Friday, August 28, 2009

Afghanistan -- Quagmire Again?

"Afghanistan is not another Vietnam" a number of smart people told me whenever I raised that question. But signs are aplenty that it is one.

No two wars are identical, of course. Vietnam was divided into north and south with Hanoi receiving massive aids from Russia and China governing over a population that was loyal to the leadership.

Afghanistan is divided by centuries old tribal conflicts, shifting loyalties and with the Taliban an ally of sorts with Al Qaeda based more on convenience (enemy of my enemy is my friend of the moment) than on ideological convictions. Yet the government US backs, just as in the case of South Vietnam, is despised by the people.

The fundamental political realities are, therefore, similar between Vietnam and Afghanistan. In both cases the US or the "West" is backing a government that is corrupt and hated by the very people in whose name they govern.

The current Afghan leadership under Karzai is reportedly running the largest narcotics operation outside of Mexico/Colombia with the brother of the president being the drug king.

The current "democratic" election is as corrupt as any staged by former South Vietnamese leaders. Read this.

Unless Obama has a surprise exit strategy up his sleeves, Afghanistan will become a very bad nightmare for his administration. Yes, Afghanistan is becoming another Vietnam, though the scale of casualties will not be as large. But it is a black hole with no light at the end of the tunnel. Could the "West" negotiate a settlement with the Taliban? It may turn out to be the only exit strategy left, unfortunately.

The Coming Boom

Markets have a way of humiliating the best and the brightest. Why this is so is a topic of endless erudite essays and books.

When prices are determined in the "market" by countless people making decisions as to where they are headed, there is no way of telling beforehand how a) the future turns out, and b) how those who have made the wrong bets in the first instance would just stampede into joining the "winning" side causing a boom or a bust.

We are very likely going to have a big boom again. It does not take a rocket scientist, so to speak, to make that prediction. The simple truth is Uncle Sam has been printing and spending money like it's going out of style to prevent a collapse of the US economy built on too much debt and too little productivity.

Well, the old saying is true: you can't fight the Fed. When so many trillions have been pushed into the "system" to save the mother ship, "something" will happen. Stock markets, commodity prices, housing prices, you name it, have been strong for just that reason.

About 9 months ago, a depressed former hedge fund manager was lamenting about the state of his portfolio. I told him to relax for every bear market is followed by a bull market. Since then his portfolio is up over 40% year to date.

We are going to have a bull market in 2010. However, I have no idea whether it will have a happy ending though.

All I can say to you is enjoy the ride while you can, but "here we go again". You are forewarned.

Thursday, August 27, 2009

Farewell My Concubine?

Why have one when you can have 2 or 3 or more? Welcome to the "new" China. Read here.

Sunday, August 23, 2009

"Depression" Political Economy

I want to own up that i have been depressed about the state of the world. Some write to reduce the frustration. I retreated into a cocoon. That's why I have not been writing much.

My first item on my "depression" agenda remains how the public's rescue money has been misallocated enabling a few on Wall Street to benefit unfairly. Let me be clear, I have no problem with the idea that a massive amount of public money was required to keep the system from sinking, but I have a very serious problem with the way that money has been spent or misspent. Let's not forget, Wall Street was an accessory to the disaster. Yet the "masters of universe" remain at their helms with no one at such firms as Goldman Sachs or Morgan Stanley getting the pink slip. Those who did were mere foot soldiers carrying out orders.

Paul Krugman, Joseph Stiglitz and a number of other writers have been very good in hammering on this issue. To no avail.

I read jumbo-size bonuses are being handed out on Wall Street. Uncle Sam appears willing to sell back to Wall Street various options at below market prices. If I didn't restrain myself, I would become mad.

I have written in the recent past that USA is becoming more like Thailand or Argentina in terms of lousy public governance with a small number of elite, in and outside of the government, often committing acts against public interest. I have not changed my view. And that depresses me.

I am also depressed by the state of US politics where the Republican Party has descended into a party of ignoramus, bigots and radicals. That party of Lincoln, Eisenhower, Rockefeller has been transformed beyond recognition. I am an independent, and I believe in checks and balance. That can only come about if there is an intelligent opposition.

I don't see that in the US and I don't see how GOP could get a total makeover to return to its former self.

And that depresses me.

I haven't even started on how badly the war in Afghanistan is going and how it will get worse with more lives wasted uselessly.

Soon, I keep telling myself, I need to write about the Republican Party. Soon.

Tuesday, August 11, 2009

China's Bubble?

Is China manufacturing a huge bubble? This man thinks so and is worth a few minutes of your time. Read here:

Nothing is ever inevitable. A lot depends on how Beijing's leaders fine tune the economy to avoid the bubble described in that succinct analysis. I will be watching economic events in China more closely.

Monday, August 10, 2009

AIG and Greenberg

Hank Greenberg at one point was considered a genius taking a small AIG founded by an American entrepreneur, C.V. Starr in 1919 and his Shanghai partner to become the largest global insurance company in the world. Not much is ever said about the Shanghai banker who helped Starr to build his business. Corporate mythology could only allow one hero. Chinese back in those days were considered lesser being.

Surprise. Greenberg turned out to be a crook. Strong word. Well, what do you call a person who produced false accounting numbers to hide the truth? Read Here.

I have a real problem with this story. This guy who made off billions from inflated share prices based on fake company earnings number between 2000-2005 he knew were false only paid $15 million for a fine to get off a suit that could put him behind bars for years? Isn't that a steal? How did he manage? Were those years the only years he faked his numbers?

Without trying to be a conspiracy nut, remember a lot of pubic bailout money sent over to AIG actually went to Goldman Sachs to settle a payable? And a lot more went to settle payables with other banks including an European bank?

Why did the money go straight out of AIG's door to other coffers? Wasn't the money meant only for AIG?

Elementary. Wall Street works on connections and relationships. In Chinese lexicon, that is known as "guanxi" a word at one time was derogatory intended to show how corrupt the Chinese communism was and still is on the mainland.

Greenberg is not just another crook. He is a well connected crook. Madoff, the crook, is behind bars. He is not well connected. $15 million to buy off a jail sentence? That's small change by Wall Street standards and by what Greenberg had made off from inflated share prices that also boosted his stock options, bonuses and other compensations. So much for American justice.

Monday, August 03, 2009

Whither Capitalism?

Up until, say, the beginning of 2008 this question of "Whither Capitalism?" might have seemed appropriate in a dry academic classroom. No more.

A few statitics to start the day. 9 major banks, including Goldman Sachs and Morgan Stanley, in the US received $175 billion in bailout money from Joe Public, so far. They have repaid $50 billion. The same 9 banks are to pay out $32.6 billion bonuses to their staffs with the senior executives receiving disproportionately larger shares.

During August 2008 when a number of banks could fold due to a collapse in confidence as well as in their over-leveraged balance sheets, then Secretary of Treasury, Hank Paulson, former chairman of Goldman Sachs had over 2 dozen conversations with his successor at Goldman, Mr Lloyd Blankfein.

This fact by itself should have been considered perfectly "normal". The top financial official should have his fingers on the pulse on Wall Street. Goldman Sachs was and remains a most important player.

Wait. During the same month, he talked only 4 times with Jamie Dimon, Chairman of JPMorgan Chase, 2 times with John Thain, then chairman of Merrill Lynch and 6 times with Fuld, then chairman of Lehman Brothers the collapse of which nearly brought down the entire financial industry of the US.

So why was Goldman Sachs receiving, at least on surface, more TLC, then others, one could legitimately ask.

Actually, silly question. Anyone familiar with the culture of Wall Street, especially at a firm like Goldman where "team work", "corporate loyalty" followed by multimillion bonuses know if there ever arose a conflict between private and public interest, barring blatant criminal acts, private (read Goldman) interest would take precedence. Paulson was a product of Goldman which made him not only Chairman but also one of the richest men on this planet. Few men, especially those from the money industry where money is the be-all-and-end-all objective, could rise above private concerns.

And that is at the heart of the question as to whether Capitalism can survive consistent partisan and parochial manipulation that is a by-product of maximizing private profit, the ultimate goal of the Wall Street culture.

Today's column in NY Times by Frank Rich points out a much larger issue regarding how the political process in DC is now increasingly in the hands of Money. Read here.

I will be writing on this and related political issues in due time.

Saturday, August 01, 2009

Wall Street Mystique

I started this blog because I, a former denizen of "Wall Street", was offended by the blatant disregard of anything remotely resembling business ethics and political morality in Washington's rescue process.

Before I write further, let me declare. I love $$ as much, if not more, than the next investment banker. However, I also believe $$ ain't the be-all-and-end all for us to be human. Nor should it be the only defining value of what constitutes a useful, happy, productive life. By morality I don't mean I am on the side of angels. What I do mean is a society, any society, needs "balance". A society that allows certain groups, companies, individuals to influence a public policy to its own benefits without checks and balance is a society waiting for a disaster to happen.

What has been happening in Wall Street is more than about $$. It is about how one industry has managed to write the public policy for its own benefit -- with some key Washington public officials as cohorts.

I have over the past months written on this topic. I do not wish to bore you more.

The latest NY Times report on bonuses on Wall Street is just another reminder that democracy has to be safeguarded from any person, any company, any industry that can safely ignore public interests. Read here re how ineffective, how incompetent, or perhaps how inter-connected the economics team of the Obama administration is to Wall Street. What has Democracy got to do with bonuses on Wall Street?

As pointed out by any number of writers, including this one, the Goldman Sach's or the Morgan Stanely's could not have survived but for pubic money injected into them to bail them out.

To the rest of the nation, indeed to the world, it seems quite unseemly that high officials on Wall Street who had been a party to the bursting of the bubble are still getting paid humongous bonuses.

I only have this to say: "Very clever chaps, but remember your bonuses are from the savings of the poorer fellow citizens who have had to tighten their seat belts so that you can go aead and pay yourselves large bonuses.

I have only a small one: What exactly have you done to the country to warrant yet another round of super duper bonuses while the rest of the country continues to suffer?

Read this Ny Times article for illustration.