capecchi childhood

"creativity comes from the abrasive juxtaposition of life experiences"
Friday, Oct. 12, 2007
A Nobel Warrior
By NANCY GIBBS
http://www.time.com/time/magazine/article/0,9171,1670524,00.html

All three winners of this year's Nobel Prize for Medicine are eminent scientists, but Mario Capecchi is the one with the spiral-staircase story: the starving, homeless Italian street kid who found his way to America, to Harvard, to Utah, ever the refugee, before finally arriving at eternal glory and the Nobel Prize. It's in many ways a familiar tale, Oliver Twist meets Albert Einstein, the pilgrim who comes to the promised land expecting, as he says, "the roads to be paved in gold. What I found actually was just opportunity." But his story also has enough nice serrated edges to challenge our theories about genes and genius and what really makes us who we are.

You could say the visionary geneticist had a clear genetic edge. Capecchi's grandmother was a painter, his uncle a renowned physicist, and his mother Lucy Ramberg an expat American poet living in a chalet in the Italian Alps when Mario was born in 1937. She had fallen in with a group of bohemian writers who believed, her son says with just a trace of bemusement, that "they could wipe out Fascism and Nazism with a pen." After the Gestapo came in 1941 to take her to Dachau, Mario landed on the streets. He was 4 years old.

All children have their own normal; they have not yet seen any worlds other than their own. Capecchi's world was an uncontrolled experiment in resilience. "I never felt sorry for myself," he recalls. "Children are remarkably adaptable. Put them in a situation, and they simply will do whatever it is they need to do."

For his band of urchins, that meant a cunning, methodical pursuit of food and shelter. They worked together like raptors, one child distracting the street vendor so another could steal the fruit. Capecchi finally landed in a hospital in Reggio Emilia, where he could starve more systematically. The daily ration was a piece of bread and some chicory coffee, and to keep the children from running off, "they took all of our clothes away." He lay on a bed with no sheets, no blankets, feverish with hunger. It was there he learned the art of patient plotting as he imagined all the ways he might escape and the obstacles he'd face to do so.

In 1945, when American soldiers liberated Dachau, Lucy went hunting for her son. She scoured hospital records, searching for more than a year before she tracked him down. It was on his 9th birthday, Oct. 6, 1946, that the mother he scarcely recognized arrived, a new Tyrolean outfit in hand, including the hat with the feather. She took him to Rome, where he had his first bath in six years, and ultimately to the New World, where they settled in a Quaker commune outside Philadelphia.

Creativity, Capecchi once said, comes from "the abrasive juxtaposition" of life experiences. His old life and new one certainly rubbed each other raw. Some teachers wrote off the feral boy who had never set foot in a school and spoke no English; but others gave him paints and told him to make murals to communicate. One day he was beating up the other third-graders, since that was what he knew how to do. And soon he was beating up older kids on behalf of his peers. "That gave me a position," he says, "some social standing."

Capecchi ultimately found his way to Harvard, the center of the universe in the early days of molecular biology. But he felt crowded by colleagues whose rivalries consumed them as much as their research. So he set off for the University of Utah, where the sight lines suited him better and collegiality was the key to success. He lives in a house high over a canyon. "I love looking across long distances," he says. "I think it sort of opens up my mind."

This vista is necessary for his work as well as his soul. Capecchi looks at science as a series of circles: the smallest circle is the one in which everyone is doing the same thing. As you move farther out, "fewer people are willing to go there, but you're charting new areas. Go too far, step out of bounds, and you're in science fiction. So you have to be careful. But you want to be as close to the edge as possible." When he first proposed manipulating mouse genes to help model disease, the nih gatekeepers thought he was over the line. "Not worthy of pursuit," they said of his grant proposals. Happily, Capecchi ignored them.

Of course the edge looks different to him, since he has lived on it. It's a cliché that strength comes from adversity. But clichés are often just hard truths tamed by familiarity. Maybe he triumphed in spite of his ordeals, not because of them. There is no control group, he observes, that lets you measure what you missed. In raising his own daughter, he felt the pull to protect her, even as he wondered at the cost. "Maybe a few hard knocks ..." but his voice trails off. He didn't want to experiment on her.

Super Conduit Fund and SIV or when the Enron debacle is endorsed by the Treasury at a larger scale

watch makers in china

Bald eine Luxusuhr made in Hong Kong»

Der Hongkonger Uhrwerkproduzent Peace Mark wächst mit Traditionsmarken in China - Standortvorteile

Von Ernst Herb

Hongkong

Mitte September ist der an der Hongkonger Börse kotierte Uhrenkonzern Peace Mark, dem die Bieler Luxusmarke Milus gehört, durch den Kauf der Schweizer SMT Holding weltweit zum drittgrössten Produzenten in der Uhrenbranche aufgestiegen. «Ein Wolf ist in das Hühnerhaus der Schweizer Uhrenindustrie eingedrungen», zitierte damals die Westschweizer Tageszeitung «Le Temps» einen Konkurrenten aus dem Kanton Neuchatel. Der CEO von Peace Mark, Tommy Leung Yung, sieht das allerdings nicht so. Mit der Übernahme der STM Holding, zu der der Quarzwerkhersteller Swissebauches in China sowie die schweizerischen Hersteller mechanischer Werke Soprod und SFT gehören, sei das langfristige Überleben dieser Unternehmen gesichert worden, erklärt er im Gespräch mit «Finanz und Wirtschaft».

SMT, die in der Schweiz rund 200 und in China weitere 1400 Personen beschäftigt, werde in der Schweiz keine Arbeitsplätze abbauen und vor allem nicht ihre Schweizer Identität ablegen. «In der Uhrenindustrie sind Gefühle wichtig, denn nur so kann unterschiedlichen Bedürfnissen der Kunden Rechnung getragen werden», sagt Leung. Dass Peace Mark ihren Töchtern grosse Freiheiten lasse, beweise der Bieler Luxusuhrenhersteller Milus, der seine Autonomie behalten konnte.

Potenzial voll ausschöpfen

Dank einer kräftigen Finanzspritze können SMT und ihre Töchter in Zukunft ihr Potenzial voll ausschöpfen, ist Leung überzeugt. Peace Mark wiederum, die ihr Hauptquartier in Hongkong hat und weltweit mehr als 10 000 Angestellte beschäftigt, sichere sich mit der Übernahme eine stabile Versorgung mit qualitativ hochstehenden Uhrwerken - und das zu wettbewerbsfähigen Preisen. Leung meint, dass sein Unternehmen auch in den nächsten Jahren offen für Übernahmen oder strategische Partnerschaften sein werde. Im Juli hat Peace Mark vom chinesischen Staat 51% des grössten chinesischen Produzenten mechanischer Uhrwerke übernommen.

Zusammen mit dem Verwaltungsratspräsidenten der Gruppe, Patrick Chau Cham Wong, hält Leung 39% der Aktien Peace Mark. Dem Duo gehört auch die Finanzgesellschaft A-1 Business, die SMT übernommen hat und auf deren Kauf Peace Mark eine unbefristet laufende und vertraglich abgesicherte Option hält. Diese Konstruktion wurde gewählt, um den Aktienkurs von Peace Mark nicht zu belasten. In den vergangenen 52 Wochen sind die Titel mehr als 120% gestiegen. Sobald SMT saniert sei, soll sie juristisch voll in die Gruppe eingegliedert werden.

Mit der Übernahme der Schweizer Gruppe hat das Hongkonger Unternehmen, dessen Börsenwert 12,6 Mrd. HK-$ (1,6 Mrd. $) beträgt, die Strategie bestätigt, nicht nur ein vertikal integrierter Uhrenkonzern zu sein, sondern vor allem auch die Stellung im höheren Qualitätssegment auszubauen. Peace Mark, die unter diesem Namen keine eigenen Uhren vertreibt, ist vom Design über die Produktion bis zum Marketing und Verkauf von Uhren in der gesamten Wertschöpfungskette aktiv.

Erfolgreiche Strategie

Das nicht nur in Eigenregie, sondern auch für Kunden. Ausländischen Unternehmen, die auf dem vielversprechenden, aber schwierigen chinesischen Wachstumsmarkt nicht allein aktiv sein wollen, bietet Peace Mark eine Partnerschaft an, sei es in Design, Produktion oder Verkauf. In China betreibt die Gesellschaft unter anderem in einem Joint Venture mit Tourneau, der grössten US-Luxusuhrenkette, 75 Läden, in denen neben der Eigenmarke Milus auch so klangvolle Namen wie Rolex, IWC, Piaget und Cartier verkauft werden. Für das mittlere Preissegment besitzt Peace Mark in China, Hongkong und Taiwan unter dem Namen Time Zone mittlerweile 930 Läden. In Nord- und Südamerika wiederum betreibt diese Tochter 25 000 Verkaufsstellen, in denen die eigene Modemarke Aero Star oder die in Lizenz hergestellte italienische Marke Fiorucci angeboten werden.

Die von Peace Mark eingeschlagene Strategie ist erfolgreich, konnte das Unternehmen doch den Umsatz im vergangenen Finanzjahr um 35,6% auf 3 Mrd. HK-$ erhöhen. Im chinesischen Markt, der mehr als 50% zum Umsatz beisteuert, nahmen die Verkäufe 143% zu. Der operative Gewinn stieg 45% auf 456 Mio. HK-$. Besonders stark angezogen hat im Vorjahr mit +1587% das Geschäft im obersten Preissegment, das nun für 14,3% des Gruppenabsatzes verantwortlich ist.

Für Leung, der auch Präsident des 660 Mitglieder zählenden Verbands Hongkonger Uhrenproduzenten ist, zeigt dieser Trend, dass Hongkong sich im harten Wettbewerb der Uhrmacher und -händler behaupten kann. Denn anders als noch in den Sechziger- und Siebzigerjahren, als das Herkunftssiegel «Made in Hong Kong» gleichsam für Massenware stand, setzt die chinesische Sonderverwaltungszone heute auf Qualität. Nur so kann Hongkong neben China und seinem weit tieferen Lohnniveau bestehen. Längst sind die auf Billigwaren spezialisierten Arbeitsplätze - auch im Bereich Uhren - in die Volksrepublik abgewandert. Auf dem Festland besitzt Peace Mark sieben Produktionswerke, in denen ein Grossteil des Personals beschäftigt ist. In Hongkong selbst werden auch noch Uhren gemacht, aber nur deshalb, weil es dem Unternehmen gelungen ist, die Wertschöpfungskette hinaufzusteigen.

Weg vom Billigimage

Der Produktionsstandort Hongkong bietet derzeit den Uhrenproduzenten allerdings gute Bedingungen. Denn obwohl die ehemalige britische Kronkolonie bis 2047 wirtschaftlich von China autonom bleibt, können Waren, die in der Handelsmetropole hergestellt werden, seit drei Jahren zollfrei nach China eingeführt werden. Peace Mark baut daher in Hongkong mittlerweile an zwei Produktionslinien Zeitmesser des mittleren Preissegments zusammen.

Leung sieht darin nur den Anfang eines lange andauernden Trends. Es werde Hongkong in Zukunft gelingen, sich als Herkunftsort von Qualitätsuhren zu profilieren. Er schliesst denn auch nicht aus, dass in einigen Jahren Luxusuhren unter dem Namen Peace Mark und versehen mit dem stolzen Siegel «Made in Hong Kong» erfolgreich auf dem Weltmarkt verkauft werden. Leung wertet dies aber nicht als Konkurrenz zur Schweiz, sondern in einem - gerade dank dem Wirtschaftsboom in Asien - weltweit wachsenden Luxusgütermarkt als eine Ergänzung zu den traditionellen Uhrennationen.

2.4% estimated growth for 2008 and 2% inflation ! voila europe

wikinomics

the myth of self organisation and individual freedom revisited

Excerpt: Wikinomics, by Don Tapscott and Anthony D Williams

Published: October 11 2007 15:01 | Last updated: October 11 2007 15:01

This was one of six books shortlisted for the 2007 FT/Golman Sachs business book of the year award. Read the shortlist, plus synopses, reviews and judges comments. You can also vote on the best business book ever, as selected by top CEOs and other experts.

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WikinomicsCall them the “weapons of mass collaboration.” New low-cost collaborative infrastructures—from free Internet telephony to open-source software to global outsourcing platforms—allow thousands upon thousands of individuals and small producers to co-create products, access markets, and delight customers in ways that only large corporations could manage in the past. This is giving rise to new collaborative capabilities and business models that will empower the prepared firm and destroy those that fail to adjust. The upheaval occurring right now in media and entertainment provides an early example of how mass collaboration is turning the economy upside down. Once a bastion of “professionalism,” credentialed knowledge producers share the stage with “amateur” creators who are disrupting every activity they touch. Tens of millions of people share their news, information, and views in the blogosphere, a self-organized network of over 50 million personal commentary sites that are updated every second of the day.2 Some of the largest weblogs (or blogs for short) receive a quarter of a million daily visitors,3 rivaling some daily newspapers. Now audioblogs, podcasts, and mobile photo blogs are adding to a dynamic, up-to-the-minute stream of person-to-person news and information delivered free over the Web.--

Individuals now share knowledge, computing power, bandwidth, and other resources to create a wide array of free and open-source goods and services that anyone can use or modify. What’s more, people can contribute to the “digital commons” at very little cost to themselves, which makes collective action much more attractive. Indeed, peer production is a very social activity. All one needs is a computer, a network connection, and a bright spark of initiative and creativity to join in the economy. These new collaborations will not only serve commercial interests, they will help people do public-spirited things like cure genetic diseases, predict global climate change, and find new planets and stars. Researchers at Olson Laboratory, for example, use a massive supercomputer to evaluate drug candidates that might one day cure AIDS. This is no ordinary supercomputer, however. Their FightAIDS@home initiative is part of the World Community Grid, a global network where millions of individual computer users donate their spare computing power via the Internet to form one of the world’ most powerful computing platforms.

These changes, among others, are ushering us toward a world where knowledge, power, and productive capability will be more dispersed than at any time in our history—a world where value creation will be fast, fluid, and persistently disruptive. A world where only the connected will survive. A power shift is underway, and a tough new business rule is emerging: Harness the new collaboration or perish. Those who fail to grasp this will find themselves ever more isolated—cut off from the networks that are sharing, adapting, and updating knowledge to create value.

This might sound like hyperbole, but it’s not. Consider some additional ways ordinary citizens can now participate in the global body économiqe. Rather than just read a book you can write one. Just log on to Wikipedia—a collaboratively created encyclopedia, owned by no one and authored by tens of thousands of enthusiasts. With five full-time employees, it is ten times bigger than Encyclopedia Britannica and roughly the same in accuracy.4 It runs on a wiki, software that enables users to edit the content of Web pages. Despite the risks inherent in an open encyclopedia in which everyone can add their views, and constant battles with detractors and saboteurs, Wikipedia continues to grow rapidly in scope, quality, and traffic. The English-language version has more than a million entries, and there are ninety-two sister sites in languages ranging from Polish and Japanese to Hebrew and Catalan.

Or perhaps your thing is chemistry. Indeed, if you’re a retired, unemployed, or aspiring chemist, Procter & Gamble needs your help. The pace of innovation has doubled in its industry in the past five years alone, and now its army of 7,500 researchers is no longer enough to sustain its lead. Rather than hire more researchers, CEO A. G. Lafley instructed business unit leaders to source 50 percent of their new product and service ideas from outside the company. Now you can work for P&G without being on their payroll. Just register on the InnoCentive network where you and ninety thousand other scientists around the world can help solve tough R&D problems for a cash reward. InnoCentive is only one of many revolutionary marketplaces matching scientists to R&D challenges presented by companies in search of innovation. P&G and thousands of other companies look to these marketplaces for ideas, inventions, and uniquely qualified minds that can unlock new value in their markets.

Media buffs are similarly empowered. Rather than consume the TV news, you can now create it, along with thousands of independent citizen journalists that are turning the profession upside down. Tired of the familiar old faces and blather on network news? Turn off your TV, pick up a video camera and some cheap editing software, and create a news feature for Current TV, a new national cable and satellite network created almost entirely by amateur contributors. Though the contributors are unpaid volunteers, the content is surprisingly good. Current TV provides online tutorials for camera operation and storytelling techniques, and their guidelines for creating stories help get participants started. Viewers vote on which stories go to air, so only the most engaging material makes prime time.

Finally, a young person in India, China, Brazil, or any one of a number of emerging Eastern European countries can now do what their parents only dreamed of by joining the global economy on an equal footing. You might be in a call center in Bangalore that takes food orders for a drive-through restaurant in Los Angeles. Or you could find yourself working in Foxconn’s new corporate city in the Schenzen province of China, where a decade ago farmers tilled the land with oxen. Today 180,000 people work, live, learn, and play on Foxconn’s massive high-tech campus, designing and building consumer electronics for teenagers around the globe.

For incumbents in every industry this new cornucopia of participation and collaboration is both exhilarating and alarming. As New Paradigm executive David Ticoll argues, “Not all examples of self-organization are benign, or exploitable. Within a single industry the development of opportunities for self-organized collaboration can be beneficial, neutral, or highly competitive to individual firms, or some combination of at least two of these.” Publishers found this out the hard way. Blogs, wikis, chat rooms, search engines, advertising auctions, peer-to-peer downloading, and personal broadcasting represent new ways to entertain, communicate, and transact. In each instance the traditionally passive buyers of editorial and advertising take active, participatory roles in value creation. Some of these grassroots innovations pose dire threats to existing business models.

Publishers of music, literature, movies, software, and television are like canaries in a coal mine—the first casualties of a revolution that is sweeping across all industries. Many enfeebled titans of the industrial economy feel threatened. Despite heroic efforts to change, they remain shackled by command-and-control legacies. Companies have spent the last three decades remolding their operations to compete in a hypercompetitive economy—ripping costs out of their businesses at every opportunity; trying to become more “customer-friendly”; assembling global production networks; and scattering their bricks-and-mortar R&D organizations around the world.

Now, to great chagrin, industrial-era titans are learning that the real revolution is just getting started. Except this time the competition is no longer their arch industry rivals; it’s the uberconnected, amorphous mass of self-organized individuals that is gripping their economic needs firmly in one hand, and their economic destinies in the other. “We the People” is no longer just a political expression—a hopeful ode to the power of “the masses”; it’s also an apt description of how ordinary people, as employees, consumers, community members, and taxpayers now have the power to innovate and to create value on the global stage.

For smart companies, the rising tide of mass collaboration offers vast opportunity. As the Goldcorp story denotes, even the oldest of old economy industries can harness this revolution to create value in unconventional ways. Companies can reach beyond their walls to sow the seeds of innovation and harvest a bountiful crop. Indeed, firms that cultivate nimble, trust-based relationships with external collaborators are positioned to form vibrant business ecosystems that create value more effectively than hierarchically organized businesses.

For individuals and small producers, this may be the birth of a new era, perhaps even a golden one, on par with the Italian renaissance or the rise of Athenian democracy. Mass collaboration across borders, disciplines, and cultures is at once economical and enjoyable. We can peer produce an operating system, an encyclopedia, the media, a mutual fund, and even physical things like a motorcycle. We are becoming an economy unto ourselves—a vast global network of specialized producers that swap and exchange services for entertainment, sustenance, and learning. A new economic democracy is emerging in which we all have a lead role.

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Reproduced by permission of the publisher.

Copyright The Financial Times Limited 2007

china surplus twice bigger than japan !!!

"China’s forecast surplus – an amazing 12 per cent of GDP – is twice as big, relative to GDP, as Japan’s has ever been.....China, in particular, is now exporting a big net contraction, not expansion, in demand to the rest of its world, because its supply is growing far faster than its domestic demand. The difference this year alone is 2.5 per cent of GDP. If US demand slowed substantially and China, Japan and western Europe remained on their present courses, the world economy would surely slow far more than the optimists now hope"

china is not willing to let its currency float freely, the outcome of which would be a stronger yuan and a stronger domestic consumption, the us do rather privilege a weak yuan , the outcome of which is no inflation pressure . given this state of affairs and other factors that may fit well in a game theory , is statu quo and wolf forecast the most plausible scenario? what if some of the assumptions on currency exchange rates change , ie the yuan is not anymore pegged to the usd or the usd appreciates pegged to the yuan , would this bode well for the world economy as a whole , would this represent a better scenario than the current one ? if the current yuan weakness provokes an unusual deflation with a higher global liquidity , is it correct to say that this fuels uncontrolled speculation in all sorts of markets with values going beyond normal levels and causing aberrations like the credit crunch recently ? Can these aberrations be fixed ?

"IMF warns on Eastern Europe

According to the IMF’s latest World Economic Outlook, released Wednesday, the economies of Eastern Europe are “vulnerable”. Eastern Europe is the only area singled out in the report as at genuine risk from fluctuations in capital investment. The IMF draws comparisons with the Asian financial crisis in the 1990s. Although most emerging markets today have strong current account positions and big currency reserves, Eastern Europe, warns the IMF, is an exception. “Unlike in other regions…net capital inflows have been accompanied by a deteriorating external position”."

funding in chf and eur

bangladesh ?

http://www.bloomberg.com/apps/news?pid=20601109&sid=ajYCq0jTs6Fo&refer=home

fashion history : crossroad btw taste , culture , progress ad industry

http://plus7.arte.tv/fr/detailPage/1697660,CmC=1698318,scheduleId=1681218.html


href="http://plus7.arte.tv/fr/detailPage/1697660,CmC=1698318,scheduleId=1681218.html">

bagehot and the credit crisis

in other words restore confidence by letting money circulate free if lenders are panicking and asking extremely high rates . be severe with banks not complying with market discipline and let them go bankrupt if necessary. every boom has greed and propension to hasard. the market has to send a strong signal and fix indiscipline


http://www.bloomberg.com/apps/news?pid=20601039&sid=aK7I0w1FQa_M&refer=home

will switzerland end up like chechenia ?

will switzerland end up like chechenia ?
viktor gref, russian economics minister has threatened the swiss government of retaliation if viktor vekselberg (VV) , a russian oligarch close to mr putin and his kgb acolytes, with fiscal domicile in switzerland, a priviledged plutocratic treatment not granted to common swiss and russian citizens,if VV is not allowed to take control of sulzer , an engineering company specialised in oil pipes , the ideal vehicle for the clever billionaire to expand its business in mother russia and hand to the kremlin state of the art technology . VV is not happy , business and corporate raids do not run smoothly as they do back home and he does not appreciate the subtleties of his guest country law system. the oligarch has called moscow after reaping extraordinary gains in Sulzer shares with the complicity of some Austrian buddies and managers of the zurich cantonal bank. bern did shut up untill then out of but the alarm bells started to ring when it became evident that take over strategies were based on legal loopholes and that the independence of industrial jewels was threatened and fooled by rapacity of a zurich domiciled ogre meant to rest peacefully in his tax heaven .

is fortress switzerland more open than ever and may turn soon into a mountainous state like chechenia bullied by the last land empire?. how will a country so proud of his acclaimed freedom and independence behave in front of putin emissary, a country so proud of freedom of speech in front of a regime suspected of having killed all its loudy opponents , not the last anna politovskia who defended till the end the truth on the genocide of a proud and disgraced population of mountaineers like the chechens ? also, will mr greff open fortress russia to the swiss industrial groups letting them take over rotten and inefficient companies and reorganise them for the profit of russian clients and shareholders?



From FUW

Sulzer sollte wichtige Rolle Vekselbergs akzeptieren

Von Manfred Rösch

Victor F. Vekselberg ist ein diskreter Mann. Nicht zuletzt deshalb mag er an der Schweiz als Basis für seine Aktivitäten Gefallen gefunden haben. Zu seinen Geschäften und Absichten lässt er sich nicht befragen - jedenfalls nicht von «Finanz und Wirtschaft» -, weshalb Mutmassungen angestellt werden müssen, aktuell umso mehr, als auch die «Gegenpartei», Sulzer, sich hartnäckig in Schweigen übt. Dass Vekselbergs Umfeld am letzten Sonntag in der Presse eine Propagandaoffensive konzertiert hat, ist immerhin weit mehr als nur eine Vermutung. Dem Investor aus Russland scheint die Geduld mit dem Verwaltungsrat von Sulzer auszugehen, nun erhöht er mit gütigem Sukkurs des Kreml den Druck. German Gref, soeben als Wirtschaftsminister zurückgetreten, hat Amtskollegin Doris Leuthard in anscheinend mitunter drohendem Ton wissen lassen, Vekselberg sei als Sulzer-Aktionär endlich einzutragen, sonst könnte Moskau Retorsionsmassnahmen ergreifen.

An der «gelegentlichen Grundskepsis», der Vekselberg in der Schweiz bisweilen begegnen will, wie er in der «Neuen Zürcher Zeitung» schreibt (Ausgabe vom 2. Oktober), wird dieses robuste Vorgehen gerade nichts ändern. Etwas lässt sich aus dem politischen Begleitgedröhne schliessen: Vekselberg steht offenbar in der Gunst des Kremls, obschon der Absender des bewussten Briefs nun nicht mehr in Amt und Würden ist; die entscheidende Figur, Putin, will ja weiterregieren. Dass Vekselberg an der Staatsspitze Fürsprecher findet, stützt sein Marketing-Argument, er könne hiesigen Unternehmen in Russland Türen öffnen, konkret: Sulzer als Zulieferer der Förderer und Verarbeiter von Öl und Gas dort besser etablieren. Was das in Franken heissen kann, lässt sich nicht verlässlich abschätzen. Sulzer würde sich kaum über Nacht eines massiven Zusatzwachstums erfreuen können, aber mit der Zeit mögen gute Kontakte zumindest nicht schaden. Wahr ist: Sulzer braucht Vekselberg nicht; Strategie, Unternehmensführung und Erfolgsnachweis überzeugen und die fundamentalen Aussichten des infrastrukturnahen Portfolios sprechen so oder so für Engagements. Wahr ist aber auch: An den realen Kräfteverhältnissen im Aktionariat ändert all das gar nichts.

Im Prinzip hat «VV» zudem mit seiner Feststellung recht, es gehe nicht an, dass Schweizer Unternehmen im Ausland Beteiligungen erwerben, aber nicht genehme ausländische Investoren hierzulande aussen vor gehalten würden. Lange, die Vorhersage sei gewagt, kann das ohnehin nicht mehr der Fall sein. Vekselberg hat seine österreichischen Kompagnons ausgekauft. Er besitzt nun 21% der Aktien Sulzer und kann über Optionen auf weitere 10,4% zugreifen. Sulzer kennt keine Eintragungs- und Stimmrechtsbeschränkung und dass Vekselberg der wirtschaftlich Berechtigte seines Pakets ist, lässt sich kaum in Zweifel ziehen; die statutarische Basis, ihn nicht zuzulassen, ist somit dünn.

Möglich - schlimmstenfalls sogar wünschenswert -, dass die Eidgenössische Bankenkommission wegen der Verletzung von Meldepflichten im Verlaufe des in der Tat allzu gut vernebelten Positionsaufbaus Geldbussen verhängen wird. Vekselbergs Kassa würde es überstehen, diejenige von Pecik und Stumpf wohl auch.

Spätestens dann wird sich der Verwaltungsrat von Sulzer wohl der «normativen Kraft des Faktischen» beugen und Vekselberg eintragen müssen. Lange Rechtsstreitereien nützen niemandem, im Gegenteil. Nebenbei: Es ist zu hoffen, dereinst entstehe nicht etwa der Eindruck, das Annehmen der Wirklichkeit geschehe auf Nötigung des Kreml. Einmal mehr drängt sich die lapidare Feststellung auf, dass eine Publikumsgesellschaft, gerade eine ohne Mehrheitsaktionär, per definitionem fünf Tage in der Woche zum Verkauf steht. Der Verwaltungsrat hat zwar die Interessen aller Aktionäre zu wahren, etwa wenn zu beklagen ist, ihnen sei wegen unsauberer Manöver während einer Paketbeschaffung eine Übernahmeprämie entgangen, doch es kann nicht seine Aufgabe sein, sich die Aktionäre (wie einst geschehen) auszusuchen.

Die Börse dürfte Vekselbergs Zulassung erwarten und in den Preis eingebaut haben. Deswegen rechnen wir nicht mit einer besonders ausgeprägten Kursreaktion am Tag X. Was der Markt nicht kennt, sind Vekselbergs Pläne. So fragt sich, ob er dereinst ein öffentliches Übernahmeangebot unterbreiten wird (worauf nicht spekuliert werden sollte), ob er Sulzer und Oerlikon näher zueinander führen möchte (wofür industriell wenig spricht) und inwieweit er in Winterthur Einfluss zu nehmen gedenkt (was, je nachdem, belebend oder belastend ausfallen kann). Jedenfalls scheint uns ausgeschlossen, dass Vekselberg sich nicht alsbald im Verwaltungsrat vertreten lassen und die Strategieentwicklung noch auf Jahre nicht mitprägen würde.

Die Annahme sei gewagt, dass Sulzer mit dem offenbar auf langfristige industrielle Engagements setzenden Investor Vekselberg besser fährt als mit den sprunghafter, finanztechnisch verwegener und intransparenter wirkenden Österreichern. Als gewiefter Kaufmann, der viel Geld in Sulzer investiert hat - 20% entsprechen etwa 1,1 Mrd. Fr., 30% rund 1,7 Mrd. Fr. - muss ihm daran gelegen sein, diese Substanz zu mehren. Das deckt sich mit den Interessen der Publikumsaktionäre.

From NZZ

*
30. September 2007, NZZ am Sonntag
Moskau droht
Moskau droht
Sulzer will Viktor Vekselberg nicht als Aktionär mit Stimmrecht akzeptieren. Jetzt hat die russische Regierung deswegen bei Bundesrätin Leuthard interveniert
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Moskau droht

Sulzer will Viktor Vekselberg nicht als Aktionär mit Stimmrecht akzeptieren. Jetzt hat die russische Regierung deswegen bei Bundesrätin Leuthard interveniert

Sulzer hat das Aktienpaket von Viktor Vekselberg noch nicht ins Aktienbuch eingetragen. Der Industriekonzern stellt offenbar Anforderungen, die weit über das Übliche hinausgehen. ...
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Sulzer hat das Aktienpaket von Viktor Vekselberg noch nicht ins Aktienbuch eingetragen. Der Industriekonzern stellt offenbar Anforderungen, die weit über das Übliche hinausgehen.


Chanchal Biswas

Der Brief wurde am 23. Juli in Moskau abgeschickt, ist an Doris Leuthard adressiert und lässt an Deutlichkeit nichts zu wünschen übrig: German Gref – bis Montag Wirtschaftsminister der russischen Regierung – macht darin die Volkswirtschaftsministerin darauf aufmerksam, dass Investor Viktor Vekselberg im April eine grössere Beteiligung an der Firma Sulzer gekauft habe, jedoch immer noch nicht ins Aktienregister eingetragen worden sei. Dies sei stossend, weshalb Leuthard aufgefordert wird, zu einer raschen Lösung des Konflikts beizutragen.
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Und für den Fall, dass sie den Ernst der Situation falsch einschätzen sollte, weist ihr damaliger Amtskollege mit drohendem Unterton darauf hin, dass die russische Regierung bis jetzt ausländische Investitionen in die russische Wirtschaft grosszügig unterstützt habe. Sie erwarte deshalb Gegenrecht. Andernfalls könnte die russische Regierung die Investitionen und die Expansion von Schweizer Firmen in Russland unterminieren.

Evelyn Kobelt, Sprecherin des Volkswirtschaftsdepartementes, bestätigt den Eingang von Grefs Schreiben. «Wir haben auch darauf geantwortet», sagt sie, will sich aber zum Inhalt des Antwortschreibens nicht äussern.

Everest ist seit Ende April mit einer Beteiligung von 32% in Aktien und Optionen die grösste Aktionärin von Sulzer. Allein die Aktien sind heute 1,3 Mrd. Fr. wert. «Die Gespräche über die Eintragung laufen noch, und die beiden Parteien haben Stillschweigen über den Inhalt vereinbart», sagt Sulzer-Sprecherin Verena Gölkel.

Die Sulzer-Statuten regeln die Eintragung, wie es das Obligationenrecht vorschreibt: Sulzer anerkennt nur als Aktionär, wer im Aktienbuch eingetragen ist. Voraussetzung dafür ist die formrichtige Übertragung der Aktien. Sulzer kann verlangen, dass der Erwerber «ausdrücklich erklärt, dass er die Aktien im eigenen Namen und auf eigene Rechnung erworben hat und halten wird». Tut er dies nicht, darf Sulzer «die Eintragung in das Aktienbuch als Aktionär mit Stimmrecht verweigern». In den Statuten gibt es keine anderen Gründe für eine Nichteintragung.
Stillhalteabkommen

Sulzer hat am Dienstag eine Medienmitteilung verschickt, wonach Everest 21% der Sulzer-Aktien halte sowie Call-Optionen, die zum Erwerb von weiteren 10,4% berechtigen. Als wirtschaftlich Berechtigter von Everest wird Viktor Vekselberg genannt. Wenn die Dinge so klar liegen, warum ist dann der Milliardär nicht eingetragen und weiterhin ohne Stimmrecht?

Aus politischen Kreisen verlautet, dass Sulzer für die Eintragung des Everest-Pakets Forderungen stelle, die offenbar weit über das Übliche hinausgingen. Der von Ex-Konzernchef Ulf Berg präsidierte Verwaltungsrat verlange ein Stillhalteabkommen. Vekselberg solle sich verpflichten, während mehrerer Jahre die Strategie des Verwaltungsrates mitzutragen und bei Änderungen generell mit dem Gremium zu stimmen. «Ein Unternehmen kann versuchen, einem Grossaktionär auf informellem Weg solche Zugeständnisse abzuringen», sagt ein auf Übernahmen spezialisierter Wirtschaftsanwalt, «solche Vereinbarungen formell zu treffen oder die Eintragung ins Aktienregister davon abhängig zu machen, wäre aber widerrechtlich.»

Dass Sulzer Everest noch nicht als Aktionärin akzeptiert, hat sich Vekselberg selbst eingebrockt – weil er die Beteiligung gemeinsam mit den österreichischen Investoren Ronny Pecik und Georg Stumpf aufgebaut hat. Um Sulzer hatten seit Herbst 2006 Übernahmegerüchte kursiert, ohne dass ein Investor die tiefste meldepflichtige Schwelle von 5% überschritten hätte. Am 20. April teilte dann Vekselberg mit, dass Everest eine Beteiligung von knapp 32% an Sulzer erwerbe. Everest gehörte damals je zur Hälfte Vekselberg und der Beteiligungsgesellschaft Victory. Als wirtschaftlich Berechtigte von Victory wurden RPR und Millennium genannt, die Privatstiftungen von Pecik und Stumpf. Victory ist die bestimmende Aktionärin von OC Oerlikon und hielt Ende April 34% der Aktien des Technologiekonzerns, Vekselberg weitere 13,8%. Diese komplizierten Verflechtungen hinter Everest boten Sulzer grosse Angriffsflächen.

Wie konnte Everest in einem Tag eine Beteiligung von 32% aufbauen, ohne vorher das Überschreiten der Schwellen von 5%, 10% und 20% zu melden? Die Frage beschäftigt die Eidg. Bankenkommission (EBK).

Als Everest im Juni den Antrag auf Eintragung eingereicht habe, habe Sulzer ihr mitgeteilt, dass die Grossaktionärin das Ergebnis der EBK-Untersuchung abwarten müsse, sagen gut informierte Quellen. In Winterthur wollte man erklärt bekommen, wer genau die wirtschaftlich Berechtigten hinter den Privatstiftungen von Pecik und Stumpf sind. Everest sollte auch belegen, dass die Sulzer-Aktien effektiv in ihrem Depot liegen und nicht an Banken ausgeliehen sind. Zudem wurde sie aufgefordert, in mehreren Ländern abzuklären, ob es kartellrechtliche Schwierigkeiten gebe, weil Vekselberg und Victory gemeinsam Sulzer und OC Oerlikon faktisch kontrollieren könnten. Sulzer verlangte von Everest Klärung dieser Punkte. Andernfalls sei das Gesuch auf Eintragung zurückzuziehen oder als abgelehnt zu betrachten.
Viktor ohne Victory

Ende August schien Vekselberg der Befreiungsschlag zu gelingen. Der Oligarch kaufte Pecik und Stumpf den 50%-Anteil von Victory an Everest ab. Es wurde erwartet, dass der Eintragung der Beteiligung damit nichts mehr im Weg stünde, waren doch die Widerstände von Sulzer auf Victory und ihre Methoden zurückzuführen: Optionsgeschäfte, Securities Lending, Privatstiftungen. Mit der Trennung von Vekselberg und Victory bei Sulzer schienen auch mögliche kartellrechtliche Bedenken ausgeräumt.

Vekselbergs Pressesprecher Markus Blume will sich auf Anfrage nicht zu den Gründen äussern, warum Sulzer Everest nicht ins Aktienbuch einträgt. Die Frage, ob man rechtliche Schritte erwäge, will er «zum jetzigen Zeitpunkt» nicht beantworten. Man sei im Gespräch, prüfe aber alle Optionen.

Will Vekselberg beweisen, dass er wirklich unabhängig von Putins Regierung handelt, würde ihm der Gang ans Handelsgericht mehr nützen als weitere Korrespondenz auf Ministerebene.

Mehr Transparenz durch den Kapitalmarkt
Russische Beteiligungsgesellschaft Renova erhält Rating von S&P
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Mehr Transparenz durch den Kapitalmarkt

Russische Beteiligungsgesellschaft Renova erhält Rating von S&P

gho. Moskau, 21. September Russische Unternehmen gelten oft zu Recht als intransparent. Daran ist aber nicht nur die schlechte Verankerung des Corporate-Governance-Gedankens in Russland schuld, sondern auch der Umstand, dass viele Gesellschaften im Besitz von Einzelpersonen sind, die an Publizität ...
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gho. Moskau, 21. September

Russische Unternehmen gelten oft zu Recht als intransparent. Daran ist aber nicht nur die schlechte Verankerung des Corporate-Governance-Gedankens in Russland schuld, sondern auch der Umstand, dass viele Gesellschaften im Besitz von Einzelpersonen sind, die an Publizität kein grosses Interesse haben. Die Finanzierung erfolgt meist über einbehaltene Gewinne oder Kredite. In den vergangenen Jahren gewannen jedoch der Anleihenmarkt und die Kapitalaufnahme über einen Börsengang an Bedeutung. Private-Equity-Gesellschaften, die zwar selbst meist intransparent, aber als Aktionäre sehr aktiv sind, haben hingegen in Russland noch immer keine grosse Verbreitung.
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Vekselberg hält 100 Prozent

Eine besondere Kategorie intransparenter Gesellschaften sind die Finanzvehikel russischer Grossinvestoren, über die beispielsweise Oleg Deripaska (Basic Element), Michail Potanin (Interros) oder Viktor Vekselberg ( Renova ) ihre Beteiligungen verwalten. Um aber am Kapitalmarkt teilnehmen zu können, müssen auch diese Beteiligungsgesellschaften Zugeständnisse machen, wenn sie sich denn zu günstigen Konditionen mit Finanzkapital eindecken wollen. In dieser Woche erhielt die russische Renova Holding von Standard & Poor's (S&P) ein Rating (vgl. Kasten). Laut Auskunft der Rating-Agentur ist Renova, die auch an den Schweizer Unternehmen Sulzer und Oerlikon beteiligt ist, die erste derartige russische Holding, die ein Kreditrating bekommen hat.

Der Bericht von S&P zu Renova ist zwar nicht besonders detailliert, aber er ist ein erster Schritt zu mehr Transparenz, der durch die Anforderungen am Kapitalmarkt erzwungen wurde. So wird erläutert, dass Renova zu 100% Viktor Vekselberg gehört. Ende des vergangenen Jahres betrug der Wert des Portefeuilles von Renova etwa 12 Mrd. $, wovon 76% auf russische Beteiligungen entfallen. Die Filetstücke sind dabei der 12,5%-Anteil an der Erdölgesellschaft TNK-BP und das 7,7%-Aktienpaket am Aluminiumproduzenten UC Rusal. Diese Anteile werden direkt gehalten. Die übrigen Vermögenswerte gehören über den Intermediär Renova Industries, der zu 86% im Besitz der Renova Holding ist, zum Imperium von Vekselberg. Durch die Reinvestition der Dividenden aus diesen Kernbeteiligungen habe sich Renova in den vergangenen Jahren breit diversifiziert und sei schnell gewachsen.
Undurchsichtige Staatsunternehmen

Laut S&P haben sich in den vergangenen Jahren die Transparenz der Unternehmen und auch die Corporate Governance stark verbessert. Immer mehr Gesellschaften erstellten ihre Finanzrechnungen nach IFRS oder US GAAP, was vor fünf Jahren noch nicht der Fall gewesen sei. Ein wichtiger Anreiz sei der Wunsch gewesen, Zugang zu den Kapitalmärkten zu bekommen. Zugleich müsse aber betont werden, dass Russland im Vergleich mit den europäischen Staaten immer noch punkto Transparenz hinterherhinke. Diesen Befund teilen auch russische Ökonomen des Centre for Economic and Financial Research in einer jüngst erschienenen Studie. Die Wissenschafter führen zudem aus, dass die russische Wirtschaft hinsichtlich der Eigentümerschaft immer noch hoch konzentriert sei. Die derzeit grössten Probleme seien die mangelnde Rechtsdurchsetzung, der steigende Staatsinterventionismus und das Misstrauen der Öffentlichkeit gegenüber der Privatisierung.

Während sich private Unternehmen unter dem Druck der internationalen Kapitalmärkte immer mehr öffnen, hinken die mehrheitlich vom Staat kontrollierten Unternehmen hinterher, obwohl auch diese aufgrund der Ausgabe von Anleihen und Hinterlegungsscheinen Zugeständnisse machen müssen. Staatlich kontrollierte Unternehmen tätigen etwa 50% aller Investitionen in Russland. Dieser Umstand könnte die Anstrengungen für eine Verbesserung der Transparenz in Russland bremsen. So sagte gar in einem Interview Arkadi Dworkowitsch, der Wirtschaftsberater des russischen Präsidenten, dass die Vorgänge der Staatsgesellschaften teilweise undurchsichtig und ökonomisch nicht immer nachvollziehbar seien, und nannte als Beispiel den Verkauf von 50% an der Erdölgesellschaft Tomskneft. Der staatliche Erdölmulti Rosneft behauptet, die Beteiligung an die Staatsbank Vneschekonombank (VEB) veräussert zu haben, was VEB aber bestreitet.

*

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20. August 2007, 17:18, NZZ Online
Milliardär Vekselberg soll weiter pauschal besteuert werden
Milliardär Vekselberg soll weiter pauschal besteuert werden
Zürcher Kantonsrat lehnt «Basler Lösung» für Pauschalsteuer ab
Der russische Milliardär Viktor Vekselberg
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Der russische Milliardär Viktor Vekselberg (Bild: Reuters)
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Milliardär Vekselberg soll weiter pauschal besteuert werden

Zürcher Kantonsrat lehnt «Basler Lösung» für Pauschalsteuer ab

Der Milliardär Viktor Vekselberg soll im Kanton Zürich weiter pauschal besteuert werden. Der Zürcher Kantonsrat lehnte am Montag ein Postulat mit 110 zu 60 Stimmen ab, das den Begriff der Erwerbstätigkeit präzisieren wollte. ...
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Der Milliardär Viktor Vekselberg soll im Kanton Zürich weiter pauschal besteuert werden. Der Zürcher Kantonsrat lehnte am Montag ein Postulat mit 110 zu 60 Stimmen ab, das den Begriff der Erwerbstätigkeit präzisieren wollte.

(sda) Der Kanton Zürich bietet dem Milliardär Viktor Vekselberg weiterhin eine pauschale Beteuerung an. Der Kantonsrat hat einen Antrag zur Präzisierung des Begriffs der Erwerbstätigkeit mit 110 zu 60 Stimmen abgelehnt. Das dringliche Postulat von AL, SP und Grünen verlangte vom Regierungsrat, in der Weisung des Steueramtes den Begriff der Erwerbstätigkeit im Sinne der «Basler Regelung» zu definieren.
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Wenn der in Zürich lebende russische Milliardär Viktor Vekselberg trotz seinen namhaften Beteiligungen an schweizerischen Traditionsunternehmen als «nicht erwerbstätig» bezeichnet werde, sei dies ein «missbräuchlich anmutendes Steuerprivileg», sagte Postulant Kaspar Bütikofer (al., Zürich).

Mit einer Lösung wie im Kanton Basel-Stadt könne der Interpretationsspielraum verkleinert und ein Steuerschlupfloch gestopft werden. Danach soll jemand nicht pauschal besteuert werden können, wenn er im In- oder Ausland Einkünfte aus Erwerbstätigkeit erzielt.

Die Regelung sei allen Steuerpflichtigen gegenüber ungerecht, benachteilige aber auch die «guten Steuerzahler», sagte Postulantin Elisabeth Derisiotis (sp., Zollikon). Nur mit einer Klärung könne das Vertrauen in Behörden und Staat zurückgewonnen werden.
FDP: Keine «grosszügige Auslegung»

Die heutige Zürcher Praxis entspreche dem Bundesgesetz, denn ein Unternehmer wie Vekselberg sei in der Schweiz nicht erwerbstätig, wenn er keinen Lohn oder Tantiemen erhalte, sagte FDP-Sprecher Hans-Peter Portmann (Thalwil). Es gehe überhaupt nicht um eine besonders grosszügige Auslegung.

Portmann warf der linken Ratsseite vor, sie betreibe «Neidpolitik». Es sei ein «legitimer Wettbewerbsvorteil», wenn nicht erwerbstätige Unternehmer im Kanton Zürich pauschal besteuert würden. Vekselberg versteuere sein Einkommen in Russland. Und seine Investmentgesellschaft Renova schaffe in Zürich 30 Arbeitsplätze.

Das zürcherische Steueramt verhalte sich absolut korrekt, betonte Finanzdirektorin Ursula Gut (fdp.). Es wird sich gemäss der Kantonsregierung im Rahmen der Schweizerischen Steuerkonferenz, der Vereinigung der kantonalen Steuerämter und der Eidgenössischen Steuerverwaltung um eine einheitliche Umschreibung der Voraussetzung für die Pauschalbesteuerung bemühen.

Gegen die Überweisung des dringlichen Postulats an den Regierungsrat stimmten SVP, FDP, CVP, EDU, GLP und einige EVP-Mitglieder.

santa claus and the independence of the fed or when the saints go marching in

it is the end of a myth that the fed relies on quantitative objective scientific data to assess the state of the economy linked to markets turbulence. greenspan acknowledged the socratic dictum and hence his own wisdom, i know that i dont know , and proof has leaked out that bernake consulted several large players to assess the situation instead of relying on independent analysts. the fed governor is forced to give a qualitative judgment and given its poor qualitative background ( no philosophical , rethoric , argumentative, psychological skills and above all , unlike greenspan, no political background to assess the real nature of the human being and investors , mors tua vita mea, in this case life to wall street and death to america) we can but shiver on the outcome of his decisions, certainly biased and influenced.

http://www.bloomberg.com/apps/news?pid=20601087&sid=ae21h4HAD6Ag&refer=home
in this article several names are mentioned. what were the criteria chosen for the selection of these people and why hedge fund and mutual fund managers were consulted to assess the state of the economy, clearly partisan actors heavily exposed to the markets. another doubt that may be raised is whether some circles could gauge the next move of the fed better than the normal and prudent investor working with public information and common sense .



When the Saints Go Marching In

We are trav'ling in the footsteps
Of those who've gone before,
And we'll all be reunited,
On a new and sunlit shore,

Oh, when the saints go marching in
Oh, when the saints go marching in
Lord, how I want to be in that number
When the saints go marching in

And when the sun refuse to shine
And when the sun refuse to shine
Lord, how I want to be in that number
When the sun refuse to shine

And when the moon turns red with blood
And when the moon turns red with blood
Lord, how I want to be in that number
When the moon turns red with blood

Oh, when the trumpet sounds its call
Oh, when the trumpet sounds its call
Lord, how I want to be in that number
When the trumpet sounds its call

Some say this world of trouble,
Is the only one we need,
But I'm waiting for that morning,
When the new world is revealed.

Bernanke Spoke With Rubin as Credit Crisis Worsened (Update1)

By Craig Torres
Enlarge Image/Details

Oct. 3 (Bloomberg) -- The Federal Reserve's Aug. 7 decision to keep interest rates unchanged set off a chain of high-level discussions with Wall Street executives, money managers and cabinet officials that culminated in Chairman Ben S. Bernanke's public about-face 10 days later, according to records of his schedule.

Starting with a phone call from former Treasury Secretary Robert Rubin the day after the August rate meeting, Bernanke's appointments included Lewis Ranieri, founder of Hyperion Capital Management Inc., and Raymond Dalio, president of Bridgewater Associates.

The information on Bernanke's calls and contacts was obtained under the Freedom of Information Act by Kenneth H. Thomas, a lecturer at the University of Pennsylvania's Wharton School in Philadelphia. The records depict a chairman who ``has made a very good effort to get up to date with what is going on,'' Thomas said.

David Skidmore, a Fed spokesman in Washington, confirmed the authenticity of the document provided by Thomas to Bloomberg News. He said he couldn't provide details of discussions that Bernanke, 53, had with Rubin and others.

The conversations came against the backdrop of the worst global credit rout in almost a decade. After $38 billion in cash injections into the banking system failed to boost liquidity, the Fed on Aug. 17 cut its discount rate by half a percentage point, to 5.75 percent, and signaled a September reduction in the benchmark federal funds rate. The Fed cut the key rate a half-percentage point to 4.75 percent on Sept. 18.

Rubin's Message

Rubin, 69, now chairman of the executive committee at Citigroup Inc. in New York, told Bernanke that the Fed made the right decision on Aug. 7, even as traders complained the central bank was oblivious to weakening markets, according to a person familiar with the conversation.

On Aug. 9, Bernanke met from 11 a.m. to noon with Ranieri, a former vice chairman of Salomon Brothers Inc. and a pioneer in the mortgage-backed securities market. Fed Governor Randall Kroszner and Community Affairs Director Sandra Braunstein, who also runs an enforcement team, joined the conversation with Ranieri. Ranieri, 60, wasn't available for comment.

Dalio visited Bernanke at 2 p.m. the same day. Bridgewater is the fourth-largest U.S. hedge fund firm, with $32.10 billion in assets under management as of July 1, according to HedgeFund Intelligence's Absolute Return magazine.

Dalio's office in Westport, Connecticut, didn't return telephone calls seeking comment.

Exchange With King

According to the Fed records, Bernanke consulted throughout the month with staff experts, investors, congressional officials, community groups and Bank of England Governor Mervyn King.

Bernanke and King spoke by telephone at 1:30 p.m. on Aug. 17, following the U.S. discount-rate cut that morning. Bernanke was also in frequent contact with Treasury Secretary Henry Paulson, who said in an interview last month that he meets the chairman regularly.

Bernanke's schedule lists 35 Fed conference calls from Aug. 9 to Aug. 31, including at least two during the central bank's summer retreat at Jackson Hole, Wyoming. During the first full day of the symposium, Bernanke said in a speech that he would do what was needed to keep the six-year economic expansion going.

On the eve of the Aug. 7 rate decision, Bernanke received a briefing from Fed staff on markets. He also spoke with Timothy Geithner, president of the Fed's New York branch and the central bank's chief liaison with Wall Street.

Adding Reserves

In the days after the rate meeting, as Bernanke touched base with executives and investors, credit costs climbed. The Fed added more reserves to the banking system than any time after the terrorist attacks of Sept. 11, 2001, in an attempt to increase liquidity.

Yield differences between high-grade debt and riskier credit widened, according to a macroeconomic risk index tracked by Citigroup Global Markets. The index rose to 0.98 on Aug. 17, with a reading of one being a measure of high risk aversion, up from 0.89 on the day before the rate decision.

Wayne Passmore, a Fed expert on mortgage finance, met with Bernanke at least four times in August, including before and during Bernanke's Aug. 2 meeting with Freddie Mac Chairman Richard Syron, the schedule shows.

``He is going up and down his staff,'' gathering information on markets, Thomas said, referring to Bernanke.

The chairman continued to get reports on market conditions from investors after cutting the discount rate.

On Aug. 23, the schedule says Bernanke took a call from John Brennan, 53, chief executive officer of Vanguard Group. Senior Fed economists Brian Madigan, now in charge of the Monetary Affairs Division, and Patrick Parkinson, a financial stability expert, participated.

Vanguard managed $1.1 trillion in mutual fund assets at the end of 2006, according to the company's Web site. Officials for the Valley Forge, Pennsylvania-based firm couldn't be reached for comment.

To contact the reporter on this story: Craig Torres in Washington at

greenspan on suprime and us economy

http://www.bloomberg.com/avp/avp.asxx?clip=mms://media2.bloomberg.com/cache/vl57PPe2RWlc.asf


href="http://www.bloomberg.com/avp/avp.asxx?clip=mms://media2.bloomberg.com/cache/vl57PPe2RWlc.asf">

when benni santa claus cuts the rates

wall street rejoices . 50 bps , thank you santa klaus, this is response from the street . we are richer , valuations are fine ,goldman sachs reports stronger than expected results and equities are rated a strong buy .

the suspicion may rise on the real role of the federal reserve , to steer the dynamics of economic growth and recession , ie to avoid a boom or bust economic cycle or to launch pre-emptive attacks on suspect developments paving the way to the most exuberant market players who few weeks before were reporting huge losses on their quantic funds ?

clearly it is difficult to argue that mr bernanke , a harvard professor , in concert with the former goldman sachs chairman mr paulson from the us treasury ,came to the rescue of genius hedge funds traders, probably their former students and business partners, positionned for the best case scenario in their trading strategies to get out of the doldrums . nonetheless the recent move speaks loudly about the delicate position in which the federal reserve finds itself, practically a hostage to wall street, betting that higher equity valuations coupled with an infusion of world economic growth will curtail a negative spill over of the us economy .

Not surprisingly the dollar has dropped heavily and the bet of Mr Bernanke is more open than ever . The question remains on the real role of the Fed , that of boosting the economy or to keep it going at a reasonable pace. Is the Fed indipendent or submitted to real pressure that eventually influences its own judgement on the state of the economic affairs? Similarly is the claim of economists to take decisions on scientific grounds still valid given the dynamics and the context of this last decision?

The motto never fight the fed is more true than ever but something else should be added , never fight wall street and its capacity of moving the levers of public power . Small investors should be awed by large and powerful firms and should wake up from the illusion of an independent Fed responsible for granting stability in the markets regardless of the power configuration . The first palpable sign of such an argument is the very weakness of the dollar and the exorbitant profits of the likes of Goldman Sachs positioned before hand in the fastest growing markets outside the US. The real losers, for the time being, are the American people.

Furthermore the current strike of general motor is another sign of unease and insecurity reigning in America. The working class is disappearing, hail China and the Investment bankers who are drawing profits from it.

Who said that a weak currency is good for the economy ? Those Europeans incapable of executing structural reforms . The onus before the euro adoption was high interest rates for small players without credit lines abroad.

trichet and central bank indipendence

http://www.bloomberg.com/apps/data?pid=avimage&iid=izblQEK4fZ6M

d timber of humanity, no straight thing was ever made

out of the crooked timber of humanity, no straight thing was ever made

grillo/euronews

http://euronews.net/index.php?page=interview&article=443734&lng=4&option=1
http://mediacenter.corriere.it/MediaCenter/action/player?uuid=866d551c-673c-11dc-8226-0003ba99c53b
http://mediacenter.corriere.it/MediaCenter/action/player?uuid=77c38658-673c-11dc-8226-0003ba99c53b
http://mediacenter.corriere.it/MediaCenter/action/player?uuid=58439c14-673c-11dc-8226-0003ba99c53b
http://mediacenter.corriere.it/MediaCenter/action/player?uuid=676682d8-673c-11dc-8226-0003ba99c53b

germany divide , interactive map

http://media.ft.com/cms/ae2f6f8a-653f-11dc-bf89-0000779fd2ac.swf
http://www.ft.com/cms/s/0/798fc53e-6532-11dc-bf89-0000779fd2ac.html
Germany’s north-south split

By Bertrand Benoit in Berlin

Published: September 17 2007 18:38 | Last updated: September 17 2007 18:38

Holzminden, a town of 20,000 souls on the border between Lower Saxony and North Rhine-Westphalia, lies roughly at the centre of northern Germany. Yet Angela Schürzeberg, head of strategic planning for the district, maintains: “We are the east of the west,” as she sifts through a stack of depressing statistical reports.

In economic terms, her statement makes sense. Holzminden, whose slow decline has brought its standard of living close to that of depressed regions in the former Communist east, embodies a trend that is perplexing economists.

As recently as five years ago, a common assumption was that the east, helped by considerable subsidies, would develop and eventually match the living standards of the west. Well into the second year of the country’s robust economic recovery, however, it is catching up, but not in the expected way.

Instead of developing uniformly, eastern Germany is gradually taking on a long-standing feature of the west, with a wealthy and fast-growing south but a struggling north. Meanwhile the west’s own north-south divide, which a decade ago was thought to be vanishing, has instead deepened.


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If the trend persists, the mental map assuming a rich west and poor east – which has shaped policy-making and dictated the flow of domestic development aid since the country’s reunification 17 years ago – could soon be replaced by a new one, cut along a roughly latitudinal line from Cottbus, on the Polish border, to Aachen, Germany’s gateway to the low countries.

“There are still big differences between east and west,” says Peter Kaiser, project manager at Prognos, a Swiss economic consultancy. “But the north-south dichotomy is quite remarkable and very resilient.”

In June, Prognos published the latest edition of its German Future Atlas, the first since 2004, examining the economic prospects of 439 municipalities and districts. The study was a shocking read for politicians and business people in the north.

For a start, as a measure of research and development activity, it showed that more than 51 per cent of patents filed in 2005 and 2006 originated in Bavaria and Baden-Württemberg, Germany’s southernmost states, up from 47 per cent in 2000. Munich and Stuttgart, their respective capitals, were home to 15 per cent of the country’s total corporate research capacity.

The core macroeconomic data tell the same story. The unemployment rate in the southern states of Baden-Württemberg, Bavaria, Rhineland-Palatinate and Hessen last month stood at an average of 6 per cent. North of the Cottbus-Aachen line in North Rhine-Westphalia, Lower Saxony, Schleswig-Holstein, Hamburg and Bremen, it was 9.6 per cent.

The gap is increasing. Out of Germany’s 16 states, the southernmost four last year generated almost half the gross domestic product. Since reunification, their economies have grown by 48 per cent, compared with just 37 per cent for the north’s three largest states.

“The north-south divide has been there for some time,” says Eric Thode of the Bertelsmann foundation, whose study of German regional development published this month matched Mr Kaiser’s findings “What is preoccupying is that the two sides are diverging, not converging.”

In eastern Germany, a clear north-south divide has also emerged. Last month, Saxony and Thuringia in the south had 13.4 per cent unemployment against 15.3 per cent in the region’s four northern states, including Berlin. Saxony’s economy grew by 4.2 per cent last year, faster than any other German state.

Holzminden, just north of the Cottbus-Aachen line, offers sobering insights into the overwhelming power of history, geography and markets in shaping a country’s economic fortunes and the comparatively limited influence of economic policies.

Chain-smoking at his Volkswagen dealership, Michael Vatterott, president of the Holzminden chamber of commerce, is shocked by the Prognos study. Of all western municipalities surveyed, his town scored worst. “I hope this will be a trigger for action, not for despair,” he says. “Bad publicity can easily become a self-fulfilling prophecy.”

With its boarded-up stores, Holzminden’s main shopping street bears witness to the town’s slow descent. In the past four years, despite a high birth rate, the population has dropped by 3.4 per cent. Unemployment is high at 11 per cent, while economic growth from 2001 to 2004 was only half the German average.

The town boasts large and successful employers, including Symrise, a chemicals company, and Stiebel Eltron, which makes heating equipment. Yet the main weakness of the locality lies precisely in its economic mono­culture. Holzminden’s employers need engineers and technicians, while Holzminden’s educational facilities train architects and social workers. The result is an unbalanced labour market and massive emigration of the young and well qualified.

“The big employers here have to go elsewhere to find the right people,” says Ms Schürzeberg. “Meanwhile, we are chronically missing about 3,000 jobs.” Michael Birke at Stiebel Eltron says the family-owned company is doing well thanks to its high market share and a booming export business, but he concedes that finding employees has become hard.

Holzminden’s poor transport infrastructure – it is an hour’s drive from the nearest autobahn – makes it unattractive for new businesses, especially in the fast-growing service industry, which is sorely underrepresented in the district. In a lethal vicious circle, the town’s shrinking population and dwindling public finances make it increasingly difficult to justify – and to afford – the type of infrastructure that would attract employers. “We cannot even get a decent broadband internet connection,” says Andreas Schrader, whose chemicals institute performs product tests for the cosmetics industry, which involve sending and receiving large amounts of electronic data.

For Mr Kaiser, the town lacks an essential ingredient in the recipe for economic success in 21st century Germany. “One decisive advantage of the south is diversification. North Rhine-Westphalia and Lower Saxony all have strong clusters. But Bavaria has clusters of clusters. In fact, it is a bit of a cluster magnet.”

In the south, upper Bavaria and Munich in particular are good examples. Their economic competence spans microelectronics, aerospace, carmaking and financial services. Baden-Württemberg is another, with a panoply of advanced engineering companies along with their constellations of suppliers and service providers.

This offers an important clue to the failure of Germany’s north – whether in the east or in the west – to catch up with the south. “Some regions in the north-east clearly lack the basis for endogenous development,” says Mr Kaiser, “But many others in the north have bright industrial and corporate spots – ‘lighthouses’. The problem is they lack critical mass. The layer is too thin.”

Radebeul, a suburb of Dresden, Saxony’s capital, is south of the line but deep in the east, a town of 30,000 which is the counterpoint to Holzminden, which lies 400km to the north-west.

Sibylle Thomas-Göbelbecker manages the Rolls-Royce dealership, the only one in eastern Germany. She bristles when the word “east” is mentioned. “Everywhere, not just in Germany, east has a negative connotation. East is poor, grey, Communist. But we Saxons are not easterners, we are southerners. We have so much in common with the Bavarians,” she says, listing the love of good beer, an earthy sense of humour and a fondness for baroque architecture.

From her palatial premises on the town’s outskirts, she supplies not only Rolls-Royces but Ferraris, Aston Martins and Maseratis to local nouveaux riches – whom she reckons make up 75 per cent of her client base – and the expatriate millionaires who dwell in the big villas on the hills.

With both a Ferrari and a Maserati in her garage at home, Ms Thomas-Göbelbecker may not be an average Radebeuler, but most of her fellow locals are not doing badly either. At 8.3 per cent, the town has among the lowest unemployment in the east and, rare for an east German town of this size, its population is increasing steadily.

Its economic fabric is more varied and dynamic than Holzminden’s. KBA, which makes printing equipment and employs 2,300 people, is its biggest employer, followed by Vodafone and Deutsche Telekom and a small pharmaceuticals cluster. Largely thanks to business, Radebeul’s tax revenues have risen by 50 per cent since 2001.

In a way, says Bert Wendsche, Radebeul’s mayor, the town has found a route back to its past. Starting at the end of the 19th century, when a first railway link was built, it developed rapidly to become an important centre for the printing and pharmaceuticals industries and popular as a weekend residence – dubbed the “Nice of the north” – for rich Dresden industrialists. It still benefits from its proximity to the Saxon capital, which headed a ranking by economic dynamism of Germany’s 50 largest cities just published by the Wirtschaftswoche weekly – Leipzig, Saxony’s biggest city, was ranked seventh.



Mr Wendsche has worked to attract companies and younger professionals, by investing in transport infrastructure and kindergartens. “I’ve had to fight to make this happen,” he says. “My argument was that we needed to invest first in those things that would bring tax revenue – then maybe we could talk about that new cycling path.”

The renaissance of Saxony is however, a broader tale of history and markets winning over politics. In eastern Germany, the north-south divide goes back to the beginning of the country’s industrialisation (it would have been referred to as Middle Germany at the time, when the east meant the regions of Prussia reaching as far as today’s Kaliningrad). After the second world war, the communist regime of the German Democratic Republic sought to promote a more uniform development, for instance setting up a large denim manufacturer in Rostock and a glass factory in the Lausitz region, both thinly industrialised areas.

Subject again to the laws of the market since reunification, eastern Germany has eased back into its former economic polarity. “Something of Saxony’s industrial tradition was maintained under the GDR. Dresden still had the country’s computer industry, for instance,” says Kurt Geppert, expert in regional development at Berlin’s DIW economic institute. “When western companies went east after reunification, they moved to those places where they could find expertise in their fields. The quality of a labour market is perhaps the most determining factor in such investment decisions.”

Back in the west, history played a determining role too in the rise of Bavaria, Hessen and Baden-Württemberg. The war and the subsequent partition of the country sent Berlin-based businesses on a frantic west- and southward trek.

Siemens, now Europe’s largest engineering group, moved to Munich – though it still has a nominal seat in the capital. So did Allianz, the insurance group, while all the big banks vacated Berlin for Frankfurt. This presence in turn attracted large foreign companies when they entered the country and most of them still have their German bases in the south.

These relocations were the initial trigger for the economic rise of southern Germany and especially Bavaria, now home to the country’s most technologically advanced industries. Largely agricultural beforehand, Bavaria did not have to grapple with the decline of heavy industry, unlike the Ruhr further north, which still bears the scars of this restructuring process.

“The second world war was a great boon for Bavaria. The move of modern industry and finance to the south planted the seed that gave the south today’s technological and economic lead. The only carmaker in the north is Volkswagen – and it is the only one that was created by political fiat,” says Mr Geppert.

In egalitarian Germany, the prospect of a country increasingly split between poor north and rich south is an uncomfortable one. It is also awkward for a political class that sees its central role as corrector of the market’s worst excesses. It is, finally, an indictment of the financial mechanisms that have for years channelled money from rich states to poorer ones, particularly those in the east.

However, Mr Thode of the Bertelsmann foundation refuses to accept the notion that a region’s future fortunes are cast in stone: “History plays a role but so do policies,” he says. “The lesson for regional politicians is that they should identify their region’s strengths and not distribute aid thinly over a large quantity of greenfield projects, as has often happened in the east’s least dynamic regions.”


The exceptional Hamburg gains ground in globalisation

Kaiserspeicher A, a disused warehouse at the tip of Hamburg’s historic inner-city port, seems nothing to brag about. Its gutted core surrounded by mounds of earth and its thin brick façade leaning on metal supports, it is as appealing as any other industrial ruin.

Things will look different in 2010, however, when Herzog and de Meuron, the star Swiss architects, lift the veil on the Elbe Philharmonic Hall. With a crested, translucent façade soaring 100 metres above the warehouse shell, it will be a landmark to rival the Sydney Opera House or Bilbao’s Guggenheim museum.

The concert hall, part of a gigantic docklands redevelopment that will increase the size of the city centre by 40 per cent, is the most powerful expression of Hamburg’s renaissance as one of the country’s most dynamic cities and a notable exception in the struggling northern half.

That the Elbe Philharmonic should have found its home in a former cocoa and tea warehouse is also fitting, for Hamburg’s role as Germany’s largest port is at the centre of this new dynamism. “Hamburg is the big winner of globalisation,” says Klaus Schrader, economist at the Institute for the World Economy in nearby Kiel. “The port is clearly the single biggest factor in the city’s booming economy.”

The city-state at the mouth of the Elbe has long been seen as Germany’s “gateway to the world” but soaring international trade and the country’s rise to become the world’s biggest exporter make that description more pertinent today than ever.

With 40,000 employees and 154,000 companies involved in shipping, ship financing and logistics, the modern container terminals north of the city centre are the biggest contributors to Hamburg’s gross domestic product. Nearly 9m containers passed through the docks last year, twice the level of 2001. Based on current trends, the figure could reach 18m by 2015. As transit hub for Scandinavia’s and eastern Europe’s overseas exports, Hamburg plays a pivotal role in the continental economy – one worthy of its past as a leading member of the Hanseatic league of trading cities.

With gross domestic product growth of 3.8 per cent last year, it was the second most dynamic of Germany’s 16 Länder, or states. Since 1991, its economy has grown by 53 per cent, twice as much as that of Berlin. No other state in Germany has created as many jobs since the beginning of the current economic upturn.

Though half as big as the federal capital, it is almost twice as rich. With a yearly disposable income per head of €23,000 ($41,630, £20,820) last year, Hamburg was Germany’s richest state and the fourth largest economic region in the European Union.

The harbour also accounts for the city’s economic structure, which is dominated by the services sector. Yet, like Munich and Stuttgart, it is also a cluster of clusters, with a broad range of activities. Industrial employers include Airbus, which has a large plant in the city, and Lufthansa Technik, the airline’s technical subsidiary. Hamburg is also home to some of the country’s largest publishers – Die Zeit and Der Spiegel weeklies, the Bild tabloid and Financial Times Deutschland, the FT’s sister newspaper, have their headquarters there.

A darker spot is the city’s unemployment rate – at 8.9 per cent last month, it was above the national average, though it is rapidly falling. Another is the failure of its vitality to benefit neighbouring, more rural regions, to the extent that could be expected. “There is definitely more work to be done in this area. Hamburg and [the surrounding state of] Schleswig-Holstein need to co-operate more on economic policy,” says Mr Schrader. “This would benefit the city, too, by lifting some of the strain on its capacity.”

Copyright The Financial Times Limited 2007

jp morgan and the credit crisis

When J. Pierpont Morgan, the founder of the great banking dynasty, was asked if commercial credit was based primarily upon money or property, he denied it. “No, sir. The first thing is character,” he said. “Before money or anything else. Money cannot buy it.”

.....

To paraphrase Morgan, whatever credit and equity markets say, the crisis of trust is not yet resolved, and it must be. Money cannot buy it.

on credit crisis spreading

Prepare for the credit crisis to spread

By Wolfgang Munchau

Published: September 2 2007 18:57 | Last updated: September 2 2007 18:57

“Financial operations do not lend themselves to innovation. What is recurrently so described and celebrated is, without exception, a small variation on an established design . . . The world of finance hails the invention of the wheel over and over again, often in a slightly more unstable version.”

A Short History of Financial Euphoria, John Kenneth Galbraith

The late John Kenneth Galbraith would have enjoyed this summer. He was no expert on modern credit markets but his analysis of historic bubbles fits our most recent boom and bust episode with uncanny precision.

All historic bubbles were accompanied by a sharp rise in leverage. A salient feature of modern bubbles is the emergence of innovative financial products. No matter whether we are talking about junk bonds or modern collateralised debt obligations (CDOs), as Galbraith has pointed out, such products boil down to variants of debt secured on a real asset.

By historic standards, our credit bubble is probably one of the largest ever, given the sheer size of the market itself and the degree of euphoria that was characteristic in the final stages of the boom. While the fallout was initially concentrated in the financial sector itself, it would be surprising if the ongoing problems did not trickle down into the real economy. The availability of credit affects house prices and numerous studies have demonstrated the interlinkages between US house prices and US economic growth.

So what should central banks do? I suspect that central banks are not going to be the main actors in any rescue operation, but rather governments. Central banks’ room for manoeuvre to cut interest rates is more constrained this time than during the most recent recession. But more important, this is not the kind of crisis that can easily be stopped by a few hasty rate cuts or bank bail-outs. If your subprime mortgage exceeds the value of your house by 10 per cent, and if the monthly payments exceed your income, no positive interest rate could bail you out. Your only hope is some serious debt relief.

The economists Dimitri Papadimitriou, Greg Hannsgen and Gennaro Zezza last week published a study* in which they demonstrated the danger to US economic growth posed by the present real estate crisis. Their policy recommendations go significantly beyond the usual bail-out calls. They argue that it is almost impossible for policymakers to stop the decline in real estate prices, but “if the Fed and Congress can work to stop any incipient recession, they will prevent job losses, which are one of the main contributors to foreclosures. An effective job-creation method could be some form of employer-of-last-resort programme that offers government jobs to all workers who ask for them”.

We should remember that the subprime market is not the only unstable subsection of the credit market. Once US consumption slows, we should prepare for a crisis in credit card and car finance CDOs. And once corporate bankruptcies start to rise again as the cycle turns down, both in the US and in Europe, we will probably hear about problems with collateralised loan obligations. The credit market is very deep and offers significant potential for contagion.

In this sense, the debate about whether this is a liquidity or a solvency crisis is beside the point. Banks may look at their CDO investments as a source of temporary illiquidity, but may sooner or later realise that they are sitting on a pile of junk. The fiscal and monetary authorities should therefore assume that they are confronted with a solvency crisis. Bailing out the odd bank, as the Germans did last month, is not going to be sufficient and perhaps not even necessary.

Instead, the monetary and fiscal authorities should stand ready to support the economy if and when needed. Lower interest rates will probably be part of any such deal, but a large part of the help will invariably come from fiscal policy. The US Federal Reserve will probably cut interest rates soon and the European Central Bank will almost certainly postpone the rate rise it unwisely preannounced only a few weeks ago. I am convinced the next interest rate movement both in the US and the eurozone will be downwards.

One of the problems the monetary authorities have to deal with is moral hazard. This is not a theoretical issue, as some suggest, but a far more immediate concern. Moral hazard is the result of asymmetric expectations, as markets expect the central bank to bail out the financial sector during a time of crisis. The problem of moral hazard is to some extent related to the monetary policy strategy of central banks, with their mechanistic focus on a single consumer price index. Such strategies often have no space for asset prices, but markets know fully well that central banks must invariably take account of asset prices during sharp downturns. One way out of this asymmetry is for central banks to include asset prices into their policy frameworks in some form or other.

This said, a bail-out of the financial system will probably become unavoidable, but it should be accompanied with structural policy changes. Tighter financial regulation is probable. The role of the ratings agencies is bound to change too. And central banks should reconsider their monetary policy frameworks. They are part of the problem.

*Cracks in the Foundations of Growth, Levy Institute

Send your comments to munchau@eurointelligence.co

on credit crisis spreading

Prepare for the credit crisis to spread

By Wolfgang Munchau

Published: September 2 2007 18:57 | Last updated: September 2 2007 18:57

“Financial operations do not lend themselves to innovation. What is recurrently so described and celebrated is, without exception, a small variation on an established design . . . The world of finance hails the invention of the wheel over and over again, often in a slightly more unstable version.”

A Short History of Financial Euphoria, John Kenneth Galbraith

The late John Kenneth Galbraith would have enjoyed this summer. He was no expert on modern credit markets but his analysis of historic bubbles fits our most recent boom and bust episode with uncanny precision.

All historic bubbles were accompanied by a sharp rise in leverage. A salient feature of modern bubbles is the emergence of innovative financial products. No matter whether we are talking about junk bonds or modern collateralised debt obligations (CDOs), as Galbraith has pointed out, such products boil down to variants of debt secured on a real asset.

By historic standards, our credit bubble is probably one of the largest ever, given the sheer size of the market itself and the degree of euphoria that was characteristic in the final stages of the boom. While the fallout was initially concentrated in the financial sector itself, it would be surprising if the ongoing problems did not trickle down into the real economy. The availability of credit affects house prices and numerous studies have demonstrated the interlinkages between US house prices and US economic growth.

So what should central banks do? I suspect that central banks are not going to be the main actors in any rescue operation, but rather governments. Central banks’ room for manoeuvre to cut interest rates is more constrained this time than during the most recent recession. But more important, this is not the kind of crisis that can easily be stopped by a few hasty rate cuts or bank bail-outs. If your subprime mortgage exceeds the value of your house by 10 per cent, and if the monthly payments exceed your income, no positive interest rate could bail you out. Your only hope is some serious debt relief.

The economists Dimitri Papadimitriou, Greg Hannsgen and Gennaro Zezza last week published a study* in which they demonstrated the danger to US economic growth posed by the present real estate crisis. Their policy recommendations go significantly beyond the usual bail-out calls. They argue that it is almost impossible for policymakers to stop the decline in real estate prices, but “if the Fed and Congress can work to stop any incipient recession, they will prevent job losses, which are one of the main contributors to foreclosures. An effective job-creation method could be some form of employer-of-last-resort programme that offers government jobs to all workers who ask for them”.

We should remember that the subprime market is not the only unstable subsection of the credit market. Once US consumption slows, we should prepare for a crisis in credit card and car finance CDOs. And once corporate bankruptcies start to rise again as the cycle turns down, both in the US and in Europe, we will probably hear about problems with collateralised loan obligations. The credit market is very deep and offers significant potential for contagion.

In this sense, the debate about whether this is a liquidity or a solvency crisis is beside the point. Banks may look at their CDO investments as a source of temporary illiquidity, but may sooner or later realise that they are sitting on a pile of junk. The fiscal and monetary authorities should therefore assume that they are confronted with a solvency crisis. Bailing out the odd bank, as the Germans did last month, is not going to be sufficient and perhaps not even necessary.

Instead, the monetary and fiscal authorities should stand ready to support the economy if and when needed. Lower interest rates will probably be part of any such deal, but a large part of the help will invariably come from fiscal policy. The US Federal Reserve will probably cut interest rates soon and the European Central Bank will almost certainly postpone the rate rise it unwisely preannounced only a few weeks ago. I am convinced the next interest rate movement both in the US and the eurozone will be downwards.

One of the problems the monetary authorities have to deal with is moral hazard. This is not a theoretical issue, as some suggest, but a far more immediate concern. Moral hazard is the result of asymmetric expectations, as markets expect the central bank to bail out the financial sector during a time of crisis. The problem of moral hazard is to some extent related to the monetary policy strategy of central banks, with their mechanistic focus on a single consumer price index. Such strategies often have no space for asset prices, but markets know fully well that central banks must invariably take account of asset prices during sharp downturns. One way out of this asymmetry is for central banks to include asset prices into their policy frameworks in some form or other.

This said, a bail-out of the financial system will probably become unavoidable, but it should be accompanied with structural policy changes. Tighter financial regulation is probable. The role of the ratings agencies is bound to change too. And central banks should reconsider their monetary policy frameworks. They are part of the problem.

*Cracks in the Foundations of Growth, Levy Institute

Send your comments to munchau@eurointelligence.co

african invetsment

http://www.ft.com/cms/s/1/d9fa8136-5540-11dc-b971-0000779fd2ac.html
africa in the radar screen : standard chartered , jpmprgan, historical actors . renaissance capital stepping in from Russia with love . chinese intensifying their presence through commodity trading.

subprime forever : the art of selling your debts for nothing

europe takes it on the back , a big applause to mr trichet, former investigated executive of the bankrupt state owned credit lyonnais : vigilant on inflation , raising interest rates, strengthening the euro , the hawk is unaware of the credit lines of European commercial banks exposed to the us subprime mortgage . Americans have sold their subprime mortgage to greedy European regional banks , the masters of finance have been seduced by the American gurus who get rid of their garbage . one morning mr banker wakes up in a village in the Ruhr and finds out that its mortgage bonds portfolio is melting down while in paris executive manager call their buddy to announce they blew up a big chunck of the pension fund and they will it abide by the market rules .

check this , great interview to a great analyst / strategist , a fine connaisseur of economic matters

http://www.bloomberg.com/avp/avp.htm?clipSRC=mms://media2.bloomberg.com/cache/v.btSCKkH87g.asf

dR dOOM IS BACK : how much is he paid per interview. agree totally with him. he always makes sense . however that's the only yargument he puts forward boom and bust. it does not take a lot. he is a brand though. dr doom !!!

Cdos , another nightmare not turing true?

see past gyrations, gas market collapse, oil prices, hezbollah, iraq , bird flu...did not materialise in any recession . what about now ?

on credit swaps , liquidity and price inefficiency

The Short View: Credit swaps

By John Authers, Investment Editor

Published: July 31 2007 18:12 | Last updated: July 31 2007 18:12

Did the risk of default on US investment grade bonds really triple over the last month? And having done so, did this risk really drop by a third over the ensuing 24 hours?

Of course not. But movements in the prices of credit default swaps, which allow investors to buy protection against defaults, suggested exactly that. So we now know that the market for credit derivatives, which did not exist even five years ago, is inefficient.

That is no surprise. Markets do not always trade in line with fundamentals. All asset classes show inefficiencies, and much money is made exploiting them.

But this latest spasm raises questions about the vast and unruly market for credit derivatives. How does it operate, and how to gauge fundamental value?

The way the price of default swaps has ricocheted in the last few days appears to reflect a market in which there are only a few ultimate “sellers” (at the big investment banks), who if they do not feel confident about their ability to hedge their exposures can simply mark prices up to unrealistic levels. This is much less efficient than the markets for stocks or bonds.

As for the fundamentals, moves in swaps prices have far outpaced moves in underlying bonds. Both should be tied to the the risk of default, which has been cyclical in the past. Corporate defaults are running at historic lows at present, so they are likely to increase.

However, cool-headed analysis suggests that the cost of default insurance went beyond anything rational. At the end of last week, George Bory at UBS produced calculations showing that credit insurance prices implied that defaults would rise by more than 6 per cent in a year. This is conceivable, but Mr Bory points out that this has not happened in 25 years.

Calculations like this helped buyers regain their nerve this week. But the inefficiency of the market did not go away: it would be unwise to assume that credit’s convulsions are over.

Copyright The Financial Times Limited 2007

yardeni is back / intresting summary on t current situation ; it is neither black nor white , it is grey......global vs usa , cdos and chinese growth

Insight: Global boom faces first major stress test

By Dr Ed Yardeni, president of Yardeni Research

Published: July 31 2007 18:32 | Last updated: July 31 2007 18:32

The global economy is in the midst of the greatest boom of all times. It started when the cold war ended, leading to an unprecedented period of free trade. It really took off after China joined the World Trade Organisation on December 11, 2001.

Never before have so many people around the world experienced such a rapid increase in their standards of living and wealth. The previous great global boom occurred during the 1950s and 1960s and benefited about 300m people as Japan and Europe were rebuilt following the devastation of the second world war, and the US retooled from a wartime to a peacetime economy. The rest of the world was mostly left out of this postwar boom. Now, at least 3bn people are benefiting from globalisation – the rapid integration of national markets for goods and services, capital, and labour through free trade.

If we are experiencing the greatest global boom, aren’t we also witnessing the greatest global bubble of all times in almost all asset classes? Booms always stimulate speculative bubbles caused by a combination of easy credit and irrational exuberance. In the past, when these bubbles burst they often triggered a chain reaction of events that converted the booms into busts. So, is our present global prosperity just a cyclical phenomenon – the consequence of liquidity-inflated bubbles, which may be starting to burst? I don’t think so. I think it will be sustained for many years as globalisation continues to increase the wealth of nations, which should absorb the shock waves when bubbles inevitably burst along the way, as some are doing right now.

The Organisation for Economic Co-operation and Development’s industrial production index is up 10 per cent since the end of 2001. A broader index, which includes six big emerging economies, is up a whopping 30 per cent since then. Clearly, the emerging economies have emerged and continue to do so. Their growth has been fuelled by exports as free trade has proliferated. Of course, a significant portion of this trade has been in commodities. In turn, OECD economies and corporate profits have been boosted by the boom in their capital goods exports to emerging countries.

The OECD core consumer price inflation rate has remained remarkably stable at between 1 and 2 per cent since 2003. That’s because all those relatively scarce commodities have been converted into a glut of consumer goods. Manufacturers can’t raise their prices because of global competition. So they’ve been buying capital equipment to boost their productivity, which has mostly offset rising materials costs and maintained high profitability. If inflation remains subdued in spite of such cost pressures, then central banks are not likely to raise interest rates to levels that cause a global recession, which historically has been the main cause of boom/bust cycles.

The clear and present danger for the global boom is a credit crunch. “Tranche warfare” has broken out in the capital markets. Over the past couple of years, Wall Street’s alchemists discovered how to convert junk mortgages, bonds, and loans into AAA credits by packaging them as CDOs for the bonds and CLOs for the loans. These credit pools are divided into frontline tranches of pawns that defended the kings and queens. The pawns are getting killed by rising foreclosures in the subprime mortgage market, leaving the better credits exposed. Suddenly, private equity firms and their bankers can’t refinance their bridge loans using these pools. The market for “covenant-lite” bonds and loans has seized up.

This is really the first big stress test of the global boom. We are about to find out how much of it has been driven by financial alchemy. We are also about to find out the extent to which the global economy still depends on the US, and the extent to which the global economy has become more important to the US. In my opinion, the world economy has become less US-centric, and the global boom will help the US to overcome its severe housing recession without an economy-wide recession. I also expect that the bursting of the alchemy bubble in the credit markets won’t seriously disrupt the global boom. The enormous wealth of nations created by globalisation should act as a powerful shock absorber.

Copyright The Financial Times Limited 2007