Sunday, 21 December 2008

The New Capitalism -by the BBC

Over the last year or so, there is one man that has become a source of pain for some in the financial services sector. Some journalists don’t like him either. It is Robert Peston, BBC Business Editor. [blog]

His idiosyncratic style and general slow delivery (plus mumbling and fumbling and humming) irritates many. Others are irritated by his “attacks” on the financial services sector and the markets. The right-wing blogosphere attack him for being a "leftie" and the mouthpiece of the Labour government. Or so they claim. Stockbrokers and investment managers despise him because he “brings the market down”. I thought the markets were "efficient"?
The FT journos call him Pestowire, or Peston RNS, a reference to the Regulatory News Service used for the public dissemination of financial markets announcements.

It is difficult to convey to anyone living outside the UK how pervasive Mr Peston’s presence in the BBC has become. Since his reports on the debacle of Northern Rock, and the collapse of the banking system and consequent recession, his presence is the main feature of the 6pm and 10pm news bulletins every single day. I remember one day he even broadcast from the garden in his house.

Recently, he has published a short essay with the title “The New Capitalism”. [PDF]
They are summarised in these two videos. [link]

Personally, I don’t have any issues with his reporting. And when someone’s argument is over style, or personality, you know that people are on a loser. So I haven’t got much sympathy for those who blame Peston for anything. The world, or the stock markets, would not be any different, had Robert Peston not reported on the stories we all know about now. Shooting the messenger is not the answer to this problem, and it shows how inward-looking and shamelessly self-preserving the financial services sector (I refuse to use the word ‘industry’) has become: denial has become the modus operandi in the face of an unpleasant reality.

I do have a bit of an issue with this essay though. Not much with the content than with it having the logo of the BBC as an endorsement. So is this the BBC’s vision of capitalism post-credit crunch or Peston’s? It may be trivial and I might be over-analysing, but the presentation of this essay is not clear, and as a license fee payer I object the way in which has been delivered.

I have no issue with Peston’s book “Who rules Britain”. It may read more like a series of articles and it lacks a cohesive argument, a central thesis that it is presented to the reader. But overall, it provides a few examples of how the City and big businesses work, and how tax avoidance, sorry tax efficiency, has been encouraged by the Labour government.

But reading his essay on the new capitalism taking shape, I could not help but wondering about some of the statements and claims made:

“Arguably the global economic crisis will turn out to be more significant for us
and other developed economies than the collapse of communism.”
Well, I disagree completely. The collapse of communism left millions of people in the world, including Europe, ideologically orphan. Suddenly, there was no alternative to capitalism in its various forms. Communism, the egalitarian, collectivist alternative had failed. We went from two competing systems to one. Now we are going from an imperfect system to another one.

I agree 100% on the debt binge ('credit expansion' to be technical about it) as the key cause of the present crisis.

Some of the language is quite emotive:
“To put it in crude terms, for much of the past decade, millions of Chinese
slaved away on near subsistence wages and still managed to save, both as a
nation (China swanks £1,400bn in foreign exchange reserves) and as individuals.
And to a large extent they were working to improve our living standards, because
they made more and more of the stuff we wanted at cheaper and cheaper prices.”

It is naive to say the Chinese slaved away on near subsistence wages. Living standards in industrialized areas of China have risen in a way that was unthinkable a few years ago. If they were “slave” wages, then they could not save as much as they do. Agreed, the wages are low compared to Western standards, but wage differentials should not be measured in absolute terms, otherwise workers everywhere except western Europe are too slaving away. I could even concede that most factory workers in China are on relatively low wages, a byproduct of the excess supply of labour, but average Chinese wages are by no means “slave”. Also, and more importantly, the Chinese were not working to improve our standards or toiling for our prosperity: they were working to improve theirs, like any sensible nation does.
It would be more appropriate to say that we were outsourcing work to China so that we could buy goods at cheaper prices and keep inflation down.

I agree that the savings imbalances and the current account deficits in the UK and US (and also Spain) are unsustainable and that our low inflation in the last few years is the result of excess savings from emerging economies being recycled into UK, US and Euro-area debt.

And I also agree with the culpability. All of us to a certain extent for being addicted to compsumption, but mainly our financial institutions for having failed to protect the interests of their shareholders, creditors and customers, and our governments and regulators for having failed to take the appropriate regulatory (disclosure, capital requirements) and political (current account deficits, allowing outsourcing to countries with unacceptable working conditions, supporting asset inflation) decisions to prevent this crisis from happening.

But Mr Peston forgets to mention the issue of taxation and the use of low-tax jurisdictions by companies and business leaders, and how this Labour government has done nothing to stop it.
He also forgets to mention the use of off-balance sheet vehicles by banks. The Labour government and the FSA did nothing to prevent it. And he does not mention that this goverment has overseen tax changes that favour the megarich and private equity at the expense of middle class earners.

But Peston also forgets to mention the concessions China, India and others will extract from keeping buying our public debt. Just now China, if they wanted to, could bring Western economies to its knees simply by refusing to buy our low-interest, low yield government debt. But the Chinese will not do that. They will keep buying US and UK debt and will extract political concessions from the West.

What these concessions will be is difficult to predict. But I am going to venture a couple of possible scenarios:

Institutional reform: the Chinese and India will demand that international institutions are reformed and the US veto is abolished at the IMF and the World Bank.

Taiwan: Slowly, Tibet has become off-limits for the West. And next it will be Taiwan. If I were Taiwanese I would be crapping myself. Over the next few years we will see how China, slowly but surely, will gain gradual sovereignty over Taiwan as a condition for keeping Western capitalism ticking over. And this way, Mao’s dream of a unified China under one leader and one party will be accomplished.

But will the US accept that they no longer have the monopoly of power in world finance? Will they (we) accept to be humiliated once again over Tibet and Taiwan? Maybe not, since Western governments will be unable to control the press and public opinion as efficiently as the Chinese. So we are heading for a political and economic stalemate of unpredictable consequences.

There is one way out of this problem without the Chinese becoming the new superpower and gaining power over Taiwan: inflation. If the West is unwilling to make so many concessions, China, India, Gulf states and others will demand that US and UK government debt pays a higher rate of interest than it does now. That is something our governemtns can do very well, and technically is called "an increase of the money supply", or as my dad says, "printing more money". This however will fuel inflation in the US and UK and Euro-area which could have a devastating effect on employment and business investment -unless proteccionist measures are adopted to protect "national" industries. But then, protectionism itself keeps inflation high; there is no easy solution.

So over the next few years our political leaders will have to make very “tough” (don’t they love to use the word?) choices.

Do they accept that a new world order is emerging and that there are political prices to pay? Or will they postpone or delay this restructuring of world finance and political power by implementing inflationary policies that will reduce the nominal amounts of national debt but fuel domestic inflation?

In crude terms, the question is: will our (Western) politicians give up the world power mechanisms they have built up over the last few decades?

I know what my answer is. What is yours?

Monday, 15 December 2008

Slightly above Turkey

Someone asked me the other day how Spanish democracy compares to other European states given its troubled history. I have a reply ready for these situations: “slightly above Turkey”.

We had another couple of examples this week.

First, there is one person who is going to be judged on a political charge: refusing to participate in the Spanish electoral process.

Marc Belzunces refused to participate in the administrative process of crossing people off a voters’ roll and spend a full working day in an electoral polling station. He objected on the grounds of conscience: he does not believe he is obliged to participate in a Spanish electoral process performing administrative functions. He refused to attend on election day.
Fair enough, you might think, can they find somebody else?
Not so simple. He is now being prosecuted by the Spanish Prosecution Service (Fiscalía).
They are pressing charges against him. A political crime in the European Union.
Oh, it just happens that the person in question is a pro-independence Catalan. Does this change anything? Yes, it does. Every election, dozens of people across Spain refuse to participate for whatever reason in the administrative process of setting up the ballot papers, counting the votes, updating the voters’ list, etc. I have not heard of any high-profile prosecution. Yet, we can expect the Spanish judiciary to ensure this (Catalan) man is fined and punished accordingly. And a wee reminder to others who may be thinking about doing the same. [Avui, VilaWeb, El Periódico, La Vanguardia, Racó Català]

Another example of the Spanish state dogmatic approach to its own brand of nationalism is in the banning of a TV advert. Yes, you are reading this correctly: a TV advert in favour of official recognition of the Catalan football teams has been banned by a Spanish court. [Avui, VilaWeb, La Vanguardia, TVC]

Why? I heard you ask.
Because of the following slogan: “Una nació, una selecció” (One nation, one team).
Oh yes, the judge also said that children were used, but I have not seen any of the political adverts from either the PSOE or PP being banned because they featured children. Since when it is banned to use children for TV adverts?

I link the video below so everybody can watch what the Spanish judiciary have banned. I don’t see anything in this TV advert that warrants a banning order, but then I am not a Spanish judge:

This is just another example of how Spanish nationalism pursues its objectives by using the law, Spanish law, to ban, prohibit, punish anything and anybody that might question their proto-Francoist idea of national sovereignity and integrity. Sure, nobody gets killed these days, beatings in prision cells are rare, but the same policy objective is implemented under the façade of democracy. Spanish democracy, just above Turkey and its infamous Article 301.

Sunday, 14 December 2008

The Best of the Rest: The Black Swan

If you are a regular of this blog, you will have noticed that nowadays I don’t write about Catalan/Spanish politics very often. It is too depressing and there is plenty to write about with the worst financial crisis since The Great Crash happening before us. Anyway, there are plenty of good sources out there (check out the links section) out there that explain what the problems are and how to move forward. I find the Diàleg section of the Avui newspaper a breadth of fresh air and practically the only mainstream media which offers a platform to the pro-independence movement. For example, this article on Sunday’s Avui. If you require a translation to English or another language, use this online translation tool.

Anyhow, back to the topic. I have been reading a few books recently. Even if you are not interested in financial markets and economics, I suggest you read these three books. It is probably one of the best investment decisions you will make in 2008.

First, I read the latest book from George Soros. [Wiki]

This is the second book I have read from Soros, I first read The Alchemy of Finance in 2003 and that was the first time I heard of his concept of “reflexivity”. I had only been in financial market for over a year, doing a crappy back office job, but this book made a lot of sense to me. This was a successful market participant, reviled by the British press for his involvement in Black Wednesday, that was telling us that the system is not as good as everyone think it is.

In his latest book, he delves further in the concept of reflexivity and how it induces vicious and virtuous cycles. One thing that strikes me about this man is how despite all his wealth and success, he still has massive hang-ups about not being accepted by the academic community and not being taken seriously as a philosopher. At a different level, it reminds me of the hang-ups I have about my own education and not having attended a proper university in Barcelona when I should have done all those years ago. If even one of the most successful people in the world has a hang-up about academic achievement, then how am I supposed not to have one about my own mediocre academic background?

So reading Soros again was good. The book is easy, there are no technicalities, and his own admission of fallibility makes him quite endearing. A book that anybody can read and understand.

Then, after years of delay and making up excuses, I found the courage and time to read ‘Fooled by Randomness’, by Nassim Nicholas Taleb. [Wiki]

And just now I am reading ‘The Black Swan’, his latest book.
Sometimes I wish I had read these two books many years ago, before working in financial markets. Now it is rather late to seek a new career…

These two books contain a bit more of mathematics and certainly more philosophy than Soros’ digestible book.

Before you go and read the reader reviews in Amazon, I would advise you not to do that until you have read the books yourself. When the main criticism of a book is that its style is “irritating” and that the author is “full of himself”, you know there is something going on. I don’t know of any published author that is not full of himself!

The books can be summarised as follows:
+ Trying to apply the Gaussian curve to social sciences (say economics) as if it were a natural science (say physics) is a huge mistake. The use of the Gaussian curve in economics and financial markets is an intellectual fraud.

+ The use of statistical methods in economics is killing off any arguments about logic.

+ Economists, fund managers and consultants that appear in Bloomberg TV, etc, forecasting or giving their “expert” advice are not more than entertainers.

+ The narrative fallacy, how we retrofit explanations to events we never predicted.

+ Because of the above, globalisation of finance, and many other small things, the complexity of our world is ignored in favour of simplification and this leaves us more exposed to risk than we realise. We should learn to live with uncertainty, and accept that not everything can be optimised, rationalised and modelled. Sometimes, it is just down to luck.

Taleb knows his stuff and he is probably the most well read person ever to walk in a trading floor. You don’t need to be an expert on the mathematics of finance or even philosophical movements to read this book, but it helps if you are interested in the basics. Ignore his personal anecdotes, the punctuation, his style, and just focus on the concepts.

These books are demanding but not impossible. As someone who has ended up in this industry (financial markets) by accident, I find his views appealing. Having heard and watched so many charlatans, having read so many “research reports” on economics and markets, having seen how the industry is driven by nothing but self-interest and unimaginable greed, I am hugely sceptical about how the financial markets operate. I have been for a long time but could explain how or why. From a personal point of view, these books have been a great injection of intellectual self-esteem. I knew the dogmas of finance are bogus (equilibrium, rational expectations, Gaussian curve, Value at Risk, historical volatility, retrofit explanations by 'experts', etc), but I did not know how to back up my own views with some intellectual rigour. I always knew it was not right but could not explain it properly or confidently. Now I can. If you read these books, so will you.

Sometimes, I wish I had read his books many years ago, before entering the industry. I should now be something else: a teacher, a bus driver, a tiler, or even a sound engineer. It is hard to read these books and still go to the office everyday knowing full well, as I always did but now with the theoretical back up of Taleb and others, that it is all a big con.

If you are thinking about starting a career in financial markets you should read his books as soon as possible.

Wednesday, 10 December 2008

The Best of the Rest: financial crisis

During the last few weeks, I also thought about writing a series of articles about the (financial) mess we are in, and how banks and financial markets participants are irrational, irresponsible and self-serving institutions that need to be closely monitored and regulated by competent agencies, independent of governmental interference.
(Trust me, I work in the industry and I don’t take any pleasure in writing this).

But then I read a few articles and I thought there was no point in writing about something when more qualified and intelligent people have explained the issues much better than I could ever hope to do:

(By the way, I don’t mean the latest Pestowire, more on that one another day…)

In reverse chronological order:
Nouriel Roubini: on what’s coming: Bloomberg video (let’s not ignore the Bloomberg journalist quest for a “number”… and how even a man of the intelligence of Roubini falls for it like a schoolboy), and FT article. And another essay published earlier in the year.
John Kay: Or how governments “passive” ownership of banks is just storing trouble. [Link]

A conversation between Martin Wolf and John Kay on the regulation of global finance.

But most of all, I do miss the regular macro analysis of Stephen Roach at Morgan Stanley GEF.
He may have been early in his calls (tech boom, asset bubbles, current account deficit, subprime), but he was right: macro imbalances sooner or later give way to correction and because of leverage and behavioural issues, corrections in our time are more violent and unsettling than in the past.

The problem is that when your firm earns revenue by trading volatility and hyping up the market, it is very difficult to keep writing about things as you see them. What I mean is that it is an impossible situation when you have the chief economist writing articles explaining we are getting into a big mess, and your sales desks churning structured products like there is no tomorrow.

Very few people know if he was pushed or if he jumped but having Stephen Roach in China as Chairman is like having Messi playing in the reserves for FC Barcelona. I always thought that his realist bear commentary irritated his bosses and colleagues as much as his skilful if somewhat verbose writings.

The real tragedy of banking and financial markets is how talented, educated people with intellectual curiosity have been replaced with money chasing mathematicians, PhDs in astrophysics and the like whose world vision is narrower than a snake’s arsehole.

Do you want to find out how we got into this mess? Then read a few articles by Mr Roach back in the day.

Policy errors – How politicians are no help, May 2007. Shortly after this article, he was dispatched to Asia. Whether you are in an autocratic regime, in a communist dictatorship or in a free market two-party democracy, it is not wise to wind up politicians and embarrass your bosses.
Asset bubbles must burst – January 2007. For some reason, I cannot find this one in the GEF site with the original date of early January. I wonder why some articles are removed and others remain…
Original Sin – April 2005
The Asset Economy – all time favourite, sadly removed from the Morgan Stanley GEF website, June 2004. When I read this article for the first time, I finally got it.

This article by Roach (The Asset Economy) is the one that explains the origin of this crisis. Politicians and their central bankers saw fit to support asset prices as a means to increase disposable income. One asset bubble led to another until there are hardly any assets left to bubble up.
Now it’s payback time.

Monday, 8 December 2008

The Best of the Rest: Obama

For months, I had been planning to write an article about Barrack Obama. Its title was meant to be “Obama and the promise of change”.

But there is no need. I read this article in the Sunday Herald and I think it explains the issue much better than I could ever do.

Notwithstanding that Obama’s bubble will burst sooner than later, it is more with relief rather than joy that I watched the news unfold. The USA now have a mixed race president, something many people said it would never happen, ever. Wrong. The USA is a more open-minded and tolerant country than the ridiculously twisted portrayal we see in the European media. OK, they are a few rednecks still riding, but there are many rednecks in Europe too.

It is puzzling how, collectively, people still believe in a politicians’ word when we have witnessed time and time again that any promises of “real change” sooner or later give way to “pragmatism” (i.e: more of the same) and “realism”, or worse, “incremental change”.

The only consolation is that at least now there is a man in charge who is intelligent, a man who is not going to embarrass the American people with his illiteracy and lack of intellect.

And the sad thing is that’s the best we can hope for.

PS: if nothing else, we can also laugh at the rednecks and proto-racists that are foaming in the mouth at Obama's victory. Read this for a laugh, it's very funny.

PS2: one thing is clear: he's been watched, taped and spied by the usual suspects... Welcome to the White House! [BBC News]

The natural course of democracy

It is rather worrying when the big news is that the democratic process is allowed to happen naturally, normally and without the threat of violence, financial boycotts, or political obliteration.

In Greenland, people have voted to decide their constitutional future.
Without any interference, imposition, threat, from Denmark.
It is just what happens when democracy is allowed to take place.

Wednesday, 26 November 2008

Another borrowed article: anti-Catalan prejudice

It is pandemonium in Can Trenator.

Buying a new house, putting the flat out in the rental market, getting engaged, birth of gorgeous wee niece, getting married, honeymoon, changing jobs, shoddy service from building companies, etc, etc.

Oh, and the financial crisis.

Normal services will resume soon. In the meantime, I borrow the text from a lecture from Mathew Tree on anti-Catalan prejudice.


Friday, 3 October 2008

Friday funny

Overheard in the restaurant:

Fund Manager: "I'm quite pessimistic about the current financial system. I've been buying gold."
Risk Manager: "Gold? That's not pessimistic enough. I've been buying rice."

Monday, 29 September 2008

Market Fallacy #2: too big to fail

Another of the market fallacies doing the rounds is the argument that some institutions, because of their size and their systemic importance, are too big to be allowed to collapse. The logic goes as follows:

The key objective is to maintain market stability and consumer confidence in
financial markets. This would be put at risk by the failing of institutions
deemed to be of systemic importance. That is, it is better to bail out a failing
enterprise than let it collapse and bring instability and chaos to the system.
The damage done by the collapse of one firm could be too great, so we must
prevent that from happening, even if it means using government funding.
In summary, the above is a synopsis of what the proponents of government intervention advocate.

But there is a perversion in the above argument. During the boom times, nobody told us that the key objective was market stability. The objective was growth, and to achieve that, the financial community kept telling us, governments should not meddle in the business of global finance. The less government intervention, the better, as global markets regulate themselves more efficiently, they claimed.

But now that the cycle has turned, the objective is stability. And how is stability achieved? By government subsidies, the very thing that investment bankers and financiers have always lobbied against.

The rules of the game have changed, the goalposts have been moved.

But secondly, the argument that some institutions are of systemic importance, it’s also bogus. Financial intermediation is the most fragmented market I know of. Firms survive with market shares of less than 1%. My own firm has a market share in the UK of less than 1% of the retail funds and pension market. Yet, we are highly profitable and we get paid very well. There are dozens of small financial institutions with a market share that does not even compute in the statistics.

To argue that some firms are of systemic criticality is a self-serving, self-protecting lie to scare inept politicians and a servile, unintelligent mass media.

First, let’s deal with the issue of interbank exposure in the OTC market between investment banks, broker-dealers and institutional funds. Proponents of the systemic-risk argument advocate that the counterparty exposures between all banks are so big that should one fail, it could create a domino effect and bring down the whole system.

This is a lie: I know of no entity that does not use collateral agreements to reduce counterparty exposure. If one big bank fails, the counterparty will be entitled to the collateral pool that was pledged. It is as simple as that. Collateral is what financial firms use to mitigate their exposures to one another. Collateral takes the form of government bonds and AAA-rated bonds, with the appropriate discount rates (haircuts). My own firm had about £200m counterparty exposure to Lehman. But our collateral is worth about £280m. Once the administrators liquidate the collateral pool, and we get our money back, all of it, we will probably have to return money to Lehman as we had more collateral than was required. This is the case for the vast majority of institutions. Since volatility in credit markets started in summer 2007, haircuts have increased so much that hardly any serious players have any material exposure to the investment banks.

So let me repeat this: Lehman Brothers, the fourth biggest investment bank and one of the key market makers in fixed income has collapsed and nothing systemic has happened. No other bank has gone down in a domino effect–because counterparty exposures are collateralised.

The only people that have lost any money are those with uncollateralized issuer exposure: those who bought money markets and bonds from Lehman. However, this is part of the game: debtholders buy bonds because they get compensated by receiving a spread (margin) over government bonds (or more appropriately, the LIBOR curve) of similar maturity. It is an accepted risk for which we (institutional investors) get rewarded. If a bank cannot pay its creditors, then it is too bad. Creditors should have sought to diversify their exposure or to mitigate it with insurance. Or have conducted better analysis and moved business elsewhere.

The “too big to fail” is a way for Wall St to protect itself from downsizing. A calculated scare tactic. Sadly, our leaders in government and the media are too inept or too coward to challenge this fallacy.

Sunday, 28 September 2008

Market Fallacy #1: the blame lies with the regulators

This is the one that really irritates me. Over the years, many in the financial services community have lobbied against government-sponsored regulation of the markets. Their reasoning is that the markets are perfectly capable of regulating themselves. This of course is a fallacy of the highest order and a most perverse lie.

After years of successfully lobbing for de-regulation of the capital markets, spreading the message that governments should let business get on with it and stop interfering, now investment bankers are going cap in hand to our governments in the US and UK asking to be rescued. It is a sickening joke.

It is unlikely you will read this anywhere, but let me share a secret with you: the UK regulator, the Financial Services Authority (FSA) did warn the industry in January 2007 that we were likely to experience a repricing of credit risk, a reappraisal of credit risk premia, and the consequent effect of more restrictive liquidity conditions.

Every January, the FSA publishes a wonderful document called Financial Risk Outlook. It is a risk assessment of the next 12-18 months. It is a very valuable document –if you read it. Sadly, the patronising, arrogant, over-paid tossers that rule many financial services companies in the UK do not accept that the regulator may come up with anything worth reading. These business leaders think that the FSA is staffed by a bunch of inexperienced civil servants that cannot get a job in the industry proper. Recent events have shown that the FSA may have very good people in its ranks. Like the people that produce these annual reports.

But read on and draw your own conclusions. These are extracts of the Financial Risk Outlook 2006, 2007 and 2008.

FSA FRO 2006: (pdf)

Given the current environment of high liquidity levels, it is important that market participants consider how they would operate in an environment where liquidity is restricted.
In addition, some societies have started originating ‘sub-prime’ loans. There is a risk here that the risk/reward equation for these loans is not being assessed correctly by firms which have little previous experience of operating in these markets.

FSA FRO 2007: (pdf)

The combination of low volatility, high correlation and a historically low level of risk premia brings with it an inherently high likelihood of a major shock, especially if an event were to occur that triggered a significant deterioration in market sentiment.
In addition, global imbalances have continued to widen while investors’ willingness to take risks has increased. This means that even a modest deterioration in the economic environment could lead to an increase in risk premia, and have disproportionate effects on financial markets.

And there was a whole section dedicated to the repricing of risk scenario (p33):

Risks for firms and markets
• If economic conditions were to deteriorate, risk aversion among investors could increase and they could seek to liquidate positions in higher-risk asset classes (as was seen in May/June 2006 when investors sought to exit emerging markets and commodities). This could lead to crowded exits, draining liquidity from the market and causing erratic price swings in commodities, emerging-market equities and debt, and high yield debt.

• Volatility across the markets could increase for a prolonged period of time, resulting in a lasting aversion to higher-risk assets and more complex strategies and products. Volatility could quickly spread to other markets and to assets with lower risk premia.

• The fact that many asset classes and investment strategies that have traditionally tended to be weakly correlated are now more strongly correlated with each other could exacerbate the impact of this scenario on investors, as most of their portfolio will be re-priced in the same direction. Firms could see their balance sheets deteriorate quickly as the values of their portfolios fall.

Later on in the document:

Market liquidity remains abundant (irrespective of how it is measured), but it
is still important for market participants to consider how they would operate in
an environment where liquidity is restricted.

FSA FRO 2008: (after the start of the credit crunch and the nationalisation Northern Rock, pdf)

There is a risk that credit conditions could tighten further over the next 18 months, further exacerbating the already stretched financial market conditions. Financial market volatility is likely to remain high as the financial markets return to a new equilibrium.
It is likely that liquidity conditions will remain tighter and that financial markets will not return to the conditions market participants have got used to in recent years.
Liquidity conditions in money markets deteriorated in August 2007 as banks began to store liquidity and became increasingly reluctant to lend to each other in light of
concern over the extent of subprime exposures. Accordingly, term LIBORs rose quickly in both the dollar and the sterling markets to reflect tightening conditions.
As credit conditions tighten, the lending industry could become more concentrated. In particular, those who rely on wholesale funding could find it difficult to satisfy demand for loans given funding and pricing pressures.

So there you have it. The regulator asked firms to ensure their stress-testing models included a reappraisal for credit risk premia and a change in liquidity conditions. Many firms ignored the FSA’s warnings and now are being nationalised or bought over by competitors, reducing consumer choice. First, Northern Rock, then HBOS was rescued by LloydsTSB, then this weekend Bradford & Bingley is also going to be rescued by the government (ie: taxpayer).
Who will be next? Who knows. Alliance & Leicester has already been bought by probably Britannia (a "safe" building society!) could be next.....

But what we know for sure is that we were all warned about it, and most market participants did nothing at all to prepare their firms, or their mutual funds, for the scenarios highlighted by the FSA in 2007 and 2008.

The enduring quality of fallacies

In the same way as I wrote a few entries on the fallacies that dominate Spanish/Catalan politics, I am going to write a few short posts on the fallacies that are being peddled about in this financial crisis.

First, perhaps we should remind ourselves of what a fallacy is:

1. an incorrect or misleading notion based on inaccurate facts or faulty reasoning.
2. reasoning that is unsound.
Fallacies have an enduring quality. Sometimes, fallacies are embedded in an argument in such a way that they tend to become dogma, particularly if the proponent of a cause has much more power than its weaker opponent. These fallacies then become internalised by different actors and it is an almost impossible task to challenge them.

I am of the opinion that there are numerous fallacies that go unchallenged. Fallacies in Spanish/Catalan politics, but also many fallacies in financial markets. The extraordinary events of the last few months are distracting us from looking through the fallacious arguments and flawed logic of many players.

Over the next few days, I will try to debunk some of these fallacies, myths and dogmas that the press, apart from a handful of honourable exceptions, seem unable to challenge.

Friday, 19 September 2008

A market fallacy

And now some graphs that are not funny at all:

You will have read that the press has reported with delight how short-selling has been banned by regulators in the US and the UK. Everyone is happy now. As if this was so simple!
True, a few hedge funds have been burnt and the margin/collateral calls at close today will be absolutely phenomenal, which means a nice injection of cash for the investment banks by the way, what a coincidence! Talk about taking from Peter to pay Paul?

The press, the politicians, the media, the regulators, etc, are now very satisfied that short-selling has been banned. But I can tell you just now (well, it is not me really, it’s those clever chaps at the Alphaville) that this is not going to resolve the current market turbulence. Not a chance.

Today was triple witching. Today people have rolled over contracts on the assumption that government support will continue. But it can’t and it won’t. When the whole thing explodes, it is going to be a bloodbath. This is quite scary.

Cartoon friday

"If this crash had been caused by Bin Laden, right now we would be bombing out some Muslim country"
Woman: "Thank goodness that it has been caused by American patriots"

Thursday, 18 September 2008

Spanish democracy revisited

Well, let’s not get the collapse of the financial system distract us from what the Spanish state does to those who challenge their (Spanish) nationalistic dogma.

In the last few days, the Tribunal Supremo, a legacy high court inherited from Franco’s regime has outlawed two political parties.

Yes, it is not a mistake. In a member state of the EU, political parties are banned. Particularly if they tend to be Basque pro-independence parties.

This is a strategy that successive Spanish governments have pursued for years. Outlawing political parties so support for independence, for a change of the status quo cannot be measured in the polls. By banning all political parties representing the pro-independence socialists, Spanish officials attempt to rig the electoral process, prohibiting a significant section of the Basque people to vote for the party of their choosing.

This is democracy, Spanish style.

I have written about it before.

February 2004
March 07 and again
July 07

For as long as Basque voters are denied to vote for a socialist pro-independence party, Spain is a half-baked democracy unfit to be a member of the European Union.

Yet, as I have written many times, fascist and neo-nazi parties are allowed to participate in the electoral process. What a fallacy: Spanish democracy.

Avui and Vilaweb (Catalan)
Publico (Spanish), again.

Tuesday, 16 September 2008

Risky times

Never seen this before in my life:

The graph above shows the overnight USD Libor rate. This is the annualised interest rate at which financial institutions lend funds to each other for a period of one day.
In one day, it trebled from about 2% to 6%.

It implies that the risk of default of A rated (or above) financial institutions that operate in this market has trebled overnight. Talk about efficient markets and rational investors.

Then, Morgan Stanley brings forward one day the announcement of quarterly results. And they look quite decent –if we trust the numbers, that is: (PDF)

I know fully well the Firm is on the ball like no other outfit, but these results are surprisingly, suspiciously good. Share prices jumped about 20% in the after hours market, according to the FT. At exchange close however, they were down about 10%.

But the CDS 5Y tells a different story. After Lehman Brothers filed for bankruptcy, many financial CDS spreads have widened to below investment grade levels.
This is Morgan Stanley 5Y CDS curve:

Note: The graph is only upto yesterday's close. It does not include today's highs of 700bps.
It is a frighteningly similar curve to the one Lehman Brothers was exhibiting last week.

Tomorrow we will see what the market really thinks of Morgan Stanley's results.
Today the FED left the base rate at 2%.

In the UK, HBOS is on the receiving end of the market ire. Its 5Y CDS looks like that:

You will notice that the price of the CDS is lower than in many other financials.
HBOS recapitalised a few weeks ago to the tune of approximately £4bn.
The FT has a good article about it.
In my view, the loan/savings ratio is relatively high compared to peers at 177%. But is funding mix, is better than many others, with 55% of funding coming from retail deposits. The problem is going to be the refinancing of the debt maturing in the next few months. And that is the problem.
Given the recent market volatility, there is a real danger that insurance and fund management companies will pull out of the money markets altoghether. Money market is not only overnight or term deposits, Certificates of Deposit and Commercial Paper. It is also the crucial repo market, including the tri-party agreements now so common.
If money managers withdraw from the short-term money markets, firms like HBOS will find it impossible to refinance their short-term debt. It will be absolute pandemonium.
I hope that the ABI and the IMA, together with the Bank of England the the FSA and their international counterparts get together to draw a plan to prevent paralysis in the money markets. Otherwise, we are facing a financial crisis much, much bigger than The Great Depression.

Monday, 15 September 2008

Fasten your seatbelts

This is going to be more painful than we all thought: Lehman Brothers (LEH) has gone bust.

For the best, detailed coverage, read the website.

For a high level summary, get your news from the BBC News website.

This is the biggest bankruptcy in history.

  • On Monday last week, you could have bought protection for Lehman Brothers at about 350bps. Sadly, I did not: I am not Nostradamus.
  • On Tuesday it was about 500bps. I am not Nostradamus but I can smell blood.
    Rab said, "yes, I do".
  • On Friday it was about 900bps but nobody was really selling. The game was up.
  • On Monday, LEH files for bankruptcy protection, a credit event, letters are being exchanged and the CDS contract is triggered. In a few days, the post-default recovery value will be established by a panel of ISDA members. Bond holders will deliver the bonds, physically, to the protection sellers, and these will pay up the nominal value of the bonds. If you bought the bonds at discount to face value, the capital gain could well be over 10% of the nominal for subordinated debt.
  • The seller of protection swallows the defaulted bonds in their balance sheet and becomes a creditor to LEH.
  • As we say in Catalan, "bon vent i barca nova!" or "See youse later!"

And the question is: who is next? UBS, Deutsche Bank, Morgan Stanley, Barclays?

If your fund manager has not bought CDS protection by now, it's probably too late. Corporate bond funds overweight financial bonds are going to suffer capital losses in investment grade bonds. The credit rating agencies have proven to be incompetent and unfit for purpose. The EU will get their way and will ensure CRAs are properly regulated, like it should have always been.

This is not going to be a quick adjustment, a blip, as the usual cheerleaders of excess are claiming:
Our view: On balance, we believe that the worst is now over for bank
debt as an asset class, but this does not means that some individual
organisations may not come a cropper. Indeed, respected
US economist
Kenneth Rogoff has stated that there is a high
probability of a "high profile casualty" amongst the US banks.

We just had two casualties in one weekend, all powerful Lehman Brothers (apparently the best algorithm trading and risk systems) and all-mighty Merrill Lynch (apparently biggest equity capabilities), and AIG seems to be next. For retail investors in open-ended vehicles, the pain of mark-to-market values of debt holdings will last for a while. If your fund is overweight financial equities, I am really sorry for your loss.

I believe we are going to see a reshaping of financial institutions that was unthinkable two years ago. Many of us, not least the FSA (as published in their Financial Risk Outlook 2007), were expecting a repricing of risk, and an increase in risk premia. We adjusted positions accordingly a long time ago. But this is just something else. Highly geared banks dependent on wholesale funding will see their value destroyed. Not even senior debt holders are safe. The CDS market is going to be tested in a way nobody predicted. Good luck to all those participants who bought protection without holding reference assets. The scramble for post-default bonds will push their value above recovery price. The promise of "best endevours" of cash settlement are worth as much as LEH shares. It is going to be a once in a lifetime event.

If you are lucky enough to have serious money (+£100k) invested in cash deposits and savings accounts, I would urge caution. Check out your financial regulator website and find out how much your national deposit protection insurance actually covers. In the UK for example, only the first £35,000 of savings held in a bank account are guaranteed. If you have much more than that with one bank, you should spread the risk by opening savings accounts with other institutions.

Tuesday, 2 September 2008

Russia’s way

The cat is out of the bag.

Let's recount.
An independent journalist, murdered. A bit of blackmailing regarding energy resources.
After a neat exercise of ethnic cleansing, follows an unnecessary invasion and occupation of a neighbouring sovereign state, and destruction of its military and civil infrastructure beyond the conflict area as a punishment. And a lesson for others: Ukraine.
You set out the rules of the game. States with Russian nationals are within the scope of Russia’s military activity. If I was the Ukrainian, Estonian, or Latvian government, I would be very worried indeed.
Another journalist, murdered.
A chilling threat.

I am no fan of the US foreign policy, as I wrote about in a previous entry. But Russia’s strategy and actions are frightening. Whatever the flaws about the USA’s government, standard of democracy and society cohesion, Russia is not the counterweight the world needs, despite the usual suspects' retorts. There are many people who are nothing more than resentful and bigoted souls whose hatred of the US blinds them to the authoritarian and antidemocratic nature of the Russian government. In their misguided ignorance, they think it is a “good thing” that someone is challenging America’s pre-eminent role in world politics and economy.

These are going to be difficult times.

If you are invested in an “emerging markets” mutual fund, either equities or bonds, I would encourage you to reassess your positions. Many of us have already done so.

If I had time, I would write what I really think about the term "emerging markets". A very nice euphemism for "undeveloped" or "mildly corrupt" countries.
Fasten your seatbelts.

Saturday, 30 August 2008

Whose right is it?

Amidst all the noise regarding the events in the Caucasus and the Balkans, the western media is doing a very good job in dumbing down the Georgia-Russia conflict as if it were a simple choice between the goodies (the West obviously) and the baddies (Russians of course).

Many others have written endlessly about the authoritarian nature of the Russian government, and its lack of democratic credentials. We could write about the Georgian president and his miscalculation. We could write about the Ossetian militias and how Georgians have been driven away from Abkhazia and South Ossetia in a tidy exercise of ethnic cleansing. We could write how the Russian government caricaturises the Georgian President as some sort of crazy despot, despite Georgian elections being overseen by the OECD, unlike Russia. We could write how it is Georgia’s turn now, then it will be Ukraine and Crimea, then Poland’s energy dependency on Russia, and after that it will probably be the Baltic Republics’ (Estonia, Latvia and Lithuania) turn.

But not many people is paying attention to the key socio-political issue: the selfish manipulation by states of the debate on the right of self-determination versus the principle of territorial integrity.

In the last few months, we have seen how the Russian government comes out to defend the territorial integrity of Serbia, against the right of self-determination of Kosovar people. A few months later, they send troops well inside Georgian territory to defend the right of self-determination of South Ossetia and Abkhazia, without a care in the world for Georgia’s territorial integrity.

It is the exact opposite with the western states: support for the right of self-determination in Kosovo but deny exactly the same right in South Ossetia.

And the fact of the matter is that neither the West or Russia can claim the moral high ground. Both sides have switched from defending one right to supporting the other. Their positions are not based on a consistent ideological framework, but driven by geo-political and economic considerations.

The outcome however, has been the same in both cases: the right of self-determination has succeeded in both Kosovo and South Ossetia.

The lesson of the last few decades in Europe is that if there is "on the ground consensus", and some degree of external help, in the end it is the people’s right (self-determination) the one that prevails above the right of territorial integrity of states. It is also a confirmation of the politics of fait accompli: whatever happens on the ground becomes the new status quo and the new accepted reality.

But the right of self-determination does not always reign. If in doubt, ask the Kurds, who have no external support whatsoever for their cause and must be the largest and most fucked up stateless nation in the world jointly with Tibet. 

The question is: will the Russian government do the same trick in Crimea? My answer: yes, without a doubt.

Wednesday, 20 August 2008

An imaginary Russian tale

It feels a bit miserable to write about this, but it was always going to be a winner. In a perverse way, I feel quite smug.

Free financial markets training by Rab:

For a place like Russia, there is no need to hedge corporate bond exposure with its correspondent CDS; it is much cheaper to hedge it using Russian Sov CDS.

I am torn between my fiduciary duty to investors (wait before insulting me: it could be your pension) and personal ethics. Is it morally acceptable to indirectly profit from political risk (war) to directly benefit future pensioners? I somehow think, or want to think, it is, but what do you think? Would you be happy if your pension fund had benefited from the above strategy?

My actions have not been and are of no consequence to events in Georgia but I somehow feel uneasy. Why? Am I just being a pussy with a conscience or I am just trying to justify my own misplaced post-leftie legacy guilt by writing about it...

This communication is not directed at professional investment advisors, retail investors or any other market participants or pesky journalists. It should not be distributed to, or relied on, by private customers or anybody else for that mattter. The information in this article is based on my own understanding of the historical, current and future positions of the markets, and not that of my employer or my colleagues. The views expressed should not be interpreted as recommendations or advice by anybody or as an accepted or rejected house view.
Past performance is not a guide to future performance, but we only brag about it when it is good. The value of investments and the income from them may go down as well as up and is not guaranteed, and if you invest in Russia or any other emerging market you do need to think about hedging your risk in anyway you can because these places are generally a mess.
If you want to take a punt, just buy Euromillions tickets and do not gamble your money in the financial markets thinking that you are going to beat the market consistently over the long term.

Friday, 25 July 2008

What has the Labour Party ever done for Glasgow East?

Excellent news today in Scotland: the Labour party, after decades of neglect, have been voted out. Glasgow East, one of the most deprived areas in the UK, has returned a SNP MP for the first time ever.

Congratulations to the SNP and to the people of Glasgow East.

Sunday, 20 July 2008

When Spain begins to look like Serbia

Once again, I am going to borrow an article from somebody else. In this case, it is from the editor and chief of the web portal VilaWeb. VilaWeb is one of the most visited websites in Catalonia and an influential media outlet. It is actually number one news portal in Catalan language, averaging over 300,000 unique visitors per month, and one of the key pioneers (ENG) in the use of Catalan in the internet and of the development of internet in Catalonia. Vilaweb is one of the few truly independent media outlets in Catalonia: a private enterprise not subject to the dictum of party or government politics.

The chief of Vilaweb is Vicent Partal [blog in Catalan]. He is a respected journalist and gets invited to TV and radio programs, etc as a pundit. I have taken the liberty to translate his editorial piece from Thursday 10 July 2008. In this article, Mr Partal highlights the increasing similarities between the pan-Serbian nationalism of the late 80s and the Spanish nationalism of nowadays. It makes some interesting reading but it is unlikely that the bunch of lazy foreign correspondents that work for the English-speaking media in Spain will report on it. They copy and paste from El País and El Mundo, the newspapers of the Spanish left and right respectively.

I have sketched a quick translation. I am keen to get feedback, as I am sure there is room for improvement, so I will keep updating the wording as I receive your comments.

Source: VilaWeb editorial Thursday 10 July 2008 [link]

When Spain begins to look like Serbia 

If for years Spanish nationalism expressed itself in a moderate way, accepting a certain bilingualism and feigning a certain 'kind' image, the mask has fallen in 2008 so spectacularly that we will have to mark it in the history books, The manifesto against the bilingualism or yesterday’s reactions to the document of the (Catalan Government) Finance Secretary Mr Castells about the fiscal plundering mark a new path that brings closer Spanish nationalism to the recent history of Serbian nationalism. With some concrete parallelisms that are terrifying.

This manifesto that claims the superiority of the Spanish language signals a change of social notions. They do not proclaim the convenience of bilingualism any more in the areas with their own native language within the State; what they argue is the backward movement of the native languages. There stops being the formal worry that there was until now for social cohesion, which they in no way appeal to any more. Now the call goes towards the demographic superiority of the speakers of the Spanish language, claiming a pure and simple imposition: demographics. 

And in this sense, the manifesto reminds us of the famous Memorandum published in the year 1986 by the Serbian Academy of the Arts and the Sciences; said memorandum served as an ideological basis for Milosevic and this ended up bringing war, and independence of all, all of them, not purely Serbian areas of ex-Yugoslavia and to the international isolation of Serbia. 

That [Serb] Manifesto, for example, affirmed, against reality, that the only people that did not have right to use their own language were the Serbs that were living in bilingual areas, and it claimed the imposed primacy of the serbo-croat over all other languages; and that whatever or whoever did not subscribe to this idea was 'a particularism' and 'antidemocratic'.

The message that inspired that Manifesto and the one that inspires the pro-Spanish manifesto is the same: a belief that there are cultures or languages that are superior to others, without any regard to speakers of the [other] language, and to request the imposition of their language via discriminatory laws and, if necessary, with recourse to the forces of the law. The [Serb] Memorandum of 1986 also outlined what their authors (intellectuals like in the case of the Spanish manifesto) considered was an economic oppression of Sèrbia by the other republics. And this exact message was also made visible yesterday by most of the Spanish media as an answer to the presentation of the data about the fiscal plunder. It is the same perversion: reality does not matter.

And thus yesterday we could see and hear people who denied it openly, who turned the data upside down or, simply, who reconverted the Spanish nationalistm discourse affirming that that the problem is not that Catalonia, and the rest of the Catalan Countries, suffer fiscal plundering by Spain, but that Spain is being suffocated by the power of Catalan companies, which have colonised Spain. Again, a change of discourse that implies a remarkable change of social notions. Until now nobody, except for isolated groups, had dared saying something like this. Yesterday we heard it in the mass media and from the lips of very violent commentators and very loudly.

I confess that this drift is worrying me. It worries me, especially, because it goes accompanied of a remarkable and visible increase of violence. The attitude of the pro-Spanish is every time more violent and aggressive, and from insults they have already move into threats or disturbances, as we have seen during the celebrations of the Euro 2008 football tournament, despite the silence of the majority of the media.

But it is also necessary to say that the Serbian drift of Spanish nationalism is a threat especially for them. Unlike what happened in the former Yugoslavia, we live in the European Union and here it will not be tolerated or allowed any type of war, or coups, either military or legislative. And this should make somebody think, in Spain. Because Sèrbia has ended up alone, impoverished and isolated. And to explain today this is to make a pure and simple description of how this could end for the Spaniards, if they continue with the supremacist madness that has taken hold of them.

Tuesday, 8 July 2008

Fallacy No 3: Ciudadanos

If you follow Catalan/Spanish politics, you will remember the set up of a political party named Ciudadanos/Ciutadans. On the 2006 elections, the party won 3 seats in the Catalan parliament in the province of Barcelona, getting just about 3.5% of the vote.

This party, and its supporters in the media, claimed at the time that this party was not bothered by matters of national identity and culture, but by things that matter to people: unemployment, energy prices, inflation, access to property, etc. In theory, a good proposition, isn’t it?

Well, if only. Those of us without blinkers in our eyes knew full well that this was a very good PR exercise encouraged by the most rabid nationalist outlets within the Spanish media, El Mundo and COPE, who took over from where El País, the original inventor of this farcical party, started.

The truth is that Ciudadanos is a party exclusively defined by its stance on national identity issues and by its policy of undermining the already precarious status of Catalan-language, and to threaten social cohesion in our cities and towns.

Ciudadanos has always been about being a Spanish nationalist, in the open, and confronting anyone or anybody who dared to pursue a policy of emancipation outwith a Spanish framework, at any level, for Catalonia.

The latest example of the Ciudadanos non-identitarian fallacy is their farcical intervention a few days ago. Instead of challenging the government on the issues that matter, as they told everyone they would, they brought to the attention of the Catalan parliament a football tournament:

And that is the problem with Ciudadanos. Every one of their interventions are designed to undermine and attack a Catalan initiative in any given area, and at the same time use another Spanish-wide initiative as an example to follow.

Their politics of identity is accurately reflected in their website, which uses Catalan for headings and links, but all significant contents, including their key policy documents, are only available in Spanish. For Ciudadanos, Catalan, the language of Catalonia, is just a nuisance and something to put up with rather than protect and cherish.

If Ciudadanos were a party without an identity agenda, surely all their policy documents and party website would be available in both languages? Well, think again.

So these are the people who were elected on the basis of the new politics of non-nationalism: a bunch of resentful Spanish nationalists making a point about a football tournament.

Saturday, 5 July 2008

Fallacy No 2: Partido Popular is a democratic party

In the last few days, we have had another example, as if we needed more evidence, that the Spanish Partido Popular is not your run of the mill, right-wing, democratic party. In fact, the PP is a neo-Francoist, Spanish nationalist party.

Get this. After the Spanish Civil War and the overthrow of the democratically-elected Republican government, the Fascists took power. In many council halls, the new fascists administration awarded General Francisco Franco, Hitler’s ally, a medal known as “hijo adoptivo predilecto”. In the UK, a similar award would be the freedom of a city for example.

Since the end of Franco’s rule, in most Spanish councils, particularly in the Basque Country and Catalonia, but also in Andalucia and other areas where the PP is not in power, councils have been passing motions withdrawing such awards to the hero of Spanish Fascism.

Bizarrely, this medal-award is still in place in many cities and towns across Spain. One of these councils is the city of Alacant (Alicante in Spanish). A few days ago, the PSOE (Spanish Labour party) submitted a motion in a council meeting asking for this medal-award to the Fascist leader to be withdrawn. But the Partido Popular opposes the bill, and thus General Franco, Hitler’s ally, lest not forget, is still the “favourite adoptive son” of the city of Alicante.

So there you have it. The Spanish Partido Popular opposes withdrawing a city award to the man that led a coup d’etat against a democratically elected government, and imposed a fascist one-party state rule for 40 years, enforcing the use of Spanish and banning Catalan language from schools, universities, media, administration, etc. The PP refuses to condemn a regime that sent thousands of volunteer troops (División Azul) to help Hitler’s Nazi army.

Can you imagine something similar in Germany?

With this latest gesture, the Partido Popular has shown that it lacks the democratic credentials it so loudly claims to defend. If I was a MEP from a normal, democratic centre-right party, I would be ashamed and very concerned that these apologists of Fascism are in the same parliamentary grouping.

As I have written before, the PP is a threat to democracy and to social cohesion and cultural diversity within Spain.

If pro-independence Basque parties can be barred from the electoral process because of their refusal to condemn ETA’s violence, why is the PP allowed to participate in the electoral process when they refuse to condemn the fascist violence and repression of the Franco regime?

What the Financial Times thinks of the Partido Popular [here]
Articles in Público and Avui (use this translator is you can’t read Spanish or Catalan)

Wednesday, 2 July 2008

Fallacy No 1: Leave politics out of sport

The latest fallacy that has been exposed has been the explosion of Spanish nationalism following Spain’s victory in the Euro Championships. We have witnessed an orgy of flag-waving, appeals to national unity and demonstrations of emotional attachment to the (Spanish) homeland.

But, er wait a minute. I thought that politics should be left out of sport, as the Spanish media always reminds us whenever Catalan people demand their national teams be allowed to play in international competitions.

Alas, not so when the Spanish team wins a tournament. Then, mixing politics and sport, for the greater cause of Spanish unity and to undermine the movement for Catalan independence is encouraged. This latest show of Spanish nationalism has been driven and executed by the same Spanish media that ticks off Catalan people for allegedly mixing politics and sport.

What we have witnessed these days is the comeback of a more confident display of Spanish nationalism. Under perceived threat by the “peripheral” nationalisms of Catalonia and the Basque Country, Spanish people have come out and showed their national allegiance in a show of patriotic fervour not since the Franco days.

And the usual suspects, the apologetics for Spanish Nationalism, the neo-Francoist converted to “democracy” (democracy in their own terms only) have come out praising this show of Spanish fervour. One of them even managed to get an opinion article published in The Guardian.

Victor de la Serna, editor of the paper that has done the most to attach social cohesion in Catalonia, the paper that spearheaded a lunatic and poisonous conspiracy theory about the train bombs in Madrid, in an article riddled with outright lies and blatant manipulation, manages to get his hate-message to an international audience. Fortunately, Guardian readers know better and the comments left in the page show that an educated international audience does not swallow the lies of the Spanish media.

Rab is back

Well, Rab is back.

I have been out of blog-service due to a variety of reasons: long hours at work, not least because of the ongoing credit crunch, buying a new house, trying to rent out my old flat, and last, but not least, getting engaged to my gorgeous girlfriend. This last event involved a couple of trips to Dublin to buy The Ring, and London for D-Day.

Piece of advice: if you are going to travel a long distance to buy an engagement ring, it is advisable to check in advance that the place is not going to be closed due to a local bank holiday.

Anyway, we and the cats are settled in our new home, we have decorated the spare rooms, painted the decking in the garden, the garden fence and gate, plant the grass, cut the grass, clean, etc.

Too much happening not to write about it. I am going to post a few short articles about the fallacies and myths surrounding the debate of Spanish/Catalan politics.

Monday, 3 March 2008

FT: PP still has Francoist roots

The FT has published an editorial on the Spanish elections. The PP don't come out very well.

I copy and paste the full text:

Spain’s choice
Published: March 2 2008 18:43 Last updated: March 2 2008 18:43

Spain’s general election campaign, now reaching its climax, has been a dispiriting spectacle. Against the background of an economy weakened by the end of cheap credit and a sharp property market correction, the contenders seem to be trying to bribe or frighten Spanish voters.

That is odd. Spain in the past three decades has become a confident and prosperous democracy. For the first time, wealth has spread throughout what for centuries had been an unevenly developed country, where it had developed at all. If all you did was listen to Spanish politicians, you probably would not guess that.

Spain’s public life has become very polarised. The rightwing opposition Partido Popular, in power for eight years after a 14-year Socialist reign, remains unreconciled to losing the past election, in the wake of the March 2004 Madrid train bombings by north African jihadis.

Instead of acting as a parliamentary opposition, the PP has tried to impugn constitutionally major initiatives of the Socialists, in an effort to paralyse government. Mariano Rajoy, its lacklustre leader, has failed to emerge from the shadow of José María Aznar, the former prime minister, and has colluded in a hysterical campaign by the Catholic hierarchy that calls into question the legitimacy of the government.

José Luis Rodriguez Zapatero, the prime minister, has been uninspiring. His social policy has aimed at creating a tolerant and decent society. He managed the macroeconomy competently but did little to address structural weaknesses such as low productivity growth, a weak technology base and a huge current account deficit. He has been self-congratulatory on economic prospects, just as he was overconfident about reaching a peace settlement with the Basque separatists of Eta.

The PP has used these negotiations as a stick to beat the government, part of an attempt to conjure up a caricature of a Spain disintegrating as Basques and Catalans demand ever more devolved power.

Mr Aznar also negotiated with Eta, and allied with regional forces, just like the Socialists – as whoever wins next Sunday may well have to do. The PP’s problem is that its current leaders have not completed their journey from Francoist roots to a modern centre-right.

Revealingly, the PP is placing its hopes of victory on Socialist voters staying home; Mr Aznar’s attempt to paint the 2004 Madrid bombings as the work of Eta, despite evidence it was carried out by jihadis, was worth 3m extra votes to Mr Zapatero. It is equally revealing that the Socialists do not appear confident they still have them.


That's what I call a severe corrective:

"The PP’s problem is that its current leaders have not completed their journey from Francoist roots to a modern centre-right."

It is interesting to note that the expats anti-Catalan and rabid cheerleaders of the PP have kept quiet about this one...

Democracy in action: self-determination

There is plenty of media coverage about the unilateral declaration of independence of Kosovo.

It is not surprising how Spain has aligned itself with those models of democracy: Russia and Serbia.

Spanish politicians are at pains to stress that Catalonia and the Basque Country are different cases and that Kosovo is a one off. I am old enough to remember that the same people said exactly the same after the independence of the Baltic Republics or the new Balkan states.

Independence is won by exercising the democratic right self-determination. Apart from the former Czechoslovakia, I cannot think of any stateless nation that won independence by mutual agreement. According to some, self-determination is the prerogative of the occupying or master power. Their lack of democratic credentials is obvious for all to see.

Kosovo, like Croatia or Lithuania or Latvia won their independence status by exercising their democratic right of self-determination: democracy in action.

Let’s hope that Catalonia will one day join the community of nations and become another state within the European Union, by exercising the right of self-determination in a free and democratic manner and without Spanish anti-democratic interference.

Tuesday, 19 February 2008

Urgent: tickets needed for Celtic - Barça game

Necessito urgentment una entrada per al partit de demá entre el Celtic i el Barça. Jo vaig aconseguir una a través del club, peró no vull anar al partit sense la meva xicota!

Si algú té previst de venir a Glasgow a veure el partit i pot aconseguir-me una entrada, li agrairia eternament! Pintes a dojo garantitzades!

Salut i Força Barça!!
Actualització divendres 22 Marc: voldria donar les gràcies a en Ferran, a qui vaig tenir la gran sort de trobar al Sports Bar a Sauchiehall St a Glasgow.
Quan torni a Barcelona de vacances penso trucar-te per pagar-te la ronda que vaig prometre.


Well, I only got one ticket from the club for the CelticBarça game on Wednesday 20 February. Apparently security will be tight for this game.

I urgently need another ticket for my gorgeous girlfriend!

Whoever provides a ticket will have a generous supply of pints before and after the game in Glasgow’s finest drinking dens.

Leave a comment with your email address and I will get in contact, or send me an email.

Tuesday, 29 January 2008

another borrowed article - change

This is another of Josep Vergés articles in el Racó Catala.

I am happy to correct any mistakes. Original article (Catalan and English).
As ever, I don’t entirely agree with Senyor Vergés, but his views are a refreshing change from the pro-Spanish establishment media opposed to Catalan independence.

Notary of Change
"I consider myself Spanish" affirms for starters notary Lopez Burniol of Ciutadans pel Canvi, Pasqual Maragall's almost-party who can spoil, if he stands, the elections of the presumed minister Duran Lleida and the presumed president Zapatero. Born at the mouth of the Ebro, in Alcanar, he grew up in Ripoll and in Calella, following his Spanish father who was a village notary. He discovered Catalonia in a Calella hairdresser which offered Destino, my father's liberal magazine, where he read Josep Pla. "A country with barbers who provide Destino is a civilized country."

Today the notary gives witness to a change which has him greatly worried: "Either Spain federalizes or Catalonia will become independent."

Those of us who feel Catalan in Catalonia think the same. In the last three years -there are no reliable figures before that- those who feel exclusively Spanish have fallen by half a million to 4% of the population while the sentiment of being Catalan has grown by five points. Today half a million more Catalans want a State, federated or independent. In total four million want it, one more than have enough with the autonomy of PSC-PSOE or the 390,000 who want the fascist region of the PP. A referendum on a Catalan State, associated or independent, would win by 55% of the vote, the same percentage Europe demanded of Montenegro to be independent of the equally intolerant Serbia.

Why is Catalan nationhood growing so fast? Because of the lying incompetence of Zapatero and the rabid anti-Catalanism of Rajoy, the leaders of the two centralist parties. Pro-independence Joan Puigcercos of Esquerra explains: "Zapatero cannot be bothered at all about Catalan commuter trains. He doesn't care that at the moment there are obsolete trains all over Catalonia and the railways are so disastrous that many trains are stranded daily. In 1992 independence was a proscribed idea, absolutely marginal as something impossible or illegal, while today it has been taken over by 20% of the population."

20% may seem little, but it translates to one and a half million Catalans, more than the total Basque population which has spilt so much ink, and gunpowder. Madrid ignores Catalans at a great peril for centralism. There is still time to offer federalism but in a decade Catalan public opinion will have gone much beyond. Why doesn't Spain federalize, the manifesto with which PSOE won the elections? It doesn't federalize because of a macro-capital just as South American as Caracas. Madrid has feet of clay. It has large companies but except El Corte Ingles, all are disgusting monopolies like Renfe or former monopolies privatized Russian style like Telefonica or Mafiosi public contractors. Madrid does not know what an entrepreneur is. It has great motorways, a galactic airport, meters of metros, all paid from the public purse.

Catalonia leads decentralization, but behind follow all the other autonomies. Madrid battles Catalonia because every time it gives way, and not a year passes that it does not give up something, all the others want the same. The State of the Autonomies is the mortal enemy of Madrid, because in the long run Madrid will be nothing. This is what centralists who identify Madrid with Spain do not want but in fact Madrid lives against Spain. It can build as many high speed lines to the centre as it wants, that these can just as easily attract capital as decentralize. Iberia centralized like today Renfe is doing and has been expelled by competition from Barcelona airport and is for sale like Alitalia, whom nobody wants either.

Catalan parties will not pact with centralists without real measures. The PP may threaten and PSOE may lie, but neither threats nor lies permit the formation of a majority in Congress.
Lopez Burniol ends by asking: "Why don't we do like Canada?"
I answer: "So that civil servants in all of Spain know Catalan?"
The notary of change concludes giving witness, like a good notary: "Impossible! Independence is all that's left."

Josep C. Vergés

Sunday, 13 January 2008

The more the merrier

First, a Happy New Year to all readers.

I have to apologise because I have not been posting much recently. In fact, I have been rather busy the last few months. My parents came over for Hogmanay, and today my gorgeous girlfriend and I put down a reserve payment towards the purchase of our new home.

Over the last few weeks I have not posted much, but I have discovered a handful of blogs in English about Catalan/Spanish politics. - does not post very regularly but it explains the issues clearly and in a combative language. - an excellent list of reasons why Catalonia will be better off as an independent state rather than being part of Spain. - a new blogger, George blogs from Barcelona in English and also in Catalan. - also a new blogger, Josep has many other blogs in Catalan, available from his profile page. - also a new blogger in English, Xavier Mir has been an active participant in the Catalan blogosphere (Catosphere) for many years.

Then, we have Ian Llorens’ revamped blog: -probably the best blog in English about Catalonia.

We still have the reliable The Badrash, Although Tom probably is very much on my left, metaphorically speaking, I do enjoy his posts and lateral thinking.

Mathew Tree is another Englishman who has made Catalonia his home. He even publishes books in Catalan.

Finally, Ramon Tremosa is a Professor of Economics at the Universitat de Barcelona. He has some publications in English in his personal page. I very much like his paper on the fiscal deficit in Catalonia and how it affects growth and economic development.

All in all, everyone of the above blogs helps to internationalise the issue of Catalan independence and explain why remaining part of Spain will result in economic, cultural and political decline for Catalonia.

There are many voices in Catalonia, native and adopted Catalans, who are determined not to be silenced by the rhetoric of the Spanish State. Against those failed expats who have not adapted to Catalonia, refusing to accept Catalan culture and language as a mainstream component of life in Catalonia, and adopting the language of anti-Catalan Spanish Nationalists, people like Tom, George or Matthew provide us with positive examples of integration.

If I have missed any other blogs, please let me know and I will add them to the post.

For those who borrow from Libertad Digital: enjoy the list above!