Beyond Basel

Friday, April the 17th, 2009. CAC 40: + 1.77%
At home with a nasty cough

Sir Fred Goodwin, former boss of RBS

It's been a while now since Basel came along.

Basel I and II, for those of us not initiated in the world of finance, are sets of rules and regulations, mainly applicable to banks that had to do with methodologies used to calculate risk. Operational risk, credit risk, and other types. I'll save you the details. They are as interesting as they are helpful. (Tick: "not" in both cases)

It meant quite a change. More specifically, a change in the amount we paid IT consultants with a halfway decent understanding of how banking works. For all this stuff had strict deadlines and, through their ginormous daily rates, at least their finances were secured for a while. Not so, however, the money placed in the accounts by John Doe.

It did not help. One thing Basel I and II did not do, is to maintain trust in the financial industry. Or in anything at all, for that matter.

Credits kept on rolling freely to those who had some collateral, and because credit was easily available, the market value of that collateral, often real estate, went up too, as more people could afford to buy. More value means more encouragement to make some of that liquid, and that completes the circle.

When somebody had the bright idea to package some second rate debts together and swap that against other, often equally questionable vehicles, banks, particularly investment banks, saw their chance to make their books look even more glorious.

Alas, when somebody started to call in those debts it triggered a chain reaction and everything went horribly wrong. Then came Northern Rock, Lehman Bros, RBS... The rest, as they say, is history.

Fortunately, the governments were prepared to bail out some of the major banks, to prevent a "total collapse of the economic system." Unfortunately, governments have no money and use the tax-payers', the same ones who already suffered and had just seen their savings and investment vaporised.

Don't think for a minute though that this solves the problem. On the contrary, look at what's being done with those large sums.

On the day that the UK government decided to bail out RBS, their CEO, Sir Fred Goodwin, contractually doubled his pension to £ 703.000 per year for the rest of his life. This, as compensation for leaving his post where he had exercised a management of misery and a policy of bullying.

His explanation: well, it's on paper. If the government is not careful with that they sign, how can he be held responsible?.

The sad thing is: he's right. He may be unethical, selfish or anti-social. It would be safe to say he's a nasty piece of work. But he's not wrong. Governments are, like the banks, utterly careless with their expenditure for one simple reason only: it is not their money!

I dare say we don't really need such big banks to keep the economy afloat. In Switzerland the only two really large banks lost enormously in 2008, albeit one considerably more than the other. But the reality is, people currently are taking their cash elsewhere, and more often than not this is to a local savings bank, who don't have an investment division. Not because they know so much about banking. Because they have learned. They learned not to believe and not to trust.

If anybody thinks that the problem will soon be solved by getting credit to flow again, think again. If anybody believes the cases of "boss-napping" in France were incidents that will blow over, keep dreaming.

The real problem is on a deeper level than regulating credit default swaps. It has to do with plausibility, with trust, having a vision. People don't need a cheaper mortgage. They need a solid house to live in, and the security that that house will still be there tomorrow. Just as they don't need bonuses either. Most people would prefer an employer who will invest in your happiness rather than cutting costs and award only those who devised yet another idea how to squeeze staff even more.

I suggest a new charter that would go beyond Basel I and II. Call it Basel III if you like, or Timbuktu or Wolverhampton for all I care. What matters is this:

It should not be about credit, that will start to flow again at some point. But it won't be enough. What is needed now is credibility.

Fix that, and we shall prosper!

Not all is gloom that dooms

Monday, March 16th, 2009. Hang Seng: + 3.60%
18.45 at Starbucks, laptop on lap.

Researchers at the ETH University managed to cure tumors in the lymph gland completely by developing anti-bodies, who are actually able to identify cancer cells and successfully eradicate them. An absolute first in medical science.

SBB, the Swiss railway operator, vowed to postpone the price increase it published earlier this year to 2010, due to the financial crisis. Unbelievable! A railway operator with a heart. It ticks punctually too.

It gets even better. The Swiss standards commission voted for a relaxation on the import rules that subjected consumer foods and drinks that freely retail in the EU to extreme additional test before they can be sold in Switzerland. So much so, that many importers and producers simply give up or never even start the process.
We, the expats in Zürich, look forward to see some more variety on the shelves!

The number of killings in Columbia was down to 44 per day in 2008, the lowest since 30 years.

Barclays and Citigroup reported a return to profitability. Santander, at no point making a loss in 2008 (did anyone else notice this?) expects a raise in profit for 2009.
And while most big banks and insurers saw their shares dropping, the Raiffeisen Group registered 158.000 new customers who brought some 11,6 billion CHF in savings with them. Before you get your calculator out, this amounts to an average of 73,417 CHF per customer.

For the first time in 2009, a brief moment of 20 degrees centigrade were reported last Saturday in Tessin.

Spring is in the air!

Finding my religion

Friday Feb 27th, 2009. Nikkei: + 2.21%

I had an interesting week reading all the reactions I received on my piece on "Slumdog millionaire." One of them called me an "ash-whole," another came up with "full-idiot." Interesting choice of words, that.

I must confess I had not informed the readers that all comments on this blog are deleted.
Nevertheless, I'm grateful for every opportunity to expand my vocabulary, so please keep writing in.

Speaking of confessions: I have another one. I have this week discovered Catholicism! Here's how this came about.

Every season has it's traditions and this time of the year there is carnival. Or rather: there isn't, as Zürich is not well known for its carnivalesque spirit. The kanton is protestant officially, and apart from one or two private and small-scale initiatives, carnival glides by as unnoticed as a float in the Nullabor desert.

Not so in Luzern, one hour to the south, for example, where the majority is catholic and carnival, or Fasching or Faschnacht, is celebrated in all its glory and people either have or take days off.

It's an interesting phenomenon which, unless you have been brought up with it, I suppose you can never really understand. I mean, I can see the appeal of going out, having fun, drink a bit too much and then sleep with whoever comes your way, but do you really need to plan this in committees for months in advance? And another thing: what's the point in wearing those silly masks? Do you keep them on during the adultery for fear of recognition?

I tried to get to the bottom of it in a discussion with an otherwise lovely German woman with whom I slept for a while even when there was no fancy dress party going on.
"You're someone else for a few days," she said. "That's what it's all about. And because you're someone else, you feel free to do things you wouldn't normally do. At least I wouldn't", she hastened to add in what I hope was an attempt to reassure me.

I got it. Because you put on a silly costume and look like, say, Bart Simpson or a hot dog, you can't be held responsible for your actions, since you obviously must have gone gaga. Makes sense. Or does it....?

It seems to do the trick for many people, as this festival of debauchery is widely scattered around the globe, and even appear to be in some sort of competition with one another. It's all about the most famous (Rio), the most colourful (New Orleans' Mardi Gras), the second most famous (Santa Cruz de Tenerife according to some, Venice according to others) and the most drunken one (Cologne or Dusseldorf, that's still undecided).

I noticed that all these places are predominantly catholic, but my friend claims that it is in fact a feast of pagans, which makes it all the more catholic, I suppose.

Because, having looked at various religions, I have now come to find out that Catholicism is the one that makes life most livable, since they seem to have two standards for almost anything.

Many true followers, for example, do not practice what their pope preaches, and openly declare not to agree with his statements, proclamations and, most of all, his interpretations of what is forbidden in the name of God. However, they almost never criticise the pope directly. Funny, that.

The other thing is the concept of heaven and hell, and even purgatory (a sort of premium-economy in the afterlife, as it were). Although in itself not unique, nor exclusively catholic, they go by the assumption that almost any sin can be forgiven, as long as you realise it and show remorse. This would theoretically allow Hitler, Khomeini, Bin Laden and Bush to still earn a reasonably comfy place in heaven, provided they realise the consequences of each and everyone of their actions. For some of the above mentioned characters, this may take a while for obvious reasons.

In summary, as in most other religions, the bottom line is: don't. But if you must, then confess as soon as possible afterwards. I find this rather practical.

In my next life, I'm going to be a Catholic. Until then, I'll just dress up as one.

Who wants to Boyle a millionaire?

Tuesday, February 10th, 2009 Dow Jones -4.6%
22.36

at my desk at home, with a glass of San Vincenzo

Slumdog millionaire - Jamal in the hot seat


What is it with us? Do we really need to see other people's misery to feel good?
The ghetto-buster "slumdog millionaire" scooped up seven Bafta awards last weekend.

For those who saw "Trainspotting", the film that catapulted director Danny Boyle into publicity, this is one more product that dives into the underbelly of a society and displays all the ingredients one would normally expect to find there in graphic detail.

Not much has changed. Misery, poverty and violence play the major parts while blood, shit and vomit are the all-important props. It's just that this time there's more of all that. Boyle is not just testing the boundaries of good taste anymore, he flattens them with a steamroller.
So why, we wonder, did this film get that many awards? I didn't know there was a category for most revolting filth, or sickening violence.

Is it because the film features
A) beautiful pictures B) a strong message
C) love story D) nothing new

Hum...difficult.
Let's consider a lifeline. Ask the audience, for example.
Given the time since it's release, not that many people have seen it.
I don't know the latest box office figures, but when I went to see it last weekend the cinema was half full. And even so, Baftas are not awarded because the audience has a say in it. There is obviously no relief here.

How about 50/50?
Computer, take away two wrong answers. Leave one remaining wrong answer and the correct one.

C) love story D) nothing new

That makes more sense, but it only confirmed what I suspected. Unless you consider Indian toilets, a cesspit or a rubbish belt very scenic, you'd have to agree there is precious little beauty in any of the scenes.

The message? Well, the story is about a boy who grows up in the slums, and one day becomes a participant in the Indian version of "Who wants to be a millionaire". Because he has a good memory and gets the right questions, he does well and is arrested and tortured by the police under suspicion of cheating. Rags to riches in jeopardy, but it all ends up well in the nick of time.
What is the message here?
Is the Indian police corrupt, protects the rich and does not respect human rights? Hardly surprising.
We are given a look behind the scene of the show and learn that the quiz show host is a nasty piece of work. Well, thank you very much. I'll tell Chris Tarrant you said that.

Phone a friend then. But who?
I have one or two friends who are into this misery - masochism. They go on and on about how I travel to Brazil and not see the "real" country, because I was never robbed in a favela or mugged by a gang of twelve year olds at gunpoint. Funny how I tend to avoid those experiences wherever I can and still enjoy my trips. They shake their heads in disbelief about so much naivety.

I, meanwhile, hang my head in shame and must confess that most of my friends are more into a good meal, a civilised conversation and pleasant company. I know, it's boring and I'm hopeless. So - no "phone a friend".

C) the love story - perhaps?

Jamal, the main character is in love with a girl and he pursues this love with an unequalled determination. The princess and the pauper. It is even more admirable when you realise she does not pursue this love actively and tells him more than once to bugger off because her situation is hopeless. Once though, she breaks away and tries to save him with the final question when it is his turn to phone a friend, but even then she does not know the answer. Basically, one half of the love is therefore utterly useless. On the flip side, she dances nicely in the Michael Jackson-like clip that precedes the closing credits.

Honestly, it can't be the love story.

So what do we have left? Many shots of valiant little beggars who's life, so the film tells us, is screwed up and when one of them has a chance to get out, he is met with suspicion, treachery and threats.
A picture of a police force you would not want to pay any tax for, but did you really think it is that much different over here? I dread to think about it.
A story that is flimsy and full of holes. For example, when Jamal is questioned by the police about him blurting out things, he states he just answers the truth as he knows it when someone asks him a question. In other words, it is suggested he is incapable of lying. This is in stark contrast with the way he cheats tourists who visit the Taj Mahal. And another thing. It would seem highly unlikely that someone who always speaks the truth would survive in the slums, where the law of the strongest rules in all ruthless fashions.

So a flimsy love story, an unlikely dream of rags to riches, and lots of violence and poverty to make us feel rich by comparison, if only for a brief moment.

D) nothing new
Final answer.

Bankscaping

Friday, January 30st, 2009 Euronext 100: - 0.98%

18:45 - The Carlton hotel bar (quit the smoking, guys)

A corduroy man with a scratchpad wants to ask me some questions. He buys me a glass of overpriced merlot, in return for which I give him my views, for what they're worth.

Q: Will there be deflation or inflation?

A: There is a good chance there will be both, and that’s bad news.
For technical reasons, deflation comes first. Prices are staying flat, as consumers stopped consuming wherever they can, immobilized by fear.
But then the enormous financial packages the government granted the banks to pay bonuses to those who screwed up must come back.
Governments raise money by collecting more tax or issuing bonds. Either way causes inflation to return, with a good, but not inevitable chance this might turn into hyper-inflation, which would be a scenario for disaster. All it takes then another up-and-coming extremist, and you’ll have the thirties all over again.

Q: Is this a good time to buy real estate?
A: If you have your eyes on a place to live in, and one that is not in an area plagued by political instability or on the route favoured by illegal immigrants, it is an excellent time to buy. Take a mortgage with fixed rates, mind, or you might regret it soon.

Q: Will the oil price stay what it is now?
A: Almost certainly not. With the current price, it hardly pays to get the stuff out of the ground. A bit lower, and it becomes a loss making exercise. Oil producers are too powerful to let that happen. This year, the following factors need to be taken into account:
- For a number of countries this winter is the coldest since decades
- Most electric cars that are popping up won’t go into serial production until 2011
- Aeroplanes don’t fly on wind, at least not those that carry freight and passengers.
I would predict crude to be between 70 and 80 dollars per barrel by year-end.
Long term though, oil is a lost cause.

Q: Will banks change their way of operating?
A: Most banks are, by nature, conservative and as such learn too little too slow.
In 2009, they sadly will be extremely restraint in lending as well as investing in their own technology. Both are cardinal sins.
It’s not the lending as such that caused the current global recession. It’s the insufficiently regulated shifting of risks that brought us where we are now.
As for innovative technology, look at the business that are growing fast. Facebook went from 6 to 40 million users in less than three years. YouTube has more regular viewers than most established TV channels. Consumers behaviour is rapidly changing, and only those banks that understand and play into that will prosper again.

Q: Do you expect more big banks to disappear?
A: How many big banks do we really need?

Bush off!

Friday Jan 16th, 2008, Hang Seng + 0.09%
13.21 - with a sandwich

It's been a week of emotions.

There was disappointment.

I was disappointed to read, for example, that China will tolerate an increase in bad debt this year as it eases rules governing bank lending to revive the slowing economy, according to the nation’s banking regulator. The China Banking Regulatory Commission will drop its target of reducing the balance and ratio of bad loans after five years of declines, and instead aim to prevent a “massive and rapid rebound” in soured debts, Chairman Liu Mingkang said in Beijing on Wednesday.

Easing rules on bad debts? Hello...! Does anyone remember how we got into this mess in the first place?

There was also some reassurance to be found in a court case this week.

A Swiss man had been found guilty of abusing his grandmother's funds for more than a year. He had been given a power of attorney over her bank account to help the old woman managing her household, and had misappropriated 122.000 Swiss Francs which he spent on Zurich's notoriously expensive nightclubs. The judge sentenced him to a fine of 18.000 Francs, which in my book still leaves a positive result of 104.000 Swiss Francs.
Now there's a relief. Crime pays. And nicely too.

And finally there was some good news.

George Dubbaya Bush gave his final speech (at least he promised so) last night.
What a pity though that in this otherwise pathetic attempt to justify his wasted time in office, he did not let out a single gaffe anymore. And let's face it, that's what we were all waiting for.

I'm sure you'll remember some of these:

"Most of our import comes from foreign countries." (On a press conference on the economy)

" I say: the history is in the past now" (Interview with Larry King)

"What state is Wales in?" (When being introduced to Charlotte Church)

As it stands, this seems to be the major difference between Obama and Bush. One inspires the people, the other the comedians.

Still, much as I like political satire, I won't miss him.
There are those people who only exist to serve as an warning for others.
Every now and again one comes along. And while it's perfectly okay to ridicule them, see what happens if you vote for a halfwit like that?
Don't misunderestimate the consequences.

"..they've got internet on computers now....?"

Vitalstatistics

Friday, Nov. 28th, 2008 Ibex: +0.65%
08.12
Extracts from this weeks statistics

There are now 40 Million people HIV infected world wide.
25000 of them live in Switzerland.

Zurich's Bahnhofstrasse ranks no. 8 on the worlds most expensive shopping streets, measured by rent paid by square meter. New York's Fifth Avenue is still top of the bill.

Two third of all seventeen year old girls at Swiss schools had sex.
One out of three before they were fourteen.

Almost half the world — over 3 billion people — live on less than $2.50 a day.
The GDP (Gross Domestic Product) of the 41 Heavily Indebted Poor Countries (567 million people) is less than the wealth of the world’s 7 richest people combined.

Ten percent of the registered population in Switzerland lives on an income below the poverty line, which is set at CHF 2.300 per month for a person living in a single household.

California has the world 7th largest economy. Did you know this?

Nearly a billion people entered the 21st century unable to read a book or sign their names.
Less than one per cent of what the world spent every year on weapons was needed to put every child into school by the year 2000.
Yet, it didn’t happen.

An estimated 1.3 billion people smoke.
84% of all smokers live in developing and transitional economy countries.
Most people start smoking before the age of 18; almost a quarter of these individuals begin using tobacco before the age of 10 47.5% of all men smoke compared to 10.3% of women. Tobacco is the fourth most common risk factor for fatal diseases worldwide.

A Swiss district court sentenced a former member of the management of Bank Leumi to eight years imprisonment. He had misappropriated over one hundred million Swiss Francs.

Driving a car and operate a mobile phone at the same time increases the chance of a road accident by a factor eight, even when a hands-free set is used. The effect is just as distracting and resembles driving under considerable influence of alcohol.

The Danish are the happiest people in Europe. Second and third come the Swedish and the Finns.
The Macedonians are the most unhappy, closely followed by the Hungarians and Bulgarians.
The survey had left the Swiss out.