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

Stressing your system

December 8, 2007


He was a first generation Canadian and was deeply proud of his Scottish background. Whether saying a prayer, making a presentation or telling one of his many jokes, it all sounded better with his Scottish brogue. When I read letters or emails from him I still hear it. He seemed somehow to embody so much of Herman’s portrayal of his country as described in How the Scots Invented the Modern World: The True Story of How Western Europe’s Poorest Nation Created Our World & Everything in It. We were twenty years younger but we became lifetime friends inspite of physical distance and long lapses in communication. Not long ago we were there beside her hospital bed when his wife died of cancer. He was still involved in the local community and in masters’ athletics.

He worked for many years as mechanical engineer with mining companies in remote and northerly areas. His was the first story of the American-style firing I heard and perhaps for that reason I felt it so deeply. Perhaps it was how and where we learned about it that made it seem so ominous. In the 1980s we were living in a third-world country in a youthful self-imposed minimalist lifestyle that suited the idealism of those who experienced the 1960s. In comparison to where we were living, so much of the Canadian socio-economic, political structures seemed like a mirage, a goal towards which our adopted home could aspire to, perhaps 50 years in the future. When the letter arrived we read it together in disbelief. If he was vulnerable to being fired, to being almost cheated out of a pension, how could others survive? How could this happen in Canada? He talked about a colleague who arrived at work one day and without warning was met at the entrance by Security who accompanied him to his office and observed as he emptied his personal belongings from his desk into a cardboard box. The man left in a daze and was found hours later wandering off along the highway with his box in his hand unable to grasp what had happened to him.

During the 1990s when we were back in Canada, the American-style firing became common practice. Companies learned to use financial incentives to ensure the silence of people they fired. Our Scottish friend eventually landed on his feet, started a successful second career and rarely seemed to reveal any bitterness about the experience. Other friends and family members have not been so fortunate. Were we indeed acquiescing, as Uchitelle (2006 [2007]) suggests and therefore encouraging the counterproductive process of layoffs, mergers and acquisitions and outsourcing, that destroyed the notion of job security and dignity of work in North America?

So as I read synopses, excerpts and reviews from the book entitled The Disposable American: Layoffs and Their Consequences (2006 [2007]) by economist, journalist and professor, Louis Uchitelle, it brought me back to that 1980′s letter, like an old postcard that slipped from between the virtual pages of Uchitelle’s book making this story so intimate, personal and timeless.

Timeline of related social events

1950s and 1960s Economist, journalist and professor, Louis Uchitelle described this period as the heyday in the rise of job security in the United States (Uchitelle 2006; Uchitelle 2007).

1966-1988 Donald W. Davis was CEO of Stanley Works for twenty two years in New Britain, Connecticut, the city’s largest employer. These two decades spanned the city’s largest employer best days to the beginning of the layoffs (which he initiated) and plant closings in the 1980s. Like many chief executives of his era, he had been deeply involved in the life of the city that had supplied thousands of Stanley’s workers. The Davis children attended public school in New Britain where he served on the Board of Education including a stint as president of the Board (Uchitelle 2006; Uchitelle 2007).

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).

1987 Economist, journalist and professor, Louis Uchitelle covered economics for The New York Times since 1987, focusing on labor and business issues.

1988 Donald W. Davis retired on schedule, a wealthy man. He sold his bright yellow Dutch Colonial home in New Britain, Connecticut, and moved with his wife to Martha’s Vineyard, where their summer house on seven acres of rolling lawn became their main residence (Uchitelle 2006; Uchitelle 2007).

1996 Economist and journalist Louis Uchitelle shared a major award for its 1996 series “The Downsizing of America.” He also taught journalism at Columbia University’s School of General Studies.

2006 Former CEO of Stanley Works, 81-year-old Donald W. Davis was running a leadership seminar at the Massachusetts Institute of Technology. This was his final public platform where he could present his explanation of the layoffs and plant closings at Stanley Works in the 1980s. Somewhere between 1988 and 2006 he became too uncomfortable to make the four hour trip between his comfortable home in Martha’s Vineyard to New Britain, Connecticut. His former employees had lost their jobs against their wishes. Although he admits to initiating the layoffs he maintains that no one blames him.

Category

Business & Economics >> Economic Conditions

Keywords, folksonomies:

Business, Economics, Economic Conditions, layoffs, job security, wasteful mergers, mergers and acquisitions, wage stagnation, outsourcing, Business Ethic, labour, labor, downsizing,

Webliography and Bibliography

Herman, Arthur. How the Scots Invented the Modern World: The True Story of How Western Europe’s Poorest Nation Created Our World & Everything in It.

Uchitelle, Louis. 2007. “Le coût psychique du licenciement.” Le Monde diplomatique. Octobre.

Uchitelle, Louis. 2006. The Disposable American: Layoffs and Their Consequences. Random House. 2006-03-28. ISBN: 1400041171

Uchitelle, Louis. 2007. The Disposable American: Layoffs and Their Consequences. Knopf Publishing Group. Apr 2007. http://www.ereadable.com/scripts/browse.asp?ref=5551619605&source=P25

CC Flynn-Burhoe, 2007. Stressing your System. >> Speechless. December 7.

CC Flynn-Burhoe, 2007. Stressing your System. >> Google Docs. December 7.

http://docs.google.com/Doc?id=ddp3qxmz_420g988s8dt


Business Editor Charles Frank (2007) cites a FirstEnergy Capital Corp newsletter to clients comparing Alberta’s provincially-funded analysis “Our Fair Share” chaired by Bill Hunter on royalties, to the modus operandi of socialist governments Kazakhstan and Venezuela. Premier Ed Stelmach commissioned a full analysis of provincial royalties as the price of a barrel of oil soared. It is now c. $82.881 a barrel. (It has to be $50 a barrel to extraction of oil from the oil sands profitable.)

EnCana CEO Randall K. Eresman threatened to redirect a billion dollars of EnCana’s planned capital investment out of Alberta to other parts of Canada or the United States if Premier Stelmach adopt’s the “Our Fair Share” report proposals in their entirety.

2007-10-02 Saskatchewan politicians hope that companies like EnCana will act on their bluff and move at least part of their billion dollar threat out of Alberta and into Saskatchewan if royalties are raised too much. Canadian Association of Petroleum Producers industry vice-president David Pryce adds to the oil companies threats saying that if Alberta opts for their fair share of royalties the oil companies will shift activity to the other jurisdictions like Saskatchewan. However, even though Saskatchewan politicians might hold out for awhile, they would pay at the polls just like Stelmach if they continue to operate their energy sector as if the rules of the 1970s still apply. Alberta has lower corporate taxes, no provincial sales tax and no resource royalty surcharge so how much is Saskatchewan willing to give away to enjoy an Alberta boom? (Wood 2007-10-02). Do they really want the housing crisis, the long delays in service to drive their thriving economy even more? Are they willing to forego their fair share to entice fickle oil companies to their province.

CBC. 2007-10-05 ConocoPhillips President Kevin Meyers threatened Alberta Premier Ed Stelmach that ConocoPhillips will postpone $8 billion proposed oilsands projects. Meyers claimed that if royalties are raised as suggested in Our Fair Share and by the Alberta auditor ConocoPhillips would lose an oilsands project worth $500 million next year. They threaten to cut 30 to 40% of the $2.5 billion to $3 billion it plans to spend in 2008 on Alberta-based activity. It is estimated that if all the recommendations of Our Fair Share were implemented, the Alberta government would benefit by $2 billion a year. Alberta has a history of hospitality for oil and gas companies with the low energy royalties (based on oil at ?20 a barrel versus $80 and rising4), no provincial sales tax, no Alberta has lower corporate taxes, no provincial sales tax and no resource royalty surcharge. Oilsands developers have been allowed to use Alberta’s limited natural gas resources to extract their oil as quickly as possible instead of slower technology-intense methods. (Even the oil industry DOE report urges the need for patient money). Images of the Fort McMurray’s envirnomental nightmare landscape of Fort McMurray are courteously not shown around at dinner tables (although in quieter voices Albertans will ask, “Have you ever been to Fort McMurray?”).

Who’s Who

EnCana 10th place in Fortune Global 500′s Mining, Crude-oil production Industry: EnCana with an overall Fortune 500 rank of 431/500 (previously 396/500) and revenues of $17,081.0 millions. EnCana’s profits are $5,652.0 million; Assets: $35,106.0 Million; Stockholders’ Equity: $17,466.0 million. CEO Randall K. Eresman. It has 4,678 employees and is located at 855 2nd St. S.W., Calgary T2P 2S5, Canada, Phone: 403-645-2000
Website: www.encana.com
FirstEnergy Capital Corp. (started c. 1994) is a member of the Canadian Investor Protection Fund. Its 79 employees including CEO Jim Davidson, Jill Angevine, Vice-President of institutional research, John

Chambers, Ruby Wallis, Bev Thompson, Sheila Kaiser, Margie Gal, and Angelique Cyr work long days beginning at 6:15 AM and engage in the high-pressure industry of investment dealing. These investment dealings and transactions individually involve multi-millions and even billions of dollars of financings2. It is located at 1100, 311 – 6 Avenue SW, Calgary Alberta T2P 3H2 (FirstEnergy Capital (USA) Corp. is a member of the Securities Investor Protection Corporation.) The firm has raised $7 million for Calgary’s less fortunate. It now supports over 200 charities. (Every year, [they] allocate a minimum of 2.5 percent of our gross profits to charitable organizations and community groups. Often, [they] significantly exceed this minimum donation. These actions illustrate the strong sense of community that is part of [their] corporate culture.” For example a party they hosted during the rodeo with 1500 guests raised $200,000 for Calgary Communities Against Sexual Abuse (CCASA), Calgary Quest School and the Parks Foundation Calgary. In June 2006 CalgaryInc named them as the best place to work in Calgary. As well according to their own site “Canadian Business magazine ran a very complimentary article on FirstEnergy in the August 2007 edition covering the firm back to inception and including a mention of our expanded relationship with Société Générale.”

FirstEnergy Capital Corp FirstNews for investors tracks changes in the price of oil, gas through indicators such as unseasonable temperatures (for example in Toronto) or weather disturbances (such as hurricanes), consumer confidence, industry takeovers, bankruptcies, labour disputes, changes in interest rates, the housing market, oil and gas inventories and industry regulation. For example on September 25 they reported that “U.S. stocks fell on Monday, after news that Germany’s largest bank may take a hit from sub-prime mortgage investments. Citigroup and other banks fell after sources said the exposure could reduce Deutsche Bank’s profit by $2.4 billion. Furthermore, the first nation wide strike at General Motors in 37 years raised concerns about the economic outlook. Shares of auto parts suppliers fell, led by a 3% drop in Lear Corp. The Dow Jones Industrial Average lost 61.13 points to end at 13,759.06, while the NASDAQ fell 3.27 points to close at 2,667.95 (FirstNews 2007-09-25).”

Timeline

1992 Kazakhstan adopted among the world’s most open investment laws in order to encourage development.

2002 After the April 2002 aborted coup against Venezuela’s President Hugo Chávez, many observers accused Washington of having been behind the attempted ouster. The Bush administration denied any U.S. involvement in the affair. However, one relatively clear connection emerged between the U.S. government and the anti-Chávez movement: millions of dollars in U.S. taxpayer money channeled through the IRI and other U.S. organizations that funded groups opposed to Chávez during the years preceding the April coup. Writer Mike Ceaser reported that in an April 12, 2002, fax sent to news media, IRI President George A. Folsom rejoiced over Chávez’s removal from power. “The Venezuelan people rose up to defend democracy in their country,” he wrote. “Venezuelans were provoked into action as a result of systematic repression by the government of Hugo Chávez.” With NED funding, IRI had been sponsoring political party-building workshops and other anti-Chávez activities in Venezuela. “IRI evidently began opposing Chávez even before his 1998 election,” wrote Ceaser. “Prior to that year’s congressional and presidential elections, the IRI worked with Venezuelan organizations critical of Chávez to run newspaper ads, TV, and radio spots that several observers characterize as anti-Chávez” (Ceaser 2002). (IRI 2007)

2007-09-25
Rumours circulate that Germany’s largest bank may take a hit from sub-prime mortgage investments (FirstNews 2007-09-25).

2007-09-25 The first nation wide strike at General Motors in 37 years raised concerns about the economic outlook. Shares of auto parts suppliers fell, led by a 3% drop in Lear Corp. (FirstNews 2007-09-25).

2007-09-28 The Global Energy Conference for members only was held in Toronto, Canada on September 28 and announced on FirstEnergy Capital Corp. website.

2007-09-28 “The Kazakh parliament unanimously approved a bill Sept. 26 that would allow the government to modify or break any contract unilaterally in which the “interests of Kazakhstan” are threatened (as defined by the government). They are demanding royalties of 40% up from 30%. Kazakhstan now produces 1.3 million barrels per day (bpd) of oil, and if the projects currently signed are completed, within 10 years it hopes to be producing 3.5 million bpd [. . .] Royal Dutch/Shell, ExxonMobil and ConocoPhillips are part of the oil consortium developing Kazakhstan’s oil. [. . .] The best that Kazakhstan [might end up with a] Venezuela-like situation, in which foreigners freeze all expansion efforts and focus solely on inexpensive methods of maintaining existing output. In Venezuela output has fallen from 3.5 million bpd to 2.3 million bpd since government restrictions began 10 years ago. One of Kazakhstan’sfields is one of the most technically challenging in existence, boasting vertical and variable deposits loaded with high-pressure hydrogen sulfide. The field itself is in a high wind zone that freezes over in the winter. Kashagan will be the most technically challenging — and expensive — oil project ever attempted.” [China has the capital to invest in Kazakhstan but perhaps lacks the technology for now (Offnews.info 2007)."

2007-10-02 Saskatchewan politicians hope that companies like EnCana will act on their bluff and move at least part of their billion dollar threat out of Alberta and into Saskatchewan if royalties are raised too much. Canadian Association of Petroleum Producers industry vice-president David Pryce adds to the oil companies threats saying that if Alberta opts for their fair share of royalties the oil companies will shift activity to the other jurisdictions like Saskatchewan. However, even though Saskatchewan politicians might hold out for awhile, they would pay at the polls just like Stelmach if they continue to operate their energy sector as if the rules of the 1970s still apply. Alberta has lower corporate taxes, no provincial sales tax and no resource royalty surcharge so how much is Saskatchewan willing to give away to enjoy an Alberta boom? (Wood 2007-10-02). Do they really want the housing crisis, the long delays in service to drive their thriving economy even more? Are they willing to forego their fair share to entice fickle oil companies to their province.

CBC. 2007-10-05 ConocoPhillips President Kevin Meyers threatened Alberta Premier Ed Stelmach that ConocoPhillips will postpone $8 billion proposed oilsands projects. Meyers claimed that if royalties are raised as suggested in Our Fair Share and by the Alberta auditor ConocoPhillips would lose an oilsands project worth $500 million next year. They threaten to cut 30 to 40% of the $2.5 billion to $3 billion it plans to spend in 2008 on Alberta-based activity. It is estimated that if all the recommendations of Our Fair Share were implemented, the Alberta government would benefit by $2 billion a year. Alberta has a history of hospitality for oil and gas companies with the low energy royalties (based on oil at ?20 a barrel versus $80 and rising4), no provincial sales tax, no Alberta has lower corporate taxes, no provincial sales tax and no resource royalty surcharge. Oilsands developers have been allowed to use Alberta's limited natural gas resources to extract their oil as quickly as possible instead of slower technology-intense methods. (Even the oil industry DOE report urges the need for patient money). Images of the Fort McMurray's envirnomental nightmare landscape of Fort McMurray are courteously not shown around at dinner tables (although in quieter voices Albertans will ask, "Have you ever been to Fort McMurray?").

Footnotes

1. "Crude oil prices posted big gains on the day. The continued decline of the U.S. dollar and concerns that supply may not be able to meet demand this coming winter, fuelled the price increase. NYMEX light sweet crude for November delivery gained $2.58 to end at $82.88 per barrel [. . .] Canadian stocks continued their five day rally closing higher on strong commodity prices. The government also reported a $13.8 billion budget surplus for fiscal 2006-07, which will be used to pay down debt. Suncor Energy was the biggest weighted gainer, up $2.17 or 2.3% to $95.71. The S&P/TSX Composite Index gained 94.76 points to close at 14,129.73. [. . .] U.S. stocks ended higher on Thursday, as energy shares were elevated by higher oil prices. However, a report released earlier in the day showed a plunge in new home sales and the sharpest year-over-year drop in prices in nearly 37 years. The Dow Jones Industrial Average gained 34.79 points to 13,912.94, while the NASDAQ gained 10.56 points to close at 2,709.59. (FirstNews 2007-09-28).”

2. In an online summary FirstEnergy includes in their recent report on their 800 financings and over 200 M&A assignments that they has participated in since c. 1994.$701,000,000 disposition by EnCana Corporation of its Interest in Petrovera Resources LimitedPartnership in January 2004. Others are: $495,000,000: the Sale of Sound Energy Trust to Advantage Energy Income Fund in September 2007; $3,500,000,000: of CCS Income Trust as Formal Valuator and Advisor to the Independent Committee September 2007; $508,000,000: Sale of Capitol Energy Resources Ltd. to Provident Energy Trust. June 2007; $91,000,000 Compton Petroleum Corporation Acquisition of Stylus Energy Inc.August 2007; $980,000,000 for TriStar Oil & Gas Merger with Real Resources Inc. August 2007; $440,000,000 Sale of Find Energy Ltd. to Shiningbank Energy Income Fund September 2006; $431,000,000 True Energy Trust Acquisition of Prairie Schooner Petroleum Ltd. September 2006; $1,500,000,000 Savanna Energy Services Corp. Merger with Western Lakota Energy Services Inc. August 2006; $320,000,000 Highpine Oil & Gas Limited Acquisition of Kick Energy Corp. August 2006; $4,000,000,000 Viking Energy Royalty Trust Merger with Harvest Energy Trust February 2006; $4,400,000,000 Precision Drilling Corporation Reorganization into an Income Trust November 2005; $350,000,000 UTS Energy Corporation Partnership and Asset Sale to Teck Cominco Limited December 2005; $1,400,000,000 Cequel Energy Inc. and Progress Energy Ltd. Merger and Reorganization into a Trust and Spinout of ProEx Energy Ltd. and Cyries Energy Inc. April 2004.

 

3. 1st place in Fortune Global 500′s Mining, Crude-oil production Industry: Anglo American with an overall Fortune 500 rank of 195/500 and revenues of $33,072.0 million; 2nd place in Fortune Global 500′s Mining, Crude-oil production Industry: BHP Billiton with an overall Fortune 500 rank of 205/500 and revenues:$32,153.0 millions; 3rd place in Fortune Global 500′s Mining, Crude-oil production Industry: Rio Tinto Group with an overall Fortune 500 rank of 313/500 and revenues:$22,465.0 millions; 4th place in Fortune Global 500′s Mining, Crude-oil production Industry: RAG with an overall Fortune 500 rank of 345/500 and revenues:$20,365.0 millions; 5th place in Fortune Global 500′s Mining, Crude-oil production Industry: CVRD with an overall Fortune 500 rank of 359/500 and revenues:$19,651.0 millions; 6th place in Fortune Global 500′s Mining, Crude-oil production Industry: Oil & Natural Gas with an overall Fortune 500 rank of 369/500 and revenues:$19,237.4 millions; 7th place in Fortune Global 500′s Mining, Crude-oil production Industry: Occidental Petroleum with an overall Fortune 500 rank of 377/500 and revenues:$19,029.0 millions; 8th place in Fortune Global 500′s Mining, Crude-oil production Industry: Surgutneftegas with an overall Fortune 500 rank of 392/500 and revenues:$18,413.1 millions; 9th place in Fortune Global 500′s Mining, Crude-oil production Industry: Xstrata with an overall Fortune 500 rank of 414/500 and revenues:$17,632.0 millions; 10th place in Fortune Global 500′s Mining, Crude-oil production Industry: EnCana with an overall Fortune 500 rank of 431/500 and revenues:$17,081.0 millions; 11th place in Fortune Global 500′s Mining, Crude-oil production Industry: China National Offshore Oil with an overall Fortune 500 rank of 469/500 and revenues:$16,038.9 millions.

4. Not to mention Tertzakian’s $100 a barrel peak!


Webliography and Bibliography

2007. “EnCana.” Snapshots. Fortune Global 500. September 30. http://money.cnn.com/magazines/fortune/global500/2007/snapshots/11155.html

CBC. 2007-10-05 “Energy giant rages against plan to hike Alberta royalties.” http://www.cbc.ca/canada/calgary/story/2007/10/05/royalties-protests.html

Ceaser, Mike. 2002. “As Turmoil Deepens in Venezuela, Questions Regarding NED Activities Remain Unanswered,” Americas Program, December 9.

FirstNews. 2007. FirstEnergy Capital Corp. September 28. http://firstenergy.com/research/news/News-2007-09-25.pdf

FirstNews. 2007. FirstEnergy Capital Corp. September 28. http://firstenergy.com/research/news/News-2007-09-28.pdf

Frank, Charles. 2007. “Tough Talk Just the Start to Ugly Royalty Fight.” Calgary Business. Calgary Herald. September 29. C1 & c14.

(IRI) International Republican Institute. 2007. Right Web Profile. Silver City, NM: International Relations Center, July 19.

Offnews.info. 2007. “Kazakhstan – End of an Era.” Offnews.info. Buenos Aires, Argentina. September 30. http://www.offnews.info/verArticulo.php?contenidoID=9429

Wood, James. 2007. “Politicians in no mood to alter Sask. energy royalties system.” The StarPhoenix. Saskatoon.


Creative Commons License 2.5 Flynn-Burhoe, Maureen. 2007. “Fear Industry marries Oil Industry: Albertastan? Canazuela? Who’s Afraid of Social[ism] Capital?” http://docs.google.com/Doc?id=ddp3qxmz_380dvhvz9 September 30. Creative Commons License 2.5 Flynn-Burhoe, Maureen. 2007. “Fear Industry marries Oil Industry: Albertastan? Canazuela? Who’s Afraid of Social[ism] Capital?” >> Speechless. September 30.


In his May 10, 2007 Address to Shareholders, Paul Desmarais Jr. CEO of the Power Corporation of Canada compared and contrasted his corporation with private equity and hedge funds.

In recent years private equity funds have grown at a phenomenal pace. Collectively they have brought about the privatization of public companies worldwide worth $900 billion! In 2006 alone, the 10 largest private equity funds raised $120 billion in new money destined for privatizations. At first an American phenomenon, private equity funds spread to Canada, the U.K., continental Europe and even Japan. Today in the U.K., 19% of private sector employees, or 3.3 million people, work for businesses owned by private equity firms. In Germany the number is 800,000.

In their early years, private equity funds often brought an added value and better governance to the companies they privatized by replacing ineffective and complacent boards of directors. While they were then generally met by fiercely resistant business managers opposed to privatization, nowadays their job is made easier by the growing number of public company executives who, frustrated by the tedious, distracting and costly compliance to modern-day governance rules and regulations, are more receptive to the idea of private equity funds taking them private. And, let’s not forget that, in today’s world, managers are more mobile and can gravitate to the numerous opportunities offered by private equity funds, where they can receive considerable compensation over a relatively short period of time, while being sheltered from public scrutiny and sensational headlines.

Meanwhile hedge funds, which by nature have a shorter time horizon, now number 9,000 and manage in excess of $1 trillion (that’s right, one thousand billions!). In 2006 alone, $126 billion of new money flowed into U.S. hedge funds. Their presence in the financial markets is substantial: for example, they account for between 30% and 50% of transactions on the New York and London stock exchanges! These funds are lightly regulated private investment pools which initially attracted endowment funds and wealthy individuals, but which today also have pension funds and insurance companies as investors.

While many hedge funds are devoted to generating short-term returns by leveraging financial instruments, I would like to focus on those funds which take positions in widely held public companies and become “activist shareholders” with the view of pressuring those companies into actions which, in turn, will quickly result in added value for shareholders, including themselves. Once they become shareholders, they will often align with other institutional investors who are shareholders of the company, and promote whatever initiatives could quickly generate added value: sale or spinoff s of divisions, cash dividends or repurchase of shares, and cuts in operating costs, are a few examples of what can be on their agenda, in addition to their ultimate goal of an outright sale of the company, which would fetch a premium for control (Desmarais 2007a:3.)

In the same month in an article published in the Canadian Council of Chief Executives journal National and Global Perspectives Desmarais warned of the structural impact on the industrialized world caused by the meteoric rise of private equity and hedge funds in the financial markets.

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).

In the same edition both Gordon Nixon and Dominic D’Alessandro echoed their concerns.

In 2006, more than 100 of Canada’s public companies were acquired by foreign interests. The list includes some of the oldest and most well-established companies across a broad spectrum of industries – everything from hotels to retailing, to metals and mining [. . .] My concern stems from the fact that the world is awash with capital and that the consolidation trend in many industries will inevitably continue. We are a small country with a relatively small population. Canadian companies typically are not of a size to be global players. All too often, decisions affecting the future of important firms and the communities that they sustain are made solely with a view to the short-term financial consequences. I find it particularly bothersome that so many of our natural resource companies – which I would argue represent unique and irreplaceable assets – are now owned elsewhere (D’Alessandro 2007).

Over the past year, 116 Canadian public companies were acquired by foreign interests, more than any other major country including much bigger economies such as the United States, the United Kingdom, France and all the Nordic countries combined. We have not only seen the disappearance of major Canadian household names, but the loss of Canadian presence in industries where we have long had traditional strengths (Nixon 2007:5).

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).

Bibliography

2006. “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

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

D’Alessandro, Dominic. 2007. “How Can We Conserve Canadian Ownership?” National and Global Perspectives . May 3, 2007. p. 23.

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

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

http://www.powercorporation.com/powercorp/webcast/2007/PCC_Eng_Discours_P_Desmarais_jr_2007_May11_FINAL.pdf

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

Nixon, Gordon M. 2007. “As the world changes, Canada must adapt.” National and Global Perspectives . March 2, 2007.

Flynn-Burhoe, Maureen. 2007. “Meteoric Rise of Private Equity and Hedge Funds.” >> speechless. September 2007. http://docs.google.com/Doc?id=ddp3qxmz_355dbbcxv


Patrick Watson (1980) vs CTV (2007): the case of Conrad Black: The Canadian Establishment and governance.

Throughout the trial of Conrad Black I wondered why Patrick Watson‘s articulate and well-researched CBC documentary entitled the Canadian Establishment (1980), was not viewed on CBC. Conrad Black was known for a strong and effective offensive tactics when dealing with his image management in the press and until the guilty verdict became publicized the media was discouraged from entirely objective coverage. This may change now that the jury has revealed to their decision. CTV coverage reveals a pro-Black bias describing him as stoic, proud, even …onian, in the face of this trial, almost agreeing with Conrad Black that he is somehow above the law. However, he did glare and skowl at the jury when they gave their decision. They describe how he helped every community he was a part of. They admire his rise from his university education to an emerging career with the press to the circle of the uber-wealthy. They expect him to stand up to this and continue to argue for his own innocence. He was found guilty of obstruction of justice where he removed evidence from his Toronto office and of email fraud which hold a combined possible sentence of 10 to 65 years. Charges of racketeering were dismissed. Nonetheless he stole millions of dollars from Hollinger, and continues to feel no remorse. There appears to be a strong empathetic response to the potential of his doing his real jailtime in an American jail where he is actually going to have to do work such as laundry. There is speculation and some relief that since he is so ‘astute’ in terms of money that he will have provided for himself and his family, Barbara Amiel, their son and daughter, Alanna in some ‘legal’ fashion. CTV journalists are comparing the American and Canadian legal systems in terms of fairness and approaches to access to jury information. They mused about whether American courts would be harsher on Black and his co-accused than their Canadian counterparts who would be more influenced by Black’s position of power, wealth and prestige. They seem to admire Black for his intelligence and his ability to write and do research and imagine him using his minimum security prison to study and write. Although others argue that an American minimium security prison is not an exclusive club prison like those in Canada and Black will not have access to a computer. CTV interviewees describe Black as someone very concerned with his place in history. CTV journalists look for ‘silver lining’ in his situation. They wonder how Black will survive from now to his sentence hearing by Judge … in November. He is no longer a Canadian citizen since he abandoned it to become a British Lord. This means he has no rights to go to Canadian jails which are considered to be friendlier to the uber-wealthy. Black is expected to begin quickly to appeal the jury’s findings. This will not be stalling the sentencing hearing.

What makes Watson’s (1980) revelations so compelling at this time is the way in which he reveals Black’s roots as outsider on Bay Street until he was able to take advantage of widows of Establishment members to get his toe in the door. While Black’s father had some wealth through his brewery, his family lacked the prestige and power of the Canadian Establishment. According to Watson, it was during the era of Conrad Black that the Establishment shifted towards an even more self-serving attitude of entitlement. His business ethics predates that of the mean-spirited arrogance of the financeers in the 1990s. He seems to embody that which is dysfunctional and unsustainable in a social world corrupted by extremes of wealth and poverty.

My own concern with Black was the role he played as media mogul in obstructing access to an objective press, a keystone of democracy. Like the the New Brunswick-Bahamas Irvings prior to their ethical turn, mass media moguls adopt Friedman’s motto that their sole responsibility is to make money. Black claimed that he hoped to provide more of a pro-business, economic efficiency viewpoint to counteract the perceived social justice bias of the media (Flynn-Burhoe).

Do we secretly admire white collar criminals and their brilliant lawyers? Conrad Black and three others are accused of stealing $60M from shareholders to fatten their 5- and 7-figure salaries. Prosecutor Jeffrey Cramer claimed in his opening statement that media mogul Black failed to provide the public with objective accounts of world affairs.

read more | digg story

CTV News. 2007. Conrad Black. July 13, 2007.

Flynn-Burhoe, Maureen. 2006. “Media and Objectivity: a Selected Timeline of Social Events.” >> papergirls. December 6.

Flynn-Burhoe, Maureen. 2007.

Is the Mass Media Coverage Biased in Favour of Conrad Black?”>> papergirls. May 9, 2007.

Watson, Patrick. 1980. The Canadian Establishment. CBC.

Patrick Watson.” Museum TV Archives.

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