at their limit.

“Just as a few lonely economists warned us we were living beyond our financial means and overdrawing our financial assets, scientists are warning us that we’re living beyond our ecological means and overdrawing our natural assets,” argues Glenn Prickett, senior vice president at Conservation International. But, he cautioned, as environmentalists have pointed out: “Mother Nature doesn’t do bailouts.”

One of those who has been warning me of this for a long time is Paul Gilding, the Australian environmental business expert. He has a name for this moment — when both Mother Nature and Father Greed have hit the wall at once — “The Great Disruption.”

“We are taking a system operating past its capacity and driving it faster and harder,” he wrote me. “No matter how wonderful the system is, the laws of physics and biology still apply.” We must have growth, but we must grow in a different way. For starters, economies need to transition to the concept of net-zero, whereby buildings, cars, factories and homes are designed not only to generate as much energy as they use but to be infinitely recyclable in as many parts as possible. Let’s grow by creating flows rather than plundering more stocks.

Gilding says he’s actually an optimist. So am I. People are already using this economic slowdown to retool and reorient economies. Germany, Britain, China and the U.S. have all used stimulus bills to make huge new investments in clean power. South Korea’s new national paradigm for development is called: “Low carbon, green growth.” Who knew? People are realizing we need more than incremental changes — and we’re seeing the first stirrings of growth in smarter, more efficient, more responsible ways.

In the meantime, says Gilding, take notes: “When we look back, 2008 will be a momentous year in human history. Our children and grandchildren will ask us, ‘What was it like? What were you doing when it started to fall apart? What did you think? What did you do?’ ” Often in the middle of something momentous, we can’t see its significance. But for me there is no doubt: 2008 will be the marker — the year when ‘The Great Disruption’ began.

18. März 2009

Eine falsch angewendete Formel und ihre Folgen
Unterschätzte Korrelation von Anlagewerten als Auslöser der Finanzkrise?

Der inkorrekte Gebrauch einer vor neun Jahren entwickelten Formel für die Risikoanfälligkeit gebündelter Anlagewerte hat möglicherweise zum Ausbruch der jetzigen Finanzkrise beigetragen. Die Formel wurde weitherum verwendet, obwohl sie in gewissen Situationen versagt.
gsz. Fachleute suchen immer noch nach Gründen für den jüngsten Zusammenbruch der Finanzmärkte. In der März-Ausgabe des amerikanischen Magazins «Wired» wird die Behauptung aufgestellt, die Wall-Street sei durch eine mathematische Formel zu Fall gebracht worden. Die Formel war von dem aus China stammenden Finanzexperten David X. Li hergeleitet worden und erlaubte es Banken und institutionellen Anlegern, abzuschätzen, wie riskant es ist, in korrelierte Wertpapiere zu investieren. Wegen ihrer einfachen Form wurde sie in der Finanzwelt schnell sehr prominent. Dabei wurde allerdings nicht zur Kenntnis genommen, dass die Formel in extremen Situationen versagt.
Anzeige  Am Anfang standen die HypothekenDie Finanzkrise nahm ihren Lauf, als amerikanische Hauseigentümer, denen ohne eingehende Prüfung ihrer Kreditwürdigkeit Hypotheken gewährt worden waren, vor zwei Jahren reihenweise ihren Zahlungen nicht mehr nachkommen konnten. Zuerst stürzten die Hypothekarbanken zusammen. In der Folge gerieten weitere Finanzinstitute und Versicherungsfirmen in Schwierigkeiten. Die gleichzeitige Zahlungsunfähigkeit so vieler Kreditnehmer und die zwangsläufig folgenden Pleiten waren von Fachleuten nicht richtig vorausgesehen worden.
Dabei wussten Investoren schon immer, wie gefährlich es ist, gleichzeitig in Papiere zu investieren, deren Wahrscheinlichkeiten, wertlos zu werden, miteinander korrelieren. Um diese Gefahr quantitativ in den Griff zu bekommen, hatte Li im Jahr 2000 im «Journal of Fixed Income» eine sogenannte Copula-Formel hergeleitet. Der aus einem bäuerlichen Gebiet in China stammende Finanzexperte, der in seiner Heimat und in Kanada Wirtschaftswissenschaften, Statistik und Versicherungsmathematik studiert und dann in Kanada und Amerika Karriere gemacht hatte, zog dabei Parallelen zum Vorgehen von Lebensversicherern. Diese berechnen zum Beispiel die Wahrscheinlichkeit, dass zwei Ehepartner im gleichen Jahr ableben. Im gleichen Sinne schätzte Li die Wahrscheinlichkeit ab, dass mehrere Unternehmen – Handelsgesellschaften, Geschäftsbetriebe oder Immobilienfirmen, die im Besitz von gebündelten Hypotheken sind – simultan pleitegehen.
Weit verbreiteter AnsatzDie Formel von Li hatte eine denkbar einfache Form und war einfach zu interpretieren. Deshalb wurde sie von mathematisch wenig versierten Finanzmanagern gerne und weitherum benützt. Andrew Lo, Professor für Finanztheorie am Massachusetts Institute of Technology in Cambridge, meint, dass die Copula-Formel in der Gemeinschaft der institutionellen Anleger wahrscheinlich der am weitesten verbreitete Ansatz zur Modellierung der gleichzeitigen Zahlungsunfähigkeit mehrerer Firmen gewesen sei. Aber bei ihrer Verwendung wurde oft eine Schwierigkeit übersehen. In die Formel muss ein Parameter eingesetzt werden, der die Gleichläufigkeit der Risiken verschiedener Anlagewerte misst. Dieser sogenannte Korrelationskoeffizient ist nicht leicht abzuschätzen. Li benützte als Indikator für die Risikobelastung von Unternehmen historische Daten über die Zinsen, die diese für Darlehen zahlen müssen. Die Spanne zwischen den Renditen risikoloser Staatsanleihen und den Zinsen, die von den Unternehmen für verschiedene Laufzeiten verlangt wurden, diente ihm als Kennziffer dafür, wie der Markt ihre Risiken für verschiedene Zeitspannen einschätzt. Mit diesen Daten liess sich dann der für die Copula-Formel benötigte Korrelationskoeffizient berechnen.
Historische Daten führten in die IrreAber die Verwendung historischer Daten kann in die Irre führen. Insbesondere für den amerikanischen Hypothekarmarkt hatten Daten, die aus einem Jahrzehnt stammten, in dem die Preise für Immobilien in die Höhe schnellten, wenig Bedeutung für die sich anbahnende Krisenzeit. Zum Beispiel ist es in normalen Zeiten höchst unwahrscheinlich, dass eine grosse Zahl von Eigenheimbesitzern gleichzeitig zahlungsunfähig wird. Aber sobald der amerikanische Immobilienboom ein Ende fand und die ersten Hypothekarnehmer in Verzug gerieten, folgte eine Lawine von Zahlungsunfähigkeiten. Die grundlegende Annahme für Lis Formel – dass der Korrelationskoeffizient ein konstanter Parameter ist –, stimmte plötzlich nicht mehr, Bankrott-Wahrscheinlichkeiten begannen mehr zu korrelieren als von der Formel vorhergesagt, und die Risikoanfälligkeit diversifizierter Portefeuilles stieg.
Der Mathematiker Paul Embrechts von der ETH-Zürich, der schon im Jahre 2001 gewarnt hatte, dass die arglose Verwendung simpler Risikobeurteilungen eine Krise heraufbeschwören und sogar eine Wirtschaft destabilisieren könne, unterstreicht, dass herkömmliche Risikomodelle Ausnahmeerscheinungen nicht korrekt berücksichtigten. Der für Lis Formel benötigte und aufgrund historischer Daten geschätzte Korrelationskoeffizient sei völlig unzulänglich, wenn es darum gehe, das gleichzeitige Eintreten mehrerer Extremereignisse zu modellieren.
Allerdings ist es müssig, eine Formel für die katastrophalen Folgen ihres inkorrekten Gebrauchs verantwortlich zu machen. Das wäre, als ob man Newtons Bewegungsgesetz die Schuld für tödliche Unfälle zuschreiben würde, sagt Lo. Embrechts unterstreicht, dass Mathematiker immer wieder auf die Annahmen verwiesen hätten, auf denen gewisse Formeln basieren. Es sei nicht die Formel, sondern Habgier gewesen, meint er, die in der jüngsten Krise eine wichtige Rolle gespielt habe.

Vera Kehrli (18. März 2009, 23:11)    jetzt heisst es Verantwortung übernehmen
Wenn ein Banker Millionen verdient, darf man auch erwarten dass er elementare mathematische Fähigkeiten hat. Wenn ein Ingenieur Formeln falsch anwendet, macht er sich haftbar und landet im Extremfall im Gefängnis. Warum gilt das nicht für Banker? Bei diesen Löhnen kann man sogar eine viel grössere Verantwortung erwarten. Das heisst man müsste die Banken jetzt für die Kosten des von Ihnen angezettelten Wirtschaftszusammenbruchs haftbar machen, so wie ein Ingenieur haftbar ist wenn eine Brücke zusammenbricht.

WOZ    19.März 2009
Demokratisch in die Krise
Von Tonio Martin, Mondragón

Nicht zufällig ist im Baskenland der weltweit grösste Genossenschaftsverbund der Welt entstanden. Selbstbestimmung, Vielfalt und Sicherung der Arbeitsplätze sind wesentliche Merkmale der über hundert Kooperativen. Doch das Wachstum birgt auch Gefahren - besonders in so schwierigen Zeiten wie heute.
Eine einzelne Figur, die in die Ferne schaut, hinter ihr eine Welle, auf deren Gischtkamm die Zahl 2009 steht - so einfach und doch so treffend hat der spanische Karikaturist El Roto Ende letzten Jahres in «El País» Spaniens Aussichten für das laufende Jahr skizziert.

In der Tat: Die Krise droht, die spanische Wirtschaft mit der Wucht eines Tsunamis unter ihren Fluten zu begraben. Fast alle Pfeile und Kurven weisen von Woche zu Woche immer deutlicher nach unten; der lang anhaltende Boom des «spanischen Wirtschaftswunders» ist endgültig vorbei. In wenigen Monaten ist die Zahl der Arbeitslosen auf gut drei Millionen gestiegen und könnte bis zum Jahresende die Viermillionengrenze überschreiten. Die Fälle von Zahlungsunfähigkeit privater Haushalte und Firmen steigen fast exponentiell, Hunderttausende Wohnungen sind nicht mehr zu verkaufen, der Konsum ist um sechs Prozent gesunken, die Zulassungen von Neuwagen sanken um vierzig Prozent.

400 Kilometer nördlich von Madrid macht sich ebenfalls Sorge breit. In Mondragón sitzt die Zentrale der Mon­dragón Corporación Cooperativa (MCC), der grössten Genossenschaft der Welt (vgl. Kasten «Der baskische Pater»). Die wirtschaftliche Lage beunruhigt das siebtgrösste Unternehmen Spaniens - die Ungewissheit wirft Schatten auf eine Zukunft, der viele MCC-GenossInnen lange Zeit selbstsicher entgegensahen. Schliesslich war der Werdegang der Cooperativas de Mon­dragón seit ihrer Gründung 1955 eine einzigartige Erfolgsgeschichte gewesen. Bis 2008, bis zum Ausbruch der Krise. Dennoch ist hier keine Angst oder gar Panik spürbar, anders als im übrigen Spanien.

Von Franco ...

«Wir sind uns bewusst, dass das keine Krise wie die anderen ist», sagt Jesús Ginto, der Sprecher des Genossenschaftsverbunds, «aber auch jetzt werden wir die Instrumente anwenden, die wir im Laufe der vergangenen fünfzig Jahre zur Krisenbewältigung entwickelt haben.» Denn die hätten sich ja grundsätzlich bewährt. «Wahrscheinlich werden wir einzelne Massnahmen nun häufiger und gebündelt einsetzen müssen. Aber die Ziele bleiben die gleichen: die Erhaltung unseres Unternehmens, seiner genossenschaftlichen Philosophie und die Arbeitsplätze der Mitglieder.»

Jesús Ginto, Mitte 50, ist seit über 25 Jahren dabei. Er weiss also, dass die Geschichte der Mondragón-Genossenschaften auch eine Geschichte der Krisenbewältigung ist, und dass sie bislang immer gestärkt daraus hervorgegangen sind - sowohl in unternehmerischer wie auch in genossenschaftlicher Hinsicht. Denn diese beiden Elemente müssen nicht konträr zueinander stehen, sagt man bei MCC. In der Praxis seien sie so gut wie immer miteinander in Einklang gebracht worden.

Wie diese Praxis aussah, zeigt ein Blick zurück ins Jahr 1973, als die Genossenschaft ihren achtzehnten Jahrestag feierte, sozusagen volljährig wurde. Damals traten fast zeitgleich zwei Ereignisse ein, die Spanien lange prägen sollten: die sogenannte Ölkrise mit all ihren wirtschaftlichen Folgen und das Ende der Franco-Diktatur. Es folgten Jahre der politischen Instabilität, in denen sich der «Übergang zur Demokratie» häufig am Rande des Kollapses bewegte (1981 scheiterte ein Militärputsch). Erst der Wahlsieg der sozialdemokratischen Psoe von 1982 festigte die demokratisch-parlamentarischen Verhältnisse.

Parallel zu den politischen Verhältnis­sen wandelten sich auch die ökonomi­schen Strukturen. Allmählich ver­schwand der Protektionismus, den das Franco-Regime zum Schutz der Wirtschaft aufgebaut hatte. Die Liberalisierung des Marktes traf die Lohnabhängigen besonders hart. Ein Kennzeichen des ­Franquismus war ja ab den sechziger Jahren ein gewisser Paternalismus gewesen, eine Art Gegengeschäft für das politische Stillhalten der Bevölkerungsmehrheit. Dieser Pakt war neben der Repression ein wichtiger Grund für die lange Dauer der Diktatur. Bis zum Ende der Franco-Herrschaft konnten Unternehmen ­beispielsweise Entlassungen aus betrieblichen Motiven nur schwer durchsetzen.

... zur Europäischen Union

Nach den ersten Parlamentswahlen 1977 änderte sich dies. Die Zahl der Arbeitslosen schnellte auf zwanzig Prozent; zeitlich befristete Arbeitsverträge wurden zur Regel; im Baskenland mit seiner Schwerindustrie wurden Hochöfen, Walzwerke, Schiffswerften stillgelegt. Die Europäische Wirtschaftsgemeinschaft (Vorläuferin der Europäischen Union) verlangte als Vorbedingung für Spaniens Beitritt die Liquidierung der «alten» Industriezweige. Die ArbeiterInnen leis­teten erbitterten Widerstand bis hin zu Betriebsbesetzungen und zahlreichen Strassenschlachten mit der Polizei. Aber Erfolg hatten sie damit nicht. Im Gegenzug wurde Spanien mit Subventionen bedacht, die zwar - wie die aktuelle Krisenanfälligkeit zeigt - nicht zur erhofften, nachhaltigen Modernisierung führte, aber über Jahre hinweg die Konsumfähigkeit eines Marktes mit über vierzig Millionen Menschen erhöhte.

Diese Krisen waren für die Mondra­gón-Genossenschaften eine Feuerprobe. Sie bestanden sie mit Bravour. Aus dem lokalen Genossenschaftsverbund in der baskischen Provinz Gipuzkoa wurde allmählich der Mythos Mondragón - weil die damals rund 6000 Genossenschaftsmitglieder der Krise mit einer Diversifizierung der Produktpalette, mit Expan­sion und Investitionen entgegentraten. Also genau das Gegenteil dessen taten, was kapitalistische Unternehmen in Krisenzeiten für «notwendig und unausweichlich» halten.

Dass diese Strategie gelang, war auch den basisdemokratischen Strukturen zu verdanken (vgl. Kasten «Die Strukturen der Mondragon-Kooperativen»). Aus Produzentinnen von Waschmaschinen, Herden, Heizungsthermen, Stahltöpfen und aus Industriezulieferern (Ventile, Wellen, Gussteile) wurde ein Unternehmen, das immer mehr Hightechprodukte und -verfahren entwickelte, diese in die eigenen Produktionsabläufe integrierte und ganze Industrieanlagen wie industrielle Kühlsysteme und Montagestrassen schlüsselfertig anbieten konnte. Nach dem Ende des Protektionismus wurde die MCC international erst richtig konkurrenzfähig. Zudem entwickelte sie Geschäftsbereiche, die bis dahin eine eher untergeordnete Rolle gespielt hatten. So entstand, ausgehend vom Zusammenschluss einzelner Konsumgenossenschaften, unter dem gemeinsamen Dach der MCC Eroski das heute drittgrösste Handelsunternehmen Spaniens mit Dutzenden von Grossmärk­ten, Hunderten von Supermärkten, eigenen Marken, einem Milliardenumsatz - und seit Januar 2009 etwa 50?000 GenossInnen.

Auch kleine oder mittelgrosse Genossenschaften, die bis dahin für sich und unabhängig existiert hatten, wurden aufgenommen. In manchen Fällen waren sie aus Unternehmen hervorgegangen, die vor der Pleite standen und von den ArbeiterInnen übernommen worden waren. Der Mondragón-Verbund unterstützte solche Projekte, bis diese ihrerseits in die gemeinsame MCC-Kasse einzahlen konnten. Die Genossenschaften sicherten so eine industrielle Struktur und qualifizierte, gut bezahlte Arbeitsplätze im Baskenland. Innerhalb von etwa fünfzehn Jahren wuchs die Zahl der Genossenschaftsmitglieder von 6000 auf 25?000. «Man muss wachsen, um zu überleben» wurde zu einem Leitsatz. Geht der jetzt noch auf?

Der Clou: eine eigene Bank

Noch wichtiger aber ist die Solidarität. MCC unterstützt, so lautet ein Grundprinzip, Mitgliedsgenossenschaften, die in Turbulenzen geraten. Mitglieder einer vorübergehend angeschlagenen Genossenschaft können in eine andere wechseln, der gemeinsame Solidaritätsfonds bietet finanzielle Unterstützung, die genossenschaftseigene Bank Caja Laboral hilft mit billigen Krediten, gegenseitige fachliche Beratung ist selbstverständlich.

Der Erhalt der Arbeitsplätze aber - auch das gehört zur Philosophie von Mondragón - ist in einem kapitalisti­schen Umfeld nur möglich, wenn die einzelnen Genossenschaften eine solide Grundlage haben, im Marktwettbewerb bestehen können. Das ist die Herausforderung, der sich alle Genossenschaften stellen müssen: Wie ist die Anpassung an Marktgesetze zu vereinbaren mit Werten, die dem kapitalistischen Konkurrenzkampf fremd sind?

Über zwanzig Jahre lang hatte Pater José María Arizmendiarrieta, der Initia­tor der Kooperative (vgl. Kasten «Der baskische Pater»), den Genossenschaftsgedanken in die Praxis umgesetzt. Er gründete mit jungen Facharbeitern den ersten Betrieb, achtete auf demokratische Strukturen, beharrte auf vielfältige Tätigkeiten und Produkte - und schuf mit der Caja Laboral eine Bank, die für finanzielle Spielräume sorgt, die Anschubfinanzierung für neue Projekte garantiert, Marktschwankungen abfedert, in neue Produkte investiert - und so die finanzielle Basis zweier weiterer Mondragón-Prinzipien schafft: Autonomie und Selbstbestimmung.

Autonomie war im Baskenland schon immer wichtig - dieser Grundsatz ­heisst aber auch: keine Konzentration, keine Zentralisierung, keine Straffung. Und damit auch Abkehr von gängigen betriebswirtschaftlichen Lehren. Dies erklärt den Kaufladencharakter der MCC. Dem Selbstbestimmungsgedanken und der Mannigfaltigkeit liegt freilich auch ein Gesellschaftsbild zugrunde, demgemäss Vielfalt zur Natur des Menschen gehört.

Kein Ideenexport ...

Das Überleben im Dschungel der real existierenden Marktgesellschaft im Stadium ihrer Globalisierung verlangt jedoch Kompromisse - auch dort, wo ein Wirtschaften ohne Fetischisierung der Rendite möglich ist. Mit der Einrichtung von Mondragón-Niederlassungen im Ausland ab den achtziger Jahren entstanden erste Risse: Immer mehr Beschäftigte der Genossenschaften waren nicht mehr zugleich GenossInnen, sondern angestellte LohnarbeiterInnen, die nicht die Mitsprache- und Entscheidungsrechte der Genossenschaftsmitglieder hatten - auch wenn sie bessergestellt waren als in normalen kapitalistischen Betrieben. Im Jahr 2007 betrug das Verhältnis zwischen Genossenschaftsmitgliedern und abhängig Beschäftigten etwa 40 zu 60 Prozent; seit Januar 2009 liegt das Verhältnis bei rund 75 zu 25 Prozent. Im Baskenland waren die meisten Angestellten und ArbeiterInnen zwar MiteigentümerInnen und damit GenossInnen; in den anderen Teilen Spaniens und in Staaten wie Mexiko, Marokko, Polen oder China hatte die Mondragón-Gruppe jedoch Unternehmen aufgebaut, Firmen gekauft oder Joint Ventures gegründet, die eine andere Gesellschaftsform besitzen.

Dieser Widerspruch von Praxis und Selbstverständnis war niemandem entgangen. Doch es habe keine Alternative gegeben. «Die Genossenschaften», erinnert Mondragón-Sprecher Jesús Ginto, «sind zwar Unternehmen, in denen das Verhältnis zwischen Kapital und Arbeit anders geregelt ist als in kapitalistischen Konzernen. Aber es sind Unternehmen.» Was die Genossenschaften nicht sein könnten, «ist eine Art Werkstatt der Utopien. Der Markt funktioniert nicht so, dass er uns, nur weil wir eine Genossenschaft sind, einen zusätzlichen Bonus zugesteht.» Also habe man schauen müssen, dass manche Produkte oder Komponenten zu Kosten produziert werden, die unter denen «bei uns im Baskenland liegen, damit wir hier Arbeitsplätze erhalten können. Schliesslich müssen wir kollektiv Verantwortung für etliche Zehntausend Familien tragen.»

Eine regionalistische Perspektive, gewiss. Andererseits musste Mondragón auch feststellen, dass es kaum kongeniale PartnerInnen für genossenschaftlich orientierte Allianzen gab. Weder in Mexiko noch in Polen oder China gibt es vergleichbare Traditionen und ein genossenschaftlich-gemeinschaftliches Bewusstsein wie im Baskenland mit seiner alten Handwerks- und Industriegeschichte und seiner selbstbewussten Arbeiterschaft. «Sollen wir denn Genossenschaften exportieren?», fragt José María Ormaet­xea, einer der noch lebenden Gründer der ers­ten Genossenschaft Fagor. «Das kann nicht funktionieren. Waren und Kapital kann man hin- und herbewegen. Aber genossenschaftliches Bewusstsein muss in den Menschen gewachsen und vorhanden sein. Das kann man nicht irgendwohin ausführen in der Hoffnung, dass es irgendwie schon klappen wird.»

... und doch ein Versuch

Trotz ihres Pragmatismus ahnten die GenossInnen, dass der wirtschaftliche Erfolg ihre Seele auffressen könnte. «Wir sehen das Risiko», sagte beim 50-Jahre-Jubiläum 2005 der damalige MCC-Präsident Jesús Catania. «Die Strategie der Internationalisierung hat die Befürchtung entstehen lassen, dass wir irgendwann einmal ein kapitalistisches Unternehmen wie jedes andere werden.» Ein Patentrezept dagegen gebe es nicht. «Uns bleibt nichts anderes übrig, als uns an unsere Prinzipien zu halten - so utopisch das auch erscheinen mag.»

Das waren keine wohlfeilen Worte, wie sich zwei Jahre später erwies. 2007 übernahm Eroski, die MCC-Handels­sparte, nach einem Milliardenpoker mit dem französischen Konzern Carrefour die spanische Handelskette Caprabo mit ihren 15?000 Beschäftigten. Ökonomisch entsprach dieser Schritt der Strategie des Wachsens und war marktstrategisch schlüssig. Doch die Genossenschafter­Innen setzten noch drauf: Die Caprabo-Gruppe werde in eine Genossenschaft umgewandelt, verkündete MCC. Und setzte den Beschluss auch um: Im Januar 2009 befürwortete die Eroski-Delegiertenversammlung mit einer Mehrheit von über achtzig Prozent die Übertragung aller Genossenschaftsrechte auf die ehemaligen Caprabo-Belegschaften - und auf die bis dahin bei Eroski lohnabhängig Beschäftigten. Seither ist Eroski mit 50?000 Mitgliedern die grösste Einzelgenossenschaft der Welt und der MCC (mit insgesamt rund 84?000 Mitgliedern) der grösste Genossenschaftsverbund ­überhaupt.

Allein unterwegs

So viele Neumitglieder auf einen Schlag in die bestehenden Strukturen zu integrieren, ist eine enorme Herausforderung. Jesús Ginto geht davon aus, dass der Prozess mehrere Jahre dauert - je nachdem, wie sich die aktuelle Krise entwickeln wird. Anders als in Tschechien, der Slowakei, Brasilien, Südafrika, Frank­reich, Britannien oder Deutschland, wo MCC ebenfalls Betriebe unterhält, gebe es in Spanien noch so etwas wie ein «genossenschaftliches Grundgefühl», das seinen Ursprung in einer libertären und sozialistischen Tradition hat.

Dennoch folgt dem Caprabo-Coup von 2007 im Herbst 2008 eine Ernüchterung: Wenige Tage nach der Pleite von Lehman Brothers musste die MCC-Bank Caja Laboral bekannt geben, dass sie 160 Millionen Euro bei der US-amerikanischen Bank angelegt hatte - Geld, das offenbar verzockt worden war. Den Verlust kann die Caja verschmerzen, den Imageschaden weniger. «Nein, wir haben uns selbstverständlich nicht am Casinospiel der Finanzmärkte beteiligt», beteuert Ginto, «alles war nach bestem Wissen geprüft worden. Und doch haben auch wir dran glauben müssen.»

Viel mehr traf die GenossInnen aber ein ebenso wenig erwartetes Ereignis. Mitte 2008 traten zwei Mitgliedsgenossenschaften aus dem Verbund aus. Irizar, ein weltweit führendes Unternehmen im Omnibuskarosseriebau, und Ampo, spezialisiert auf die Herstellung von Ventilen, kündigten ihre MCC-Mitgliedschaft. Als Grund nannten sie «unüberbrückbare Differenzen in der Managementabstimmung». Eine etwas merkwürdige Erklärung; schliesslich kann jede Genossenschaft ihre eigenen Managementstrukturen entwickeln, und besonders Irizar hatte das jahrelang auch getan. Warum also dieser Schritt, der «einen grossen moralischen Schaden» anrichtete, wie José María Aldekoa, gegenwärtig Präsident des MCC-Genossenschaftsverbunds, anmerkte?

Nachforschungen ergaben, dass sich die Irizar-GenossenschafterInnen in letzter Zeit zunehmend darüber beklagt hatten, dass sie zu viel in das kollektive MCC-Solidarsystem einzahlen müssten, das mit den Gewinnen der einen Genossenschaften die Verluste anderer ausgleicht. Das ging in den letzten Jahren auf die Kosten und die Ausschüttungsprämie der Irizar-Beschäftigten - die zudem offenbar vergessen hatten, woher sie kamen. Irizar war Anfang der neunziger Jahre praktisch bankrott unter den weiten Mantel von MCC geschlüpft. Die Belegschaft des ehemaligen Familienunternehmens übernahm den Betrieb und konnte erst mithilfe des Verbunds dessen Spitzenstellung aufbauen. Darauf angesprochen, erklären die BefürworterInnen des Austritts, dass man die damalige Unterstützung durch die mittlerweile erfolgten Leistungen für die Solidareinrichtungen längst wettgemacht habe. Es gebe zwar Dankbarkeit, aber keine Verpflichtungen mehr.

Die Marktideologie hat auch das Baskenland nicht verschont, sagt der Soziologe Javier Leunda, der die Entwicklung der Mondragón-Genossenschaften fast seit ihren Anfängen verfolgt. «Auch hier gibt es mittlerweile die Tendenz, den Erfolg vor allem monetär zu begreifen.» Ob Irizar und Ampo allein überleben können, hängt von der Finanz- und Wirtschaftskrise ab. NachahmerInnen haben sich bislang jedenfalls nicht gefunden.

Es gibt noch Rücklagen

Trotz der Wirtschaftskrise werde Mon­dragón an der internationalen Ausrichtung nichts ändern, sagt Jesús Ginto; das Konzept der permanenten Innovation und Vielfalt stehe ebenfalls nicht zur Debatte. Der Werkzeugbau - in diesem Sektor habe der Export in den letzten Jahren bei bis zu achtzig Prozent gelegen - laufe immer noch gut. Im Bereich der Autozulieferung seien die Aussichten schlechter. Und bei den Bestellungen für Haushaltsgeräte habe es bereits vor September 2008 spürbare Einbussen ­gegeben.

Manche Projekte werde man eventuell zurückstellen müssen, sagt Ginto, und stattdessen auf bewährte Krisenstrategien zurückgreifen, um die Jobs zu sichern - Verschiebung von Arbeitsplätzen, gegenseitige Unterstützung, Arbeitszeitkürzung. Entlassungen kämen nicht infrage, auch nicht für NichtgenossenschafterInnen. Allerdings werde man möglicherweise Verträge auslaufen lassen müssen. Die Ausschüttung von Gewinnbeteiligungen wurde bereits eingefroren, um die Rücklagen zu vergrössern. Man denke auch über Regelungen mit vorzeitigem Ruhestand nach, abgesichert durch das eigene Sozialsystem.

Noch ist das Polster dick, noch bietet der Solidarfonds, in den alle GenossInnen einen Lohnanteil einzahlen, einen Spielraum. Auch wenn die Finanz- und Wirtschaftskrisen das Baskenland, Spanien und die Welt mit noch grösserer Wucht treffen sollten - die Mondragón-Genoss­Innen haben es ein bisschen besser.

Die Strukturen der Mondragón-Kooperativen

Zur Mondragón Corporación Cooperativa (MCC) gehören rund 100 Einzel­genossenschaften und etwa 250 Betriebe und Einrichtungen in fünfzehn Staaten mit derzeit 103?000 Beschäftigten, darunter 84?000 GenossInnen. Das Spektrum der Produktions- und Geschäftsfelder reicht von Haushaltsgeräten, Zulieferteilen für die Autoindustrie, Robotersys­temen bis zur Handelskette Eroski, zu Reisebüros und Parfümerieläden. Auch eine eigene Bank (Caja Laboral), ein ­Sozialfonds (Lagun Aro) und eine eigene Universität sind Teil des Verbunds.

Basis des Verbunds ist jede einzelne Genossenschaft, deren Mitglieder insgesamt 650 Delegierte in die Generalversammlung (das oberste Entscheidungsorgan) wählen. Diese wählt einen Vorstand als oberstes Verwaltungsorgan, der wiederum das geschäftsführende Direktorium wählt, das für die unternehmerische Strategie und Zielsetzung verantwortlich ist. Kontrolliert wird es von einem ständigen Ausschuss der Delegiertenversammlung, der vierzehn Untergruppen vertritt.

Die Genossenschaftsmitglieder müssen bei Eintritt 10?000 Euro einbringen; notfalls wird dieser Betrag von der Genossenschaft vorgestreckt und später in Raten vom Lohn abgezogen. Der Lohn besteht aus zwei Teilen: dem Monatslohn und der Ausschüttung am Ende des Geschäftsjahres. Rund die Hälfte des Reingewinns (nach Abschreibungen) geht als kollektive Rücklage in die Solidareinrichtungen oder als individuelle Rücklage an die Caja Laboral.

Die Spanne zwischen den niedrigsten und höchsten Löhnen beträgt derzeit maximal 1?:?8; ursprünglich lag das Verhältnis bei höchstens 1?:?3. Die Kaderlöhne, so MCC, hätten im Laufe der Zeit erhöht werden müssen, um vor allem im Managementbereich qualifizierte Kräfte zu bekommen.

Der baskische Pater

Grüne Täler, schroffe Hügel, an den Hängen Bauernhäuser, jedes einzeln für sich und doch mit den anderen verbunden. Alle Familien arbeiten bei Gemeinschaftsaufgaben zusammen. Die Besiedlung sagt viel über die Eigenart der Menschen und ihrer Gesellschaft aus: Autonomie und Solidarität ergänzen sich. In den Tälern besteht seit dem Mittelalter eine handwerkliche Tradition. Und in einem Tal, inmitten der Provinz Gipuzkoa, liegt Mondragón beziehungsweise Arrasate, wie der Ort auf Baskisch heisst.

Hierher wurde 1941 Pater José María Arizmendiarrieta nach einer Gefängnisstrafe versetzt. Wie viele baskische Priester hatte er sich - entgegen der Entscheidung der spanischen Bischofskonferenz - dem Aufstand des General Franco gegen die Republik nicht angeschlossen, sondern war während des Bürgerkriegs aufseiten von den ­baskischen Milizen gestanden. In Mondragón widmete er sich der Jugendarbeit und entwickelte mit Anleihen bei der katholischen Soziallehre, der britischen und deutschen Sozialdemokratie und Karl Marx seine eigenen Vorstellungen von einer gerechteren Gesellschaft.

1955 gründeten junge Facharbeiter und Techniker, die jahrelang mit Arizmendiarrieta zusammengearbeitet hatten, die erste Kooperative Fagor. Aus ihr entstand im Laufe der nächsten fünfzig Jahre die Mondragón Corporación ­Cooperativa.

Wirtschaft zum Glück

Dieser Artikel ist der erste Beitrag der neuen WOZ-Serie «Wirtschaft zum Glück», in der wir in unregelmässiger Folge Texte über nachhaltige Produktions- und Eigentumsformen, neue Ideen für eine neue Ökonomie und ökologisch sinnvolle Projekte vorstellen. Finanziert wird diese Serie aus einem Legat des früheren Nachhaltigen Wirtschaftsverbandes WIV.

March 19, 2009

The Fed dramatically increased the amount of money it will create out of thin air
to thaw frozen credit markets.
Fed to Buy $1 Trillion in Securities to Aid Economy

WASHINGTON — The Federal Reserve sharply stepped up its efforts to bolster the economy on Wednesday, announcing that it would pump an extra $1 trillion into the financial system by purchasing Treasury bonds and mortgage securities.

Having already reduced the key interest rate it controls nearly to zero, the central bank has increasingly turned to alternatives like buying securities as a way of getting more dollars into the economy, a tactic that amounts to creating vast new sums of money out of thin air. But the moves on Wednesday were its biggest yet, almost doubling all of the Fed’s measures in the last year.

The action makes the Fed a buyer of long-term government bonds rather than the short-term debt that it typically buys and sells to help control the money supply.

The idea was to encourage more economic activity by lowering interest rates, including those on home loans, and to help the financial system as it struggles under the crushing weight of bad loans and poor investments.

Investors responded with surprise and enthusiasm. The Dow Jones industrial average, which had been down about 50 points just before the announcement, jumped immediately and ended the day up almost 91 points at 7,486.58. Yields on long-term Treasury bonds dropped markedly, and analysts predicted that interest rates on fixed-rate mortgages would soon drop below 5 percent.

But there were also clear indications that the Fed was taking risks that could dilute the value of the dollar and set the stage for future inflation. Gold prices rose $26.60 an ounce, hitting $942, a sign of declining confidence in the dollar. The dollar, which had been losing value in recent weeks to the euro and the yen, dropped sharply again on Wednesday.

In its announcement, the central bank said that the United States remained in a severe recession and listed its continuing woes, from job losses and lost housing wealth to falling exports as a result of the worldwide economic slowdown.

“In these circumstances, the Federal Reserve will employ all available tools to promote economic recovery and to preserve price stability,” the central bank said.

As expected, policy makers decided to keep the Fed’s benchmark interest rate on overnight loans in a range between zero and 0.25 percent.

But to the surprise of investors and analysts, the committee said it had decided to purchase an additional $750 billion worth of government-guaranteed mortgage-backed securities on top of the $500 billion that the Fed is already in the process of buying.

In addition, the Fed said it would buy up to $300 billion worth of longer-term Treasury securities over the next six months. That would tend to push down longer-term interest rates on all types of loans.

All these measures would come in addition to what has already been an unprecedented expansion of lending by the Fed. The central bank also said it would probably expand the scope of a new program to finance consumer and business lending, which gets under way this week.

In effect, the central bank has been lending money to a wider and wider array of borrowers, and it has financed that lending by using its authority to create new money at will.

Since last September, the Fed’s lending programs have roughly doubled the size of its balance sheet, to about $1.8 trillion, from $900 billion. The actions announced on Wednesday are likely to expand that to well over $3 trillion over the next year.

Despite a trickle of encouraging data in the last few weeks, Fed officials were clearly still worried and in no mood to cut back on their emergency efforts.

Fed policy makers sharply reduced their economic forecasts in January, predicting that the economy would continue to experience steep contractions for the first half of 2009, that unemployment could approach 9 percent by the end of the year and that there was at least a small risk of a drop in consumer prices like those that Japan experienced for nearly a decade.

The Fed rarely buys long-term government bonds. The last occasion was nearly 50 years ago under different economic circumstances when it tried to reduce long-term interest rates while allowing short term rates to rise.

Ben S. Bernanke, the Fed chairman, has been extremely cautious in recent weeks about predicting an end to the recession, saying that he hoped to see the start of a recovery later this year but warning that unemployment, a lagging indicator, would probably keep climbing until some time in 2010.

In contrast to several recent Fed decisions, with the presidents of some regional Fed banks dissenting, the decision at Wednesday’s meeting of the 10 members of the Federal Open Market Committee, the central bank’s policy making group, was unanimous.

Jan Hatzius, chief economist at Goldman Sachs, said the Fed had adopted a “kitchen sink” strategy of throwing everything it had to jolt the economy out of its downward spiral.

But while Mr. Hatzius applauded the decision, he cautioned that the central bank could not solve the economy’s problems by expanding cheap money.

“Even if the Fed could make interest rates negative, that wouldn’t necessarily help,” Mr. Hatzius said. “We’re in a deep recession mainly because the private sector, for a variety of reasons, has decided to save a lot more. You can have a zero interest rate, but if you just offer more money on top of the money that is already available, it doesn’t do that much.”

Fed officials have been wrestling for months with the fact that lenders remain unwilling to lend and borrowers are unwilling or unable to borrow. Even though the Fed has been creating money at the fastest rate in its history, much of that money has remained dormant.

The Fed’s action is an expansion of its effort to bypass the private banking system and act as a lender in its own right.

The Fed and the Treasury are starting a joint venture this week called the Consumer and Business Lending Initiative in their latest effort to thaw the still-frozen credit markets. The program will start out with $200 billion in financing for consumer loans, small-business loans and some corporate purposes.

Fed officials have said they hope to expand the program next month, possibly to include the huge market for commercial mortgages, and both the Fed and Treasury hope the program will eventually provide up to $1 trillion in total financing.


11. April 2009, Neue Zürcher Zeitung

Die trostlose Wirtschaftswissenschaft
G. Schwarz

Auf den viktorianischen Historiker Thomas Carlyle geht der Übername «the dismal science» für die Volkswirtschaftslehre zurück. Er war gegen den Untergangspropheten Thomas Robert Malthus gerichtet, dessen pessimistischen Vorhersagen in der Tat etwas Freudloses anhaftete. Seither, seit 160 Jahren,  hat sich dieser Ruf einer trostlosen Wissenschaft erhalten, zumal im angelsächsischen Raum. Im Zusammenhang mit der Wirtschaftskrise kann man die Einschätzung oft hören. Für viele Beobachter steht nämlich zweifelsfrei fest, dass diese angeblich viel zu menschenferne Wissenschaft wesentlich  Verantwortung für das trägt, was in den letzten Jahren geschehen ist. So ist denn die Ökonomie ein beliebter Prügelknabe im populären Spiel «Wer ist schuld an der Krise?». Für Harvard-Professor Stephen Marglin («The Dismal Science. How Thinking Like an Economist Undermines Community», 2008)  sind die Ökonomie und das ökonomische Denken geradezu schädlich für den Zustand der Welt.

Übertriebener Optimismus

Eine Diskussion über die Verantwortlichkeiten in dieser Krise ist durchaus sinnvoll, und man sollte das Feld dabei nicht den «terribles simplificateurs» überlassen, die mit der «masslosen Gier» und dem «ungezähmten Markt» für sich die Sündenböcke längst gefunden haben. So einfach sind die Dinge eben  nicht. Niemand wird etwa bestreiten, dass auch die ökonomische Wissenschaft unheilvoll in die gegenwärtige Misere verstrickt ist. Aber zugleich ist es geradezu absurd, wenn man undifferenziert das Kind mit dem Bade ausschüttet. Was also ist wo in der Ökonomie schiefgelaufen und mitverantwortlich  an der Krise?

Man wird hier vielleicht als Erstes einen vom Zeitgeist geprägten, überzogenen Optimismus nennen müssen. Er hat sich bereits in der New-Economy-Phase manifestiert, als unglaublich viele Ökonomen, nicht zuletzt die «Chefökonomen» aller möglichen Banken und Regierungsorganisationen, an ein  Aufwärts ohne Ende zu glauben begannen. Dieser naive Zukunftsglaube liess viele die unvermeidliche Zyklizität, ja Krisenanfälligkeit jeder Volkswirtschaft vergessen. Es gab allerdings sehr wohl Strömungen innerhalb der Ökonomie, die von diesem Virus nicht befallen waren. Ausgerechnet der von links  besonders verteufelten, als radikal-liberal geltenden «österreichischen» Schule (Ludwig von Mises, Friedrich August von Hayek) kann man den Vorwurf übertriebenen Optimismus nicht machen. Sie hat immer vor billigem Geld, Überinvestitionen und in der Folge krisenhaften Kontraktionen gewarnt, wenn  auch zugegebenermassen nicht laut genug. Im Prinzip entspringt der neue Glaube an die Wirksamkeit all der gewaltigen Stimulierungsprogramme der gleichen Wachstumseuphorie, die zum heutigen Zustand geführt hat.
Nur behauptete Exaktheit

Eine zweite Fehlentwicklung in der Ökonomie war die übertriebene Betonung der an sich durchaus hilfreichen Mathematik und der Modelle. In der Ausbildung wurde da und dort die Mathematik zur entscheidenden Eintrittshürde. Je raffinierter die Formeln wurden (der Autor erinnert sich an eine Formel  zur Beschreibung des Gleichgewichts auf dem Arbeitsmarkt des indischen Gliedstaats Uttar Pradesh, die eine ganze Seite füllte), desto mehr ging der zugrundeliegende ökonomische Sachverhalt verloren: Je genauer die Ergebnisse wurden, desto irrelevanter wurden sie zugleich. Die als unexakt angesehene  Sprache erlaubt zudem, wie der Kölner Ökonom Hans Willgerodt schreibt, viele realistische Assoziationen über menschliches Verhalten, die in mathematischen Formeln fehlen und durch nackte, manchmal nur behauptete Exaktheit ersetzt werden. In der modernen Finanztheorie wird besonders viel  gerechnet, aber übersehen, wie sehr diese Rechnungen auf Annahmen basieren, die vielleicht in ihrer Vereinfachung und im Durchschnitt stimmen mögen, aber oft nicht im konkreten Einzelfall.

Die sich als ordoliberal verstehenden deutschsprachigen Ökonomen haben die aus den USA importierte Mathematikgläubigkeit nie geteilt. Aber genau diese Ökonomie wurde an den europäischen Universitäten ausgetrocknet. Während Modellschreinerei sowie das Zählen, Messen und das Berechnen von  Korrelationen Reputation und eine akademische Karriere versprechen, fristet die Ordnungstheorie ein Dasein in den Elendsvierteln der Nationalökonomie. Da und dort wurde sie sogar durch eine moralistische Wirtschaftsethik ersetzt. Es wäre an der Zeit, sich im Gefolge der Krise bewusst zu werden,  dass nicht das Denken in Ordnungen, das nicht an eine präzise Vorhersagbarkeit und Steuerbarkeit der Wirtschaft glaubt, in die Irre führt, sondern der Glaube, man könne eine Wirtschaft im Griff haben.

Blick fürs Ganze

Die ordnungspolitische Tradition der Ökonomie verdiente aber noch mit Blick auf eine dritte Fehlentwicklung eine stärkere Gewichtung. Während im Sog der angelsächsischen Ökonomie Spezialisierung und Verengung vorangetrieben wurden, war die ordoliberale Sichtweise immer viel breiter. Sie hat  Geschichte und Psychologie, Recht und Philosophie bis hin zur Theologie in die Analyse der Wirtschaft mit einbezogen, also nie nur Ökonomie betrieben. «Marktwirtschaft ist nicht genug», wie der treffende Titel einer eben erschienenen Sammlung mit Aufsätzen von Wilhelm Röpke lautet. Die  Vernachlässigung der Geschichte ist in dieser Krise deutlich hervorgetreten, aber auch der Hang, alles verallgemeinern und in Gesetze fassen zu wollen, obwohl gerade in der Wirtschaftspolitik jeder Einzelfall anders ist. Manchmal wünschte man sich sogar, die historische Schule der Nationalökonomie  komme trotz all ihren methodischen Defekten wieder etwas mehr zu Ehren, weil sie dem Denken in gesellschaftlichen Gesamtzusammenhängen verpflichtet ist.

Technokratie ohne Sinn

Der gegenwärtigen Wirtschaftskrise zugrunde liegt, viertens, auch eine Tendenz, die Ökonomie rein technokratisch zu betreiben. Dieses Verständnis geht fast immer einher mit einem falschen Glauben an permanent effiziente Märkte. Daraus kann sich ein ähnlich mechanistisches Denken entwickeln wie  bei jenen, die die Wirtschaft mit einer Maschine verwechseln. Wer hingegen in der «österreichischen» Tradition steht, versteht Märkte als Entdeckungsverfahren. Sie sind dynamisch, evolutiv, nie im Gleichgewicht, permanent am Korrigieren früherer Fehler – also unberechenbar. Und gerade nicht die  angeblichen Marktideologen, sondern vielmehr die ökonomischen Technokraten, die an wertfreie Objektivität glauben und die Wirtschaftswissenschaften als blutleeres Instrument verstehen, haben nie die Sinnfrage gestellt und sich um viele Gefahren und Nebenwirkungen ihres Tuns foutiert.  Demgegenüber geht es dem auf einen schlanken, aber starken Staat setzenden Ordoliberalismus seit je um Werte, um die Verwirklichung einer menschengerechten, freiheitlichen Ordnung.

Die Krise der Wirtschaft ist deshalb auch die Krise einer zu eng verstandenen, zu sehr einem naturwissenschaftlichen Ideal nacheifernden, stark angelsächsisch geprägten neoklassischen Ökonomie. Zugleich hat sie einige Stärken sowohl der «österreichischen» Schule als auch des Ordoliberalismus wieder  in den Vordergrund gerückt. Es würde nicht überraschen, wenn ein integraleres wirtschaftliches Denken, wie es diesen freiheitlichen Strömungen eigen ist, auch an den Universitäten in Zukunft wieder mehr Anerkennung fände. Sinnvoll wäre es in jedem Fall.

Wall Street Journal Europe.
MAY 29, 2009

Schumpeter's Moment
Capitalism remains the foundation for economic growth and freedom.

We continue to be in the middle of a frightening economic drama, one that is putting the core tenets of modern capitalism at the center of the global debate. That is an important debate to have, considering that the fundamental assumptions of modern economics -- that governments have appropriately designed counter-cyclical tools, that central banks are omnipotent, that the business cycle has been tamed and that our securities markets have finally rationalized risk -- have been shattered.

Is this the moment the Austrian economist Joseph Schumpeter had envisaged when he spoke of "creative destruction"? After all, it was Schumpeter who worried more than any other modern economist about what might be called the fragile condition of capitalism. He did so having lived through the economic horrors of Weimar, witnessed the terror of Soviet-style political economy, experienced the Depression -- and seen the chaos of World War II. Plenty of destruction, to be sure. His life's work concentrated on entrepreneurs renewing the economy through what he called "creative destruction."

If Schumpeter were alive today, he would surely ask, What caused this crisis? And, is this kind of scandal or drama endemic to the nature of capitalism itself? While a lot of attention has been given to the first question, I want to focus on the more ominous second one. Namely, how to save capitalism from a potentially fatal reaction to this crisis.

We need to remember that Schumpeter embraced capitalism not as a reaction or as the second-best solution to the unproductive reality of utopian economic planning. Rather, he saw capitalism as the foundation of two complementary forces. The first was economic expansion. The second was its role in protecting individual freedom.

For Schumpeter, to sacrifice one was to imperil the other. More starkly, he would remind us in no uncertain terms that, whatever our present doubts, the only way freedom is secure for any individual is within a growing economy. In other words, political freedom depends on economic expansion. In our own time, the Indian-born economist Amartya Sen has shown the importance of this tandem for the world's developing economies where economic expansion has become synonymous with freedom.

The connection between economic growth and democracy is, as political scientist Michael Mandelbaum says, a "tendency," not an "invariable law" of political economy. Economic growth usually brings higher rates of literacy and education, as well as a general shift from rural to urban living, elements shown to be correlated with democracy. Moreover, the overlap between free markets and democracy -- in private property, limited government, a thriving civil society, and established rule of law -- makes the causal connection even stronger.

As a general rule, only capitalism can create wealth and liberty at the same time. And, of course, capitalism can expand welfare faster than any other social or economic order has ever done.

However, given the pressures of the current crisis, a future where growth and freedom continue to jointly secure each other and anchor civil society is not assured. It seems that when economic contractions occur in their inevitable, yet unpredictable way, the critique of capitalism itself becomes more powerful and shrill.

From Schumpeter's vantage point, capitalism's very success allows rich societies to use government to relax the impersonal rules that govern markets, creating new rules that buffer citizens from the rigors of risk-taking and failure. In that sense, government invents for itself the task of mediating market outcomes. Schumpeter had seen the dangers of this play out in Bismarck's conception of Prussia's welfare state. In the face of the Marxist threat, the elite secured its position by causing government to dispense social benefits. Political entrenchment, not charity, had motivated Bismarck. When distorted in such a way, free-market capitalism is seen to suppress -- rather than to encourage -- social and economic mobility.

Since the New Deal, Americans have come to see government as somehow the ultimate protector of their financial welfare. In reality, though, the evidence of the U.S. government behaving in this way during the New Deal is thin to say the least. Although it is largely forgotten now, much of the government's action during the Depression actually had a marginal impact on individual lives. Monetary expansion and technological innovation boosted the economy, while the "second" depression of 1937-1938 is widely understood as having been induced by Roosevelt's attempt to manipulate credit markets.

So what about the ultimate Schumpeterian challenge: Can capitalism be saved? France's President Nicolas Sarkozy in October 2008 proposed a brilliant formulation. He said: "The financial crisis is not the crisis of capitalism. It is the crisis of a system that has distanced itself from the most fundamental values of capitalism, which betrayed the spirit of capitalism."

No doubt, in the face of the continuing financial crisis, entrepreneurial capitalism is threatened. All over the world, people are giving greater emphasis to personal security. Their taste for assuming personal risk may be chastened, at least for the moment. This is an altogether rational and expected response.

Where that becomes troublesome, however, is the moment when government comes to be seen as the sole source of security. What we, the public, need to understand is that the best guarantor of security is not government. It's economic growth. While we want to believe otherwise, the cold fact is that government can't guarantee economic permanency. Nobody, and nothing, can.

Pragmatically speaking, we must figure out how to increase people's sense of security without making government itself bigger or more powerful.

Joseph Schumpeter's answer to all this is that the most important citizen is not the politician, nor the big businessman, nor the bankers on Wall Street. They are important, but not central to the renewal of democratic capitalism. That role, that burden falls to our fellow citizens who, in the face of the challenges we see all around us, are ready to pursuit what entrepreneurs do: Create the new, create jobs and make the wealth that will be more necessary than ever to purchase a future worth living.

Whatever road we choose, entrepreneurial capitalism cannot be revived or flourish if new government security programs end up attenuating the individual's ultimate responsibility to attend to his or her own welfare.

Mr. Schramm is president and CEO of the Kauffman Foundation and co-author of "Good Capitalism, Bad Capitalism, and the Economics of Growth and Prosperity" (Yale Univ. Press, 2007).

July 5, 2009

Bernie Madoff Is No John Dillinger

THE judge condemned Bernie Madoff’s crimes as “extraordinarily evil.” The New York Daily News, whose publisher was a Madoff victim, chose “The Pariah” as its front-page headline and promised that the dastardly villain would suffer “everlasting consumption in the jaws of the devil.” The Times declared that the Madoff case, by attaching a human face to a financial meltdown that produced fear, panic and loss, had “put an entire era on trial.”

But for all this rhetorical thunder, Madoff’s 150-year sentence still seemed an anticlimax, as if the trial of the century had ended without a verdict. There was no national catharsis. The news landed with something of a thud. On the most-watched network newscast, “NBC Nightly News,” it received second billing to Day Four of updates on Michael Jackson’s death.

Madoff, it turned out, was no Public Enemy No. 1 to rival John Dillinger, the Great Depression thug at the center of Hollywood’s timely release this holiday weekend, “Public Enemies.” In the context of our own Great Recession, Madoff’s old-fashioned Ponzi scheme was merely a one-off next to the esoteric and (often legal) heists by banks and bankers. They gamed the entire system, then took the money and ran before the bubble burst, sticking the rest of us with that fear, panic and loss.

The estimated $65 billion involved in Madoff’s flimflam is dwarfed by the more than $2.5 trillion paid so far by American taxpayers to bail out those masters of Wall Street’s universe. A.I.G. alone has already left us on the hook for $180 billion. It’s hard for those who didn’t have money with Madoff to get worked up about him when so many of the era’s real culprits have slipped away scot-free. Already some of those same players are up to similarly greedy shenanigans again now that the coast seems to be clear.

Washington had no choice but to ride to their rescue last fall to prevent even greater systemic catastrophe. But that rescue is tainted. As the economist Joseph Stiglitz wrote in this month’s Vanity Fair, “In the developing world, people look at Washington and see a system of government that allowed Wall Street to write self-serving rules which put at risk the entire global economy — and then, when the day of reckoning came, turned to Wall Street to manage the recovery. They see continued re-distributions of wealth to the top of the pyramid, transparently at the expense of ordinary citizens.”

Not just in the developing world, but in America. Look at what we saw last week alone.

To beat out the implementation of new regulations, banks are rapidly jacking up checking-account charges and credit card fees, even for those who have paid their bills on time. As Eric Dash of The Times reported on Thursday, the institutions that received the most bailout loot are often the biggest offenders.

That would include the too-big-to-fail Citigroup, which has so far received $45 billion in taxpayers’ money, along with guarantees on $300 billion in toxic assets, to mitigate its reckless risk-taking during the reign of such obscenely rewarded (and now departed) executives as Charles Prince and Robert Rubin. While taxpayers will soon own some 34 percent of Citi, it is not only increasing our credit card interest rates (to nearly 30 percent in some cases) but raising its own base salaries (by 50 percent) to work around Washington’s new restrictions on bonuses. New rules may come and go, but loopholes remain eternal.

We also have learned, from The Wall Street Journal on Thursday, that Goldman Sachs, another bailout recipient, is on track to pay its employees an average of $700,000 each in 2009, which, incredibly, is a bit higher than its compensation average in the pre-crash year of 2007. In a scathing and controversial new article in Rolling Stone, Matt Taibbi accuses Goldman of having earned such rewards by engineering “every major market manipulation since the Great Depression.”

What’s uncontroversial and indisputable is that Goldman alumni have played key roles in both the Bush and Obama administrations’ responses to the current crisis — even though Goldman has a big stake in the outcome. The dense revolving-door conflicts of interest are appalling. Goldman is howling about Taibbi’s article, but the bottom line was articulated last week by the economic blogger Felix Salmon of Reuters. He wrote that he couldn’t “think of a single government regulation over the past couple of decades which has remotely harmed Goldman Sachs” as opposed to the many that “have done it a world of good.”

Goldman also rules at the New York Fed, a supposed monitor of Wall Street. Until May the Fed’s chairman was serving simultaneously on the Goldman board; he resigned only after The Wall Street Journal reported that he was also still buying Goldman stock during his Fed tenure. At least that other failed watchdog, the Securities and Exchange Commission, has now cleaned house. But Politico reported last week that its new chairwoman, Mary Schapiro, had been the star draw at a lavish June banquet for the S.E.C. Historical Society, an independent organization that sold tables for up to $7,500 to “law and lobbying firms that do business with the S.E.C.” Among the buyers: Standard & Poor’s, a credit ratings agency that enabled the subprime bubble by giving its approval to wildly speculative derivatives.

It’s against this grand backdrop of business-as-usual at the top of the pyramid that we learned at week’s end that the speed of job losses is accelerating again. The government also reported that Americans who still do have jobs now have an average 33-hour workweek, the lowest since tracking began in 1964.

The Obama administration’s response to the economic crisis is rapidly facing its own stress tests. We will soon learn the ultimate fate and stringency of the regulatory package sent to Congress, including the consumer-protection agency the banks want to maim or kill. The stimulus’s ability to put Americans back to work remains an open question. Should we have a jobless recovery or, worse, a second-wave recession like the one that blindsided F.D.R. in 1937, it will be as catastrophic for the Democrats as it will be for the country.

Barney Frank seems to understand the political dynamic better than the White House. He told bankers back in February, “People really hate you, and they’re starting to hate us because we’re hanging out with you.” If the administration wants to be reminded of how quickly today’s already sour mood can turn rancid, Michael Mann’s haunting “Public Enemies” could not be a more apt refresher course. The casting alone tells you where the audience’s sympathies will lie: Dillinger is played by America’s reigning male sweetheart, Johnny Depp, while his G-man pursuer, Melvin Purvis, is in the hands of the thorny Christian Bale.

“Public Enemies” doesn’t make a federal case of parallels between its era and ours. It doesn’t have to. But it’s instructive to revisit the actual history. In the book that inspired the film, the journalist Bryan Burrough writes that Detective magazine polled movie theater owners during Dillinger’s yearlong spree of 1933-34, and found that in terms of drawing audience applause Public Enemy No. 1 beat out F.D.R. and Charles Lindbergh. Roosevelt ran with it. As Steve Fraser writes in his cultural history of Wall Street, “Every Man a Speculator,” F.D.R. “likened his Wall Street villains to ‘kidnappers and bank robbers’ eluding capture” in his 1936 re-election campaign. He knew Wall Street manipulators were the real targets of the public’s ire.

Another look at this much-chronicled past, “Dillinger’s Wild Ride,” by Elliott J. Gorn, a professor of history at Brown University, is the first to be published during our own hard times. In it you learn that ordinary law-abiding Americans even wrote letters to newspapers and politicians defending Dillinger’s assault on banks. “Dillinger did not rob poor people,” wrote one correspondent to The Indianapolis Star. “He robbed those who became rich by robbing the poor.”

Gorn writes that the current economic crisis helped him understand better why Americans could root for a homicidal bank robber: “As our own day’s story of stupid policies and lax regulations, of greedy moneymen, free-market hucksters, white-collar thieves, and self-serving politicians unfolds, and as banks foreclose on millions of families’ homes, workers lose their jobs, and life savings disappear, it becomes clear why Dillinger’s wild ride so fascinated America during the 1930s.” An outlaw could channel a people’s “sense of rage at the system that had failed them.”

As Gorn reminds us, Americans who felt betrayed didn’t just take to cheering Dillinger; some turned to the populism of Huey Long, or to right-wing and anti-Semitic demagogues like Father Coughlin, or to the Communist Party. The passions unleashed by economic inequities are explosive because those inequities violate the fundamental capitalist faith. It’s the bedrock American dream that virtues like hard work and playing by the rules are rewarded with prosperity.

In 2009, too many who worked hard and played by the rules are still suffering, while too many who bent or broke the rules with little or no accountability are back reaping a disproportionate share of what scant prosperity there is. The tepid national satisfaction taken in Bernie Madoff’s terminal prison sentence should be a warning to the White House. In the most devastating economic catastrophe since Dillinger’s time, many Americans know all too well that justice has yet to be served.

Vanity Fair    July 2009

Wall Street’s Toxic Message

When the current crisis is over, the reputation of American-style capitalism will have taken a beating—not least because of the gap between what Washington practices and what it preaches. Disillusioned developing nations may well turn their backs on the free market, warns Nobel laureate Joseph E. Stiglitz, posing new threats to global stability and U.S. security.
By Joseph E. Stiglitz

Lining up for food and water, Louisville, Kentucky, 1937. By Margaret Bourke-White/Time & Life Pictures/Getty Images.
(Charting the Road to Ruin, Vanity Fair, 15 Jun 09)

Every crisis comes to an end—and, bleak as things seem now, the current economic crisis too shall pass. But no crisis, especially one of this severity, recedes without leaving a legacy. And among this one’s legacies will be a worldwide battle over ideas—over what kind of economic system is likely to deliver the greatest benefit to the most people. Nowhere is that battle raging more hotly than in the Third World, among the 80 percent of the world’s population that lives in Asia, Latin America, and Africa, 1.4 billion of whom subsist on less than $1.25 a day. In America, calling someone a socialist may be nothing more than a cheap shot. In much of the world, however, the battle between capitalism and socialism—or at least something that many Americans would label as socialism—still rages. While there may be no winners in the current economic crisis, there are losers, and among the big losers is support for American-style capitalism. This has consequences we’ll be living with for a long time to come.

The fall of the Berlin Wall, in 1989, marked the end of Communism as a viable idea. Yes, the problems with Communism had been manifest for decades. But after 1989 it was hard for anyone to say a word in its defense. For a while, it seemed that the defeat of Communism meant the sure victory of capitalism, particularly in its American form. Francis Fukuyama went as far as to proclaim “the end of history,” defining democratic market capitalism as the final stage of social development, and declaring that all humanity was now heading in this direction. In truth, historians will mark the 20 years since 1989 as the short period of American triumphalism. With the collapse of great banks and financial houses, and the ensuing economic turmoil and chaotic attempts at rescue, that period is over. So, too, is the debate over “market fundamentalism,” the notion that unfettered markets, all by themselves, can ensure economic prosperity and growth. Today only the deluded would argue that markets are self-correcting or that we can rely on the self-interested behavior of market participants to guarantee that everything works honestly and properly.

The economic debate takes on particular potency in the developing world. Although we in the West tend to forget, 190 years ago one-third of the world’s gross domestic product was in China. But then, rather suddenly, colonial exploitation and unfair trade agreements, combined with a technological revolution in Europe and America, left the developing countries far behind, to the point where, by 1950, China’s economy constituted less than 5 percent of the world’s G.D.P. In the mid–19th century the United Kingdom and France actually waged a war to open China to global trade. This was the Second Opium War, so named because the West had little of value to sell to China other than drugs, which it had been dumping into Chinese markets, with the collateral effect of causing widespread addiction. It was an early attempt by the West to correct a balance-of-payments problem.

Colonialism left a mixed legacy in the developing world—but one clear result was the view among people there that they had been cruelly exploited. Among many emerging leaders, Marxist theory provided an interpretation of their experience; it suggested that exploitation was in fact the underpinning of the capitalist system. The political independence that came to scores of colonies after World War II did not put an end to economic colonialism. In some regions, such as Africa, the exploitation—the extraction of natural resources and the rape of the environment, all in return for a pittance—was obvious. Elsewhere it was more subtle. In many parts of the world, global institutions such as the International Monetary Fund and the World Bank came to be seen as instruments of post-colonial control. These institutions pushed market fundamentalism (“neoliberalism,” it was often called), a notion idealized by Americans as “free and unfettered markets.” They pressed for financial-sector deregulation, privatization, and trade liberalization.

Illustration by Edward Sorel.

The World Bank and the I.M.F. said they were doing all this for the benefit of the developing world. They were backed up by teams of free-market economists, many from that cathedral of free-market economics, the University of Chicago. In the end, the programs of “the Chicago boys” didn’t bring the promised results. Incomes stagnated. Where there was growth, the wealth went to those at the top. Economic crises in individual countries became ever more frequent—there have been more than a hundred severe ones in the past 30 years alone.

Not surprisingly, people in developing countries became less and less convinced that Western help was motivated by altruism. They suspected that the free-market rhetoric—“the Washington consensus,” as it is known in shorthand—was just a cover for the old commercial interests. Suspicions were reinforced by the West’s own hypocrisy. Europe and America didn’t open up their own markets to the agricultural produce of the Third World, which was often all these poor countries had to offer. They forced developing countries to eliminate subsidies aimed at creating new industries, even as they provided massive subsidies to their own farmers.

Free-market ideology turned out to be an excuse for new forms of exploitation. “Privatization” meant that foreigners could buy mines and oil fields in developing countries at low prices. It meant they could reap large profits from monopolies and quasi-monopolies, such as in telecommunications. “Liberalization” meant that they could get high returns on their loans—and when loans went bad, the I.M.F. forced the socialization of the losses, meaning that the screws were put on entire populations to pay the banks back. It meant, too, that foreign firms could wipe out nascent industries, suppressing the development of entrepreneurial talent. While capital flowed freely, labor did not—except in the case of the most talented individuals, who found good jobs in a global marketplace.

This picture is, obviously, painted with too broad a brush. There were always those in Asia who resisted the Washington consensus. They put restrictions on capital flows. The giants of Asia—China and India—managed their economies their own way, producing unprecedented growth. But elsewhere, and especially in the countries where the World Bank and the I.M.F. held sway, things did not go well.

And everywhere, the debate over ideas continued. Even in countries that have done very well, there is a conviction among the educated and influential that the rules of the game have not been fair. They believe that they have done well despite the unfair rules, and they sympathize with their weaker friends in the developing world who have not done well at all.

Among critics of American-style capitalism in the Third World, the way that America has responded to the current economic crisis has been the last straw. During the East Asia crisis, just a decade ago, America and the I.M.F. demanded that the affected countries cut their deficits by cutting back expenditures—even if, as in Thailand, this contributed to a resurgence of the aids epidemic, or even if, as in Indonesia, this meant curtailing food subsidies for the starving. America and the I.M.F. forced countries to raise interest rates, in some cases to more than 50 percent. They lectured Indonesia about being tough on its banks—and demanded that the government not bail them out. What a terrible precedent this would set, they said, and what a terrible intervention in the Swiss-clock mechanisms of the free market.

The contrast between the handling of the East Asia crisis and the American crisis is stark and has not gone unnoticed. To pull America out of the hole, we are now witnessing massive increases in spending and massive deficits, even as interest rates have been brought down to zero. Banks are being bailed out right and left. Some of the same officials in Washington who dealt with the East Asia crisis are now managing the response to the American crisis. Why, people in the Third World ask, is the United States administering different medicine to itself?

Many in the developing world still smart from the hectoring they received for so many years: they should adopt American institutions, follow our policies, engage in deregulation, open up their markets to American banks so they could learn “good” banking practices, and (not coincidentally) sell their firms and banks to Americans, especially at fire-sale prices during crises. Yes, Washington said, it will be painful, but in the end you will be better for it. America sent its Treasury secretaries (from both parties) around the planet to spread the word. In the eyes of many throughout the developing world, the revolving door, which allows American financial leaders to move seamlessly from Wall Street to Washington and back to Wall Street, gave them even more credibility; these men seemed to combine the power of money and the power of politics. American financial leaders were correct in believing that what was good for America or the world was good for financial markets, but they were incorrect in thinking the converse, that what was good for Wall Street was good for America and the world.

It is not so much Schadenfreude that motivates the intense scrutiny by developing countries of America’s economic failure as it is a real need to discover what kind of economic system can work for them in the future. Indeed, these countries have every interest in seeing a quick American recovery. What they know is that they themselves cannot afford to do what America has done to attempt to revive its economy. They know that even this amount of spending isn’t working very fast. They know that the fallout from America’s downturn has moved 200 million additional people into poverty in the span of just a few years. And they are increasingly convinced that any economic ideals America may espouse are ideals to run from rather than embrace.

Why should we care that the world has become disillusioned with the American model of capitalism? The ideology that we promoted has been tarnished, but perhaps it is a good thing that it may be tarnished beyond repair. Can’t we survive—even do just as well—if not everyone adheres to the American way?

To be sure, our influence will diminish, as we are less likely to be held up as a role model, but that was happening in any case. America used to play a pivotal role in global capital, because others believed that we had a special talent for managing risk and allocating financial resources. No one thinks that now, and Asia—where much of the world’s saving occurs today—is already developing its own financial centers. We are no longer the chief source of capital. The world’s top three banks are now Chinese. America’s largest bank is down at the No. 5 spot.

The dollar has long been the reserve currency—countries held the dollar in order to back up confidence in their own currencies and governments. But it has gradually dawned on central banks around the world that the dollar may not be a good store of value. Its value has been volatile, and declining. The massive increase in America’s indebtedness during the current crisis, combined with the Federal Reserve Board’s massive lending, has heightened anxieties about the future of the dollar. The Chinese have openly floated the idea of inventing some new reserve currency to replace it.

Meanwhile, the cost of dealing with the crisis is crowding out other needs. We have never been generous in our assistance to poor countries. But matters are getting worse. In recent years, China’s infrastructure investment in Africa has been greater than that of the World Bank and the African Development Bank combined, and it dwarfs America’s. African countries are running to Beijing for assistance in this crisis, not to Washington.

But my concern here is more with the realm of ideas. I worry that, as they see more clearly the flaws in America’s economic and social system, many in the developing world will draw the wrong conclusions. A few countries—and maybe America itself—will learn the right lessons. They will realize that what is required for success is a regime where the roles of market and government are in balance, and where a strong state administers effective regulations. They will realize that the power of special interests must be curbed.

But, for many other countries, the consequences will be messier, and profoundly tragic. The former Communist countries generally turned, after the dismal failure of their postwar system, to market capitalism, replacing Karl Marx with Milton Friedman as their god. The new religion has not served them well. Many countries may conclude not simply that unfettered capitalism, American-style, has failed but that the very concept of a market economy has failed, and is indeed unworkable under any circumstances. Old-style Communism won’t be back, but a variety of forms of excessive market intervention will return. And these will fail. The poor suffered under market fundamentalism—we had trickle-up economics, not trickle-down economics. But the poor will suffer again under these new regimes, which will not deliver growth. Without growth there cannot be sustainable poverty reduction. There has been no successful economy that has not relied heavily on markets. Poverty feeds disaffection. The inevitable downturns, hard to manage in any case, but especially so by governments brought to power on the basis of rage against American-style capitalism, will lead to more poverty. The con?sequences for global stability and American security are obvious.

There used to be a sense of shared values between America and the American-educated elites around the world. The economic crisis has now undermined the credibility of those elites. We have given critics who opposed America’s licentious form of capitalism ample ammunition to preach a broader anti-market philosophy. And we keep giving them more and more ammunition. While we committed ourselves at a recent G-20 meeting not to engage in protectionism, we put a “buy American” provision into our own stimulus package. And then, to soften the opposition from our European allies, we modified that provision, in effect discriminating against only poor countries. Globalization has made us more interdependent; what happens in one part of the world affects those in another—a fact made manifest by the contagion of our economic difficulties. To solve global problems, there must be a sense of cooperation and trust, including a sense of shared values. That trust was never strong, and it is weakening by the hour.

Faith in democracy is another victim. In the developing world, people look at Washington and see a system of government that allowed Wall Street to write self-serving rules which put at risk the entire global economy—and then, when the day of reckoning came, turned to Wall Street to manage the recovery. They see continued re-distributions of wealth to the top of the pyramid, transparently at the expense of ordinary citizens. They see, in short, a fundamental problem of political accountability in the American system of democracy. After they have seen all this, it is but a short step to conclude that something is fatally wrong, and inevitably so, with democracy itself.

The American economy will eventually recover, and so, too, up to a point, will our standing abroad. America was for a long time the most admired country in the world, and we are still the richest. Like it or not, our actions are subject to minute examination. Our successes are emulated. But our failures are looked upon with scorn. Which brings me back to Francis Fukuyama. He was wrong to think that the forces of liberal democracy and the market economy would inevitably triumph, and that there could be no turning back. But he was not wrong to believe that democracy and market forces are essential to a just and prosperous world. The economic crisis, created largely by America’s behavior, has done more damage to these fundamental values than any totalitarian regime ever could have. Perhaps it is true that the world is heading toward the end of history, but it is now sailing against the wind, on a course we set ourselves.

Joseph E. Stiglitz, a Nobel Prize–winning economist, is a professor at Columbia University. More Stiglitz:
Capitalist Fools, Jan 09; Reversal of Fortune, Nov 08; The $3 Trillion War, Apr 08 (with Linda J. Bilmes);
The Economic Consequences of Mr. Bush, Dec 07