Wednesday Night #1469

Written by  //  April 28, 2010  //  Reports, Wednesday Nights  //  Comments Off on Wednesday Night #1469

There is a linkage in tonight’s discussion that centers on infallibility – or the perception thereof – whether it be related to major institutions on Wall Street, the Catholic Church (Pope), or even the off-shore drilling systems

Disaster in the Gulf of Mexico
Viewing the aerial photos of the spreading oil that threatens the coastline of Louisiana and possibly other neighboring states, it is impossible to separate feelings of dismay and the inevitability of such an event. The attempt to burn off the oil will create further environmental damage

The British elections
As the May 6 U.K. general election approaches, between growing dissatisfaction with the Gordon Brown Labour government, his open microphone public disdain for individuals and evident duplicity in verbal exchanges with voters, enhances the probability of a minority government.  Were this to happen, it would only be the fifth occasion in the past century and would probably lead to a Liberal, Labour coalition government.  The British seem to be more concerned with a minority government than are Canadians who appear to be increasingly upset with our own Conservative government but unwilling to fully trust and/or support the Liberal opposition.

The Conservatives in Canada (Ottawa)
Our Prime Minister appears to have lost much of his glitter and popularity, but remains firmly in office. And this, despite his opposition to gun registration in the face of police claims of its usefulness; and the apparent return in the penal system to an emphasis on retribution as opposed to rehabilitation which had been credited with a decline in crime in Canada, especially when compared with that in the U.S.  His hold on the House appears to be secure despite allegations of his virtual refusal to divulge to Parliament, the details of allegations of mistreatment of prisoners of war.  The chain of authority being Her Majesty, the Prime Minister and the House of Commons, the Speaker has no authority to force him to divulge the information to the opposition and the Conservative members apparently have no desire to do so.

Goldman Sachs, et al.
While the scandal surrounding Goldman Sachs and Fund Manager John Paulson continues, many believe that the system, loose controls, hard sell and the greed and lack of sophistication of buyers are the main culprits, the other actors merely taking advantage of what the law permitted.  Victims were not given essential information that would have enabled them to make a more logical decision.  The entire banking scandal might be likened to a lottery where the laws of chance favour the adept and informed. Lotteries are not illegal.  As the dust settles, it would appear that the payment of enormous bonuses paid to employees in the face of the inevitable losses suffered by the non-wealthy appears to be the principal motivation for the intensity of the public anger.  Americans have the reputation of admiring rather than scorning people who have the ingenuity and means of making money and each aspires to join that stratum of society.  They do not resent the success of Wal-Mart, Bill Gates (who, while making money, have also improved society) or even the big winner at the slot machine, but they do have a sense of fairness and appear to view the bonuses as representing money unfairly taken from them.
[Canada was not left undamaged by the U.S. scandal but with tighter banking controls, it was mostly pension funds and insurance companies, rather than individuals, which were affected.]
Also, essentially we rely heavily on the rating agencies.  Nobody asked what was behind “Triple A” rating.  Some mortgages did not exist.  Sometimes mortgages were worth more than the property.  The reality is that somebody had to know that it would not stand up to any crisis.  People were not given adequate information on what they were investing in.  In order to understand how the series of events was permitted to continue until it was obvious that there was a crisis, in order to make the necessary changes in bond regulations including the regulation of bond rating agencies, one must examine the motivation of all the actors (yes, this is theatre – in fact drama), keeping in mind that the transactions were voluntary in the belief that money could be made without effort or specialized knowledge.
The Actors:
Bill Clinton lowered requirements to obtain a mortgage in order to permit more people to own their own home.
Fannie Mae was set up to meet Federal Housing and Urban Development goals of improving home ownership on the part of low and middle class areas and was caught up in the demand for means to attain home ownership.
Rating agencies
are profit-making agencies. The more issues that are sold, the more they earn.  They do, however, have rules, rules which are based on historical experience rather than on the merits of the mortgages.
Investors were delighted to obtain a quick return on their investment whose real value lay in the paper on which it was written.
The U.S. Constitution prohibits the government from setting up a central bank.  The Federal Reserve board was thus never a federal agency, but an agency founded by banks to print and make money.  Lehman Brothers is said to have been the scapegoat.
Active, high pressure selling of mortgages to people who did not, would not or could not read the fine print explaining that the super low mortgage payments would be increased by an unspecified amount at a future date.  Caveat Emptor although Not, in the opinion of many, a Business Plan, was the rule.  There would be no difference between the sale of an impossible mortgage than that of a luxury item that the buyer could not really afford.
The skeptical conclude that Paulson, although probably guilty of something, was simply a salesman and capitalist, and Goldman Sachs made the error of paying impressively high bonuses, presumably at the expense of those who gambled and lost.  Whether or not the intent will be considered criminal remains to be seen.
What is important is how to avoid this particular problem in the future. First, the three letters awarded by the rating agencies are not the be-all and end-all. This week, the same agencies down-graded Greek bonds. It may be assumed that some people had advance notice and made money from this move.
Regarding bonuses, those who run the Ontario Teachers Fund receive a very basic salary plus a generous bonus based on meeting the established goals for the fund. These people work hard, have no job security and were actually providing value-added, which does not appear to be the case for Wall Street bonuses. Performance and compensation must be related.

The market
Professionals are currently not selling, despite the bad news regarding Greece, etc. They wait until there are buyers – at a good price. The crystal ball is clear in its continuing market outlook.  The bull market, at thirteen months, is still in its infancy.  Historically, the two longest uninterrupted bull markets lasted respectively 9 years, 5 months, 13 days, and 7 years, 1 month, 20 days .  Institutions still have cash, believe that there is still value, and are investing cautiously.  With the exception of a two-to-three week correction in the next weeks, the upward movement is expected to continue for some time. There are tons of buying opportunities. One more note: golds are beginning to move.

The trials and tribulations of the Catholic Church
As the days pass, new accusations, new revelations plague the Roman Catholic Church.  In truth, the problems related to pedophilia  and other forms of paraphilia are not confined to the Roman Catholic Church but include other religions and institutions including the English Public school systems, some North American private schools, the Boy Scouts, as well as other institutions.  The Roman Catholic Church may have been particularly targeted because of its strict stated rules and a declining interest in the priesthood thus making the choice of moving those accused of misconduct less unattractive than divulging their misconduct and/or defrocking. Whatever one’s opinion, there is no doubt that the Church has handled the issue badly, both from the viewpoint of policy and governance – would it have been better had the Church treated the problem as a medical one rather than as a sin, which could be forgiven?  – and most recently, through disastrous public relations.  There is no doubt that at this point, under Pope Benedict, whose actions of 20 years ago are being judged by today’s standards, policy changes will be made.  The dilemma of  revelation versus the sanctity of secrecy of the confessional in the area of sexual abuse has been and remains a challenge.
For a more positive outlook, Nicholas Kristof’s writes Who Can Mock This Church?, in praise of the thousands of priests and nuns who work tirelessly to better the lives of so many.
The movie Doubt illustrates many of the dilemmas posed in tonight’s debate.
The problem is going away – the culture that allowed it to continue and covered it up is over
Update: Pope addresses sexual abuse crisis directly
In his most public comments on the sexual abuse scandal that has recently delivered a blow to the Vatican, Pope Benedict XVI said that forgiveness could not come at the cost of justice. Describing the sexual abuse scandal that has swept Europe, the U.S. and South America as “truly terrifying,” the pope placed blame on highly placed Catholic Church figures who have done little to root out abusive priests. The New York Times (free registration) (5/11)

Hungarian elections have just taken place, with the Fidesz-KDNP coalition (center-right in European terms) achieving a two-thirds majority in parliament.   The results of this election point to the difference in adaptation to democracy on the part of former communist controlled governments in contrast to the post-World War II development of Western European countries.  With the rate of unemployment at 11.8%, the highest since 1994, myths are being created to place blame on interests both within and outside Hungary.   The Roma are taking the brunt of the blame, the butt of allegations of thievery. Something like 15% of the population believe that Israelis are buying up property in preparation for the alleged wholesale movement from Israel to Hungary.With a two-thirds majority, the present government can change the constitution – a very serious matter, given that the President, who is a charismatic leader, may wish to extend his mandate somewhat  indefinitely.
The right wing in the European context implies a rejection of market economies and all western values. Many also reject Christianity.
What is striking is the contrast of the successful adaptation of Western Europe to thriving democracy with the significance of normal, although hurtful, economic setbacks of countries formerly under communist rule under which unemployment was technically non-existent.  These countries never confronted their past as did West Germany; certain traditions were never laid to rest.  The current generation of neo-Nazis are young men who don’t know history, don’t think deeply about social issues,  have not succeeded in life and prefer to blame others for their situation.  It is anticipated that they will be living with this for the next quarter century.

Volcanic ash and aircraft engineers
Air travel has proven very safe and successful over the years thanks to pilot and maintenance regulations as well as many safety checks in the system.  Following millions of predictably safe flights, we now, for the first time in aviation history, face an unknown and potentially disastrously dangerous situation, namely the effect of residual airborne volcanic ash on aircraft jet engines.  It is a credit to Canadian Engineers at Pratt Whitney whose expertise at a meeting in Washington with the FAA and other agencies enabled the development of a plan of systematic checks to ascertain the real damage to aircraft engines. It is possible that the findings will prove to be less serious than is currently rumored.


April 28 was the day that Fletcher Christian led the Mutiny on the Bounty (1789); that Mussolini was executed (1945); and that the Kon Tiki started its incredible voyage, but for some of us, it will always be remembered as the day that Expo 67 opened in 1967.  Will Canada ever return to the euphoria of that year … the assuredness that together Canadians could conceive, create and host an event that would attract the world’s attention and praise … well, it happened at the Vancouver Olympics, when we again basked in (mostly) rave reviews from the international press. But, according to our friend and former expo colleague, Alan Hustak, Send in the clowns: Canada at Shanghai’s world’s fair , our proud tradition of architectural and exhibition excellence is singularly absent this year in Shanghai. How very sad!

The dominant story as we write still appears to be the U.S. Financial Reform legislation and the parallel Goldman Sachs events. There have been some lively exchanges between some Wednesday Nighters especially with reference to David Brooks,  Paul Krugman and Frank Rich , and Bethany McLean’s Meet the Real Villain of the Financial Crisis,  as well as a much earlier piece (thanks to John Evdokias) Ethics angle missing in financial crisis debate – all well worth your attention.
Tony Deutsch points out that “I doubt that greed is an indictable offense in the U.S. Certain ways to satisfy that urge I am sure are, theft for example. What the real facts of the Goldman case are, and where illegal activity begins, can surely only be settled by the courts. There are many actors in the drama leading to the financial crisis”, while Guy Stanley adds: “Much as I think these financial events and their consequences reveal the squalor of financial capitalism, one has to ask, What if the recession had not occurred within the time frame of the Magnetar contract and house prices had kept rising? Would this be an issue at all?” John Evdokias responds “The repackaging mechanism in crafting any CDO is predicated on holders facilitating the ‘dump'(sale) of the component securities or in other words, getting them off their books.  Why would they wish to divest themselves of such wonderful pieces of paper?  To get their spread and then go off and re-craft another CDO or similar acronym of adventure.  Implicit and explicit representations about the worthiness of such paper that was sold and resold is an important issue as is the needed complicity with rating-agencies, law-offices, boardrooms and regulators.” The penultimate word – and Canadian content – belong to Tony: Friends, just before we consign Goldman to eternal damnation, let us recall that at least two of our virtuous Canadian chartered banks gave marching orders to their staffs to push all ABCP out the door before all hell broke lose. Somehow, there seem to be no consequences.  Feel free to enter the fray with comments.

For those who did not see it, the headline “United Against The West” in Monday’s National Post was accompanied by a large photo of two of the world’s sterling sociopaths, defenders of iron rule tinged with more than a dose of megalomania and/or paranoia. According to the NP story, Mr Mugabe of Zimbabwe, has offered uranium to Mr. Ahmadinejad of Iran in an oil-for-uranium swap.  Very strangely, there is NO LINK to this story from the NP website.  But the Montreal Gazette carries the same picture, along with a Reuters story that states flatly that Zimbabwe says no uranium deal with Iran
The suggested swap would appear somewhat less beneficial long term than the type of development aid that China is actively purveying in Africa, according to CBC’s Anthony Germain, whose excellent report: China in Africa should be read and listened to (audio)
Meanwhile, in another cheerful story from The Dark Continent, Sudan’s new president the only head of state wanted for war crimes.

Emerging markets
Continuing the topic raised last week, it is reported that the U.S. and Japan agreed to give up a share of their voting rights over the direction of the World Bank in order to give developing countries just over 47% of the vote and increase the vote share of countries such as China, now the World Bank’s third most influential member. South Africa and Brazil don’t think that the changes go far enough to increase the clout of economically vulnerable countries and that the shift of power toward China comes at the expense of diluting their own authority. Deutsche Welle (4/25), Reuters (4/25) – And how say you?

For the many of us who frequently express concern over the demise of serious (traditional?) media, there’s a splendid – and encouraging –  farewell from the Editor of Foreign Policythat points out that creative adaptation can actually be good for an academic journal. In the same issue of FP is a long examination of the effects of the Internet: Think Again: The Internet
They told us it would usher in a new era of freedom, political activism, and perpetual peace. They were wrong.Both are well worthwhile. Mediaphiles should also consult (it’s very long) the Pew Project for Excellence in Journalism The State of the News Media 2010 which addresses the future of news in the context of  more long-term concerns: What are the prospects for alternative journalism organizations that are forming around the country? Will traditional media adapt and innovate amid continuing pressures to thin their ranks? And with growing evidence that conventional advertising online will never sustain the industry, what progress is being made to find new revenue for financing the gathering and reporting of news? More weekend reading!

Robert Fisk’s interview on CBC Radio’s The Current on Tuesday provides fascinating and also quite brutal insights with respect to the general lack of geopolitical understanding of the role of Pakistan/India and Kashmir in the Afghanistan equation – let alone strategy.  On topic, but a different slant, Guy Stanley recommends We Have Met the Enemy and He Is PowerPoint – the graphic is priceless – and the Rand Corporation study How Insurgencies End.

Wednesday Nighter notes

Kimon advises that he is hosting the New School of Athens (NSOA) Cocktail in Paris on April 28 at the Mairie du 16eme – a very beautiful and prestigious building. We will on that occasion announce the creation of NSOA (FR) and the Bordeaux NSOA Conference which will follow the Montreal one by three weeks, in November 2010, under the honorary chairmanship of Alain Juppé, former French PM, presently Mayor of Bordeaux.
On April 29, Beryl Wajsman‘s Institute of Public Affairs of Montreal in cooperation with the Brain Injury Association of Canada is presenting an Executive Networking Event on Brain Injury.  Guest speakers will be Gen. (ret.) Lewis W. MacKenzie; MP Laurie Hawn, Parliamentary Secretary to the Minister of National Defence and former Lt. Col. in the Canadian Forces Air Command, and Dr. Vincent Lacroix, Director of the Primary Care Sport Medicine program at McGill University, Director of the AXIO Health Group and Chief Doctor of the Montreal Alouettes.

A varied menu, indeed, chosen to stimulate the palates of the omnivorous participants in Wednesday Night – as always, you are encouraged to add spice, or even a plat principal. Ron Meisels has done so already, reminding us that we were ignoring the Gulyás (goulash to the Barbarian hordes) of the recent Hungarian election.

Comments are closed.