Yesterday the BNP delivered some flowers to Margaret Hodge.
A fitting thank you, perhaps, since as cllr. Barnbrook (BNP) says, Hodge's comments in the Observer last week were "an absolute gift for us".
It has been an absolute PR coup for the far-right nationalists, the video above testament to this. Hodge overstepped the mark and the fact that she continues to defend her poor judgement is risable. I don't think she's been racist - as some of her colleagues in the party are insinuating - but she is pandering to racists.
Sunday, May 27, 2007
Barking mad
Friday, May 25, 2007
Banking on uncertainty
It doesn't really surprise me that banks are using credit derivatives as speculative levers to ratchet up their profits - as reported by the FT. It's something the industry has been doing since the market took off in the 1970s - from the liar's poker of the Solomon bond desks through to the calculated hubris of LTCM (and their starry-eyed bankers) in the 1990s.
Trading for CDS contracts has indeed been bullish, and I suspect it will only get more so with the launch of the LCDX - an index of loan credit default swaps - this week. The launch of the Index has been on the cards for some time - details were fleshed out at the LSTA conference in London mid March. It all points to even higher-liquidity levels in the secondary market.
However, the banks' growing participation in the CDS market could have more to do with the syndication process than it does with speculation. 92% of all European CDOs (the main buyers of syndicated debt) use synthetic structures - whereby the banks use CDS to transfer the risks but not the actual paper to the CDO portfolios. Thus as the syndicated market grows, so too does demand for CDS contracts.
I suspect most of the speculation being done by the banks is in arbitraging between inefficient prices in all these new instruments.
Merton - for all his skillful evasion about LTCM in the recent FT interview - was right when he said: "Derivatives are like anti-lock brake systems in a way - there is no question that they can make things safer, but only if people choose to use them that way. Often they don't - they might choose, for example, to drive faster in worse weather. Often we have chosen to use these tools not to decrease risks but to increase the benefits of taking the same risks."
The buck stops where?
Some of the hysteria around the current mergers boom is making headway in the national press. Since Anthony Bolton's speech a couple of weeks ago, there's suddenly been a lot of interest in covenant-lite loans.
But I think a lot of the coverage has done them a disservice. For a start, it won't be the banks that suffer if a default occurs, contrary to what the business pages are saying. Most covenant-lite loans are syndicated - sold on - by the banks in lucrative deals that allow for arbitrage. "We don’t hold onto any of ours. Of the deals done so far? 100%, they’re all syndicated,” I was told by the head of loan syndication at one of the big US banks.
The buyers of this loan debt aren't exactly unaware of the risks, however. They're hedge funds, CDOs, pensions funds and the like, who actively seek out risks to make money from the high-yields. As yield spreads go down, they're looking for new areas to invest in.
Covenant-lite loans are senior debt anyway, which means in relative terms they're less risky that a lot of the debt products out there that have been available for a long time. From senior debt you can expect an average 78% return of your investment in the event of a bankruptcy. If you'd invested in second-lien loans, bonds, mezzanine debt or equity, you could expect between 0-30%.
Sure covenant-lite loans are risky, but I don't think they're the "iconic catchphase for the peak, or near-peak, of an over-exuberant buy-out boom" the FT says they are.
The real problem with all of this, is that the banks' own desks are getting too involved in the secondary market themselves. Through their hedge-funds, they're making a lot of money, but they're also exposing themselves to the risks they're supposed to have diced up and safely resold on their syndication desks. It's all got the ring of systemic failure to it. Like the reinsurance crisis that brought down Lloyds, I wonder whether the banks are being a little too naive about the state of risk in the market at the moment. Someone has to be holding it.
Where'd all the risk go?
An article i wrote recently... quite generalistic, but it gives a good impression of the way debt markets seem to be behaving at the moment.
SAID Ralph Emerson, “in skating over thin ice our safety is in our speed.”
Global debt markets are indeed, skating at speed. M&A deals topped $3600 billion in volume last year, fuelling the debt free-for-all. The takeoff of complex credit derivative instruments over the past few years has created a staggering global market.
Buying into risky loans, repackaging them and farming out the risk in new and innovative asset classes has been the golden goose since the unnerving effects of the technology bubble in 2000.
Yet something is awry. Bankers talk as if the risk is all but gone, so hedged are their investments. Complexities, however, don’t help with clarity. With debt levels so high, a few lone voices have been cutting an angry and ever more voguish path in the US media. Financial Armageddon, they say, is just around the corner. The outlook from most mainstream analysts, however, is rosy.
The big question between both camps - the elephant in the room that few seem willing to acknowledge - is: where has all the risk gone?
Banking with Ben
Debt, of course, is not necessarily a bad thing and despite leveraged debt levels at the highest they’ve ever been, and rising, most bankers are confident that companies can support their loans.
The US Federal Reserve is confident too. Ben Bernanke once piqued critics when he said that a “helicopter drop of money” from the Fed would be enough to shrug off any sharp deflationary trend.
Helicopter Ben, as his detractors know him, has bigger fish to fry at the moment. Inflation continues to dog him. Debt and risk, for the time being, are thus not pressing issues.
Despite warnings to the worse, the subprime crisis has hardly triggered the broader debt-market panic some thought it would either. Instead, in its wake, institutional investors feel confirmed in their beliefs that the market has the power to weather such storms.
But all this overconfidence might not be such a good thing.
A fistful of dollars…
With all this in the air, doomsayers are quick to jump onto regulators warnings and cast a pall over the market.
Rating agencies predict defaults to rise and the IMF’s stability report points to “fragility” in the face of heavy debt. Leveraged finance is “approaching the limits of prudence” says the UK’s Financial Services Authority, with warnings of a “hard correction” in 2007.
But jeremiahs are indeed overplaying the danger the markets face. Risk has seemed to evaporate from most investors’ minds precisely because in most cases, it has been cut up and sold off so effectively, through complex derivative packages.
Nonetheless, it has not disappeared.
Credit derivatives are no silver bullet – and the doom crew are right in one respect: the market is certainly giddy with its own success.
The market, faced with problems, is not adjusting itself to suit them, but speeding up to outpace them.
According to the FSA, “effective defaults where companies are starting to have difficulty meeting their commitments are being masked by ‘involuntary refinancings’ which are being undertaken when a default is imminent.”
In other words, the rules are being bent to stay ahead of the risk. The IMF’s latest financial stability report also points to a worrying “weakening of loan covenants and credit discipline.” Due diligence is becoming less of an issue too, the fund warns.
Companies are farming out their risk, and their responsibility to boot.
So where has the risk gone? Nowhere, it seems to just be lagging behind. As long as the market stays one step ahead; ever more innovative and ever wilier; the threat of correction is staved off. In the meantime, a lot of money is made.
The cost is that, like the skater on thin ice, there is no option but to go ever faster. An external event; a China market crash, for example, would bring things sharply to a halt. What then?
Through a glass, darkly
What has happened overnight? The government seems to have decided that the citizens of Great Britain should wake up on this sunny May morning to a smeary cavalcade of shit. John Reid, now with added inhumanity, is too idiotic to be true. Derogate from the ECHR? I don't think even the Daily Mail has ever gone that far. (Well ok, maybe they have) Add to this the fact that Goldsmith is considering ditching contempt laws and it's all a bit grim.
How could any government possibly be proud of all this rubbish? They really do seem to be just chasing the headlines. They make a huge mess of control orders, three people run off, and the response is to declare a national state of emergency and suspend the peoples' right to liberty. It does seem just a little bit disproportionate.
Friday, March 02, 2007
Conservapedia
Conservapedia grabbed my attention after it was given some coverage online in GuardianUnlimited.
In general, it’s a pretty muddle-headed idea.
‘Conservapedia’ scores a pretty spectacular own goal in the justification for its existence, namely that Wikipedia is run by a censorious cabal of loony liberalistas and thus a new direction is needed… enter Conservapedia. Unfortunately, by wielding a pretty hefty black marker themselves, actively proclaiming a political bias in their very name and arguing, among other things, that dinosaurs are only 6,000 years old they make whatever good points they had pretty redundant.
Wikipedia is a great resource. Its whole premise is openness and democratic editing. If some disgruntled neocons were angry about wiki’s coverage then they should have edited it online – or tried to.
I’m willing to accept that wikipedia may have a built in ‘liberal bias’ – I do so because…
1. The idea of a democratically edited encyclopedia, open to interpretation by all is a pretty ‘liberal’ approach to information by definition.
2. Most of the wiki editors are clued up amateurs who spend a lot of time online – their demographic isn’t exactly republican/conservative.
No matter what your political perspective however, a ‘liberal’ approach to sharing and editing information is surely a good thing. By comparison, conservapedia is difficult to sign up to, restricted by rules prescribing ‘conservative’ content, and specifically tailored for a niche political in-group. It is not interested in debate, but spin. In short, conservapedia is Stalinist.
Apparently, wikipedia is also too ‘Anglophile’. Spelling is lambasted (Labour/Labor) as are ‘obscure’ english phenomena such as ‘first class degrees’ or ‘baronets’. The example chosen by the conservapedians is the wiki entry for Henry Liddell.
In summary, the article is bad because it contains English spellings, and obscure English monarchial titles and epithets, such as Lord or degree. Here, for conservapedians is a quick explainer:
1. Baronet and Lord are forms of peership. Holders of these titles sit in the House of Lords, the upper chamber of the UK’s Parliament. They are much like your senators, except that God chose their families many centuries ago to rule over us.
2. A degree is a qualification people get when they go to university. Clever Americans get them too. A double first degree is a first class degree – the best you can get.
3. A vice-chancellor of a university is the same as what you may know as the President of a university.
Now I have some complaints of my own. I have some concerns about the wiki entry for Edward Everett – a contemporary of Lidell’s as the President of Harvard University. Frankly his entry is waaaay to Americanophile and contains terms I couldn’t possibly understand like ‘United States Senate’ or ‘Congressman’. The article is full of American political jargon and obscure terms.
Basically, conservapedians are concerned with one thing, ensuring that content of online encyclopedia’s published in America’s name conforms with American nationalism; an American worldview both insular and historically grotesque.
Conservapedia would be a pretty damning indictment of the land of the free if I didnt remind myself that it was Americans that created wikipedia too.
Nil points to terrorvision
Israel's new 'song for europe' - 'Push the Button'
It's a little known fact that 'Push the Button' by the Sugababes was also inspired by terrorism. If you look at the lyrics you'll see it's actually a Koranic ode to Abu Qatada,
"If you're ready for me boy
You'd better push the button and let me know
Before I get the wrong idea and go
You're gonna miss the freak that I control
I'm busy showing him what he's been missing
I'm kind of showing off for his full attention
My sexy ass has got him in the new dimension
I'm ready to do something to relieve this mission"
I think the Express best summed my feelings up on tuesday, 'Why cant we kick out this evil man.' Although the Sun's 'Ta-ta Qatada' also tickled my fancy. Anyone who inspires lyrics for the Sugababes has no right to be in this country.
On a more serious note, what a crazy misjudgement on Israel's part. Eurovision is as apolitical as Black Forest Gateaux. At least to us Brits I suppose. Personally I'm eagerly awaiting a Wogan take on things.
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