Thank you Mr Thain

This week, focus on Mr Thain, the 4 billion dollars in bonuses he paid to Merrill Lynch staff just before the completion of the take over by BofA, the 1.2 million dollars he spent refurbishing his office, including a now famous and slightly offending $ 1,400 waste-paper bin. That is it. For months people tried to put a face on the financial crisis, so that they would have someone to blame. It had to be a banker. It had to be an American one. It had to be one obviously so arrogant that he would become detestable by every body. Mr Thain, congratulations. You have just been voted by the public opinion, the financial crisis scapegoat.

Enough.

• Enough of the people blaming the bankers for this crisis but who are also first in line to put pressure on the same bankers to get the highest possible returns on their capital. Usually without paying too much attention to the risks.
• Enough of all those blaming the big bonuses because they would like to have their share of the cake and don't. Hey, the more we are to eat on it, the smaller will the shares be. Back off !
  
• Enough of all those imbeciles who do not understand that when you make millions a year, the base price for a waste-paper bin is $1,400. End of story. Below that it would probably be made in China and would therefore not earn a living for a good American worker (by opposition to the Chinese worker who has to be bad). By the way, how much is Obama's bin worth, in the oval office ?
  
• Enough of all those criticizing these wealthy people, when the only thing they are aspiring too is to become on of them. And then, spend a million dollars or so in the refurbishment of their office, to show it off to their competitors. Just to show them who they are. The riches must have their own little pleasures too...in particular if they are funded out of other's money. Does anybody think that Ford's or GM's CEOs have offices decorated with Ikea kind of furnitures ?
  
• Enough of our western societies, stinking jealousy and greed where people are ready to do absolutely everything to satisfy their highest need: make money to buy stuffs, then show these stuffs off to those who cannot afford them and by doing so, claiming a higher step on the ladder of consumerist stupidity. All societies have their own hierarchy. This is ours.
  

In this society Mr Thain, you were right at the top. You could only go down. You just did. But you know Mr Thain, that silently, a lot of Merill Lynch employees, who are in the process of loosing their jobs in this merger, will thank you for this last bonus that may keep them afloat during the tough months ahead.

And unlike the dreamers who believe that a better and fair world will emerge out of this, you know that there will always be someone to take your seat, in your newly decorated office. Someone who will look the waste-paper basket everyday and secretly say: "Thank you Mr Thain...I quite like it".

We are all guilty

Bankers are responsible for the current crisis. Their greed and their remuneration schemes have pushed them to take ever more risks. Their culture of short term profits rewarded by immediate big bonuses is what has triggered the current crisis.

These are highly popular (and populist) theories. We hear a lot about them these days, being repeated all day long as they are by journalists who have long ago forgot about discovering and telling the truth. They just content themselves with what the public opinion wants to hear (so they think) as the only possible truth.

No matter how convenient and popular are these theories. They are wrong.

None of this would have happened if we had learned how to live within our means and not beyond them. None of this would have happened if we had not seen the housing market for the last ten years as some in their time had seen the stock market: a quick and easy way of making a fortune, on assets that could not go down. None of this would have happened if our politics had not encouraged this kind of behavior: Mr Clinton wanted to turn his country into an America of landlords. Mr Blair had no other ambition for Britain. None of this would have happened if the bankers had rung the alarm bell of a booming credit market. And none of this would have happened if the regulators had been competent enough to understand what was going on and take preemptive actions.

Risk taking is the very nature of the banking industry: if banks were not taking risks, credit would simply not exist. Most bankers have had for the last few years their bonuses paid in deferred shares. This practice was put in place to make sure that talented people would stay in the company and that long term profits rather than short term ones would be rewarded. A lot of them have lost years of remuneration in the last year or so. The public opinion usually does not know that.

Yes some of them managed to make enough money just before "the end", and yes it can be shocking. But just like a lot of property managers or estate agents who got out of the market right on time. It does not mean that they are all crooks. They have been just like us all: greedy and irresponsible with just an extra bit of luck.

Rate the ratings

S&P has decided this week to downgrade Spain from its AAA rating to AA+. This means that suddenly, S&P considers that Spain is not a sovereign state anymore, because they are in the Euro zone and cannot take with their money the sort of liberty that other sovereign states are (like the US or the UK).

In clear this means: underwrite an awful lot of debt, print money, buy back your own bonds, nationalize your banks, bail out your entire industry (or what is left of it), then print some more money and you will keep your AAA rating. Do none of these, try to keep your government's expenditures under control and you will loose it.

For those who may wonder, the Spanish public debt is currently representing 36% of Spain's GDP. It was 44% in the UK last year, 60 % in the US (that was before the 3 trillions USD waste), 63.9% in France, 64.9 % in Germany and a massive 170% in Japan. They are all AAA except Japan, being AA- or A2 depending on the rating agency.

How comes we have the worst ratings at both end of the curve ?
According to Moody's, what happened to Spain cannot happen to the UK, because the UK is not a member of the Euro and therefore remains a sovereign state...or let's say just a little bit more sovereign than Spain. So how sovereign is Japan then ? Does all this make sense ?

Obviously not. Just like it did not make sense to rate AAA a number of securitised sub-prime mortgages. These ratings are not only complex, meaningless, and often useless, they have been turned into ridicule in the last twenty months.

Let's shut down the rating agencies...now.

Fancy a Chrysler ?

An hour after having received its 1.5 Billion dollars 0% loan from the US Treasury, Chrysler has pushed out an offer: 0% credit on all models. Will they ever learn ?

So let's try to get this right.

• Creditworthiness

The very problem that triggered the present crisis was the abundance of cheap credit, to everybody, including people with poor credit records. It seems that the lesson has not bean learned yet. Giving your clients a 0% interest on a loan so that they can buy your product, does not change anything at all: a loan is a loan, no matter the interest, you still have to repay the principal. And somethig tells me that Chrysler's clients might be broke.

• Blindness

Selling - sorry I meant dumping - all their cars on the market (what they are effectively doing) is not going to help the US auto makers. The problem they faced in the last five years are still there: poor quality vehicles, fuel inefficient, strong competition, high production costs... They seem not to have realized the fundamental reasons of their difficulties. A weak dollar for the last two years should have protected them against European and Japanese imports. It did not. Simply because the price was not the problem. The product itself was the problem.

• The credit mechanism
  

People seem to be excited at the prospect of null interest rates in the US. And probably soon in the UK. They do not seem to understand that it does not make much of a difference at all. Buying a car with a 0% loan today means that they are still going to pay it more than its face value tomorrow. Simply because we are entering a deflation era and every dollar they will have to pay back tomorrow, will be worth less than today. So every dollar Chrysler will get from its clients tomorrow for the cars sold today. will be worth less than today. The basic credit mechanisms imply that today's deals are tomorrow's profits or losses. In this case, it will inevitably be losses.

• They are all taxpayers

So the US treasury is giving money it gets from the taxpayer with 0% interest to Chrysler, so that Chrysler can allow the same taxpayer to buy a car with a 0% interest rate from its catalog. A car that he will have to pay with his own money since he is the taxpayer and therefore cannot be bailed out.
Does it make sense ?
From Chrysler's point of view, it seems everything makes sense these days. For the US treasury, maybe. For the Taxpayer certainly not: he is ultimately paying his car twice. And still has to pay his taxes, otherwise the whole thing will stop making sense for the US Treasury too !

So where is all this going to ? My guess is: straight to the wall. Will see in six months the disastrous results. I am glad I am not an American taxpayer though.

Porn bailout...

This is not even a joke !
So after the financial sector, the automotive industry, others are now asking for their own bailout: the footwear manufacturing industry just did, airlines will certainly follow but for now it is the porn industry.
Too big to fall ?
I was wondering: given the current trend, we may soon be forced to bail out the bailout !

Read the full story here.

The first one....

This is it: my first message and hopefully a lot more will follow.
I will try to update this blog as regularly as possible with anything that I will want to share ranging from technology, sports, headline news...everything basically.

Hope to see you soon...