Reflections from the week: You are all living through extraordinary times. What a cruel, but interesting, week. Consider the following. In the past 14 days we have lost Lehman Bros â€“ the 150 year old iconic investment bank with assets, at one stage, in excess of the GDP of Ireland. Fannie Mae and Freddie Mac the $7 trillion mortgage giants. AIG â€“ the largest insurance company in the world â€“ has lost its independence. We have lost HBOS â€“ one of the UKâ€™s top 4 banks â€“ a bank with 22 million customers. Goldman Sachs and Morgan Stanley are frantically seeking some â€˜safe havenâ€™ solution to ward off loss of independence and a similar fate to its sister businesses. Merill Lynch avoided collapse with a pre-emptive marriage to Bank of America . $4.5 trillion written off the value of global equities. The equivalent of the GDP of Spain, France, and all the â€˜smallerâ€™ countries of Europe. Nobody wants to lend money to anybody. US government bonds, considered â€˜safe statusâ€™ assets, have not hit current pricing levels since the Japanese â€˜visitedâ€™ Pearl Harbour. 17 banks gone bust in the US. And these are only the problems of the English speaking world. The Russian stock markets had to close down 3 of the 5 trading days this week â€“ having fallen by more than the permitted daily decline. Alitalia gone. XL gone. And so many other globally recognised/branded names, teethering. All Asian markets hit problems and valuations that mirrored the Western pneumonia (or should that be plague).
Forget September 11th 2001. Forget the 1929 Depression. Forget Black Monday 1987. Forget all the wars and setbacks of the 20th Century. History will NOW remember September 2008. The month that saw an entire routing of the global financial system. As one panicked London trader graphically put it this week â€˜everybody is puking over us. And we are also pukingâ€™. Lovely. Vomit flowing through the streets. I donâ€™t want to get into any financial industry thesis but FEAR, lack of CONFIDENCE and regulatory INCOMPETENCE are the words that bounce from my book. Every bank is AFRAID to lend to each other. So the liquidity of the market is corrupted. The Regulators/Authorities are throwing pocket-money sized funds into the market. NOT enough. Hedge Funds and large institutions are selling stock that they do not hold in the, almost certain belief, that they will be able to buy it back later in the day/week. This practice, when used as aggressively as it has been this week, causes market panic and raises solvency/liquidity issues that in many cases are criminally unjustified. Again the Regulators are, with the exception of the USA, doing nothing to stop this crime. Not good enough. These guys are destroying YOUR pension â€“ for personal and corporate gain. Let the Regulators and Authorities start to address the REAL issues. Provide serious cash or liquidity to the markets. Let the Regulators put some controls on short selling. Ban â€˜nakedâ€™ short selling. Put a tax on the pension funds/companies that lend the stock to â€˜coveredâ€™ short sellers. Let the â€˜lenders of the stockâ€™ put a heavy price on the lending of stock. If they charged 10% per month, this might alter the risk/reward thinking of the short sellers. Or get these pension fund institutions to close their stock-lending activities. These wonâ€™t correct the value of a lot of the â€˜toxicâ€™ assets that may still exist in the system, but it will go some way towards restoring normality.
Remember most current market pricing suggests that virtually all leveraged assets on financial company balance sheets, are worthless. This is simply NOT the case. Why should two huge financially strong franchises like Goldman Sachs and JP Morgan have to seek â€˜protectionâ€™ when they have reported to the markets, with all the severe penalties associated with â€˜misinformationâ€™, this week, financial numbers that were totally reassuring. Well all of that was the position till late last night. And almost as if the entire family of Regulators on the planet were aware of the severe reprimand and humiliation in store when Home Thoughts hits your desk this morning, they catapulted into action. The US ready to â€˜quarantineâ€™ toxic assets. Invest in troubled companies (with attendant use tax payers money). Short selling targeted. $250 billion of extra liquidity provided to assist pricing and lending problems. Even the clumsy and notoriously slow UK Authorities have moved to confront the short sellers in its markets. They have even used MY WORDS in justifying these actions. â€˜We have to address this FINANCIAL TERRORISMâ€™. I am flattered. But well done on the action taken. Although you should ALL have been faster.
Home Thoughts readers were up to these solutions two weeks ago. Anyhow as I have said so many times this year, we have the â€˜luckâ€™ to be living through it. There will never be another time in this ozone-damaged planet, a more value-destructive week. One of the benefits of these extraordinary times is that â€˜new wordsâ€™ get created. How have previous generations missed â€˜such wordsâ€™. And so the current property meltdown in the UK (and probably every other property-surplus economy in the world) has given birth to the word â€˜Gazunderedâ€™ (how does the spell check accept this word if it is NEW). The â€˜smartâ€™ amongst you have probably already guessed that it is linked to bids on property. Apparently some unscrupulous buyers bring home-sellers well down the â€˜purchase chainâ€™ only to change their offer price at a very late stage. Panicked sellers, in a market almost absent of buyers, usually collapse. How disgusting.
Many of these opportunists deserve the same fate as the Thai guy who recently found himself hung upside down by his legs from the â€˜shakyâ€™ chimney of his house by the brothers of a girlfriend who found the victims refusal to marry her as something that required savage retribution. Now to me â€˜savageâ€™ would have involved a different part of the body !!
I know you are now all phdâ€™s in â€˜body factsâ€™ but a couple I forgot to give you over the past two weeks are. Did you know that over half the bones in your body are in your feet and hands and your brain continues to emit electrical impulses for up to 37 hours after you are dead. Now if this fact is true surely it should be possible to determine what is going on after we are dead. I mean is IT stressful ??? Anyhow to less serious matters.
One of the challenges I have had to struggle with this week has been to take on the role of â€˜guinea pigâ€™. The Atlantis hotel, due to officially open next Wednesday, was going through its â€˜soft openingâ€™. A period during which the hotel â€˜testsâ€™ the quality of what it is offering and its ability to handle volumes. When it came to the restaurants, apparently I was on the top 10 list !! So when I got the call, I immediately and selflessly made whatever time would be necessary to assist. And so I have eaten for free for the past four evenings. And I have a few to go. There was one material fact hidden from me however when I â€˜signed upâ€™. This magnificent feast and generosity would have to be enjoyed without any alcohol. WHAT ? Yes in Dubai an hotel is not given its alcohol license until it is officially opened to the public (it is actually two weeks later than that but let me not complicate the information). So in an experience similar to being given a brand new Ferrari only to be realise the accelerator is not included, I sat each night in each of the restaurants eating some of the best and best presented food of my life, but without the â€˜acceleratorâ€™. Not sure â€˜itâ€™ is for me. But I strongly recommend two of the four restaurants so far. To know which ones, you will have to contact me when you are in Dubai. The information will be happily passed to you as you hand the Duty Free bag with the two bottles of â€˜redâ€™ my direction. And donâ€™t forget Joanne likes WHITE.
And on the subject of WHITE, congratulations to Erin on her appointment as Chairperson of the Irish Society in Dubai. This vivacious St Trinians blonde is probably the most energetic human on the planet and is ideal for the role. One minor â€˜fault-lineâ€™ in the composition of the new Committee is that it is now â€˜intellectually dominatedâ€™ by females. Louise, fresh back from her latest assignment of â€˜investigatingâ€™ Mexican men (in Mexico), has joined Erin. Now wait for the next Dubai earthquake. It seems the Irish earthquake continues to â€˜shudderâ€™.
The country is close to â€˜losingâ€™ one of its financial services brands. Irish Nationwide, which has probably been the bank that has been guilty of the most extreme excesses and control breaches, is about to be â€˜taken outâ€™ â€“ something that is essential if the Irish banking system is not to suffer a further collapse in confidence. I was astonished during my August visit that there was no scrutiny or investigation pending of this dangerously frightening maverick brand. The entire Irish banking system would have suffered if this action had not been â€˜quietlyâ€™ taken. But I guess there are other names that should remain on the â€˜alertâ€™ radar. Access to funding to match over-sized, and probably badly damaged, loan books will remain a problem for the next 2/3 years. So the Irish banking system should â€˜exitâ€™ its â€˜denialâ€™ stance and start to recognise some of the sewage in their loan books.
Now sewage does bring me to some of the crap that property agents in Dubai are still infected with. A disease that seems to remain bullet proof. When will the Regulators truly start to rid the market of these odious people. This week Asteco attempted to another stunt. Greedy and corrupt people. Lets add the word â€˜bulliesâ€™. One story that has dominated print space in the local newspapers is that of Kerry Winter. No, she is NOT the girl who had sex with the stranger on the beach â€“ where the final decision on imprisoning her is still pending â€“ but a sadder story. She has been missing since August 20th. Her boyfriend has strongly, and at times convincingly, denied any part in her disappearance despite neighbours hearing/seeing a violent row between the two on the day before her disappearance. The campaign to â€˜Find Kerryâ€™ grew to Madelaine McCann scale and this week a breakthrough. Her British boyfriend now admits that maybe he had some role in her disappearance. In fact he went one step further. He KILLED her. Not murdered but killed her. An important distinction in this region â€“ I must store THAT defence !! So in an effort to help police he â€˜guidedâ€™ them to various locations in the desert where her body might be. To date HER body has not been found. They DID however find 6 other bodies. Apparently the police have NO â€˜missing personâ€™ files on ANY of them. Interesting part of the world !!
Finally Dubai continues its purge of corrupt bosses in its major companies. Hot on the heals of imprisonment terms for senior executives from Nakheel, Tamweel and Asteco, we now have investigations at Istithmar â€“ a major government owned company involved in overseas acquisitions. Gone are its vice-chairman and its cfo. But more surprisingly is the suspension of a female Emirati manager at Etisalat (local telecommunications company). Her crime ? Embezzling AED 27 million. HOW, I scream ??? Euro 5 million. Are there really that many corrupt Emiratiâ€™s ?? !!!
Finally finally there is growing speculation that the Iranians have created a fairly large spy network in the GCC countries. You have to remember that the Arabs hate are as suspicious of the Iranians as the Pakistaniâ€™s are of the Indians. We are currently going through the predictable steam of accusations and denials. I feel comfortably patriotic in my repulsion of this possibility. As I have always said, the greatest danger to the current world is NOT George Bush. It is the Iranian president Mr Ahmadinejad. â€˜Men with beardsâ€™ my Mum used always say !!!
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Author: David McGee, Home Thoughts from Dubai