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Paul J. Davies reports on the growing trend of the securitization of consumer credit in Russia and other formerly Communist bloc countries. It can't happen soon enough.
Eastern Europe is beginning to open up to securitisation, the practice of raising funds by selling bonds backed by specific assets or cash flows.And the European Bank for Reconstruction and Development, the regional development institution owned by about 60 governments, is hoping to speed its growth.
Jonathan Woollett, director for non-bank financial institutions at the EBRD, says he expects 10 to 15 more deals this year, on top of the handful so far ever brought to market, many of which the bank will help to arrange and invest in the more risky tranches.
“This year we will see a few more Russian deals and transactions from Kazakhstan and Poland and we hope from perhaps Bulgaria, Romania and Croatia,” says Mr Woollett.
This year has already seen some groundbreaking deals. This week, the EBRD bought into a €300m bond issued by Russian Standard Bank, which was backed by consumer lending, in a deal arranged by HVB, JPMorgan and Barclays Capital.
At the same time, Merrill Lynch also brought a $300m deal for Alfa Bank, the first securitisation of future cash flows for a Russian bank.
There have also been deals in countries such as Kazakhstan, where ABN Amro arranged a $150m residential mortgage backed bond for BTA Ipoteka, a subsidiary of Bank TuranAlem, a Kazakh bank.
Posted by dan at 02:49 PM
Based on what I saw on German television last fall, this program actually sounds like it could be well above the median in terms of quality and watchability. But still.
Bernard Benoit reports in the Financial Times.
Few people treat their economists as deferentially as the Germans. So when Deutsche Welle television asked some of the country's top experts to try their hands at "real jobs", it did not expect a deluge of positive responses.Not only is that exactly what it got, but the resulting show, "Volkswirte ins Volk" - economists among the people - in which macro-economists go micro by taking up more humble occupations, yielded interesting findings.
Among the participants - the show has been running weekly since December - Michael Heise, Allianz' chief economist, worked at a petrol station, Hans-Werner Sinn, president of the Ifo institute, became a department store sales assistant, and Deutsche Bank's Norbert Walter was entrusted with a vegetable stall.
The choice of jobs was not left to chance. Thomas Straubhaar, head of the HWWA institute and a globalisation expert, for instance, experienced the phenomenon at close range as a Hamburg docker.
With another seven instalments of the show left to air, four of Deutsche Welle's "economists in overalls" gathered at Berlin's Volksbühne theatre this week to relay their impressions.
One conclusion was that, however physical their work, economists always seek an audience. Michael Hütter, head of the Cologne-based IW institute, said his stint at a DIY store had given him access to "people I would not normally reach".
His colleagues had proven surprisingly open to arguments for labour-market liberalisation, he said, "though they might have been less polite if it had not been for the cameras".
Bert Rürup, head of the council of "wise men" that advises the government on economic policy, also found real people - as opposed to politicians, lobbyists and trade unionists - refreshing.
Mr Rürup, who, as a pension expert, acted as a gym instructor in a seniors' club, said he got a "different version of reality from that painted by functionaries: The people actually admitted they had it pretty good!"
Posted by dan at 02:45 PM
As Redd Foxx used to say, "It's the big one."
First, Delphi CEO Steve "Gangster of Love" Miller asks a bankruptcy court to rip up UAW contracts so that he will have a free hand to slash wages and benefits.
Second, Mary Williams Walsh reports in the New York Times on a new accounting rule that may have the indirect force of pressuring companies to freeze pension plans.
The new method proposed by the accounting board would require companies to take certain pension values they now report deep in the footnotes of their financial statements and move the information onto their balance sheets — where all their assets and liabilities are reflected. The pension values that now appear on corporate balance sheets are almost universally derided as of little use in understanding the status of a company's retirement plan.Mr. Batavick of the accounting board said the new rule would also require companies to measure their pension funds' values on the same date they measure all their other corporate obligations. Companies now have delays as long as three months between the time they calculate their pension values and when they measure everything else. That can yield misleading results as market fluctuations change the values.
"Old industrial, old economy companies with heavily unionized work forces" would be affected most sharply by the new rule, said Janet Pegg, an accounting analyst with Bear, Stearns. A recent report by Ms. Pegg and other Bear, Stearns analysts found that the companies with the biggest balance-sheet changes were likely to include General Motors, Ford, Verizon, BellSouth and General Electric.
Using information in the footnotes of Ford's 2005 financial statements, Ms. Pegg said that if the new rule were already in effect, Ford's balance sheet would reflect about $20 billion more in obligations than it now does. The full recognition of health care promised to Ford's retirees accounts for most of the difference. Ford now reports a net worth of $14 billion. That would be wiped out under the new rule. Ford officials said they had not evaluated the effect of the new accounting rule and therefore could not comment.
Applying the same method to General Motors' balance sheet suggests that if the accounting rule had been in effect at the end of 2005, there would be a swing of about $37 billion. At the end of 2005, the company reported a net worth of $14.6 billion. A G.M. spokesman declined to comment, noting that the new accounting rule had not yet been issued.
Posted by dan at 02:40 PM
What is it with these right-wing authors and their continual disavowals of their own book jackets/descriptions. First, we have the treat of National Review's Ramesh Ponnuru complaining (scroll down just above the March 28 heading) that the material on the inside flap of his new book is, um, wrong. How dare anybody accuse of him calling the Democrats the party of death when his own jacket copy reads: "In The Party of Death, Ponnuru details how left-wing radicals, using abortion as their lever, took over the Democratic Party—and how they have used their power to corrupt our law and politics, abolish our fundamental right to life, and push the envelope in ever more dangerous directions."
Today, Floyd Norris reports in the New York Times on another example.
A new book by John Hasnas, a Georgetown professor who teaches ethics to business students, is called "Trapped: When Acting Ethically Is Against the Law," and concludes we would be better off if there were no criminal enforcement of laws requiring businesses to be honest.The book, published by the Cato Institute, features the following endorsement by Mark R. Levin, a radio talk show host: "Did you know that in many ways the terrorists detained at Guantánamo Bay have more rights than corporate C.E.O.'s and their employees?" . . .
As for that blurb by Mr. Levin, Mr. Hasnas said it was solicited by Cato, and was not his business. Does he agree? "It is not just an exaggeration," he said. "It is clearly wrong."
I guess there's a high correlation between the intellectual laziness that leads people to write such books and the actual laziness that leads such authors not to bother to check the blurbs and jacket copy.
Posted by dan at 02:31 PM
My latest in Slate, on the sale of public infrastructure.
Posted by dan at 09:01 AM
Jesse Eisinger of the Wall Street Journal weighs in on the troubling phenomenon of the SEC sending subpoenas to journalists as part of larger efforts to investigate short-selling conspiracies.
The Securities and Exchange Commission is still going after journalists' communications with sources -- but now it's through the back door.A few weeks ago, SEC Chairman Christopher Cox slapped the hand of his staff for taking the "extraordinary" step of subpoenaing journalists in a market-manipulation probe without notifying commissioners. Now, as part of that probe, the agency is demanding that a small stock-research firm, Gradient Analytics, turn over all its communications with nine reporters, including me, as well as CNBC.
Securities lawyers say it's perfectly reasonable to ask market sources for their communications with journalists if they suspect people are using reporters to spread misinformation.
While subpoenaing journalists directly was a "big mistake," says Stanford law professor Joseph Grundfest, "it shouldn't be surprising and it shouldn't disappoint anybody" that the agency is going after market participants' communications with journalists. "It would be a very strange world if people could be held liable for every lie they told except for the biggest lies they told to reporters," he adds.
But that's a view from the airy realm of the abstract. Context is what matters here. What's really happening is that the SEC is displaying alarming credulity about allegations leveled by a chief executive who has been the target of critical Wall Street analysis and articles. In doing so, the agency has provided a clear roadmap for CEOs of that ilk: Whine loudly enough that there is a conspiracy afoot to harm your company and the agency can be made to do your bidding.
The nine reporters have one thing in common: They all have written critically about Overstock.com or been named by CEO Patrick Byrne, the Dan Brown of the business world, as card-carrying followers of a "Sith Lord" or "Master Mind" out to get him and his company. Mr. Byrne has repeatedly charged that certain financial reporters are "crooked." He has said some reporters are "condoms" to be used and discarded by nefarious hedge-fund market manipulators.
Mr. Byrne laid out the whole scheme on a flow chart -- a maze of crisscrossing lines and boxes that makes Mr. Brown's "Da Vinci Code" look like "Where's Waldo?" Distributed in conjunction with an Aug. 12, 2005, conference call the CEO held, the chart includes six of the nine journalists named in the subpoena. The other three wrote about his company subsequently.
Overstock, for those not following this story, is a money-losing Internet retailer that hasn't hit many of its publicly announced business goals. Overstock has sued Gradient and hedge fund Rocker Partners, accusing them of conspiring to drive down its stock so short-sellers can profit from the decline, in part by colluding with reporters in disseminating misleading information. Another company, Canadian drug maker Biovail Corp., has also sued Gradient, along with other hedge funds, making similar allegations. Gradient and the hedge funds deny the charges.
Look, there's no doubt that hedge funds and other investors feed information to journalists in the hope that they'll write or break stories that could ultimately move big holdings--up or down. But the recent efforts by the SEC and 60 Minutes to get to the bottom of this are pretty pathetic. 60 Minutes on Sunday had a big piece covering similar territory: research firms and hedge funds conspiring to do a number on Canadian pharmaceutical company Biovail. Not once did Stahl mention Biovail's record of cheesy bordering on shady behavior, including an episode in 2003 when it blamed a truck accident for a significant earnings miss.
Posted by dan at 08:46 AM
A great nugget in Elisabeth Bumiller's highly predictable puffer on newly appointed chief of staff Josh Bolten.
But the question is whether Mr. Bolten is the man to right a listing presidency, and whether his skills, instincts and access to Mr. Bush are enough to overcome public anger over the war in Iraq and the growing questions in Washington about the competence of the West Wing staff. Mr. Bolten, after all, has been with Mr. Bush from his first days as a presidential candidate, and in the last three years has presided over the biggest budget deficits in the history of the United States."The last time Josh was in here, I said, 'How can a guy as smart as you are come up with such bad results?' " said Senator Kent Conrad of North Dakota, the ranking Democrat on the Budget Committee. "He said, 'You can't pin this one on me.' "
Right, he just works there. But wait a second. Republican wise man Vin Weber tells Caroline Daniel of the Financial Times that "in the last five years Josh has been the number one domesitc and economy policy thinker in the White House."
Sounds like the perfect man for the job.
Posted by dan at 08:38 AM
Exuberance sweeps Germany's business sector! The IFO Business Climate Index hits a 15-year high.
Posted by dan at 09:21 AM
Lots of excellent material worthy of reading and comment in the current issue of Fortune, including: Shawn Tully's cover takeout on Jamie Dimon of J.P. Morgan Chase; and Jon Birger's profile of KB Home CEO Bruce Karatz's efforts to build new homes in New Orleans. Excellent reads both.
Items worth of comment: Microsoft CEO Steve Ballmer=Daddy Dearest. In his interview, he notes:
Do you have an iPod?No, I do not. Nor do my children. My children--in many dimensions they're as poorly behaved as many other children, but at least on this dimension I've got my kids brainwashed: You don't use Google, and you don't use an iPod.
Jamie Dimon is presented a pugnacious, no-nonsense, keeping it real cost-cutter. And yet he's featured in one photo wearing what appears to be U.S. ATF cufflinks. What's he going to do, raid Citigroup in search of moonshine? In another photo, he's pictured chatting with two other employees in a Starbucks in the lobby of a corporate building in Chicago. Talk about wasting cash: $10 for three cups of coffee?
Posted by dan at 08:28 AM
Christopher Adams reports in the Financial Times on a new landmark in British-U.S. relations.
London’s mayor on Monday accused the US ambassador to the UK of behaving “like a chiselling little crook” in a spat over the embassy’s refusal to pay the city’s road toll.Ken Livingstone, the famously outspoken left-wing mayor and long-standing critic of American foreign policy, delivered his latest outburst during a television interview. His assault on Robert Tuttle was prompted by the long-running dispute over the embassy’s refusal to pay the congestion charge, a toll that is levied on those driving through central London during business hours.
American diplomats have refused to pay the £8 a day toll since last July, racking up many tens of thousands of pounds in unpaid charges. The embassy is believed to have about one hundred cars and fines for each day of non-payment can be as much £150 a vehicle. The embassy argues the charge is a tax and that diplomats are exempt.
Mr Livingstone, something of a stranger to diplomatic niceties, said: “It would actually be quite nice if the American ambassador in Britain could pay the charge that everybody else is paying and not actually try and skive out of it like a chiselling little crook.” . .
Chiselling little crook? Maybe Livingstone had Tuttle confused with another high-ranking Bush confidant: Claude Allen.
Posted by dan at 08:24 AM
This hasn't been a good year for magalogues aimed at men. First they came for Vitals for Men. Now they've come for Cargo.
Posted by dan at 08:22 AM
In a sign of its maturation, Kate Phillips reports in the New York Times that Google has hired Washington lobbyists.
Posted by dan at 08:20 AM
Benn Steil, writing in the Financial Times, identifies the latest pernicious -ism rampant in the world. Dobbsism. Lou Dobbsism.
"As an economist, I feel a communal and curmudgeonly kinship with evolutionary biologists. We are brothers and sisters in a seemingly endless - and at times, it seems, hopeless - struggle to persuade others that impersonal and unseen forces shape our world in predictable ways which, though far from obvious, are eminently demonstrable. The resistance we are up against I will call Dobbsism. Dobbsism is a form of primal consciousness, exemplified by crusading American television anchor Lou Dobbs, through which people impute what they observe to intention. It is the consciousness behind belief in intelligent design, according to which biological life must have been designed by a creator, given its complexity. It is likewise behind the belief that a complex social construct like a "national economy" must be deliberately de-signed by enlightened policymakers, lest joblessness, poverty and mass bankruptcy result from the neglect. . .Dobbsism is not only widespread, but can be dangerous. Take President George W. Bush's imposition of tariffs on imported steel in 2002, on which Mr Dobbs commented enthusiastically that: "It appeared that the president had decided he had a far more important constituency to serve than the members of the World Trade Organisation, the European Union, and the so-called free traders: namely, working men and women in this country". Powerful stuff. But is it true that Mr Bush faced down foreigners and free traders to the benefit of American workers?
It is a simple task to count the number of American steel workers at two different points in time, even if it is less straightforward to determine the portion of any decline that resulted from foreign competition (as opposed to, for example, new technology). Unfortunately for economists however, they must apply considerably more data and higher maths in order to estimate the effect of steel tariffs on American workers, the vast majority of whom do not work in the steel industry. Studies have found that the tariffs produced tens of thousands of job losses in steel-using industries.
Yet since statistical estimation techniques are not nearly as comforting as counting steel workers, Dobbsism would dismiss such an exercise as "just theory". And we non-Dobbsists are left with the hopeless task of arguing that tens of thousands of workers who lost their jobs to the invisible effects of protectionism have been neither intelligently designed nor accounted for.
Posted by dan at 09:48 AM
Greg Ip writes about income inequality and sluggish wage growth in the Wall Street Journal.
Since the end of 2000, gross domestic product per person in the U.S. has expanded 8.4%, adjusted for inflation, but the average weekly wage has edged down 0.3%.That contrast goes a long way in explaining why many Americans tell pollsters they don't believe the Bush administration when it trumpets the economy's strength. What is behind the divergence? And what will change it?
Some factors aren't in dispute. Since the end of the recession of 2001, a lot of the growth in GDP per person -- that is, productivity -- has gone to profits, not wages. This reflects workers' lack of bargaining power in the face of high unemployment and companies' use of cost-cutting technology. Since 2000, labor's share of GDP, or the total value of goods and services produced in the nation, has fallen to 57% from 58% while profits' share has risen to almost 9% from 6%. (The remainder goes to interest, rent and other items.)
The Bush administration's defenders, and many private economists, say wages are bound to catch up. "Everything we know about economics and historical experience is that when productivity goes up, real wages go up, too," says Phillip Swagel, a scholar at the conservative American Enterprise Institute who worked in the Bush White House. It took a couple of years for wages to catch up with accelerating productivity in the late 1990s, he says. "This time, it's taking three, maybe four or five." . . .
Many economists predict that with the U.S. unemployment rate below 5% now, workers will regain their leverage. Indeed, wages have picked up recently.
Still, wage inequality may continue to rise. Lawrence Katz, an economist at Harvard University who worked in the Clinton administration, says the wage gap has been growing for the past 25 years, particularly between the top and the middle. He believes the biggest factor is technology, which has complemented the skills of the well-educated while rendering redundant routine skills of many in the middle.
"The factors that seem to be driving it are continuing: the broad span of the computer revolution," he says. "For people in the middle the big question is: Will our education system give them interpersonal skills that are very valuable? You can make a lot of money today if you can interact with people who are the winners." . .
History suggests that with unemployment low and growth steady, the typical family will see its income rise noticeably. As that happens, Americans' spirits will rise, as well.
A good piece, but I don't see the reason for optimism at the end. At the root of these developments is a simple truism. In this decade--economically, fiscally, politically, and socially--capital is strong and labor is weak. This expansion is nearly four and a half years old, and there really are very few signs that workers, as individuals or as a group, are gaining leverage when it comes to wages and benefits.
Posted by dan at 09:41 AM
Joann S. Lublin and Scott Thurm report in the Wall Street Journal on some of the science behind huge employee buyouts.
The landmark early-retirement and buyout offers that General Motors Corp. and supplier Delphi Corp. announced last week, affecting as many as 131,000 workers, have brought to the fore some of the delicate management issues involved in designing and executing such large-scale programs.Companies must offer enough sweeteners to induce some employees -- but not too many -- to leave. A tricky enough challenge in the case of GM's hourly workers, it is even more so when buyout offers are made to salaried professionals, whose skills may not be as easily replaced. It requires some finesse to entice only those employees with easily replaced skills to leave -- without targeting protected employee groups, such as those over 40 who have sometimes filed age-bias legal complaints over these plans. All the while, companies must keep unaffected employees motivated while colleagues around them weigh leaving.
Early-retirement offers first gained widespread popularity in the 1980s as U.S. companies, streamlining to compete with foreign rivals, saw buyouts as a more-humane alternative to involuntary layoffs. Typically, an employer aims to reduce future payroll costs by offering selected workers richer retirement benefits, or a lump-sum payment, if they agree to leave immediately. In GM's case, the auto giant is offering its unionized hourly workers payments of up to $140,000, although some younger workers would also have to forfeit certain retirement benefits. Those workers are largely protected from layoffs by the union contract; but GM, and other employers, typically are free to lay off non-unionized and salaried workers.
In crafting their offers, executives often deploy computer simulations to predict who might accept an offer, based on the worker's age, experience and skills, and the availability of jobs in the surrounding area. GM didn't use formal computer simulations, but its offer reflects a "sophisticated analysis" of demographic information about its hourly workers, various possible incentive levels and the company's experience with prior voluntary exit programs, says a spokeswoman, Toni Simonetti. "We plug that information into spreadsheets."
But the calculations can come down to "dampening your finger and putting it up to the wind," says Sylvester Schieber, director of U.S. benefits-consulting for Arlington, Va., consultants Watson Wyatt Worldwide.
Some buyout offers are undersubscribed, forcing employers to consider additional cost-cutting moves. Electronic Data Systems Corp. got only one-third as many takers as it expected for a 2004 early-retirement offer. An EDS spokesman says the technology-consulting firm is "on track to achieve" a planned $3 billion in broad cost cuts by the end of 2006.
Others are oversubscribed, prompting companies to scramble for replacements. In fall of 2003, FedEx Corp. kept some U.S. workers who were about to leave on the job through the busy holiday shipping season, after 3,600 employees -- many more than expected -- accepted early-retirement offers or voluntary severance.
At a troubled company with a history of buyout offers, the exercise can become a high-stakes game of chicken, with employees calculating whether the next offer will be more generous, or whether a bankruptcy filing might wipe out promised benefits.
"It's a very dicey issue. You have to encourage people to leave and tell them this is the best offer you're going to get," says Steve Gross, a senior consultant for Mercer Human Resource Consulting
Posted by dan at 09:39 AM
From the Wall Street Journal's Bids & Offers column on Saturday:
It's usually liberal groups that partake in politically oriented shareholder activism. Now, there's a fund pushing conservative causes. Action Fund Management, founded by Tom Borelli, a former Altria Group lobbyist, and Steve Milloy, a former staff attorney with the SEC, has raised $5.5 million to defend unfettered free enterprise.The fund wants General Electric to defend its initiatives in response to climate change and is trying to get J.P. Morgan Chase to make litigation overhaul a lobbying priority. It wants discount broker Charles Schwab to prepare a report favoring a flat tax, and is challenging Goldman's donation of land in Chile to an environmental group.
"We represent the free-market view of the world, the Milton Friedmans," says Mr. Borelli.
Lets count the ways this smells fishy. Here's the Free Enterprise Action Fund.(1) a former lobbyist and a former regulator are managing the money; (2) a former lobbyist and a former regulator proclaim themselves to be free-market devotees; (3)its' "investment philosophy" closely resembles that of a wing of the Republican party. (4) It's performance shows that in its first year, it trailed the S&P 500. (5) At the end of last year, it had less than $5 million in assets, which doesn't throw off anywhere near enough cash to pay overhead and salaries for professional investors. It sounds more like a lobbying effort disguised as a mutual fund. Christopher Buckley, take it away.
Posted by dan at 09:17 AM
Bankruptcy filings in 2005 were up 30 percent from 2004.
Posted by dan at 09:12 AM
A small piece in this week's New York on Wall Street's great quarter.
Posted by dan at 09:07 AM
My latest in Slate, on varieties of millionaires.
Posted by dan at 09:06 AM