There is a high degree of uncertainty in predicting future commodity prices that baffles those engaged in monetary policies, academics, economists, and the everyday consumer.

High frequency trading (see Direct Edge 2005-) using proprietary algorithmic trading programs accounted for over 25% of all shares traded by the buy side by 2009. In 2009 73% of US equity trading volume was attributed to the activities of a small number of high-frequency trading firms, including divisions of Goldman Sachs and UBS but many more obscure, startup firms (with only 12-100 employees) such as Archelon, EWT Trading, Getco and Peak6 (Heires, Katherine. 2009-07-20Code Green: Goldman Sachs & UBS Cases Heighten Need to Keep Valuable Digital Assets From Walking Out The Door. Millions in Trading Profits May Depend On It Securities Industry News). The entire event/analysis/action cycle has been reduced for traders with the fastest machines to a few milliseconds. Fast computing not rational decision-making counts. Arnuk and Saluzzi (2009) call these activities toxic trade and claim that the high frequency trader seize the best deals at the expense of real investors whose machines are not as fast.

NYSE specialists no longer provide price stability. With the advent NYSE Hybrid, specialist market share has dropped from 80% to 25%.

There is a saturation of equity quotes with the entire event/analysis/action cycle has been reduced for some traders to a few milliseconds.

CQS Capacity (Quotes per Second) capacity was increased was increased by 33% to 1 million quotes/second on July 4, 2010 and on July 5th there was a micro-burst of activity. July 5th was 33% more active than any trading day in history.] CQS is already planning to increase capacity an additional 25% in October 2011. How long before that limit is hit ? We think it will be hit the very next trading day. If 3 years ago someone told us that equity quote traffic rates for NYSE, AMEX and ARCA issues would exceed 1 Million/second (not even counting Nasdaq stocks), we would have thought the market would have entered the greatest bull or bear market ever known. Instead, you can’t even recognize from a 1 minute chart where these bursts of out-of-control quote traffic rates occur. And when they do occur, a significant percentage of those quotes will have already expired before they even leave the exchange network. At these rates of growth, we will no longer have a diversity of trading participants with accurate market data, and regulators will have no hope of ever piecing together what happened after the next disaster. It took the SEC five months just to assemble equity data to analyse the flash crash [of May 6, 2010]. When the next disaster strikes, they will have to contend with 5 to 10 times more data (“Equity Quote Saturation” Nanex).”

“The market itself creates events in the form of imbalances of supply and demand that could be of value to traders who are fast enough to respond to them. There is no doubt that being faster than others entails private advantage, but is it socially beneficial? The first mover in the case of fundamental news imposes costs on other traders, and high adverse selection costs could cause market failure. The fast traders that take advantage of market events could provide valuable liquidity to those seeking immediacy and hence enhance market quality, but could also step ahead of large orders in the book, thereby imposing costs on other liquidity providers (as described in the specialist context by Seppi (1997)) (Hasbrouck, Joel; Saar, Gideon. “Low-Latency Trading“. p. 1. Retrieved 18 July 2011).”

Canadian-born, Harvard-educated economist Dean of the University of Toronto’s Rotman School of Management, Roger L. Martin argued in his publication entitled Fixing the Game: How Runaway Expectations Broke the Economy, and How to Get Back to Reality (2011-05) “The mayhem in our capital markets is ultimately the unfortunate effect of tightly tying together two different markets: the real market and the expectations market.” In her article printed in The Atlantic Lane Wallace (2009-07-07) admired Martin’s use of an easy-to-understand football analogy to explain how flawed economic theories about compensation and investment contributed to the 2008 melt-down on Wall Street. I have been unable to find the original Financial Times article to which Wallace referred but Martin has used the example of the New England Patriots’ stellar 16-0 record in their 2007 winning streak in Fixing the Game (2011) and this section is posted on Huffington Post. In it Martin explained how MVP Quarterback Tom Brady, the head coach and the team’s superlative 2007 performance was perfect even in measurable “real” terms. He uses Brady’s real performance value as an analogy for real stock market values and real embodied customers. He contrasts this with the speculators’ expectations market based on the point spread. The Patriots’ performance for example was only mediocre because the Patriots covered the point spread only ten times. Martin explained that “In betting vernacular, a favored team covers the spread when it wins the game by more than the point spread. In this case, the point spread is the moral equivalent of the stock price, in that it captures the consensus expectations of all bettors (Huffington Post).” Martin argued that it is impossible to meet bettors’ expectations forever and expectations grow to unattainable levels in both football and the stock market. In “American capitalism, CEOs are compensated directly and explicitly on how they perform against the point spread; that is, against expectations (Martin 2011 cited in Huffington Post).” And CEOs increasingly focus on managing share price over the short run something that is easier to manipulate. Shareholders are better off however when the focus of their investment managers is on the long term, on increasing share price more or less forever. In this horse-race spread-covering betting scenario, the interests of shareholders and executives are not aligned.

In 2009 (Stiglitz Commission 2009).” warned that financial speculation exacerbated the mortgage meltdown, the phenomenal increase in the price of energy including oil. As the price of energy increases countries’ purchasing power decreased. “The transfer of income from those who suffered from these price increases to those who benefited weakened global aggregate demand and contributed to the global imbalances which played an important role in the crisis (Stiglitz Commission 2009).”

There are those who claim that perceptions not realities create oil prices (Dicker 2011:309). He argued that the illogical outcome of BP disaster (the decrease in the price of oil when the supply was less than demand) is another example of the way in which oil markets and prices are influenced by quick analysis of traders and investors looking to benefit from a well-placed bet not by legitimate changes in fundamental supply.

While gurus such as Bernstein (2000) argue that gambling is for anyone but speculation is for professionals, the chaos and unpredictability of the current global economy have been linked to a growing culture of gambling in futures trading rather than level-headed professionalism. Gamblers create risk simply by placing a bet; professional speculators “transfer risk from the hedgers to the speculators” and it therefore called risk management instead of gambling.

“It rained last night so the price of soy beans will be down today.” Although the basis of fundamental analysis in economics is supply and demand, the actual fundamental analysis of specific markets that might generate accurate price predictions are complicated as numbers of factors overlap and massive quantities of data need to be considered. The simple equation involves how much of a commodity or service are buyers willing to pay at a given time and place. There used to be a correlation between price and consumption. Factors that impact on price of commodities include the state of the economy (local, regional, national and international – inflationary, recessionary with rising or falling employment), availability of alternate products or services, storage possibilities, weather, seasonality, price cycles, price trends, government subsidies, political influences, protectionist attitudes, international tensions, fear of war, hoarding, stockpiling, demand for raw materials (sugar, petroleum, copper, platinum, coffee, cocoa), currency fluctuations, health of the economy, level of unemployment, housing starts. Most technical systems are not effective in making traders money.

In examining implications regarding monetary policies the US Federal Reserve Board theoretical analyses often focus on: “commodity prices and inflation, the role of labor costs in the price-setting process, issues arising from the necessity of making policy in real time, and the determinants and effects of changes in inflation expectations (Bernanke 2008-06-09).”

While some argue that “policymakers care only about expected economic outcomes and not the uncertainty surrounding those outcomes” Pesenti and Groen claim that policymakers are concerned about the risks to their projections as well as the projections themselves (Pesenti and Groen 2011-03)?” Should and how does this affect the way in which policies are made?

Selected Timeline of Critical Events

2011-08-09. “In recent days, the high-frequency operation at Tradeworx Inc., a Red Bank, N.J. firm, juggled its largest daily volumes since its 2009 launch, resulting in some of its most profitable days on record, according to its founder, Manoj Narang. The reason: High-speed firms’ profits are highly correlated with increased volatility in the market. The more stock are rising and falling, the better they are able to make profits on the difference between buy and sell prices. A gauge of volatility, the Chicago Board Options Exchange Volatility Index, or VIX, rose more than 100% from Aug. 1 to Aug. 8. (Patterson, Scott. 2011-08-09. “High Frequency Traders Win in Market Bloodbath.” Wall Street Journal Blog Marketbeat.)”

2011-08-13 ANDREW ROSS SORKIN: “[T] he issue of what’s called high-frequency trading and electronic trading that she just mentioned is absolutely right. The reason why you’re seeing these huge gains and huge losses is because there are people who are making these decisions based on the headlines, but then there are computers, there’s machines that are effectively taking over and exacerbating the ups and the downs, because what they’re looking to do is — these are machines with algorithms that are looking to pick up pennies, lots of pennies in many instances. But they’re looking for one stock to go up and one stock to go down, and they see different correlations. And that’s really exacerbating the big moves in volatility we’re seeing in the stock market these days.” CATHERINE MANN: [The] ordinary investor, the person on Main Street is affected by these gyrations. [The ordinary investor] feels a disconnect between the big profits that some Wall Street, the big financials or non-financials companies get by trading on this high frequency and the ups and the downs, and the average person on Main Street. “The disconnect there has been there for a while. It’s been worsened because of the lack of credit being extended to Main Street, as — as — even though the banks have gotten better, in better shape, they have not extended any credit to Main Street. And so that disconnect is worse. And they really feel like Wall Street is out to get them. And they’re probably right about that (“Uncertainty, Computerized Trading Fuel Wall Street’s Wild Ride.”)

2011-07-07 Melloy, John. 2011-07-07. “New Way High-Speed Traders Get Edge on Investors.” Fast Money. CNBC.com

2011 High-frequency trading firms using high-frequency techniques (software-based mechanisms: high frequency algorithmic trading) earned $12.9 billion in profit in the last two years (2009-2011), according to TABB Group, a specialist on the markets.

2011-07-18 The price of gold climbed to c.”$1604 an ounce, putting the precious metal on track for a 10th-straight rise and another record settlement. The U.S. dollar strengthened against the euro but declined versus the yen. Crude-oil prices fell below $95 a barrel (Wall Street Journal).”

2011-07-10 Anderlini, Jamil. “Trade data show China economy slowing.” “In a sign that industrial activity in the country was moderating, imports of key commodities like crude oil, aluminium and iron ore all fell in June from a month earlier. Crude oil imports fell to the lowest level in eight months and were down 11.5 per cent from the same month a year earlier and, while copper imports rebounded in June, they were significantly down on 12 months ago.”

2011-07-08 U.S. stocks slumped. Crude-oil futures fell 2.9% and traded just below $96 a barrel (Wall Street Journal).

2011-07-04Speculators unburned.” The Economist. Oil traders are free to bid for it. And it seems they did. The Department for Energy says its auction was heavily oversubscribed with bids from more than 90 parties. For reference, there are 148 refineries in America, but most are owned by a few major players such as Exxon, who would do the actual bidding. Traders who anticipate the oil price will rise, and have the capacity to store oil, can buy physical stocks now, and sell oil forward. As long as the price rises enough to cover storage costs, they will turn a profit. If a trader was able to purchase West Texas Intermediate—the oil held in America’s Strategic Petroleum Reserve (SPR)—at the spot price on June 24th, they would already be sitting on a tidy profit.

2011-07-04 Capacity (Quotes per Second) CQS capacity was increased by 33% to 1 million quotes/second. On July 5th, 2011 there was a micro-burst of activity: 33% more active than any trading day in history (Nanex Research).

2011-06-27 “The London Stock Exchange (LSE.L) has launched a super-fast trading service in its latest bid to court more business from high-frequency trading (HFT) firms.” (Jeff, Luke. 2011-06-27. “LSE makes latest high-frequency move.” London:Reuters.

2011-06 “A recent report produced by a joint advisory committee of the SEC and the Commodity Futures Trading Commission urged the SEC to work with the Financial Industry Regulatory Authority and the exchanges “to develop effective testing of sponsoring broker-dealer risk management controls and supervisory procedures.The concern from Washington prompted a group of 12 brokerages to collaborate on a set of risk guidelines intended for adoption across the industry. Working under the aegis of FIX Protocol Limited, the group recently published a checklist of 13 risk controls it hopes will deter the acceptance of orders that might disrupt the marketplace. FIX Protocol is a pan-industry group that promotes and supports electronic trading through the ubiquitous FIX communications standard. The guidelines devised by the members of the FPL Risk Management Working Group focus strictly on algorithmic and direct-market-access orders for cash equities. The members include the nine largest trading firms, which account for the vast majority of industry orders (“New Checks Unlikely to Satisfy SEC.” Traders Magazine).”

2011-06-29

2011-06-28 “Futures advanced a second day as Brent crude oil climbed. Gasoline and heating oil rose as crude and equities gained and the dollar weakened against the euro.”(Powell 2011-06-28).

2011-06-23 In its commitment to keep oil markets well-supplied the Paris-based International Energy Agency (IEA) announced that the 28 IEA member countries for the third time in the IEA history, they would release 60 million barrels of oil (2 million barrels of oil per day from their emergency stocks over an initial period c. June-July 15) to offset the ongoing disruption of oil supplies from Libya. By May 30 132 mb of Libyan light, sweet crude oil was not available to the market and analysts expect this to continue through 2011. This supply disruption has been underway for some time and its effect has become more pronounced as it has continued. The normal seasonal increase in refiner demand expected for this summer will exacerbate the shortfall further. Greater tightness in the oil market threatens to undermine the fragile global economic recovery (International Energy Agency 2011-06-23).

2011-06-16 Fletcher, Sam. “Energy prices tumble; Brent-WTI spread at 3-month low.” PennEnergy- Energy News. West Texas Intermediate to “the weakest level” since March, said Olivier Jakob at Petromatrix, Zug, Switzerland. In Houston, analysts at Raymond James & Associates Inc. said the European debt crisis and continued worries of a weakening US economy …

2011-06-15 Britain’s top banks will have to protect their retail business from investment banking activities (casino banking) after “the government backed a plan to overhaul the industry and shield taxpayers from future losses (more).” See Financial Times also.

2011 Debates in the UK on how to make our financial institutions safer include ring-fencing utility operations from casino banking, new capital requirements and living wills. Megabanks (Barclays, Lloyds, RBS and Santander) were rescued by taxpayers as well as through worsening savings and loan rates. Read more: http://www.thisismoney.co.uk/money/article-2004841/SUNDERLAND-ON-SATURDAY-Banks-need-customers-queue.html#ixzz1QbQ38DAGSee Sunderland “The scale of the taxpayer bailout of the banking system has led to lengthening dole queues and severe cuts to public spending (more).”

2011 Megabank Barclays was ordered by the Financial Services Authority to pay a fine of £7m and to repay up to £60m to mainly elderly customers who had been duped into gambling their savings on the stock market. Read more

2011-06-17 In the Alberta oil sands, oil prices tripled from their 2009 lows. Drilling activity was on the upswing. Unemployment was falling and oilsands investment was surging (Read more)

“When you see oil prices spiking by $2, $3 or $5 a day, that’s not a situation Alberta wants to be in because it’s not driven by (market) fundamentals, it’s being driven by speculators”.

2011-05-02 through 2011-05-07 The price of silver dropped 25% in just four trading days.

2011-04 Investors pushed the price of silver up 57% in 2011 before a massive correction started on May 2, 2011.

2011-03 In the wake of the U.S. real estate collapse, declining returns in the bond market, worries about a global slowdown and fears that after a nice run, equities have nowhere to go but down, big hedge funds and other sophisticated market pros have been loading up on cotton, corn, soybean oil and other soft commodities. Milner, Brian.

2011-03. “Soaring commodity prices at mercy of demand – from speculators.” Globe and Mail.

2011-03 A rally in commodity prices resurrected inflationary threats (Pesenti and Groen 2011-03).

2011-01-12 American International Group, which received a massive bailout in 2008, claimed it expected to complete a recapitalization that would allow it to fully pay back the government (more).

2011-02 Coffee prices: In New York, the benchmark May futures contract hit $2.784 a pound, their highest level since $3.40 in 1977, an all-time record. During the past 12 months alone, those prices rose by 145%. Last week the International Coffee Organisation said the price had hit a 14-year high. By July 2011 “Coffee futures are up 53% over the past year, although the front-month contract for July delivery fell 1.9%, or 4.8 cents, in Friday to close at $2.5255 a pound.”

2011-06-01 Investors should prepare for renewed swings in prices of commodities (oil, natural gas, orange juice) “swings expected after weather forecasters predicted a busy Atlantic hurricane season.” Blais 2011-06-01 .” Financial Times. London.

2010-12 From 1977-2010 the compound annual sharehold value continues to decrease compared to pre-shareholder-value era (1933-1977) (Martin 2011 cited in Huffington Post).” Companies tend to boost earnings per share without creating value but gross-margin return on inventory investment drives longer term value creation. CEOs need to be held accountable for long-term performance by linking compensation to such metrics as multiyear stock performance. see Lek.

2010-09 Investment banker multimillionaire 59-year-old American Bob Diamond was appointed as head of Barclays megabank raising concerns that the Treasury should separate traditional retail banking from casino banking. Casino banking can lead to potential massive profits or loss depending on the level of risk of investments. Vince Cable: “Diamond, with his £20m bonuses, is the unacceptable face of this bonus-driven banking,” Oakeshott said. “This highlights the need to break-up and de-risk the British banking system.” Barclays appointment highlights ‘casino’ banking fears Business secretary says Barclays’ appointment of Bob Diamond illustrates dangers of having retail banks with massively profitable investment arms attached to them.

2010—08-16 The CFTC sanctioned ConAgra Trade Group, Inc. (CTG) $12 Million for causing a non-bona fide price to be reported in the NYMEX Crude Oil futures contract. On January 2, 2008, CTG was the first to purchase NYMEX crude oil futures contracts at the then-historic price of $100. As a result of CTG’s effort to be the first to trade at the $100 level, CTG caused a non-bona fide price to be reported, according to the CFTC order. (CFTC Press Release 5873-10, August 16, 2010) (more).

2010-07-21 President Obama signed the Dodd-Frank financial regulatory bill. “Title VII of the Dodd-Frank Act amends the Commodity Exchange Act to establish a comprehensive new regulatory framework for swaps and security-based swaps. The legislation is enacted to reduce risk, increase transparency, and promote market integrity within the financial system by, among other things: 1) providing for the registration and comprehensive regulation of swap dealers and major swap participants; 2) imposing clearing and trade execution requirements on standardized derivative products; 3) creating robust recordkeeping and real-time reporting regimes; and 4) enhancing the Commission’s rulemaking and enforcement authorities with respect to, among others, all registered entities and intermediaries subject to the Commission’s oversight. On the same day, the CFTC releases a list of 30 areas of rulemaking to implement the Dodd-Frank Act. (CFTC Press Releases 5855-10 and 5856-10, July 21, 2010) (more). The Dodd-Frank Act included the Volcker Rule which requires that “regulators implement regulations for banks, their affiliates and holding companies, to prohibit proprietary trading, investment in and sponsorship of hedge funds and private equity funds, and to limit relationships with hedge funds and private equity funds. Non-bank financial institutions supervised by the Fed also have restrictions on proprietary trading and hedge fund and private equity investments. The Council will study and make recommendations on implementation to aid regulators (more).”

2010-05-24 A YouTube video of High Frequency Trading explained by William Arnuk, the 13-year-old son of Sal Arnuk, who works for the HFT research firm, Themis Trading.

2010-05 With the flow from BP’s Deepwater Horizon huge oil spill unstaunched both stock and oil markets crashed with the brunt of the losses in the energy sector. Oil prices fell. (Dicker 2011:305).

2010—05-06 Major stock indexes and stock index futures experience a “flash crash”, a brief but severe drop in prices, falling more than 5% in a matter of minutes, only to recover a short time later. Dow Jones industrials fell roughly 900 points, only to quickly recover. Some individual securities experience more volatility than the stock indexes. (Statement by SEC and CFTC, May 6, 2010). (more) The joint CFTC/SEC report on the “flash crash” of May 6, 2010, examined the role of high-frequency trading in this extreme episode (U. S. Commodity Futures Trading Commission and the U.S. Securities and Exchange Commission, 2010). Whether or not a single large order caused the “flash crash” in May 2010, as the Securities and Exchange Commission has alleged that a single large order may have caused the crash and has placed pressure on brokers to make sure they don’t toss any oversize or out-of-control orders into the market (Traders Magazine). “The regulators’ official October report on the 15-minute plummet in the Dow Jones Industrial Average on May 6, 2010, blamed a liquidity crisis that followed a bad trade in S&P 500 futures. Officials have since taken action to prevent a similar catastrophe by instituting circuit breakers that halt individual stocks in the S&P 500 after a 10 percent move (Melloy 2011-07-07).”

2010—04-06 It took $20 trillion of public funds over a period of two-and-a-half years to lift the total world market capitalization of listed companies by $16.4 trillion. This means some $3.6 trillion, or 17.5%, had been burned up by transmission friction. Government intervention failed to produce a dollar-for-dollar break-even impact on battered markets, let alone generate any multiplier effect, which in normal times could be expected to be between nine and 11 times. In the meantime, with the exception of China’s, the real global economy continues to slide downward, with rising unemployment and underemployment. The massive government injection of new money managed to stabilize world equity markets by January 2010, but only at 73.5% of its peak value in October 2007. It still left the credit markets around the world dangerously anemic and the real economy operating on intensive care and life support measures from government. This is because the bailout and stimulus money failed to land on the demand side of the economy, which has been plagued by overcapacity fueled by inadequate workers’ income, masked by excessive debt, and by a drastic reversal of the wealtheffect on consumer demand from the bursting of the debt bubble. The bursting of the debt bubble destroyed the wealth it buoyed, but it left the debt that fueled the bubble standing as liability in the economy. Much of the new government money came from adding to the national debt, which taxpayers will have to pay back in future years. This money went to bail out distressed banks and financialinstitutions, which used it to profit from global “carry trade” speculation, as hot money that exploited interest rate arbitrage trades between economies. The toxic debts have remained in the global economy at face value, having only been transformed from private debts to public debts to prevent total collapse of the private sector. The debt bubble has been turned into a dense debt black hole of intense financial gravity the traps all light from appearing at the end of the recovery tunnel.(Lui, Henry C.K. 2010—04-06. “Bailouts, Stimulus Packages and Jobless Recovery: The Crisis of Wealth Destruction. Part I).”

2010-04-20 BP’s Deepwater Horizon rig caught fire resulted in oil spill.

2010-03 Michael Lewis published his book entitled The Big Short in which he returned “to his financial roots to excavate the crisis of 2007–2008, employing his trademark technique of casting a microcosmic lens on the personal histories of several Wall Street outsiders who were betting against the grain—to shed light on the macrocosmic tale of greed and fear.” “Lewis is a capable guide into the world of CDOs, subprime mortgages, head-in-the-sand investments, inflated egos–and the big short.” Lewis provides “a savvy assessment of the wisdom of the financial bailout and where-are-they-now updates on the book’s various heroes and villains.” (more)

2010—01-14 The “CFTC votes at an open meeting to publish in the Federal Register a proposal to set position limits for futures and option contracts in the major energy markets. (CFTC Press Release 5771-10, January 7, 2010) (more).”

2010-01 Organizations “representing the electric and natural gas industries and serving nearly all energy customers in the United States, support the goals of the Administration and Congress to improve transparency and reduce systemic risk in over-the-counter (OTC) derivatives markets. As the Senate considers financial reform legislation, [they argued] that it preserve the ability of companies to access critical OTC energy derivatives products and markets. engaged in off-market trading for oil which is unregulated. Estimates for the OTC derivative market for all assets range upward of $600 trillion. See (Edison Electric Institute (EEI). 2010-01. “OTC Derivatives Reform: Energy Sector Impacts.”).

2009-12-17 “Automated market makers (AMM) co-locate their servers in the NASDAQ or the NYSE building, right next to the exchanges’ servers. AMMs already have faster servers than most institutional and retail investors. But because they are co-located, their servers
can react even faster.” “According to Traders Magazine the number of firms that co-locate at NASDAQ has doubled over the last year (Arnuk, Sal L.; Saluzzi, Joseph. 2009-12-17. “Toxic Equity Trading Order Flow on Wall Street: The Real Force Behind the Explosion in Volume and Volatility.” A Themis Trading LLC White Paper.)

2009-10-08High Frequency Trading Technology: a TABB Anthology.” TABB reported that software capable of electronic routing and execution based on algorithms account for more than 25% of all shares traded by the buy side today. A relatively few high frequency proprietary trading firms experienced a meteoric rise and now wield far greater influence on the markets today than most people recognize.

2009-10-30 Market analysts argued that oil markets were no longer tied to supply and demand fundamentals. They were concerned with the extremely high correlation between crude oil prices and US currency (“Flood 2009-10-30).

2009-08-06 Computer-based algorithmic programs carry out transactions in 400 microseconds which is 1000 times faster than the human eye. Few ordinary investors are aware of or have access to this frenetic, technology-driven world of high-frequency trading which accounted for 50% of daily volume in US stocks, up from estimates of 30 per cent in 2005 (Mackenzie, Michael; Grant, Jeremy. 2009-08-06. “The dash to flash.” Financial Times.)

2009-07-20. Goldman Sachs and UBS filed charges against former employees they allege stole proprietary computer code key to their high-speed trading programs, now the most tactical and strategic weapons on Wall Street (Heires, Katherine. 2009-07-20Code Green: Goldman Sachs & UBS Cases Heighten Need to Keep Valuable Digital Assets From Walking Out The Door. Millions in Trading Profits May Depend On It Securities Industry News).”

2009-03 UBS filed papers “charging three ex-employees with “misappropriation of trade secrets,” specifically the misappropriation of 25,000 lines of source code for the firm’s high-speed, algorithmic trading programs (Heires, Katherine. 2009-07-20Code Green: Goldman Sachs & UBS Cases Heighten Need to Keep Valuable Digital Assets From Walking Out The Door. Millions in Trading Profits May Depend On It Securities Industry News).”

2009-07-03. Goldman Sachs brought charges “against a former vice president for equity strategy and computer programmer on July 3 for allegedly copying 32 megabytes of the bank’s trading codes and uploading them to an encrypted server before sending them to a home computer and other
devices (Heires, Katherine. 2009-07-20Code Green: Goldman Sachs & UBS Cases Heighten Need to Keep Valuable Digital Assets From Walking Out The Door. Millions in Trading Profits May Depend On It Securities Industry News).”

2009-06 Signs of an approaching global economic recovery re-emerged (Pesenti and Groen 2011-03).

2009-06-28 Evans-Pritchard, Ambrose. “China’s banks are an accident waiting to happen to every one of us.
Fitch Ratings warned that China’s banks have lent up to $1,000bn (£600bn) since December 2008. “Money is leaking instead into Shanghai’s stock casino, or being used to keep bankrupt builders on life support.” This does not help the world economy.

2009-06-26 “The Iraq War and other events which helped set off an increase in the price of oil had a further depressing effect on countries which import energy, including the U.S. The magnitude of the increase in energy prices was exacerbated by financial speculation. This change in the price of energy, accompanied by governments’ attempts to develop alternative bio energy sources contributed to higher food prices. The sharp increase in energy prices thus directly and indirectly brought further reductions in purchasing power within many countries. The transfer of income from those who suffered from these price increases to those who benefited weakened global aggregate demand and contributed to the global imbalances which played an important role in the crisis (Stiglitz Commission 2009).”

2009-05 During “an annual conference of the Securities Industry and Financial Markets Association, top executives from Direct Edge and the NYSE angrily debated the merits of flash orders. Flash orders are a type of high frequency trading. Institutional paying participants get a flash peek at prices before they are released to the broader, public market (more).”

2009-03-24 The Federal Reserve, working closely with the Treasury, made the decision to lend to AIG on September 16, 2008. It was an extraordinary time. Global financial markets were experiencing unprecedented strains and a worldwide loss of confidence. Fannie Mae and Freddie Mac had been placed into conservatorship only two weeks earlier, and Lehman Brothers had filed for bankruptcy the day before. We were very concerned about a number of other major firms that were under intense stress. AIG’s financial condition had been deteriorating for some time, caused by actual and expected losses on subprime mortgage-backed securities and on credit default swaps that AIG’s Financial Products unit, AIG-FP, had written on mortgage-related securities. As confidence in the firm declined, and with efforts to find a private-sector solution unsuccessful, AIG faced severe liquidity pressures that threatened to force it imminently into bankruptcy (more). Claims of bondholders and counterparties were paid at 100 cents on the dollar by taxpayers, without giving taxpayers the rights to the future profits of these institutions. Benefits went to the banks while the taxpayers suffered the costs (more).

2009-02-03 The “U.S. government announced a restructuring of a bailout plan for the troubled insurer American International Group Inc. Monday, extending $30 billion in additional aid to the company. News of the additional funds came as AIG, once the world’s largest insurer, said it lost $61.7 billion in the fourth quarter, the biggest quarterly loss in U.S. corporate history, amid continued financial market turmoil.”

2008-10-18 The President of the United Nations General Assembly, “Miguel D’Escoto Brockmann, announced his intention to establish a taskforce of experts to review the workings of the global financial system, including major bodies such as the World Bank and the IMF, and to suggest steps to be taken by Member States to secure a more sustainable and just global economic order (http://www.un.org).” Noted economist and Kerala State Planning Board Vice-Chairman Prabhat Patnaik was included in a four-member high-power task force of the United Nations (U.N.) to recommend reforms of the global financial system. The task force Commission of Experts on Reforms of the International Monetary and Financial System (2009), informally known as the Stiglitz Commission, was headed by Nobel Prize-winning economist Joseph Stiglitz.

2008 Morgan Stanley and Goldman Sachs, the last two investment banks left standing, announced they would become traditional bank holding companies, marking the end of an era for Wall Street (more).

2008-09-16 American International Group, Inc. (AIG) (NYSE: AIG), an American insurance corporation, suffered a liquidity crisis following the downgrade of its credit rating. “The Federal Reserve, working closely with the Treasury, made the decision to lend to AIG on September 16, 2008. It was an extraordinary time. Global financial markets were experiencing unprecedented strains and a worldwide loss of confidence. Fannie Mae and Freddie Mac had been placed into conservatorship only two weeks earlier, and Lehman Brothers had filed for bankruptcy the day before. We were very concerned about a number of other major firms that were under intense stress. AIG’s financial condition had been deteriorating for some time, caused by actual and expected losses on subprime mortgage-backed securities and on credit default swaps that AIG’s Financial Products unit, AIG-FP, had written on mortgage-related securities. As confidence in the firm declined, and with efforts to find a private-sector solution unsuccessful, AIG faced severe liquidity pressures that threatened to force it imminently into bankruptcy (more).”

2008-07 2008 Lehman Brothers failed. Bubble popped and money fled from oil investment. Trading value of oil dropped by 80% (Dicker 2011).

2008 Oil reached $147 a barrel (Dicker 2011).

2008-06 Federal Reserve Chairman Bernanke “singled out the role of commodity prices among the main drivers of price dynamics, underscoring the importance for policy of both forecasting commodity price changes and understanding the factors that drive those changes (Pesenti and Groen 2011-03 citing Bernanke).”

2008-04 The macroeconomic outlook changed rapidly and dramatically as the global economy experienced the near-collapse of trade volumes and the associated plunge in commodity prices was the harbinger of pervasive disinflation risks (Pesenti and Groen 2011-03).

2008 In the ten years after Born’ s 1998 proposal, the market in derivatives exploded from $27 trillion to one worth more than $ 600 trillion. By comparison, the entire U.S. economy was worth $ 14 trillion. Hirsch, Michael. 2010. Capital Offense: How Washington’s Wise Men Turned America’s Future Over to Wall Street. New Jersey: John Wiley.

2008-06 “NYSE Floor Brokers Get New Tools.” The New York Stock Exchange introduced two new technologies to give brokers on the NYSE trading floor the ability to trade algorithmically and to strengthen the brokers’ ability to locate large sources of liquidity. more

2008-06-17 Ross Levin, a Wall Street NYC hedge fund analyst with Arbiter Partners, who calls himself a “passive speculator in securities” met Lionel Lepine, a member of the Athabaskan Chipewyan First Nation whose family and friends living on the contaminated watershed upriver from the oil sands’ effluence are suffering from unprecedented numbers of cancerous tumours. Levin attended Calgary’s prominent energy investment forum and “found himself in the eye of a growing environmental storm battering Alberta’s oilsands — one of several clashes centred on the energy sector.”
read more | digg story

2008-04-02 – After two decades spent expanding in Britain, the United States and other developed economies, the world’s third biggest bank is shifting its ….. or if the government forces banks to separate their retail arms from investment banking, dubbed “casino banking” by some politicians. .

2008 PM Harper apologized for past treatment of Canada’s First Nations.

2008 Pollution of the Athabaskan River north of the oil sands

2008 Impatient development of nonrenewable resources in the oil sands.

2008-03-24 Reich, Robert B. 2008-03-24. Is the Game About to Stop? American consumers’ buying power was less than the goods and services the U.S. economy is capable of producing. Reich predicted fewer jobs, even less consumption which would lead to even fewer jobs and possible a recession which could become a full-fledged depression. Reich argued that fiscal and monetary policies could perhaps make up for consumers’ lack of buying power. American consumers were already deep in debt, their homes were losing value, their paychecks were shrinking.

2008 Meteoric rise of oil commodities market directly caused by irresponsible speculators playing with volatile, unpredictable hedge funds that play havoc with the market making a fortune for some while destroying economic, social and ecological environments all around them.

2008 Calgary has a high percentage of young millionaires with lots of disposable income. There are also c.4000 homeless people in Calgary, the oil capital of Canada. c. 40% of the homeless are working poor who are unable to afford housing.

2007-10-31 Meredith Whitney, an obscure analyst of financial firms for Oppenheimer Securities “predicted that Citigroup had so mismanaged its affairs that it would need to slash its dividend or go bust. It’s never entirely clear on any given day what causes what in the stock market, but it was pretty obvious that on October 31, Meredith Whitney caused the market in financial stocks to crash. By the end of the trading day, a woman whom basically no one had ever heard of had shaved $369 billion off the value of financial firms in the market. Four days later, Citigroup’s C.E.O., Chuck Prince, resigned. In January, Citigroup slashed its dividend (Lewis, Michael. 2008. The End).”

2007-08 Arnuk and Saluzzi argued in their white paper entitled Toxic Equity Trading Order Flow on Wall Street: The Real Force Behind the Explosion in Volume and Volatility” (2009-12-17) that electronic trading, the new for-profit exchanges and ECNs, the NYSE Hybrid and the SEC’s Regulation NMS all came together in unexpected ways in the late summer of 2007. This perfect storm caused the Volatility Index, [stock market volatility index (VIX) "fear gauge" measures the expectation of price movement over the next 30 days. The higher the reading, the more likely stocks are to move in one direction or another] to climb, trading volumes to increase explosively, stock prices and indexes to experience rapid change. “
This has resulted in the proliferation of a new generation of very profitable, high-speed, computerized trading firms and methods that are causing retail and institutional investors to chase artificial prices (Arnuk and Saluzzi 2009-12-17).”

2006-03-07 The merger of NYSE and Archipelago was completed forming the NYSE Group, Inc., a holding company that operates two securities exchanges: the NYSE and NYSE Arca, Inc. They are a leading provider of securities listing, trading and market data products and services (more).

2007-06-18 Wolf, Martin. 2007-06-18. “Unfettered finance is fast reshaping the global economy.” “In Rome everything is for sale.”

2007-01 “Both the switch to trading in penny increments in January 2007 and stepped-up activity by high-frequency traders have cut into dealer profits. That has made the dealers less willing to shoulder the entire burden of supporting the exchanges. Almost 90 percent of industry volume is now being traded in options subject to the “penny pilot.” With the minimum trading increment down from 5 cents to 1 cent in the most active options, competition has cut dealer spreads dramatically. “Options Market Makers Catch a Break on Fees as Customers Pick Up.” Traders Magazine

2006 “[F]lash orders – a key focus of the New York Times article, which prompted an almost instant response from politicians and regulators. Flash orders first appeared in US equity markets in 2006, with the launch of the Enhanced Liquidity Provider (ELP) programme by Direct Edge. The idea was that if an order had been sent into Direct Edge and not found a match, it would be shown to other market participants before being routed out to alternative markets, as would normally happen. In theory, more of the orders placed with Direct Edge would be filled, and more customers would have a shot at trading at the price they want (Wood, Duncan. 2009-09-04) “Murky business.” Risk magazine.” tags: Algorithmic Trading Topics: Equities, Trading

2006-2008 Mainly cautious elderly customers were ill-advised by Barclays between 2006 and 2008 to put money into high-risk investments Aviva Global Balanced Income or the Aviva Global Cautious Income funds. No one at Barclays lost jobs even though this scandal cost Barclays shareholders close to £80 million and inflicted untold damage on Barclays’ reputation. Read more

2005-12-15 NYSE Hybrid Market was launched, creating a unique blend of floor-based auction and electronic trading. NYSE Hybrid Market claimed to provide customers with more choices and greater flexibility in accessing the superior liquidity and best prices of the NYSE marketplace. In 2005, the combined dollar value of transaction volumes of the NYSE and NYSE Arca represented approximately $17.8 trillion dollars, which was greater than the value of trading of Nasdaq ($10.1 trillion), the London Stock Exchange ($5.7 trillion), the Tokyo Stock Exchange ($4.4 trillion), Euronext ($2.9 trillion) and the Deutsche Börse ($1.9 trillion) (more)

2005-06-29 70 FR 37496, 37627 Rule 603 — Distribution, Consolidation, and Display of Information with Respect to Quotations for and Transactions in NMS Stocks. “In Regulation Fair Disclosure, the SEC took the stand that firms cannot release fundamental information to a subset of investors before others. On the other hand, Rule 603(a) established a different approach to market data, whereby market centers could sell data directly to subscribers, in effect creating a tiered system of investors with respect to access to information about market events. Rule 603(a) prohibits an SRO or a broker-dealer from supplying the data via direct feeds faster than it supplies it to the Securities Industry Automation Corporation (SIAC) that processes the data and distributes the “tape.” However, the operation of processing and retransmitting data via SIAC appears to add 5 to 10 millisecond and hence subscribers to direct exchange data feeds “see” the information before others who observe the tape (more).”

2005-07-31 CEO, John Thain discussed NYSE plans to merge its floor-based trading system with a relatively new electronic market known as Archipelago creating a hybrid system that allows electronic, instantaneous and anonymous trades. Thain’s former employer, Goldman Sachs, was on both sides of the deal representing the NYSE and Archipelago. Goldman was the biggest NYSE seat holder, owned a specialist firm and 15% of Archipelago “NYSE chief: Hybrid trading system’s the way to go.”

2005Many banks operated proprietary trading units that were organized much like hedge funds. Risk exposures of the hedge-fund industry began to have a material impact on the banking sector, resulting in new sources of systemic risks (more).

2005 High-frequency trading accounted for 30% of daily volume in US stocks (Mackenzie, Michael; Grant, Jeremy. 2009-08-06. “The dash to flash.” Financial Times.)

2005 Direct Edge, a small, electronic trading company opened for business using high-frequency trading (lightning-fast computers equipped with sophisticated and powerful algorithms that are capable of executing trading strategies) and flash orders (literally flashing their orders to their own investors for about a tenth of a second before releasing it to the public market).

2005-07 S&P upgraded China’s sovereign rating by one notch to A-minus, citing China’s aggressive overhaul of its financial sector and improved profitability. China is rated ‘A2′ by Moody’s Investors Service and ‘A’ by Fitch Ratings. Liu, Henry C. K. World Trade Needs a Global Cartel for Labor (OLEC).

2005 According to one study, if the share of world trade and world gross domestic product for non-industrial countries had remained at its 2000 levels, then by 2005, real oil prices would have been 40 percent lower, and real metals prices 10 percent lower, than they actually were (Pain, Koske, and Sollie, 2006).  Since 2005, continued strong growth in the demands for resources of emerging market economies have likely put further considerable upward pressure on commodity prices  (Bernanke 2008-06-09). “

2004 The “demand for oil by members of the Organisation for Economic Co-Operation and Development (OECD) has been essentially flat since 2004 (Bernanke 2008-06-09). ”

2004-08-02 Revolutionary electronic trading practices transformed the stock market. The NYSE filed to expand using the NYSE Direct+® system. NYSE Direct+® eliminated limits on the size, timing, and types of orders that can be submitted via Direct+, significantly increasing the level of purely electronic trading at the NYSE.

2004 The “demand for oil by members of the Organisation for Economic Co-Operation and Development (OECD) has been essentially flat since 2004 (Bernanke 2008-06-09). “

2003  The price of oil had remained relatively stable from 1990 to 2003 when the price of oil became volatile. The price increased sixfold in five years then lost 80% of its value in 6 months (Dicker 2011:viii).

2001 There was “an overnight change in the trading patterns of the Nasdaq 100 Index which highlighted the competitive impacts of the SEC reforms and foreshadowed the dominance of the high frequency traders and all-electronic marketplaces. At the time, the ETF for the Nasdaq 100 Index (then known as the QQQ) was the most actively traded security and was primarily traded on the American Stock Exchange which utilized a manual floor-based specialist system. Using ATSs, the high frequency traders began using their efficient automated trading systems to narrow the quoted spreads in the QQQ from several pennies down to tenths of a penny, saving investors millions in the process (Traders) .”

Within months, investors voted with their feet and made the electronic markets that featured the liquidity and narrower spreads of the high frequency traders the dominant venues for the QQQ. Investors never looked back. Ultimately, the NYSE and the Nasdaq Stock Market were compelled to purchase these electronic markets that catered to high frequency traders (Archipelago was purchased by the NYSE and INET by the Nasdaq Stock Market). The traditional, uncompetitive Wall Street market maker model was replaced and the exchanges were transformed to open, fair and transparent electronic marketplaces.

2000 More than 90 foreign futures exchanges emerged with the ever-increasing demand for new financial instruments “to hedge against fluctuating interest rates, changing foreign exchange rates and institutional securities portfolios (Bernstein 2000:46).

2000 The Chicago Mercantile Exchange (CME) trades futures in livestock futures, currency futures, interest rate futures, stock index futures (Bernstein 2000:70).

1999 The most actively traded future contracts were interest rates, futures, stock index futures, energy futures, currency futures and agricultural futures (Bernstein 2000:72).

1998 Long Term Capital Management collapsed.

1998Security and Exchange Commission ruling allowed electronic communication networks (ECN’s for short) to trade equities in competition with the traditional exchanges. New technologies made the automation possible resulting in the development of high frequency trading: Lightening-quick computers, aided by powerful algorithms, buy and sell stocks based on price or other markers (more).

1998 Brooksley Born, chairman of the Commodity Futures Trading Commission declared that the unregulated regulation of private derivative contracts could “pose grave dangers to our economy.” He argued forcefully for regulation of private derivative contracts but lost to Alan Greenspan and Robert Rubin who were against policing the deals.

1990 The price of crude oil rose dramatically when Hussein invaded Kuwait.

1986 The total volume of futures contracts trading was 184 million and the T bonds were among the most actively traded future contracts (Bernstein 2000:71).

1989 Michael Lewis’ novel entitled Liar’s Poker was published. He intended to write a period piece about the 1980s in America. He had expected readers to be outraged that in 1986, the C.E.O. of Salomon Brothers, John Gutfreund, was paid $3.1 million. He expected readers to be horrified that one of the traders, Howie Rubin, had moved to Merrill Lynch, where he lost $250 million. He expected readers to be shocked to learn that a Wall Street C.E.O. had only the vaguest idea of the risks his traders were running.” Writing in 2008 he expressed dismay that Wall Street continued for another 20 years and the public were more in awe than angry. Read more: http://www.portfolio.com/news-markets/national-news/portfolio/2008/11/11/The-End-of-Wall-Streets-Boom#ixzz1Qd1u5MLZ

1987 The World Commission on Environment and Sustainable Development (Brundtland Commission) defined sustainable development as meeting the needs of the present without compromising the ability of future generations to meet their own needs.

1987-10-19 “The Dow Jones Industrial Average tumbled more than 20%, and the swoon extended into the following day, before a rebound. Floor traders, working by telephone, dominated the action and computer-generated trading was still in its infancy. Dark pools and high-frequency trading were the stuff of science fiction. Trading reached 600 million shares, according to the SEC (source).”

1982 Futures trading in the US was self-regulating and anyone in the business had to become a member of the National Futures Association (NFA).

1970s The Bretton Woods system broke down in the early 1970s. This was followed by a period of financial market liberalization and deregulation, by a surge of private capital flows and by the increasingly global reach of financial institutions.

1974 The US Congress passed the Commodity Futures Trading Commission Act and established Commodity Futures Trading Commission (CFTC) to protect participants in the futures market from fraud, deceit and abusive practices such as unfair trading practices (price manipulation, prearranged trading, trading ahead of a customer), credit and financial risks, and sales practice abuses (Bernstein 2000:32). Individual nation states have similar regulating bodies.

1973/4 The International Energy Agency (IEA) was founded as an autonomous organisation to ensure reliable, affordable and clean energy for its 28 member countries and beyond. The IEA’s initial role was to help countries co-ordinate a collective response to major disruptions in oil supply through the release of emergency oil stocks to the markets. The Executive Director in 2011 is Nobuo Tanaka “Total oil stocks in IEA member countries amount to over 4.1 billion barrels, and nearly 1.6 billion barrels of this are public stocks held exclusively for emergency purposes. IEA net oil-importing countries have a legal obligation to hold emergency oil reserves equivalent to at least 90 days of net oil imports. These countries are holding stock levels well above this minimum amount, currently at 146 days of net imports (http://www.iea.org)”

1972 The total volume of futures contracts trading was 18 million and the top ten most actively traded future contracts were agricultural futures (Bernstein 2000:71).

1970s There was increasing volatility in international currency exchange rates as the Bretton Woods agreement began to break down. Business people transferred risk of volatility in international markets by hedging with speculators willing to take the risk. Futures markets began to expand into foreign currencies as fluctuated wildly competing against each other and the US dollar.

1960s Futures trading, also known as commodities trading, the final frontier of capitalism, became a popular speculative and investment vehicle in the US in the 1960s (Bernstein 2000:1).

1960s Futures trading, also known as commodities trading, the final frontier of capitalism, became a popular speculative and investment vehicle in the US in the 1960s (Bernstein 2000:1). These financial instruments offer unlimited profit potential with relatively little capital. Speculators are drawn to the possibility of quick money or what I like to call impatient money. The great wealth accumulated from speculative financial instruments has spawned careers in brokerage, market analysis, computerized trading, computer software and hardware, accounting, law, advertising which themselves subdivide into more recent opportunities such as those related to risk-management.

1929-30 “As mass production has to be accompanied by mass consumption, mass consumption, in turn, implies a distribution of wealth — not of existing wealth, but of wealth as it is currently produced — to provide men with buying power equal to the amount of goods and services offered by the nation’s economic machinery. Instead of achieving that kind of distribution, a giant suction pump had by 1929-30 drawn into a few hands an increasing portion of currently produced wealth. This served them as capital accumulations. But by taking purchasing power out of the hands of mass consumers, the savers denied to themselves the kind of effective demand for their products that would justify a reinvestment of their capital accumulations in new plants. In consequence, as in a poker game where the chips were concentrated in fewer and fewer hands, the other fellows could stay in the game only by borrowing. When their credit ran out, the game stopped.” Eccles, Marriner S. 1951. Beckoning frontiers: Public and personal recollections Ed. Hyman, Sidney. Alfred A. Knopf.

1919 – 1945 The Chicago Mercantile Exchange (CME) traded futures in eggs, butter, apples, poultry and frozen eggs (Bernstein 2000:70).

1865 The Chicago Board of Trade (CBOT) organized trading of futures contracts.

1848 The Chicago Board of Trade (CBOT) was formed as a price risk occurred in the grain markets of Chicago. It was a cash market for grain. Forward or “to-arrive” contracts began trading at the CBOT almost immediately.

1710 The first modern organized futures exchange began with the Dojima Rice Exchange in Osaka, Japan.The Japanese feudal landowners began to use certificates of receipt against future rice crops. As these futures certificates became financial instruments in the general economy the value of the certificates would rise and fall as the price of rice fluctuated. The Dojima Rice Exchange emerged as the world’s first futures market where speculators traded contracts for the future delivery of rice or “certificates of receipt.” The Japanese government outlawed the practice when futures contracts (where delivery never took place) began to have no relationship to the underlying cash value of the commodity leading to wild and unpredictable fluctuations (Bernstein 2000:30).

Actors and Actants

Electronic Communication Network (ECN) “An electronic system that attempts to eliminate the role of a third party in the execution of orders entered by an exchange market maker or an over-the-counter market maker, and permits such orders to be entirely or partly executed.”

High-frequency trading firms (they self-identify as Automated Trading Professionals) use high-frequency techniques (software-based mechanisms: high frequency algorithmic trading) with real-time, co-located, high-frequency (sub-millisecond) trading platform—one (data collected then orders: created-routed-executed). Wall Street banks and hedge funds also use high-frequency techniques but new (ie emerged formed in c. 1999-2001) small (most have as few as 12 to 100 employees), independent firms account for most high-frequency trading, handling 60 % of the 7 B shares that change hands daily on US stock markets on Wall Street and hedge funds. These high-frequency trading firms have formed a trade group called Principal Traders Group in an effort to hold off regulators who want to curb their activities. The members of the FIA Principal Traders Group is the industry’s response to the Joint CFTC-SEC Advisory Committee examination of the market structure and policy issues arising from the extraordinary market turmoil that occurred on May 6, 2010. See (Bowley, Graham. 2011-07-18. “ Split-second traders aim to polish image.New York Times.) High-frequency trading firms using high-frequency techniques (software-based mechanisms: high frequency algorithmic trading) earned $12.9 billion in profit in the last two years (2009-2011), according to TABB Group, a specialist on the markets. TABB Group content focused on the business and technology issues facing US equity and options trading.

RGM Advisors, is a high-frequency trading firm in Austin, Texas. RGM CEO Richard Gorelick, is leading his company to seek a higher public profile.

Low latency Algorithmic Trading is used to process market updates and turn around orders within milliseconds. Low latency trading refers to the network connections used by financial institutions to connect to stock exchanges and Electronic communication networks (ECNs) to execute financial transactions. With the spread of computerized trading, electronic trading now makes up 60% to 70% of the daily volume on the NYSE and algorithmic trading close to 35%. Trading using computers has developed to the point where millisecond improvements in network speeds offer a competitive advantage for financial institutions. (Low latency is also being discussed in the advertising community, as a form of advertising that responds rapidly to consumer inputs, often from tweets.)

International Energy Agency (IEA) The International Energy Agency (IEA) is an autonomous organisation which works to ensure reliable, affordable and clean energy for its 28 member countries and beyond. Founded in response to the 1973/4 oil crisis, the IEA’s initial role was to help countries co-ordinate a collective response to major disruptions in oil supply through the release of emergency oil stocks to the markets. It is at the heart of global dialogue on energy, providing authoritative and unbiased research, statistics, analysis and recommendations. The IEA is committed to keeping the oil supplies well-stocked. The Executive Director in 2011 is Nobuo Tanaka “Total oil stocks in IEA member countries amount to over 4.1 billion barrels, and nearly 1.6 billion barrels of this are public stocks held exclusively for emergency purposes. IEA net oil-importing countries have a legal obligation to hold emergency oil reserves equivalent to at least 90 days of net oil imports. These countries are holding stock levels well above this minimum amount, currently at 146 days of net imports (http://www.iea.org)”

Henry C.K. Liu “is an independent commentator on culture, economics and politics. Born in Hong Kong and educated at Harvard University in architecture and urban design, Liu developed an interest in economics and international relations while pursuing interdisciplinary work on urban and regional development as a professor at UCLA, Harvard and Columbia universities. He was a planning/ development advisor to the late Winthrop Rockefeller, governor of Arkansas, and has received a national urban design award. Liu is currently the chairperson of a New York-based private investment group, a contributor to Asia Times Online and a visiting professor of global development at the University of Missouri at Kansas City. He is an occasional advisor on economic policy to several governments of emerging economies. Liu coined the term “dollar hegemony” to explain that the dollar, a fiat currency since 1971 and the major reserve currency internationally, distorts global trade and finance. Liu is a critic of central banking. He also calls for the use of sovereign credit in lieu of foreign capital for financing domestic development in developing countries. Liu has also been vocal in his critique of Chinese economic policy, which he argues includes imbalances that result in severe income disparity and environmental neglect. In a series of articles in Asia Times Online, Liu proposed the establishment of the Organization of Labor-Intensive Exporting Countries (OLEC), an international cartel, to restore the balance of market power between capital and labor in the globalized economy. He blogs at henryckliu.com. Huffington Post.”

Soft commodities:

OTC Over-the-counter derivatives markets engage in off-market trading for oil which is unregulated. Estimates for the OTC derivative market for all assets range upward of $600 trillion. See (Edison Electric Institute (EEI). 2010-01. “OTC Derivatives Reform: Energy Sector Impacts. p. 1.”). “Use of Financial Derivatives: A typical, large independent oil & natural gas exploration and production company regularly deals with volatility in oil & natural gas exploration. Such companies regularly make extensive use of financial derivatives with the discrete purpose of ensuring a stable cash flow from which they can consistently fund their capital program to find and bring much needed energy resources to market. Although they may make use of exchange-traded instruments, many of their financial transactions are concluded overthe-counter (OTC) under bilateral credit agreements. These frequently use the OTC markets for efficiency and economic reasons and allows the companies to: 1) customize the instrument specifically to operations;
2) reduce the need for cash by permitting more flexibility in the types of collateral leading to a more efficient use of capital and greater liquidity; 3) provide credit exposure diversification; and 4) have the ability to modify credit arrangements depending on a variety of factors during the term of a trade (more).”

Universal Banking Model – Investment and retail banking in one organisation. There is widespread concern that casino banking endangers security of traditional retail banking.

Webliography and Bibliography

Bernstein, Jake. 2000. How the Futures Markets Work. New York Institute of Finance.

Although it is quite old for the fast-paced risk management industry, there are certain basics that ring true. He briefly traced the history futures contracts leading to the volatile environment where agricultural futures were replaced by the less predictable currency markets. Of course, his book was written long before the meteoric rise of private equity funds. My concern remains with the absent ethical component on trading floors. Ethical responsibilities are as elastic as the regulations that govern the centuries old practice of hedging. In the period of late capitalism and the emergence of risk society, the cost of destructive unintended byproducts have created havoc in ways that far exceed the commodities/service value. The road to profits and impatient money, is paved with casualties. Berstein’s facts of market life are telling. He encourages simple methods and systems which require few decisions and little mental conflict. Too much thought is not conducive to successful trading. Too much analysis costs lost opportunities. Keep systems simple. Control your emotions. Practice caring less so that you remain more objective. Don’t ask why. Knowing why may hinder you more than it will help you. Patterns are the best indicators available (What feeds into a “pattern” however is not a science). Timing is what makes money in the futures market (Bernstein 2000:282-3). In other words, futures’ gurus encourage young hedge fund analysts to not think too much about factors such as displacement of peoples, the degradation of living conditions and the way in which they unwittingly contribute to making vulnerable ecologies and peoples even more vulnerable. Their gurus tell them to not think about the impact of their actions. They are told to not ask why the prices of essential commodities like fuel and food that they are playing with, are pushing certain groups into unimaginable levels of social exclusion. In the end groups at-risk to health degradation are always those least able to protect themselves. How convenient that the gurus do not factor in these social issues. They are entirely absent from finance reports. But then a lot of information is purposely not included in financial and business reports. Bernstein argues that the simpler systems that take fewer things into consideration will lead to more profits. Yet when he lists off all the potential factors in operation in even a simple fundamental analysis, it is not at all simple. It begins with the highly complex. The algorithms involved may appear to be simplified through the use of databases that seem to generate accurate, objective hard facts. In reality, the accuracy of any query depends on what was fed into it.

Bernanke, B. S. 2008. “Outstanding Issues in the Analysis of Inflation.” Speech at the Federal Reserve Bank of Boston. 53rd Annual Economic Conference. Chatham, MA.

Blais, Javier. 2011-06-01. Commodity swings expected after US storms forecast.” Financial Times. London.

Coyle, Diane. 2011. The Economics of Enough: How to Run the Economy as If the Future Matters. Princeton University Press.

nature of global capitalism, fiscal policy, inequality and the environment with reflection on civil society, economic growth ought not to be a policy goal, use of a greater range of economic indicators–she backs output growth as an objective, bond holders are safe; citizens are not; beyond traditional measures of debt in thinking about future obligations; top-rank economist’s view from the summit, challenge the neo-classical economic purist; economics and sustainability; serious and difficult changes made to economic systems’ structure and function; Herman Daly’s Steady-State Economics; long-run development; resource depletion, population growth, world poverty, rising debt, rates of innovation;

Cuthbertson, Richard. 2008-06-17. “Energy battles boiling over: A Wall Street analyst attending Calgary’s prominent energy investment forum found himself in the eye of a growing environmental storm battering Alberta’s oilsands — one of several clashes centred on the energy sector Monday.Calgary Herald.

Eccles, Marriner S. 1951. Beckoning frontiers: Public and personal recollections Ed. Hyman, Sidney. Alfred A. Knopf.

Flood, Chris. 2009-10-30 “Markets: Oil dips after US GDP boost.” Financial Times.

Hirsch, Michael. 2010. Capital Offense: How Washington’s Wise Men Turned America’s Future Over to Wall Street. New Jersey: John Wiley.

Lewis, Michael. 1989. Liar’s Poker. W.W. Norton & Company.

Martin, Roger L. 2011-05. Fixing the Game: How Runaway Expectations Broke the Economy, and How to Get Back to Reality. Harvard Business School.

Orphanides, Athanasios, and John C. Williams (2007). “Robust Monetary Policy with Imperfect Knowledge,” Leaving the Board Journal of Monetary Economics, vol. 54 (July), pp. 1406-35.

Pain, Nigel, Isabell Koske, and Marte Sollie (2006). “Globalisation and Inflation in the OECD Economies,” Leaving the Board OECD Economics Department Working Paper Series 524. Paris:  Organisation for Economic Co-operation and Development, November.

Pesenti, Paolo A. Groen, Jan J.J. 2011-03. Commodity prices, Commodity Currencies, and Global Economics. Directorate-General for Economic and Financial Affairs. European Commission. Economics Papers 440. Brussels. Commodity prices,  forecasting, exchange rates, factor models, PLS regression

Powell, Barbara. 2011-06-28. “Gasoline Futures Gain as Crude, Equities Advance, Dollar Drops.” Bloomberg.

Rich, Robert W., and Charles Steindel (2007), “A Comparison of Measures of Core Inflation,” Federal Reserve Bank of New York, Economic Policy Review, vol. 13 (December).

Wallace, Lane. 2009-07-07. “The Uncommon Navigator: What Wall Street Should Learn from the NFL.” The Atlantic.


Imagine a new global financial order, the shape of capitalism to come . . .

“In many cases, economic activity is as much a function of creativity, imagination and sentiment as is the act of writing a poem or painting a picture (Bronk 2009).”

This layered image, a digitage, was inspired by Richard Bronk’s The Romantic Economist: Imagination in Economics (2009). It includes fragments from German Romantic artist Friedrich’s paintingVoyageur above the Clouds, the Merryl Lynch bull and a scene from the film Pandemonium about Romantic poets Coleridge and Wordsworth.Maureen Flynn-Burhoe 2009

“The histories and political economy of the present and preceding century partake in the general contagion of its mechanic philosophy, and are the product of an unenlivened generalizing understanding (Coleridge 1816 cited in Bronk 2009). Samuel Taylor Coleridge, The Statesman’s Manual (1816)

“In weakness we create distinctions, then Believe that all our puny boundaries are things Which we perceive and not which we have made.” William Wordsworth, Fragment (c. 1799)

“Standard economics assumes that economic agents are perfectly rational; that is the basis of its predictive equilibrium-based models. Modern versions generally allow for certain types of information problem and market failure, and recognise that institutions and even history play a role; but they still assume that these factors do not call into question the underlying model of agents as rational utility maximisers within those constraints (Bronk 2009).”

Timeline of the Shape of Capitalism to Come

1933 Keynes, in 1933 “in his lectures on his General Theory, said that current yields of firms exercise an “irrational” influence on estimating future worth (Whimster 2009-02-20).” Whimster is associated with the Global Policy Institute (GPI) [1]. 

1971 The foreign currency market arose when the United States went off the gold standard creating a huge market whose volume exceeded the combined trading of the New York, London, Frankfurt, and Tokyo stock exchanges, affecting “every aspect of economic and social order in the U.S. and the other nations of the world (Krieger 1992).” 

1980s Former graduates of the Wharton School of Business, Michael Milken and Donald Trump thrived in the 1980s through junk bonds and corporate takeovers (Portnoy 2003).

1987  Currency trader or derivatives abuser? Andrew Krieger thought New Zealand currency was overvalued so he began betting that the kiwi would fall. He bought then sold hundreds of millions of dollars, triggering a dramtic drop in the kiwi’s value, making a fortune for himself and for Bankers Trust, earning fame or infamy as the best speculative attack in history (The Economist 2004 12:18:108) and creating havoc for a national economy. 

1988-06-07 “Andrew J. Krieger, the successful young currency trader whose departure from the Bankers Trust Company in February set the Wall Street rumor mill buzzing, is quitting his second job this year. Mr. Krieger, who joined Soros Fund Management Inc. in April as senior portfolio manager, announced yesterday that he would form his own trading company, Krieger & Associates (Deutsch 1988).” 

1988-07-21 “Bankers Trust had earned $338 million in foreign exchange trading in the fourth quarter, which at the time was widely believed to be attributable to the complex trading strategies of Andrew J. Krieger. The 32-year-old star trader left the bank in February, complaining that his $3 million bonus was inadequate. At the time of Mr. Krieger’s departure there were rumors that the bank might have to restate earnings, but bank officials denied it, believing then that any impact would be immaterial. Mr. Krieger was known in the markets for taking large, billion-dollar positions in currencies and for trading currency options using highly complex strategies that even his colleagues did not pretend to understand (Bankers New York Times).”

1988 Derivative abuser Andy Krieger of  Bankers Trust mismarked $80 million of currency options. Krieger was also a graduate from the Wharton School of Business where he had studied international finance and trading in foreign-currency options (Portnoy 2003).   

1992-03-03 Andrew Krieger’s book entitled The Money Bazaar : Inside the Trillion-Dollar World of Currency Trading was published. He explained how he manipulated New Zealand currency in the 1980s.  

2002-06 Frank Partnoy’s book (2003) entitled Infectious Greed: How Deceit and Risk Corrupted the Financial Markets examined financial chaos caused by derivatives abusers during the period 1988- 2002 starting with Andy Krieger at the Bankers Trust. Partnoy profiled Nick Leeson “who bankrupted Barings Bank; Robert Citron, who did the same for Orange County; and Joseph Jett, whose “forward recon” trades helped end the independent existence of Kidder Peabody and Long Term Capital Management.” Partnoy blamed Alan Greenspan and Arthur Levitt and other credit rating agencies and federal regulators. Partnoy analysed the collapse of Enron, WorldCom and Global Crossing (Reed Business Information 2003).

2008-10-20 European leaders, like French President Nicolas Sarkozy, favor greater international oversight of markets, and U.S. officials like U.S. President George W. Bush, prefer the current model of national regulation. Mr. Sarkozy repeated his call for a new global financial order. “This is a world-wide crisis and therefore we must find a world-wide solution,” he said. The answer “will be all the more effective insofar as we find it together, we speak with one and the same voice, and we build together the capitalism of the future.” Shape of Capitalism to Come, Finance, Economy, George W. Bush, European Union, Financial Crisis, Capitalism, World Economy, Nicolas Sarkozy, Business News (McKinnon 2008-10-20) 

2009-02 Richard Bronk’s book entitled The Romantic Economist: Imagination in Economics was published [2]. Bronks is an Oxford scholar and Visiting Fellow in the European Institute at the London School of Economics and Political Science. (Elliott 2009-02-16, Whimster 2009-02-20).” 

Tags: credit crisis, credit system breakdown, financial crisis,  shape of capitalism to come, analysis, subprime, bailout, trust, capitalism, European Union, Nicolas Sarkozy, new global financial order, credit chaos, multiple modernities,  Friedrich, Romanticism, Pandemonium, William Wordsworth, Samuel Taylor Coleridge,

impassioned melodrama from the relationship between the 19th-century poets William Wordsworth and Samuel Taylor Coleridge. Coleridge had a fondness for opium. Linus Roach plays him as visionary and naïve in equal measure, sour-faced, dull Wordsworth, latched vampirically onto the other man in search of inspiration.

Categories: Business, Economy, Politics, Finance, Economics,  World Economy, Business News, 

Notes

1. The Global Policy Institute (GPI) website explained their work in light of our entry into a second wave of globalization that will change the face of capitalism. The current stage of emergent, self-organising globalisation will not strictly adhere to Western consumerist values or even adopt Western democracy. The EU, US and China, who embrace differing values and views, now share status as super-powers (along with a handful of lesser powers). This has shaken certitude in previously held ideas of economics, cultural and political globalisation. The shape of capitalism to come will likely include rational decision-making criteria, political self-determination, and cultural creativity but may change along the way before a global order is stabilized. GPI predicts that

“By 2020-25 it is expected that some 50% of global capitalisation will be in emergent markets. Also by 2020 (on present projections) the euro, the yuan, and the rupee will have achieved reserve currency status and the US$ will no longer remain the default value standard (Global Policy Institute (GPI).”

2. “Summary of Bronk, Richard. 2009. The Romantic Economist: Imagination in Economics.

“Since economies are dynamic processes driven by creativity, social norms and emotions, as well as rational calculation, why do economists largely study them through the prism of static equilibrium models and narrow rationalistic assumptions? Economic activity is as much a function of imagination and social sentiments as of the rational optimisation of given preferences and goods. Richard Bronk argues that economists can best model and explain these creative and social aspects of markets by using new structuring assumptions and metaphors derived from the poetry and philosophy of the Romantics. By bridging the divide between literature and science, and between Romanticism and narrow forms of rationalism, economists can access grounding assumptions, models and research methods suitable for comprehending the creativity and social dimensions of economic activity. This is a guide to how economists and other social scientists can broaden their analytical repertoire to encompass the vital role of sentiments, language and imagination. Educated at Merton College, Oxford, Richard Bronk gained a first class degree in Classics and Philosophy. He spent the first seventeen years of his career working in the City of London, where he acquired a wide expertise in international economics, business and politics. His first book, Progress and the Invisible Hand (1998) was well received critically, and anticipated millennial angst about the increasingly strained relationship between economic growth and progress in welfare. Having returned to academic life in 2000, Bronk is now a writer and part-time academic, [Visiting Fellow in the European Institute at the London School of Economics and Political Science] (Cambridge Biography and Summary).”

Webliography and Bibliography

1988-07-21. “Bankers Trust Data on Restatement.” New York Times

Bronk, Richard. 2009. The Romantic Economist: Imagination in Economics. Cambridge University Press. 

Bronk, Richard. 2009. “The Romantic and Imaginative Aspects of Economics.” The Romantic Economist: Imagination in Economics. Cambridge University Press. 

Deutsch, Claudia H. 1988-06-07. “Top Trader Quits to Start Own Firm.” New York Times

Elliott, Larry. 2009-02-16. “We are on the brink: perhaps it is time to look to the Romantics for what lies ahead. The mechanistic approach to economics has failed. We need to embrace creativity.” The Guardian.

Hutton, Will. 2008-09-28. “I’ve watched the economy for 30 years. Now I’m truly scared.” The Guardian. UK.

Krieger, Andrew. 1992-03-03. The Money Bazaar : Inside the Trillion-Dollar World of Currency Trading. Crown Publishing. 

McKinnon, John D. 2008-10-20. “Rethinking Capitalism’s Contours: Summits Will Address Financial Crisis, but Divide Looms Between U.S. and EU.” Wall Street Journal.com. 

Partnoy, Frank. 2003. Infectious Greed: How Deceit and Risk Corrupted the Financial Markets. New York: Times Books. 

Thurow, Lester C. 1996. The Future of Capitalism: How Today’s Economic Forces Shape Tomorrow’s World. New York: Penguin Group. 

Whimster, Sam. 2009-02-20. “To understand economics, we have to consider emotions too: We need to reassert human values as being superior to those of the market.” The Guardian.


Société Générale trader, Jérôme Kerviel, 31, was accused by the Société Générale, Paris of implementing an elaborate, year-long fraud that involved betting billions of dollars of the bank’s money on European stock index futures. Michel Histel, 62, a French retiree who is closely following the story argues that it is common knowledge that the Société Générale’s has played a leading role in financial derivatives products. Jérôme Kerviel was employed by the Société Générale and in his role as arbitrageur he was expected to hedge large bets on index futures. In a sense what he was doing is a logical conclusion of the irrational process of betting on potential but risky, uncertain and unguaranteed future stock values prices. The value gaps may be intelligently guessed but the risk of unforeseen socio-economic structural, geopolitical and/or environmental changes, is always there so that even real financial transactions are more virtual that really real. In this risk society there is a chance for (even and often) very young people with an intuitive grasp of gaming to win big on their wagers. But this is not the logic of a marketplace. Impatient money contributes hugely to the growing inequality between the ultra-rich who can afford to gamble and the deterioration of the quality of life in the lower quintiles especially those who are most vulnerable to social exclusion.

Folksonomy cloud

impatient money, hedge funds, private equity funds, arbitrageur, arbitrage, value gaps, financial instruments, fictitious trades, fictitious sales transactions, virtual, real, risk management, auditors, audit, futures contracts, index futures, one-way bets, “long” positions, very high total nominal amounts, real portfolios of stock index futures, European stock index futures, Dow Jones Euro Stoxx, DAX, FTSE, speculation, financial derivatives products, repackinging of risky investments, transparent versus veiled financial dealings, current crisis in confidence in the banking sector, interconnections between banks, hedge funds, high risk investments and pension and mutual funds, group think, market will correct itself, learned incompetence,

Timeline of events related to the Subprime Market

1965-2005 Between 1965 to 2005 there was no national US real-estate bust as home prices surpassed inflation by a percentage point or two on average. However local reversals have taken place and some cities have never recovered (Christie 2005).

1970s “The additional grades or risk have arisen from the willingness to underwrite mortgages for more risky borrowers, encouraged by the democratization of credit since the 1970s. Lending to more risky borrowers is, by definition, more risky. More loans to risky borrowers increases the total amount of risk to be sold in the marketplace” (Mason and Rosner 2007).

1973-5 US investors in the S&P 500 lost 14% in 1973 and 26% in 1974 but gained 37% in 1975 (Mann 2000).

1975 Foreign competition made its inroads into the North American economy. Corporations panicked with a knee-jerk reaction by implementing the first major layoffs which eventually spread and multiplied, in time destroying the notion of job security and the dignity of work in North America (Uchitelle 2006; Uchitelle 2007).

1983 Australia’s benchmark ASX 200 index experienced a long losing streak which would be unparalled until 2008-01-21 (BBC News 2008-01-21).”

1985 In Peoria, Ill. a more traditional area the average home price fell from $60,800 in 1981 to $51,400 in 1985 partially because of strikes and lay-offs at Caterpillar, the city’s biggest employer (Christie 2005).

1986 The “total pay of top managers in North America has increased from 1986 through 2006 to roughly 40 times the average and from 1966 to 110 times the average(Leary 1998:265).”

1987 Canadian families saved 20 percent of their take-home pay (Ed 2007).

1987 Oliver Stone’s and Stanley Weiser’s fascinating but soulless film entitled Wall Street about a young stockbroker, Bud Fox’s entanglement in white-collar crime through his mentor and hero, Gordon Gekko (Michael Douglas), an extremely successful businessman and Wall Street broker. in a speech by Gekko to a Teldar Paper shareholders’ meeting, a company he planning to take over, Gekko, and by extension, the Wall Street raiders he personifies, justifies his actions. He argues that he is liberating corporate America’s from its slothfulness and waste accumulated through the postwar years. He argued, “Greed is good” a slogan which symbolised the ruthless, profit-obsessed, short-term corporate culture of the 1980s and 1990s. These values became associated with neoclassical, anti-union economic policies that made slash-and-burn capitalism possible. Wall Street refers to the symbolic and geographical location in Lower Manhattan, the first permanent home of the New York Stock Exchange, center of New York’s financial district and the financial industry.

1987 Stock market crash

1987-19-20 London’s FTSE 100 experienced one of its worst days down 10.8% (BBC News 2008-01-21).

1987-10-20 London’s FTSE 100 experienced one of its worst days down 12.2% (BBC News 2008-01-21).

1987-10-21 London’s FTSE 100 experienced one of its best days up 7.9% (BBC News 2008-01-21).

1987-10-22 London’s FTSE 100 experienced one of its worst days down 5.7% (BBC News 2008-01-21).

1987-10-26 London’s FTSE 100 experienced one of its worst days down 6.2% (BBC News 2008-01-21).

1988 In “oil patch” cities like Oklahoma City prices plummeted 26 percent from 1983 to 1988. They only returned to 1983 levels in 2003 fifteen years later. In Oklahoma City, the inflation-adjusted price in 1983 was $196,600. Today, it’s just $135,100 (Christie 2005).

1988 Houston home prices fell 22 percent from $111,000 in 1983 to $86,800 in 1988 rebounded only in 2003. Counting inflation, the average Houston home, which cost just $159,700 in 2004, is actually worth less [in 2005] than it was [in 1983]. When, adjusted for inflation, a home cost about $219,000 in 1983 (Christie 2005).

1988 – 1990s Real estate prices fell in Northern California first followed by the rest of the state “as employers fled, incomes dwindled, quakes rumbled, sales fell and prices slipped. [. . .] Silicon Valley’s housing market crashed into recession along with the state’s economy (Perkins 2001).

1980-1990 In Los Angeles real estate was turbocharged for nearly 10 years (Christie 2005).

1989-90 The notorious price bubble of 1989-90 was linked to central banks specifically the Bank of Japan. “The Japanese economy continued to suffer during the early 1990s, and remained in recession until the end of 1993. Nominal GDP growth rates, which had been around 7 percent during the bubble period, fell beginning in 1990 and by 1991-93 were close to zero. Profits in the manufacturing sector fell 24.5 percent in 1991 and 32.1 percent in 1992. Bankruptcies began to rise starting in the latter half of 1990; by 1992, bankruptcies with debt more than Y10 million totaled 14,569 cases. Failures of real estate firms or of firms engaged in “active fund management” constituted more than half the corporate bankruptcies in 1991 and 1992 (Miller 2001).”

1991 Inflation-adjusted take-home pay in Canada froze to this level (Ed. 2007).”

1992 A new car in Canada cost $20, 000.

1992 – 2000 “Japan remained pretty stagnant in the last eight years, with the majority of the loss coming in the first two, when it eventually fell by more than 60%. There was never a big drop, just a constant and inexorable drift downward. Real estate prices plummeted, almost no Japanese company ended 1992 higher than it started 1990. In the interim, banks have failed (and if it weren’t for the financial props of the Japanese government, many more would have), and companies have had to reassess some of their basic assumptions, such as lifetime employment and large benefit packages” (Mann 2000).

1992-04-10 London’s FTSE 100 experienced one of its best days up 5.6% (BBC News 2008-01-21).

1996 There was a housing market reversal in Los Angeles with average house price dropping from $222,200 in 1990 to $176,300 in 1996, a loss of 20.7 percent. “Furthermore, those are nominal prices, not real values. To calculate the loss more realistically you would have to figure in the cost of inflation: $222,200 in 1990 would have been worth $266,700 in 1996 dollars, which means the actual loss for homeowners buying in 1990 and selling in 1996 was closer to 34 percent (Christie 2005).”

1994- 1996 “In 1994, [Japanese] banks wrote off non-performing assets of Y5.7 trillion, exceeding the previous high of Y4.3 trillion in fiscal year 1993. As yet, no major bank has failed, although a number have reportedly encountered serious difficulties. In December, 1994, the Bank of Japan supervised the takeover of two credit cooperatives, the Tokyo Kyowa Credit Cooperative and the Anzen Credit Cooperative, through the creation of a bridge bank with government support. The Bank’s decision not to let these institutions fail and pay off depositors under the deposit guarantee program was based, largely, on concern for the potential systemic effects of a deposit payoff on public confidence in the banking system in general. The “jusen,” or housing finance banks, suffered the most serious problems; these institutions, which were typically organized and sponsored by major commercial banks and staffed, in part, by former officials from the Ministry of Finance, lost tens of billions of dollars as a result of the collapse of the price bubble, and became one of the most contentious political issues of the day during 1995-86 (Miller 2001)”.

1996-12-05 “How do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade? And how do we factor that assessment into monetary policy? We as central bankers need not be concerned if a collapsing financial asset bubble does not threaten to impair the real economy, its production, jobs, and price stability. Indeed, the sharp stock market break of 1987 had few negative consequences for the economy. But we should not underestimate or become complacent about the complexity of the interactions of asset markets and the economy. Thus, evaluating shifts in balance sheets generally, and in asset prices particularly, must be an integral part of the development of monetary policy.” Alan Greenspan (December 5, 1996)**

1998 There was a market correction in the United States in October of 1998.

2000 In Tampa Bay Florida, high risk adjustable-rate mortgages (ARM) made homes “seem affordable when wages stagnated as prices soared. They were just the ticket for cash-out refinancings and home equity credit lines that bought cars and swimming pools and paid off credit card debt. “What happened in a lot of expensive real estate markets is that first-time home buyers who felt they could not afford a home otherwise, took on a loan that had lower monthly payments than a traditional mortgage would have,” said Allen Fishbein, director of housing policy for the Consumer Federation of America. “They weren’t being underwritten on the basis of the borrower’s reasonable capacity to handle these loans.” The payments started out manageable, especially since many loans offered teaser rates. But borrowers are getting a lesson in what the word “adjustable” means. More than $130-billion in mortgages payments were reset in 2006″ In 2006 nearly a third of Tampa Bay mortgages were the high-risk varieties, up from 10 percent in 2003 (Huntley 2006).1992 – 2000 “Japan remained pretty stagnant in the last eight years, with the majority of the loss coming in the first two, when it eventually fell by more than 60%. There was never a big drop, just a constant and inexorable drift downward. Real estate prices plummeted, almost no Japanese company ended 1992 higher than it started 1990. In the interim, banks have failed (and if it weren’t for the financial props of the Japanese government, many more would have), and companies have had to reassess some of their basic assumptions, such as lifetime employment and large benefit packages” (Mann 2000).

2001-09-11 London’s FTSE 100 experienced one of its worst days down 5.7% (BBC News 2008-01-21).

2002-10-15 London’s FTSE 100 experienced one of its best days up 5.1% (BBC News 2008-01-21).

2002-07-02 London’s FTSE 100 experienced one of its best days up 5.0% (BBC News 2008-01-21).

2003-03-13 London’s FTSE 100 experienced one of its best days up 6.1% (BBC News 2008-01-21).

2004 British Columbia graduates from university have an average debt of $20, 000.

2005 Real-estate investing spiked, pressuring prices upward. In Phoenix, according to Bill Jilbert, president and COO of the Coldwell Banker brokerage there, investors from Nevada and California have invaded the Arizona market, and “affordable housing has been pushed to extremes (Christie 2005).”

2005 Market analyst Winzer (2005 cited in Christie 2005) warned that the housing market was high-risk as the boom has already gone on longer than expected. Low interest rates which means cheap mortgage rates extended the cycle of the real estate boom artificially creating higher demand and higher prices as all market levels (Winzer cited in Christie 2005). “Winzer assesses local market risk by taking into account economic and population growth, construction costs, vacancy rates, and, especially, income. He also considers such factors as density and access to open land. Prices in densely settled New York have always been higher than those of cities with lots of space for new housing (Christie 2005).

1991- 2005 “[I]ncreased complexity from increased grading of risk can also result in increased opacity. Risk that is more difficult to see, by virtue of complexity, is risk just the same. There are plenty of reasons to believe that the amount of risk in the marketplace has increased. Figure 3 shows that defaults on ABS and residential mortgage-backed securities (RMBS) increased substantially between 1991 and 2005″ (Mason and Rosner 2007).

2006-06-12. “Canadian Executives Indicate Human Resources and Rising Canadian Dollar are the Major Business Challenges.” CTV. June 12, 2006.

http://www.ctv.ca/servlet/ArticleNews/show/CTVShows/20060611/ctv_release_20060611/20060612

2006 Fitch Global Structured Finance 1991-2005 Default Study revealed that, “the overwhelming majority of global structured finance defaults over the 1991-2005 period were from the U.S., accounting for more than 97 percent of the total. While the 1,000 U.S. defaults were mainly concentrated in the Asset-Backed Securities._ (ABS) sector, the 27 international defaults were primarily from the collateralized debt obligations (CDO) sector.” See Mason and Rosner (2007) warn that risk continues to increase, as ratings agencies revise their loss expectations to account for the dynamics of the mortgage meltdown. For instance, on March 27, Standard & Poor’s raised its expectation for losses on 1.

2006 In Florida millions of homeowners were warned of the mortgage meltdown in which they will “face a financial nightmare brought on by a combination of higher interest rates, risky mortgages and a housing market gone cold (Huntley 2006).

2007-05-10 Desmarais, Paul Jr. 2007. “Private equity, public interest.” National and Global Perspectives . May 10, 2007. p. 16. Paul Desmarais, Jr., Chairman of Power Corporation of Canada warned of the structural impact on the industrialized world caused by the meteoric rise of private equity and hedge funds in the financial markets in a an article (2007) published in the Canadian Council of Chief Executives journal National and Global Perspectives. The current crisis in confidence in the banking sector is a direct result of the meteoric rise of private equity and hedge funds which transformed the mortgage market.

Is it not ironic that the principal investors in private equity and hedge funds – large institutional investors – are happy to put massive amounts of money in the hands of people who do not register with any securities commission, or have few, if any, governance regulations to adhere to and report on? (Desmarais 2007:16).

2007-05-10 Desmarais, Paul Jr. 2007a. “Chairman’s Address to Shareholders.” Power Corporation of Canada. May 10, 2007.

2007-06-14 Gandalf Group. 2007. “C-Suite Survey On The Role of Private Equity.” Report on Business. Globe and Mail. June 14, 2007. http://www.dwpv.com/images/C-Suite_June_2007.pdf In May and June, 2007 the 150 C-Suite executives from the top 1000 corporations interviewed by the Gandalf Group were generally optimistic about the Canadian economy (Gandalf Group 2007:4). Some expressed concerns about the increasing levels of foreign ownership in key sectors and about private equity firms hollowing out corporate Canada. 23% have concerns that private equity firms engage in too much short-term thinking (Gandalf Group 2007:32). Most executives now favour restrictions in strategic industries. “The strongest areas of consensus about the negative impacts of private equity relate to keeping the company Canadian owned and about the debt burden of the company. A substantial percentage of executives believe that private equity also has a negative impact on the economic contribution the company will make to Canada and to the community it operates in, on the labour relations of the company and on the governance of the company (Gandalf Group 2007:28 ).”

2007. “C-Suite Survey.” Globe and Mail, Report on Business. 18 June 2007: B5.

http://www.theglobeandmail.com/servlet/Page/document/video/vs?id=RTGAM.20070619.wvcsuite0619&ids=RTGAM.20070619.wvcsuite0619&hub=search

2007 Mason and Rosner (2007) warn that risk continues to increase, as ratings agencies revise their loss expectations to account for the dynamics of the mortgage meltdown. “Residential mortgage-backed securities (RMBS) market has experienced significant changes [from 1997-2007].” [T]hey caution that “structural changes in mortgage origination and servicing have interacted with complex residential mortgage-backed securities (RMBS) and highly volatile CDO funding structures to place the U.S. housing market at risk. This [. . .] could lead to prolonged domestic economic implications for U.S. standing in the world economic order [. . .] The potential for prolonged economic difficulties that also interfere with home ownership in the United States raises significant public policy concerns. Already we are witnessing restructuring and layoffs at top financial institutions. More importantly, however, is the need to provide stable funding sources for economic growth. The biggest obstacle that we have identified is lack of transparency.” (Mason and Rosner 2007).

2007-06-27 “In a Marketplace interview Amy Scott asked interviewees about the disturbing consequences of the interconnections between banks, hedge funds, high risk mortgages and pension funds. In June, 2007 two major hedge funds managed by the investment bank Bear Stearns, who purchased securities that were essentially a “repackaging of all kinds of risky mortgages” to tap into the subprime mortgage market are now verging on collapse as the number of borrowers defaulting on these mortgages increases. Joseph Mason explained that “this isn’t just a Wall Street problem. Your 401k or pension fund may be invested in similar mortgage-related securities.” The investor-base is broad and it is difficult to know who is at risk. “Investment managers don’t have to report their holdings. And unlike stocks, these securities aren’t quoted on an open market [. . .] Those hedge fund investment managers create investments that are bought by our pension funds and mutual funds. Charitable foundations are invested in these. It’s a broad investor base, and it’s not the rich versus the poor.” Mason has been a firm proponent of more transparency in financial dealings (Scott 2007).” See Democratization of Debt: Bear Stearn and Mortgage Meltdowns

2007-09-06 The U.S. subprime mortgage meltdown “Only 5% of mortgages in Canada are subprime compared to 20% in the US. And Canadian financial institutions are more prudent than their American counterparts insisting on mortgage insurance when appropriate and separate appraisals of a home’s purchase price to ensure they are not financing more than 100 per cent of a home’s value. In the US by late 2006 subprime lenders were going bankrupt and as many as 1.5 million Americans could lose their homes before the panic is over. In this under-regulated US industry, lenders partnered with hedge funds to make quick returns on investments then called in debts to avoid losses. Since we are all in some way linked to these investment portfolios, either through mortgages, pensions or insurance, we end up contributing to processes that are fuelled by high-risk, short-term, fast-profits thinking that enriches a few while causing havoc for most of us. See also http://www.cbc.ca/news/background/personalfinance/mortgage-meltdown.html

2007-11-27Staggering poverty report has province listening: A United Way report Losing Ground: The Persistent Growth of Family Poverty in Canada’s Largest City claims almost 93,000 Toronto, Canada households are raising children in poverty. That’s 30% compared with 16 per cent in 1990.” OECD, Policy Development, Public Policy, child poverty, del.icio.us, digg story, digg.com, economic efficiency model, how to be poor in a rich country, policy research, social exclusion, vulnerability to social exclusion

2007 Since 1991 inflation-adjusted hourly wages rose only 10 cents (Ed. 2007).”

2007 A new car in Canada cost $32,000 a 60 percent increase from 1992 (Ed. 2007).”

2007 Canadians collectively owe three quarters of a trillion dollars in personal debt. Canadian families not only have no savings, they draw on pension savings to make ends meet.

“The result of the easy credit is that an average family now owes far more than it takes in. That means we remain solvent only so long as the book value of our assets — things like our home, pension funds or investments — continue to increase (Ed. 2007).”

2007 British Columbia graduates from university have an average debt of $27, 000.

2007 It is now acceptable for Canadian families to pay 60 percent of income to pay monthly payments of their home mortgages (Ed. 2007).

2007 The British Columbia government will allow home owners who are over 55 to defer property tax payments for as long as they live. The government will claim unpaid taxes after you die or sell effectively placing the tax burden on the children (Ed. 2007).

2007 “The number of corporate failures in Japan rose for the third month in a row totaling 896 cases in December up 18.2%. November flops were up 6.5% and the number of companies going belly up in October were up 7.8%. The amount of debts the insolvent companies left behind were up 30.6% to 463.09 billion yen (Belew 2007).

2007 In March Bob Lawless reported in his blog that, “The folks at Automated Access to Court Electronic Records or AACER regularly collect data from all the bankruptcy courts for creditors and attorneys. They have a wealth of information that does not show up in the mainstream media. Most recently, they tell me that there were 58,640 total U.S. bankruptcy filings in February 2007 as compared to 55,088 total U.S. bankruptcy filings in January 2007. OK, that looks like a slight increase, but looks are deceiving. It’s actually a fairly hefty increase. The February filings were spread over only nineteen business days while the January filings were spread over twenty-one days. On a daily basis, the February filings were up 17.7% as compared to January (Lawless 2007).”
2007 Jayson Seth analysed data in National Association of Realtors (NAR) June 24, 2007 report. Seth argues that “America’s easy-credit, quick-flipping, borrow-now-and-forget-the-consequences lifestyle is coming to an increasingly painful, grinding halt” and the “confidence of homebuilders is at a 16-year low (Seth 2007).”

2007 Lawrence Yun, National Association of Realtors announced that the real estate market is softening due to psychological factors, tighter credit for subprime borrowers. NAR’s Lawrence Yun explained that since late 2006 housing sales have slowed as buyers double up with family, friends or just mortgage helper units in their homes to be able to pay for higher-priced homes.

2007 Mason and Rosner (2007) warn that risk continues to increase, as ratings agencies revise their loss expectations to account for the dynamics of the mortgage meltdown. For instance, on March 27, Standard & Poor’s raised its expectation for losses on 1. “Residential mortgage-backed securities (RMBS) market has experienced significant changes [from 1997-2007]” Furthermore they caution that “structural changes in mortgage origination and servicing have interacted with complex RMBS and highly volatile CDO funding structures to place the U.S. housing market at risk. Equally as important, however, is that housing market weaknesses feed back through financial markets to further weaken financial instruments backing today’s CDOs. Decreased housing starts that will result from lower liquidity in the MBS sector will further weaken credit spreads and depress CDO and MBS issuance. This feedback mechanism can create imbalances in the U.S. economy that, if left unchecked, could lead to prolonged domestic economic implications for U.S. standing in the world economic order [. . .] The potential for prolonged economic difficulties that also interfere with home ownership in the United States raises significant public policy concerns. Already we are witnessing restructurings and layoffs at top financial institutions. More importantly, however, is the need to provide stable funding sources for economic growth. The biggest obstacle that we have identified is lack of transparency.” (Mason and Rosner 2007).

2007 In a Marketplace interview Amy Scott asked interviewees about the disturbing consequences of the interconnections between banks, hedge funds, high risk mortgages and pension funds. In June two major hedge funds managed by the investment bank Bear Stearns, who purchased securities that were essentially a “repackaging of all kinds of risky mortgages” to tap into the subprime mortgage market are now verging on collapse as the number of borrowers defaulting on these mortgages increases. Joseph Mason explained that “this isn’t just a Wall Street problem. Your 401k or pension fund may be invested in similar mortgage-related securities.” The investor-base is broad and it is difficult to know who is at risk. “Investment managers don’t have to report their holdings. And unlike stocks, these securities aren’t quoted on an open market.” Mason has been a firm proponent of more transparency in financial dealings (Scott 2007).

2008-01-12 Should banks avoid investing in carbon-intensive projects? “Ceres is composed of and works with investors ($4 trillion) and environmental groups to address sustainability challenges. In their report Corporate Governance and Climate Change (2008) they argue that the banking sector needs to become aligned with GHG reductions.” read more | digg story

2007-01-20Globalization and the Rise of Inequality: The extremes of wealth and poverty threaten globalisation. North American companies lose jobs to the Chinese Special Economic Zone (SEZ) where factories often employ rural women to work in 19th century conditions to keep their costs low. Meanwhile the total pay of top managers in North America has increased from 1986 through 2006 to roughly 40 times the average and from 1966 to 110 times the average. Globalization “refers to the current transformation of the world economy the reduction of national barriers to trade and investment, the expansion of telecommunications and information systems, the growth of off-shore financial markets, the increasing role of multinational enterprises, the explosion of mergers and acquisitions, global inter-firm networking arrangements and alliances, regional economic integration and the development of a single unified global market. The phenomenon of globalization is accompanied by increasing international mobility, the migration of workers, the growth of tourism and the increasing ease of international travel (Leary 1998:265).”

2008-01-19 The Bush administration announce they are seeking “a stimulus package of as much as $145 billion”. However the stock market did not respond positively as investors were concerned that the looming American recession would trigger economic crisis that will span the globe. See (Jolly and Timmons 2008-01-21).

2008-01-21 Société Générale trader, Jérôme Kerviel, 31, was accused by the Société Générale, Paris of implementing an elaborate, year-long fraud that involved betting billions of dollars of the bank’s money on European stock index futures. Michel Histel, 62, a French retiree who is closely following the story argues that it is common knowledge that the Société Générale’s has played a leading role in financial derivatives products. Jérôme Kerviel was employed by the Société Générale and in his role as arbitrageur he was expected to hedge large bets on index futures.

2008-01-21 “Global stock markets tumbled, with European indexes set for some of their biggest losses in recent years, amid growing fears of a recession in the US (BBC News 2008-01-21).”

2008-01-20 “Global stock markets plunged on Monday as fears spread that the turmoil in United States mortgage markets is spreading. Indexes in Europe fell as much as 7 percent after a huge sell-off in Asia. “There’s something approaching panic in the market,” Holger Schmieding, the chief European economist at Bank of America in London, said by telephone. “There’s been a reassessment in the market of the U.S. economic outlook, with most people now thinking that there will be a recession,” and investors are starting to reconsider the idea that the rest of the world “will remain aloof from U.S. problems [. . .] The selling began in Sydney, with Australian stocks falling nearly 3 percent for an 11th consecutive decline. Major markets in Asia followed suit, with the benchmark Nikkei 225-stock average in Tokyo falling 3.9 percent, the Hang Seng in Hong Kong falling 5.5 percent and the benchmark mainland Chinese index falling more than 5 percent (Jolly and Timmons 2008-01-21).”

2008-01-21 London’s FTSE 100 index fell 4.5% to 5,637.3 (BBC News 2008-01-21).

2008-01-21 Hugues Rialan of Robeco France says we are in a panic mode and a crisis in consumer confidence as the banking sector’s reassurances that they were not overexposed to US mortgage-related investments, prove to ring hollow and false. The banking sector lost consumer trust when they lost of “billions of pounds on investments linked to the US housing and mortgage markets (BBC News 2008-01-21).”

2008-01-21 “Australia’s benchmark ASX 200 index closed down 2.9%, or 166.9, points at 5,580.4″, amid growing fears of a recession in the US. This is ASX 200 index’s “lowest level for a year. It was also the 11th consecutive negative day for the index, the longest losing streak in more than 25 years (BBC News 2008-01-21).”

2008-01-21 “There may be more downturns in store for Asia, particularly as banks report the fallout from their investments in the United States mortgage market. Companies “have not announced their year-end numbers yet,” Schuller, of Moody’s, said, and if they are holding subprime assets, they may need to write-off their value, she said. “They are going to be taking these 25 to 30 percent haircuts we’re seeing on Wall Street,” she said. “I think it is going to shock people.” [This article which appeared in the New York Times was written by David Jolly reporting from Paris and Heather Timmons from New Delhi. Tim Johnston contributed reporting from Sydney, and Martin Foster from Tokyo (Jolly and Timmons 2008-01-21).”

“Mustier explained that Kerviel’s role on the trading desk was that of an arbitrageur, which meant that he was entrusted to purchase one portfolio of stock index futures and at the same time sell a similar mix of index futures, but with a slightly different value. The object of arbitrage is to try to make a profit from these differences in value. Because the value gaps between similar financial instruments are usually very small and temporary, this type of activity typically involves trading in very high total nominal amounts. Kerviel’s fraud, according to the bank, consisted of placing sizeable, real purchases in one portfolio but creating fictitious sales transactions in the second, off-setting portfolio. This gave the impression to risk managers that the risks in the first portfolio were hedged, when in fact they were not. As a result, the bank wound up exposed to massive, one-way bets, or “long” positions. Instead of hedging, which was his job, Kerviel was effectively speculating with the bank’s money. Mustier said a review of Kerviel’s trading records showed that he first began creating the fictitious trades in late 2006 and early 2007, but that these transactions were relatively small. The fake trading increased in frequency, and in size, during the course of the year, he said, but the largest fictitious trades – involving futures contracts on the Dow Jones Euro Stoxx 50, the DAX in Germany and the FTSE index in Britain – were entered in early January. “Our controls identified from time to time problems with this trader’s portfolio,” Mustier said, although he declined to say when the first questions were raised by risk managers, saying that the bank’s auditors were still investigating. Each time one of Kerviel’s trades was questioned, Mustier said, Kerviel would describe it as a “mistake” and cancel the trade (Clark 2008-01-27).”

2009-01-21 Analyst Mike Lenhoff at Brewin Dolphin Securities predicts that the prospect of falling US interest rates announced by the US administration will have a positive effect on the market by January 2009 and the crisis mode of January 2008 and the drop in global indexes based on fears of a US recession will be proven to be a panicked knee-jerk reaction (BBC News 2008-01-21).”

Bibliography and Webliography

BBC. 2008-01-21. “Global shares tumble on US fears.” BBC News on-line. Uploaded 2008/01/21 16:10:48 GMT. Accessed 2008-21. http://news.bbc.co.uk/go/pr/fr/-/2/hi/business/7199552.stm http://news.bbc.co.uk/2/hi/business/7199552.stm

CBC News. 2008. “TSX plunges 500 points.” Last Updated: 2008-01-21:13:26 ET.

Clark, Nicola. 2008. “Société Générale reveals more details of €4.9 billion fraud.” >> International Herald Tribune. www.iht.com Uploaded January 27. Accessed January http://www.iht.com/bin/printfriendly.php?id=9534514

Jolly, David; Timmons, Heather. 2008-01-21. “Stocks Plunge in Europe and Asia on U.S. Recession Fear.” New York Times. http://www.nytimes.com/2008/01/21/business/22stox-web.html?_r=1&ei=5088&en=f84e22b0fa01257e&ex=1358658000&oref=slogin&partner=rssnyt&emc=rss&pagewanted=print

Leary, Virginia A. 1998. “Globalization and Human Rights.” In Symonides, Janusz (Ed.) Human Rights: New Dimensions and Challenges: Manual on Human Rights. Aldershot, UK: Ashgate Dartmouth Publishing Company Ltd. / UNESCO Publishing. pp. 265-276. 2007.

“Rich man, poor man.” The Economist. Jan 18th 2007. Accessed January 18, 2007.


Flynn-Burhoe, Maureen. 2008. “Risk Society: Unintended Consequences of Subprime Market.” >> Google docs. January 21. http://docs.google.com/Doc?id=ddp3qxmz_505grfcrtgjFlynn-Burhoe, Maureen. 2008. “Societe Generale: a Logical Conclusion of Impatient Money, Unregulated Hedge Funds and Private Equity Funds.” >> Google Docs. Uploaded January 28. http://docs.google.com/Doc?id=ddp3qxmz_510gwkhvrcs


Headlines in the New York Times, BBC and CBC News announce a crisis of confidence in the banking sector as an unintended consequence of the subprime mortgage meltdown. We are now experiencing the predicted disturbing consequences of the interconnections between banks, hedge funds, high risk mortgages and pension funds (Scott 2007) (such as the infamous collapse of two major hedge funds managed by the investment bank Bear Stearns, who purchased securities that were essentially a “repackaging of all kinds of risky mortgages” to tap into the subprime mortgage market). Borrowers defaulting on mortgages continues to increase. In 2007 Joseph Mason explained that “this isn’t just a Wall Street problem. Your 401k or pension fund may be invested in similar mortgage-related securities.” The investor-base is broad and it is difficult to know who is at risk. “Investment managers don’t have to report their holdings. And unlike stocks, these securities aren’t quoted on an open market [. . .] Those hedge fund investment managers create investments that are bought by our pension funds and mutual funds. Charitable foundations are invested in these. It’s a broad investor base, and it’s not the rich versus the poor.” Mason has been a firm proponent of more transparency in financial dealings (Scott 2007). See Democratization of Debt: Bear Stearn and Mortgage Meltdowns

Paul Desmarais, Jr., Chairman of Power Corporation of Canada warned of the structural impact on the industrialized world caused by the meteoric rise of private equity and hedge funds in the financial markets in a an article (2007) published in the Canadian Council of Chief Executives journal National and Global Perspectives. The current crisis in confidence in the banking sector is a direct result of the meteoric rise of private equity and hedge funds which transformed the mortgage market.

Is it not ironic that the principal investors in private equity and hedge funds – large institutional investors – are happy to put massive amounts of money in the hands of people who do not register with any securities commission, or have few, if any, governance regulations to adhere to and report on? (Desmarais 2007:16).

As well Mason and Rosner (2007) warned that risk continued to increase, as ratings agencies revised their loss expectations to account for the dynamics of the mortgage meltdown. “Residential mortgage-backed securities (RMBS) market has experienced significant changes [from 1997-2007].” [T]hey caution that “structural changes in mortgage origination and servicing have interacted with complex residential mortgage-backed securities (RMBS) and highly volatile CDO funding structures to place the U.S. housing market at risk. This [. . .] could lead to prolonged domestic economic implications for U.S. standing in the world economic order [. . .] The potential for prolonged economic difficulties that also interfere with home ownership in the United States raises significant public policy concerns. Already we are witnessing restructuring and layoffs at top financial institutions. More importantly, however, is the need to provide stable funding sources for economic growth. The biggest obstacle that we have identified is lack of transparency.” (Mason and Rosner 2007).

Timeline of events related to the Subprime Market

1965-2005 Between 1965 to 2005 there was no national US real-estate bust as home prices surpassed inflation by a percentage point or two on average. However local reversals have taken place and some cities have never recovered (Christie 2005).

1970s “The additional grades or risk have arisen from the willingness to underwrite mortgages for more risky borrowers, encouraged by the democratization of credit since the 1970s. Lending to more risky borrowers is, by definition, more risky. More loans to risky borrowers increases the total amount of risk to be sold in the marketplace” (Mason and Rosner 2007).

1973-5 US investors in the S&P 500 lost 14% in 1973 and 26% in 1974 but gained 37% in 1975 (Mann 2000).

1975 Foreign competition made its inroads into the North American economy. Corporations panicked with a knee-jerk reaction by implementing the first major layoffs which eventually spread and multiplied, in time destroying the notion of job security and the dignity of work in North America (Uchitelle 2006; Uchitelle 2007).

1983 Australia’s benchmark ASX 200 index experienced a long losing streak which would be unparalled until 2008-01-21 (BBC News 2008-01-21).”

1985 In Peoria, Ill. a more traditional area the average home price fell from $60,800 in 1981 to $51,400 in 1985 partially because of strikes and lay-offs at Caterpillar, the city’s biggest employer (Christie 2005).

1986 The “total pay of top managers in North America has increased from 1986 through 2006 to roughly 40 times the average and from 1966 to 110 times the average(Leary 1998:265).”

1987 Canadian families saved 20 percent of their take-home pay (Ed 2007).

1987 Oliver Stone’s and Stanley Weiser’s fascinating but soulless film entitled Wall Street about a young stockbroker, Bud Fox’s entanglement in white-collar crime through his mentor and hero, Gordon Gekko (Michael Douglas), an extremely successful businessman and Wall Street broker. in a speech by Gekko to a Teldar Paper shareholders’ meeting, a company he planning to take over, Gekko, and by extension, the Wall Street raiders he personifies, justifies his actions. He argues that he is liberating corporate America’s from its slothfulness and waste accumulated through the postwar years. He argued, “Greed is good” a slogan which symbolised the ruthless, profit-obsessed, short-term corporate culture of the 1980s and 1990s. These values became associated with neoclassical, anti-union economic policies that made slash-and-burn capitalism possible. Wall Street refers to the symbolic and geographical location in Lower Manhattan, the first permanent home of the New York Stock Exchange, center of New York’s financial district and the financial industry.

1987 Stock market crash

1987-19-20 London’s FTSE 100 experienced one of its worst days down 10.8% (BBC News 2008-01-21).

1987-10-20 London’s FTSE 100 experienced one of its worst days down 12.2% (BBC News 2008-01-21).

1987-10-21 London’s FTSE 100 experienced one of its best days up 7.9% (BBC News 2008-01-21).

1987-10-22 London’s FTSE 100 experienced one of its worst days down 5.7% (BBC News 2008-01-21).

1987-10-26 London’s FTSE 100 experienced one of its worst days down 6.2% (BBC News 2008-01-21).

1988 In “oil patch” cities like Oklahoma City prices plummeted 26 percent from 1983 to 1988. They only returned to 1983 levels in 2003 fifteen years later. In Oklahoma City, the inflation-adjusted price in 1983 was $196,600. Today, it’s just $135,100 (Christie 2005).

1988 Houston home prices fell 22 percent from $111,000 in 1983 to $86,800 in 1988 rebounded only in 2003. Counting inflation, the average Houston home, which cost just $159,700 in 2004, is actually worth less [in 2005] than it was [in 1983]. When, adjusted for inflation, a home cost about $219,000 in 1983 (Christie 2005).

1988 – 1990s Real estate prices fell in Northern California first followed by the rest of the state “as employers fled, incomes dwindled, quakes rumbled, sales fell and prices slipped. [. . .] Silicon Valley’s housing market crashed into recession along with the state’s economy (Perkins 2001).

1980-1990 In Los Angeles real estate was turbocharged for nearly 10 years (Christie 2005).

1989-90 The notorious price bubble of 1989-90 was linked to central banks specifically the Bank of Japan. “The Japanese economy continued to suffer during the early 1990s, and remained in recession until the end of 1993. Nominal GDP growth rates, which had been around 7 percent during the bubble period, fell beginning in 1990 and by 1991-93 were close to zero. Profits in the manufacturing sector fell 24.5 percent in 1991 and 32.1 percent in 1992. Bankruptcies began to rise starting in the latter half of 1990; by 1992, bankruptcies with debt more than Y10 million totaled 14,569 cases. Failures of real estate firms or of firms engaged in “active fund management” constituted more than half the corporate bankruptcies in 1991 and 1992 (Miller 2001).”

1991 Inflation-adjusted take-home pay in Canada froze to this level (Ed. 2007).”

1992 A new car in Canada cost $20, 000.

1992 – 2000 “Japan remained pretty stagnant in the last eight years, with the majority of the loss coming in the first two, when it eventually fell by more than 60%. There was never a big drop, just a constant and inexorable drift downward. Real estate prices plummeted, almost no Japanese company ended 1992 higher than it started 1990. In the interim, banks have failed (and if it weren’t for the financial props of the Japanese government, many more would have), and companies have had to reassess some of their basic assumptions, such as lifetime employment and large benefit packages” (Mann 2000).

1992-04-10 London’s FTSE 100 experienced one of its best days up 5.6% (BBC News 2008-01-21).

1996 There was a housing market reversal in Los Angeles with average house price dropping from $222,200 in 1990 to $176,300 in 1996, a loss of 20.7 percent. “Furthermore, those are nominal prices, not real values. To calculate the loss more realistically you would have to figure in the cost of inflation: $222,200 in 1990 would have been worth $266,700 in 1996 dollars, which means the actual loss for homeowners buying in 1990 and selling in 1996 was closer to 34 percent (Christie 2005).”

1994- 1996 “In 1994, [Japanese] banks wrote off non-performing assets of Y5.7 trillion, exceeding the previous high of Y4.3 trillion in fiscal year 1993. As yet, no major bank has failed, although a number have reportedly encountered serious difficulties. In December, 1994, the Bank of Japan supervised the takeover of two credit cooperatives, the Tokyo Kyowa Credit Cooperative and the Anzen Credit Cooperative, through the creation of a bridge bank with government support. The Bank’s decision not to let these institutions fail and pay off depositors under the deposit guarantee program was based, largely, on concern for the potential systemic effects of a deposit payoff on public confidence in the banking system in general. The “jusen,” or housing finance banks, suffered the most serious problems; these institutions, which were typically organized and sponsored by major commercial banks and staffed, in part, by former officials from the Ministry of Finance, lost tens of billions of dollars as a result of the collapse of the price bubble, and became one of the most contentious political issues of the day during 1995-86 (Miller 2001)”.

1996-12-05 “How do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade? And how do we factor that assessment into monetary policy? We as central bankers need not be concerned if a collapsing financial asset bubble does not threaten to impair the real economy, its production, jobs, and price stability. Indeed, the sharp stock market break of 1987 had few negative consequences for the economy. But we should not underestimate or become complacent about the complexity of the interactions of asset markets and the economy. Thus, evaluating shifts in balance sheets generally, and in asset prices particularly, must be an integral part of the development of monetary policy.” Alan Greenspan (December 5, 1996)**

1998 There was a market correction in the United States in October of 1998.

2000 In Tampa Bay Florida, high risk adjustable-rate mortgages (ARM) made homes “seem affordable when wages stagnated as prices soared. They were just the ticket for cash-out refinancings and home equity credit lines that bought cars and swimming pools and paid off credit card debt. “What happened in a lot of expensive real estate markets is that first-time home buyers who felt they could not afford a home otherwise, took on a loan that had lower monthly payments than a traditional mortgage would have,” said Allen Fishbein, director of housing policy for the Consumer Federation of America. “They weren’t being underwritten on the basis of the borrower’s reasonable capacity to handle these loans.” The payments started out manageable, especially since many loans offered teaser rates. But borrowers are getting a lesson in what the word “adjustable” means. More than $130-billion in mortgages payments were reset in 2006″ In 2006 nearly a third of Tampa Bay mortgages were the high-risk varieties, up from 10 percent in 2003 (Huntley 2006).1992 – 2000 “Japan remained pretty stagnant in the last eight years, with the majority of the loss coming in the first two, when it eventually fell by more than 60%. There was never a big drop, just a constant and inexorable drift downward. Real estate prices plummeted, almost no Japanese company ended 1992 higher than it started 1990. In the interim, banks have failed (and if it weren’t for the financial props of the Japanese government, many more would have), and companies have had to reassess some of their basic assumptions, such as lifetime employment and large benefit packages” (Mann 2000).

2001-09-11 London’s FTSE 100 experienced one of its worst days down 5.7% (BBC News 2008-01-21).

2002-10-15 London’s FTSE 100 experienced one of its best days up 5.1% (BBC News 2008-01-21).

2002-07-02 London’s FTSE 100 experienced one of its best days up 5.0% (BBC News 2008-01-21).

2003-03-13 London’s FTSE 100 experienced one of its best days up 6.1% (BBC News 2008-01-21).

2004 British Columbia graduates from university have an average debt of $20, 000.

2005 Real-estate investing spiked, pressuring prices upward. In Phoenix, according to Bill Jilbert, president and COO of the Coldwell Banker brokerage there, investors from Nevada and California have invaded the Arizona market, and “affordable housing has been pushed to extremes (Christie 2005).”

2005 Market analyst Winzer (2005 cited in Christie 2005) warned that the housing market was high-risk as the boom has already gone on longer than expected. Low interest rates which means cheap mortgage rates extended the cycle of the real estate boom artificially creating higher demand and higher prices as all market levels (Winzer cited in Christie 2005). “Winzer assesses local market risk by taking into account economic and population growth, construction costs, vacancy rates, and, especially, income. He also considers such factors as density and access to open land. Prices in densely settled New York have always been higher than those of cities with lots of space for new housing (Christie 2005).

1991- 2005 “[I]ncreased complexity from increased grading of risk can also result in increased opacity. Risk that is more difficult to see, by virtue of complexity, is risk just the same. There are plenty of reasons to believe that the amount of risk in the marketplace has increased. Figure 3 shows that defaults on ABS and residential mortgage-backed securities (RMBS) increased substantially between 1991 and 2005″ (Mason and Rosner 2007).

2006-06-12. “Canadian Executives Indicate Human Resources and Rising Canadian Dollar are the Major Business Challenges.” CTV. June 12, 2006.

http://www.ctv.ca/servlet/ArticleNews/show/CTVShows/20060611/ctv_release_20060611/20060612

2006 Fitch Global Structured Finance 1991-2005 Default Study revealed that, “the overwhelming majority of global structured finance defaults over the 1991-2005 period were from the U.S., accounting for more than 97 percent of the total. While the 1,000 U.S. defaults were mainly concentrated in the Asset-Backed Securities._ (ABS) sector, the 27 international defaults were primarily from the collateralized debt obligations (CDO) sector.” See Mason and Rosner (2007) warn that risk continues to increase, as ratings agencies revise their loss expectations to account for the dynamics of the mortgage meltdown. For instance, on March 27, Standard & Poor’s raised its expectation for losses on 1.

2006 In Florida millions of homeowners were warned of the mortgage meltdown in which they will “face a financial nightmare brought on by a combination of higher interest rates, risky mortgages and a housing market gone cold (Huntley 2006).

2007-05-10 Desmarais, Paul Jr. 2007. “Private equity, public interest.” National and Global Perspectives . May 10, 2007. p. 16.

2007-05-10 Desmarais, Paul Jr. 2007a. “Chairman’s Address to Shareholders.” Power Corporation of Canada. May 10, 2007.

2007-06-14 Gandalf Group. 2007. “C-Suite Survey On The Role of Private Equity.” Report on Business. Globe and Mail. June 14, 2007. http://www.dwpv.com/images/C-Suite_June_2007.pdf In May and June, 2007 the 150 C-Suite executives from the top 1000 corporations interviewed by the Gandalf Group were generally optimistic about the Canadian economy (Gandalf Group 2007:4). Some expressed concerns about the increasing levels of foreign ownership in key sectors and about private equity firms hollowing out corporate Canada. 23% have concerns that private equity firms engage in too much short-term thinking (Gandalf Group 2007:32). Most executives now favour restrictions in strategic industries. “The strongest areas of consensus about the negative impacts of private equity relate to keeping the company Canadian owned and about the debt burden of the company. A substantial percentage of executives believe that private equity also has a negative impact on the economic contribution the company will make to Canada and to the community it operates in, on the labour relations of the company and on the governance of the company (Gandalf Group 2007:28).”

2007. “C-Suite Survey.” Globe and Mail, Report on Business. 18 June 2007: B5.

http://www.theglobeandmail.com/servlet/Page/document/video/vs?id=RTGAM.20070619.wvcsuite0619&ids=RTGAM.20070619.wvcsuite0619&hub=search

2007 Mason and Rosner (2007) warn that risk continues to increase, as ratings agencies revise their loss expectations to account for the dynamics of the mortgage meltdown. “Residential mortgage-backed securities (RMBS) market has experienced significant changes [from 1997-2007].” [T]hey caution that “structural changes in mortgage origination and servicing have interacted with complex residential mortgage-backed securities (RMBS) and highly volatile CDO funding structures to place the U.S. housing market at risk. This [. . .] could lead to prolonged domestic economic implications for U.S. standing in the world economic order [. . .] The potential for prolonged economic difficulties that also interfere with home ownership in the United States raises significant public policy concerns. Already we are witnessing restructuring and layoffs at top financial institutions. More importantly, however, is the need to provide stable funding sources for economic growth. The biggest obstacle that we have identified is lack of transparency.” (Mason and Rosner 2007).

2007-06-27 “In a Marketplace interview Amy Scott asked interviewees about the disturbing consequences of the interconnections between banks, hedge funds, high risk mortgages and pension funds. In June, 2007 two major hedge funds managed by the investment bank Bear Stearns, who purchased securities that were essentially a “repackaging of all kinds of risky mortgages” to tap into the subprime mortgage market are now verging on collapse as the number of borrowers defaulting on these mortgages increases. Joseph Mason explained that “this isn’t just a Wall Street problem. Your 401k or pension fund may be invested in similar mortgage-related securities.” The investor-base is broad and it is difficult to know who is at risk. “Investment managers don’t have to report their holdings. And unlike stocks, these securities aren’t quoted on an open market [. . .] Those hedge fund investment managers create investments that are bought by our pension funds and mutual funds. Charitable foundations are invested in these. It’s a broad investor base, and it’s not the rich versus the poor.” Mason has been a firm proponent of more transparency in financial dealings (Scott 2007).” See Democratization of Debt: Bear Stearn and Mortgage Meltdowns

2007-09-06 The U.S. subprime mortgage meltdown “Only 5% of mortgages in Canada are subprime compared to 20% in the US. And Canadian financial institutions are more prudent than their American counterparts insisting on mortgage insurance when appropriate and separate appraisals of a home’s purchase price to ensure they are not financing more than 100 per cent of a home’s value. In the US by late 2006 subprime lenders were going bankrupt and as many as 1.5 million Americans could lose their homes before the panic is over. In this under-regulated US industry, lenders partnered with hedge funds to make quick returns on investments then called in debts to avoid losses. Since we are all in some way linked to these investment portfolios, either through mortgages, pensions or insurance, we end up contributing to processes that are fuelled by high-risk, short-term, fast-profits thinking that enriches a few while causing havoc for most of us. See also http://www.cbc.ca/news/background/personalfinance/mortgage-meltdown.html

2007-11-27Staggering poverty report has province listening: A United Way report Losing Ground: The Persistent Growth of Family Poverty in Canada’s Largest City claims almost 93,000 Toronto, Canada households are raising children in poverty. That’s 30% compared with 16 per cent in 1990.” OECD, Policy Development, Public Policy, child poverty, del.icio.us, digg story, digg.com, economic efficiency model, how to be poor in a rich country, policy research, social exclusion, vulnerability to social exclusion

2007 Since 1991 inflation-adjusted hourly wages rose only 10 cents (Ed. 2007).”

2007 A new car in Canada cost $32,000 a 60 percent increase from 1992 (Ed. 2007).”

2007 Canadians collectively owe three quarters of a trillion dollars in personal debt. Canadian families not only have no savings, they draw on pension savings to make ends meet.

“The result of the easy credit is that an average family now owes far more than it takes in. That means we remain solvent only so long as the book value of our assets — things like our home, pension funds or investments — continue to increase (Ed. 2007).”

2007 British Columbia graduates from university have an average debt of $27, 000.

2007 It is now acceptable for Canadian families to pay 60 percent of income to pay monthly payments of their home mortgages (Ed. 2007).

2007 The British Columbia government will allow home owners who are over 55 to defer property tax payments for as long as they live. The government will claim unpaid taxes after you die or sell effectively placing the tax burden on the children (Ed. 2007).

2007 “The number of corporate failures in Japan rose for the third month in a row totaling 896 cases in December up 18.2%. November flops were up 6.5% and the number of companies going belly up in October were up 7.8%. The amount of debts the insolvent companies left behind were up 30.6% to 463.09 billion yen (Belew 2007).

2007 In March Bob Lawless reported in his blog that, “The folks at Automated Access to Court Electronic Records or AACER regularly collect data from all the bankruptcy courts for creditors and attorneys. They have a wealth of information that does not show up in the mainstream media. Most recently, they tell me that there were 58,640 total U.S. bankruptcy filings in February 2007 as compared to 55,088 total U.S. bankruptcy filings in January 2007. OK, that looks like a slight increase, but looks are deceiving. It’s actually a fairly hefty increase. The February filings were spread over only nineteen business days while the January filings were spread over twenty-one days. On a daily basis, the February filings were up 17.7% as compared to January (Lawless 2007).”
2007 Jayson Seth analysed data in National Association of Realtors (NAR) June 24, 2007 report. Seth argues that “America’s easy-credit, quick-flipping, borrow-now-and-forget-the-consequences lifestyle is coming to an increasingly painful, grinding halt” and the “confidence of homebuilders is at a 16-year low (Seth 2007).”

2007 Lawrence Yun, National Association of Realtors announced that the real estate market is softening due to psychological factors, tighter credit for subprime borrowers. NAR’s Lawrence Yun explained that since late 2006 housing sales have slowed as buyers double up with family, friends or just mortgage helper units in their homes to be able to pay for higher-priced homes.

2007 Mason and Rosner (2007) warn that risk continues to increase, as ratings agencies revise their loss expectations to account for the dynamics of the mortgage meltdown. For instance, on March 27, Standard & Poor’s raised its expectation for losses on 1. “Residential mortgage-backed securities (RMBS) market has experienced significant changes [from 1997-2007]” Furthermore they caution that “structural changes in mortgage origination and servicing have interacted with complex RMBS and highly volatile CDO funding structures to place the U.S. housing market at risk. Equally as important, however, is that housing market weaknesses feed back through financial markets to further weaken financial instruments backing today’s CDOs. Decreased housing starts that will result from lower liquidity in the MBS sector will further weaken credit spreads and depress CDO and MBS issuance. This feedback mechanism can create imbalances in the U.S. economy that, if left unchecked, could lead to prolonged domestic economic implications for U.S. standing in the world economic order [. . .] The potential for prolonged economic difficulties that also interfere with home ownership in the United States raises significant public policy concerns. Already we are witnessing restructurings and layoffs at top financial institutions. More importantly, however, is the need to provide stable funding sources for economic growth. The biggest obstacle that we have identified is lack of transparency.” (Mason and Rosner 2007).

2007 In a Marketplace interview Amy Scott asked interviewees about the disturbing consequences of the interconnections between banks, hedge funds, high risk mortgages and pension funds. In June two major hedge funds managed by the investment bank Bear Stearns, who purchased securities that were essentially a “repackaging of all kinds of risky mortgages” to tap into the subprime mortgage market are now verging on collapse as the number of borrowers defaulting on these mortgages increases. Joseph Mason explained that “this isn’t just a Wall Street problem. Your 401k or pension fund may be invested in similar mortgage-related securities.” The investor-base is broad and it is difficult to know who is at risk. “Investment managers don’t have to report their holdings. And unlike stocks, these securities aren’t quoted on an open market.” Mason has been a firm proponent of more transparency in financial dealings (Scott 2007).

2008-01-12 Should banks avoid investing in carbon-intensive projects? “Ceres is composed of and works with investors ($4 trillion) and environmental groups to address sustainability challenges. In their report Corporate Governance and Climate Change (2008) they argue that the banking sector needs to become aligned with GHG reductions.” read more | digg story

2007-01-20Globalization and the Rise of Inequality: The extremes of wealth and poverty threaten globalisation. North American companies lose jobs to the Chinese Special Economic Zone (SEZ) where factories often employ rural women to work in 19th century conditions to keep their costs low. Meanwhile the total pay of top managers in North America has increased from 1986 through 2006 to roughly 40 times the average and from 1966 to 110 times the average. Globalization “refers to the current transformation of the world economy the reduction of national barriers to trade and investment, the expansion of telecommunications and information systems, the growth of off-shore financial markets, the increasing role of multinational enterprises, the explosion of mergers and acquisitions, global inter-firm networking arrangements and alliances, regional economic integration and the development of a single unified global market. The phenomenon of globalization is accompanied by increasing international mobility, the migration of workers, the growth of tourism and the increasing ease of international travel (Leary 1998:265).”

2008-01-19 The Bush administration announce they are seeking “a stimulus package of as much as $145 billion”. However the stock market did not respond positively as investors were concerned that the looming American recession would trigger economic crisis that will span the globe. See (Jolly and Timmons 2008-01-21).

2008-01-21 “Global stock markets have tumbled, with European indexes set for some of their biggest losses in recent years, amid growing fears of a recession in the US (BBC News 2008-01-21).”

2008-01-20 “Global stock markets plunged on Monday as fears spread that the turmoil in United States mortgage markets is spreading. Indexes in Europe fell as much as 7 percent after a huge sell-off in Asia. “There’s something approaching panic in the market,” Holger Schmieding, the chief European economist at Bank of America in London, said by telephone. “There’s been a reassessment in the market of the U.S. economic outlook, with most people now thinking that there will be a recession,” and investors are starting to reconsider the idea that the rest of the world “will remain aloof from U.S. problems [. . .] The selling began in Sydney, with Australian stocks falling nearly 3 percent for an 11th consecutive decline. Major markets in Asia followed suit, with the benchmark Nikkei 225-stock average in Tokyo falling 3.9 percent, the Hang Seng in Hong Kong falling 5.5 percent and the benchmark mainland Chinese index falling more than 5 percent (Jolly and Timmons 2008-01-21).”

2008-01-21 London’s FTSE 100 index fell 4.5% to 5,637.3 (BBC News 2008-01-21).

2008-01-21 Hugues Rialan of Robeco France says we are in a panic mode and a crisis in consumer confidence as the banking sector’s reassurances that they were not overexposed to US mortgage-related investments, prove to ring hollow and false. The banking sector lost consumer trust when they lost of “billions of pounds on investments linked to the US housing and mortgage markets (BBC News 2008-01-21).”

2008-01-21 “Australia’s benchmark ASX 200 index closed down 2.9%, or 166.9, points at 5,580.4″, amid growing fears of a recession in the US. This is ASX 200 index’s “lowest level for a year. It was also the 11th consecutive negative day for the index, the longest losing streak in more than 25 years (BBC News 2008-01-21).”

2008-01-21 “There may be more downturns in store for Asia, particularly as banks report the fallout from their investments in the United States mortgage market. Companies “have not announced their year-end numbers yet,” Schuller, of Moody’s, said, and if they are holding subprime assets, they may need to write-off their value, she said. “They are going to be taking these 25 to 30 percent haircuts we’re seeing on Wall Street,” she said. “I think it is going to shock people.” [This article which appeared in the New York Times was written by David Jolly reporting from Paris and Heather Timmons from New Delhi. Tim Johnston contributed reporting from Sydney, and Martin Foster from Tokyo (Jolly and Timmons 2008-01-21).”

2009-01-21 Analyst Mike Lenhoff at Brewin Dolphin Securities predicts that the prospect of falling US interest rates announced by the US administration will have a positive effect on the market by January 2009 and the crisis mode of January 2008 and the drop in global indexes based on fears of a US recession will be proven to be a panicked knee-jerk reaction (BBC News 2008-01-21).”

Bibliography and Webliography

BBC. 2008-01-21. “Global shares tumble on US fears.” BBC News on-line. Uploaded 2008/01/21 16:10:48 GMT. Accessed 2008-21. http://news.bbc.co.uk/go/pr/fr/-/2/hi/business/7199552.stm http://news.bbc.co.uk/2/hi/business/7199552.stm

CBC News. 2008. “TSX plunges 500 points.” Last Updated: 2008-01-21:13:26 ET.

Jolly, David; Timmons, Heather. 2008-01-21. “Stocks Plunge in Europe and Asia on U.S. Recession Fear.” New York Times. http://www.nytimes.com/2008/01/21/business/22stox-web.html?_r=1&ei=5088&en=f84e22b0fa01257e&ex=1358658000&oref=slogin&partner=rssnyt&emc=rss&pagewanted=print

Selected Bibliography and Webliography: Leary, Virginia A. 1998. “Globalization and Human Rights.” In Symonides, Janusz (Ed.) Human Rights: New Dimensions and Challenges: Manual on Human Rights. Aldershot, UK: Ashgate Dartmouth Publishing Company Ltd. / UNESCO Publishing. pp. 265-276. 2007. “Rich man, poor man.” The Economist. Jan 18th 2007. Accessed January 18, 2007

Flynn-Burhoe, Maureen. 2008. “Risk Society: Unintended Consequences of Subprime Market.” >> Google docs. January 21. http://docs.google.com/Doc?id=ddp3qxmz_505grfcrtgj

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