Wednesday Night #1360

Bhutan
In contrast to the chaos and violence of many elections in emerging democracies (not to mention some of those that pride themselves on being mature), the tiny Kingdom of Bhutan (Land of the Thunder Dragon) which measures its output in terms of Gross National Happiness, held its first democratic vote under exemplary conditions. The King and his ministers have been very wise in ensuring that (in contrast to Tibet) Bhutan has been a member of the international community for many years, thus developing a shield from incursion by its much larger, powerful neighbors.
It is not widely known that all Bhutanese study English according to a model that was brought to the country by a Montreal (Loyola) Jesuit missionary Father W. Mackey, a Canadian Jesuit, who assisted the Royal Government of Bhutan to establish a secular secondary school system.

China, the Olympics & Tibet
Should the Canadian Prime Minister be present at the opening of the Olympic Games in Beijing? Should Canada boycott the Olympics? How effective have previous boycotts been? (The answer: not very, other than to permit the host country and its friends to garner a more-than-usual number of medals) What if ‘western’ nations refused to participate in the opening ceremonies?
The obvious question relates to both the timing of the protests to coincide with the prelude to the Olympic Games and to the response of those in the West who would have their political representatives boycott the ceremonies while resisting the more effective means of protest by refusing to buy merchandise manufactured in China.
The situation in Tibet has come as a bit of a surprise, as no challenge to the authority of the central government is tolerated. With 50 recognized minorities in the country, the central government is particularly fearful of the Moslem population, which is estimated at between 1 and 2% of the total.
China is bent on reconquering all of its semiautonomous regions. If the government must take repressive action for the ‘greater good’ of China, then nothing – including international opinion and threats of boycott of the Olympics – will stand in the way. China appears to be challenging world opinion with its treatment of Tibet and testing the waters for its expansionist plan. It would be wise to look at the Tibet question in light of the probability of future incursions, most notably the integration of Taiwan in the face of the U.S. determination to prevent it (the precedents exist )
It is important to consider the Beijing Olympics as an icon of China’s integration into the world community, especially in terms of the obligations – which they are meeting – under the WTO, and the need to ensure continued responsible financial partnership with the rest of the world.
For some it is important that the nations of the world refrain from politicizing the Games, while to others it is clear that China is hosting the Games for political reasons.
For the former, by far the more important issue is the objective of the Games as defined by Pierre de Coubertin, that is, by bringing athletes of different backgrounds together to battle in a peaceful manner, a better understanding of national differences might be achieved.
Is there a role for Canada in the current China-Tibet dispute? It appears that the Dalai Lama would settle for less than autonomy. Canada’s example of a workable federal relationship might be a good starting point.
Although China is generally considered a communist country, in reality it is closer to the fascism practiced by pre-war Italy and Germany than to the communism of the Soviet Union. In fact, one might also draw a parallel with the 1936 Olympics – except, I believe the air in Berlin in 1936 was a lot easier to breathe.
China’s current dictatorial government and expansionist inclination should be of greater concern than any boycott of the games that have the potential to bring China more closely into the global community.
At the same time, China’s tightly maintained political philosophy has the potential of being considerably altered by holding the Games. Hordes of visitors and the close proximity of foreign athletes have the capacity to exert a strong influence on natives to the detriment of the regime. (It may very well have been the recognition of that fact that led the Soviet Union to abandon its plan to host the 1967 International Exhibition which was to have celebrated the fiftieth anniversary of the 1917 Bolshevik Revolution. Ultimately, following the Soviet withdrawal, Canada delivered the hugely successful expo 67 despite a year less of preparation than would have been normal.)

The financial crisis, Bear Stearns et al.

Credit involves a credit and debit entry on a sheet of paper. Money has no intrinsic value but rather, the value of the confidence in both creditor and debtor. In guaranteeing the debt of Bear Stearns (potential liabilities of $28 billion), the still credible U.S. Federal Reserve succeeded in reassuring their creditors that they would be paid. If the Fed had not intervened with Bear Stearns last Sunday, Lehman Brothers would have been bankrupt on Monday afternoon. The smoke and mirrors trick was obviously effective and the world will probably skate through this crisis, but the United States may not emerge as robust, with consequences for Canada. Our government should be preparing for the likelihood that we will face a difficult couple of years.
The problem is that in the face of continuing reports of huge sums that must be written off as the collateral of the investment banks shrinks, and the lack of transparency of the system, it is difficult to see where the bottom is.
Although Canadian banks are more conservative, they have been affected and we can expect a difficult period of several years of mediocrity. Confidence in the banking system has been badly shaken as the distinction between banks that loaned money to members of the community and the investment banks that are remote from the community. If there are to be regulatory steps taken, it might be well to consider return to that distinction. We can expect to have to deal with a couple of years of high inflation combined with higher interest rates until confidence, always the key issue, can be restored.

Purdy Crawford‘s committee has tabled a restructuring plan for the $32-billion of frozen asset-backed commercial paper. The success of that plan now rests with some 1600 retail investors who, although they own only a fraction of the total amount (+/- $300 million), are in a position to block the deal. It seems reasonable to many Wednesday Nighters that these unfortunates, who relied on their advisors for investment counsel, should be compensated quickly.
Employment being created for lawyers yet to be born

[Update: Worried people holding frozen ABCP tell committee they don’t understand the plan to restructure the debt market and they want their money back]
Some analysts find an explanation of the confidence crisis in the cyclical nature of the market with recent low points in the cycle having occurred in 1974, 1982, 1994 and 1992. An important bankruptcy has historically been the starting point of an upturn. The current market started its recovery on January 23 of this year. One analyst believes in the importance of stock selection for the next two years, with energy, mines and gold expected to gain increasing importance. If a similar problem were to occur in 2010, which is considered to be a reasonable supposition, our ability to again solve it successfully is much more questionable.

Can the United States survive the combination of the financial crisis and the cost of the war in Iraq which economist Joseph Stiglitz states in his recently published book may be conservatively estimated at Three Trillion dollars? What will be the impact of the two events on medium-term American strategy?

The U.S. presidential race
Political campaigns are by their nature, fraught with pitfalls but Barack Obama appears to be doing things right. Reverend Jeremiah Wright’s speech risked alienating many supporters, but Obama played the role of statesman by reiterating their friendship while rejecting the message. The endorsement by New Mexico Governor Richardson, whose international experience by far exceeds that of both Obama and Clinton, has given Obama’s campaign an enormous boost. As November approaches, the probability of his selection as presidential candidate for the Democratic Party as well as for the presidency of the United States, increases.

The Prologue

March 26 1997 – what does the date mean to you? You may be forgiven if you do not immediately recall that the news of the Bre-X bubble burst exactly eleven year ago. “It had all the elements of a great novel: a dramatic rags to riches story, a mysterious suicide (or was it murder?) and a scandalous international fraud”. But the Bre-X saga wasn’t fiction — much to the chagrin of the many who lost money in 1997. Thousands of investors were duped by the small Calgary-based mining company that falsely claimed to have struck gold in Indonesia.” Lessons learned?
As we glory in the concept – if not the reality – of the vernal equinox, we confess to certain bewilderment over the assorted Easter eggs that the Bunny has deposited on our Internet doorstep. It appears that many of these eggs have been broken to make omelets – the others have been turned into ice pellets.
The rescue of Bear Stearns – at what price? – and the parlous state of the U.S. economy remains a great concern not only in North America, but around the world. And still, Bloomberg reports that Stocks in U.S. Rise, Led by Commodities Producers; Freeport-McMoRan Gains “U.S. stocks rose for a third day as a rally in commodity producers helped the market overcome weakening consumer confidence and a record drop in home prices.” U.S. Home Prices and Consumer Sentiment Slide
How many noticed that the Economist quoted our OWN Martin Barnes in its analysis of What Went Wrong?
Five years on and Four thousand American deaths in Iraq, but AFP reports “Iraq war disappearing in US media”
The US death toll in Iraq had just passed 4,000, but on Monday the most viewed story on Yahoo News was “Oil fluctuates as dollar, stocks rise.” Five years after the US-led invasion of Iraq began, Americans’ interest in the war, and press coverage of it, is flagging. With slugfest for the White House going on and an economy that is plummeting toward recession, there is less and less interest in news, positive or negative, from Iraq, where US soldiers have been fighting since March 20, 2003.
We have decided to ignore Vice President Cheney’s visit to the Middle East, preferring to let Xinhua speak for us: “ U.S. Vice President Dick Cheney has not made meaningful headway on the thorny issues of Iraq, the Israeli-Palestinian peace process and the world energy crisis during his 10-day trip to the volatile Middle East, analysts said.”
There is increasing unrest and international unease over the Beijing Olympics and the linkage to China’s recent aggression in Tibet, which is now overtaking Darfur as the principal generator of protests. The Olympic torch is lit amidst demonstrations
Bhutan has voted and analysts are confused – we only hope that the Gross National Happiness Index was not affected.
Kosovo and Serbia remain problematic – as Misha predicted
Interesting developments in the Franco-German relationship; Sarkozy aligning with the U.S.
Hillary’s international experience may have been mis-remembered and she says she “misspoke” last week when she said she had come under sniper fire during a 1996 trip to Bosnia.
Canadians back emissions cap
, new poll shows — ‘The dirty secret of the oilsands [tar sands] is starting to get out more’ and Stephen Harper has climbed on the bandwagon.
We still cannot get over John Baird’s selection as a Young Global Leader by the World Economic Forum – we are aghast!
Meantime we hope that someone in Ottawa is paying attention to the news that a U.S. firm has laid claim to nearly all of the Arctic Ocean’s undersea oil

On that happy note, we look forward to having you join us. We will be in good company, with Peter Perkins, Judith Patterson, and David Mitchell on the return portion of his annual New Brunswick to British Columbia trek. Three of our favorite OWNs to lead us down winding intellectual paths (in search of more Easter bunnies).

 

One Comment on "Wednesday Night #1360"

  1. Diana Thébaud Nicholson April 3, 2008 at 12:25 pm · Reply

    … the Glass Steagall act which was created in 1933 to separate commercial and investment banking and replaced in November 1999 through the auspices of Republican Senator Phil Gramm, the encouragement of Alan Greenspan and the signature of Bill Clinton. The investment world that was then created may have been largely responsible for the mess that financial markets are now experiencing. Geoffrey Ryan The Laurel Comment

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